Cement sector: High finance costs drag 1HFY19 earnings down by 19%

March 1, 2019 (MLN): In line with an analysis carried out on financial earning reports of several major listed companies in Pakistan, the cement sector witnessed a growth of 1% YoY in Profit after Tax for 2QFY19 as compared to same period last year, whereas it suffered an estimated decline of 19% for the 1HFY19 as compared to same period last year.

The topline earnings of the sector reported positive growth of 17% for 2QFY19 and 10% for 1HFY19, owing to increase in cement dispatches and prices.

It is pertinent to mention that the rise in coal prices in 1QFY19 was expected to have a significant impact on the gross margins of 2QFY19. However, the sector managed to report decent growth of 27% in GP margin after taking into account the hike in coal prices. 

A lower effective tax rate played a major role in dragging up the net profit margins, as the Profit before Tax for the sector was down by a considerable margin as compared to Profit after Tax. 

The sector’s profits after tax were mainly affected by the finance cost, as it was up by 202% YoY during 2QFY19 and 179% during 1HFY19. This was a result of enhanced demand for debt to fund ongoing or upcoming expansions. Moreover, the State Bank of Pakistan recently hiked benchmark interest rate by 450 bps to 10.25%, leading to enhanced finance costs.

Cement Sector Industry Analysis: PKR (million)

 

2QFY19

2QFY18

YoY

1HFY19

1HFY18

YoY

Turnover — net

75,692

64,718

17%

137,695

125,202

10%

Cost of sales

-57,097

-44,955

27%

-104,673

-87,182

20%

Gross profit

18,594

14,641

27%

33,021

38,019

-13%

Distribution costs

-2,706

-2,192

23%

-5,080

-4,027

26%

Administrative expenses

-1,510

-1,920

-21%

-2,674

-3,573

-25%

Other expenses

-1,630

-115

1311%

-2,978

-7,848

-62%

Other income

1,658

1,782

-7%

3,378

3,490

-3%

Finance costs

-2,234

-740

202%

-4,088

-1,464

179%

Profit before taxation

12,623

15,561

-19%

22,450

30,546

-27%

Taxation

-1,123

-4,160

-73%

-3,048

-6,706

-55%

Net profit for the period

11,499

11,401

1%

19,402

23,839

-19%

On an individual basis, DGKC emerged as the top performer during 2QFY19 as its net profits observed an increase of 81% YoY. Tax benefit of Rs.1.1/share and higher gross margins were attributed to better utilization of South plant. To note, the company is entitled to a 5-Year tax holiday on South plant which came online in 2H2018.

On the flip side, FCCL outperformed the rest of the companies during 1HFY19 by witnessing a growth of 44% YoY in net earnings, due to colossal growth in other income.

PKR (million)

Symbol

2QFY19

2QFY18

% change

1HFY19

1HFY18

% change

Bestway Cement

BWCL

4622

3197

45%

6880

6194

11%

Lucky Cement

LUCK

2975

4409

-33%

6137

8576

-28%

DG Khan Cement

DGKC

1330

733

81%

1672

3466

-52%

Fauji Cement

FCCL

1022

823

24%

1823

1267

44%

Cherat Cement

CHCC

596

743

-20%

1027

1349

-24%

Maple Leaf Cement

MLCF

748

1174

-36%

1334

2247

-41%

Pioneer Cement

PIOC

269

320

-16%

527

737

-28%

Total

 

11562

11399

1%

19400

23836

-19%

The analysis is based on the financial result of seven major listed companies, which represent around 77.15% of the total market capitalization of cement industry.

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Posted on: 2019-03-01T13:10:00+05:00

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