LAHORE The cement sectors key players in the country will manage to jack up their profitability on the back of exceptional cement rates and higher gross margins in 1QFY12 in spite of low volumetric growth of 3 percent to 7.4 million tons during the period. As per industry sources, in 4QFY11 alone, despite a 4 percent decline in cement dispatches of 8.6 million tons and higher cost pressure of 23 percent due to increase in coal prices, price discipline culminating into firm local prices (up 42 percent) pulled the sector into profitability. Resultantly, sectors gross margins during 4QFY11 improved by a massive 1000bps to 24 percent, allowing the sector to post a profit of Rs1.9 billion (75 percent of FY11 profit) as compared to loss of Rs1 billion in the period last year. With sales growth skewed towards high-margin local market where average prices (adjusted for reduction in taxes) have improved by 25 percent YoY and 4 percent QoQ to average around Rs400 per bag. In addition, slight improvement in export prices along with cost reduction strategies (waste heat and alternate fuels) would also contribute to the strengthening margin. Thus it is estimated listed sectors gross margins will stand in a tune of 27 percent up 300bps from 24 percent in 4QFY11. Furqan Punjani, a cement sector expert viewed that Lucky Cement would show an improvement of 100 percent in 1QFY12 while DGKCs earnings would increase by 17-fold. As per industry sources, cement dispatches during September 2011 are likely to grow by 8 percent to 2.2 million tons compared to 2.0 million tons in same period last year. The growth is likely to be contributed by higher exports sales, up 22 percent to 0.8 million tons, amid lower local demand and to maintain price discipline. On the other hand, local sales are only expected to show an improvement of 2 percent to 1.4 million tons compared to 1.37 million tons in same period last year. Subsequently, 1QFY12 would conclude on a dull note for the sector where total dispatches would see 3 percent growth to 7.4 million tons compared to 7.2 million tons in the same period last year. Bifurcating the numbers, high-margin local dispatches are expected to rise by 4 percent to 5.0 million tons compared to 4.9 million tons while 1 percent improvement is likely to be seen from exports to 2.3 million tons in outgoing quarter. It is to be noted that during 2MFY12 total dispatches rose by 7 percent YoY to 5.23mtons as against 4.91m tons in the same period last year. Local dispatches showed an up surge of 14 percent YoY to 3.68m tons as against 3.23m tons in 2MFY11. Export dispatches in 2MFY12 registered a decline of 7 percent YoY to 1.55m tons versus 1.67m tons in 2MFY12. On MoM basis, total industry dispatches fell by a sharp 18pc MoM to 2.36m tons in August11 as against 2.87m tons in previous month. Local dispatches declined by a 19pc MoM to 1.65m tons while export dispatches fell by 14pc MoM to 0.72m tons. The decline in dispatches was mainly because of slack in construction activities owing to 1) seasonal affect as the monsoon rain converted into devastating flood halted construction activities 2) Ramadan effect, 3) slow down economy and 4) and rising inflationary pressure on general consumers. However, export remained lower because of prolonged economic meltdown and its aftershocks mainly in the GCC countries as well as at other channels.