KARACHI - After witnessing a sharp decline in profitability during fiscal year-08, the cement sector has come back strongly to post a growth of 167 per cent in earnings during first quarter (Jul-Sep) of fiscal year 2009.
The cement sector posted profit after taxation of Rs1.
3 billion in first quarter of FY09 as compared to Rs500 million in the corresponding period of a year earlier, reflecting a robust growth of 167 per cent.
Analysts attributed this massive growth to higher local retention prices and rupee fell to a record low against dollar, resulted in the rupee based export sales enhanced.
Lucky cement again topped the list of posting highest growth.
The company had earned profit after taxation of Rs 2.
98 million during Jul-Sep FY09 while during the same period in FY08 Lucky posted a 32 per cent lower profit of Rs 2.
26 million.
The net sales of the cement sector for the period Jul-Sep2008 was 96 per cent higher than the net sales generated during the corresponding period of FY08.
Companies with profits in both the quarters posted 55 per cent earnings improvement.
Although total dispatches were up just 3 per cent, higher local prices and better export retention prices amid rupee depreciation resulted in net sales growth of 96 per cent.
Resultantly, gross profits depicted 332 per cent growth and gross margins doubled to 30 per cent, compared to first quarter FY08 gross profit margins of 14 per cent.
Net retention price during the period under review was 90 per cent higher against the same period of last fiscal year.
Analyst, Bilal Ahmed at JS Global said that although significant profit growth has been witnessed in the cement sector, it has primarily been on the back of the price arrangement between companies in the local market to keep prices high.
Local demand supply dynamics, however do not suggest such high prices.
Moreover, the export market only looks attractive for another one and a half year before new capacities come online in middle-east, he added.
It may be noted here that the financial results of around 16 out of the total 21 listed companies with the stock markets have been taken to draw up the abovementioned profit of the cement sector.
The cement companies that included in evaluating the performance of cement sector during the first quarter of fiscal year 2009 are representing 94 per cent of the market capital of the cement sector.
It is pertinent to mention here that despite an impressive growth in cement dispatches, the profitability of the cement sector fell considerably during FY08.
The reason for the fall in the cement sector's profitability in FY08 was the 44.
8pc rise in the finance charges faced by companies.
Finance charges rose due to higher interest rates.
Higher input costs, increased coal prices and higher depreciation also hampered the cement sector's profitability.