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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