Cement sector suffers Rs3.2b loss in 9 months

KARACHI - The cement sector has witnessed a hefty loss after tax of Rs3.2b during 9-month Financial Year 2010, while the sectors topline continued to remain under pressure amid lower price as overall revenue went down by 12 per cent Year-on-Year during the period mentioned above. The impact appears more visible during 3QFY10 as topline slid by 16pc YoY. Cement prices remained subdued during the 9MFY10 period, averaging at Rs290/bag, down by 21pc YoY. As such, price turned out to be the key decisive factor in denting profitability of the sector, even when overall dispatches registered an increase of 17pc YoY during 9MFY10. On the cost front, overall cost of sales remained flat during 9MFY10. Even though international coal prices were lower by 26pc YoY, the impact of rupee depreciation (7.3pcYoY) contributed in offsetting this impact. Moreover, domestic furnace oil price increased by 10pc YoY denting profitability of plants still dependent on this fuel. Subsequently, sectors gross margins dipped by 10pps to stand thinner at 18pc. The impact was more severely translated into bottomline as the sector registered massive after tax loss of Rs3.28b during 9MFY10 compared to last years PAT of Rs0.72b. The loss during 3QFY10 alone stood at Rs2.01b which is indicative of how lowered cement prices have impacted the sector despite improved dispatches during 3QFY10. Coal prices during the quarter also depict a rising trend as they were higher by 30pc YoY and 26pc on QoQ basis. Among the major profitability dampeners, Maple Leaf Cement, Lafarge Cement and Gharibwal Cement (all of them stationed north) were worst off, cumulatively posted a LAT of Rs4.29b during 9MFY10. Other than these heavyweights, smaller firms such as Fecto, Flying, Dadabhoy and Al-Abbas were visibly suffering from either lower utilisation or complete shutdowns. The situation appears challenging as far as the entire sector is concerned, however, few players continue to outperform the sector in terms of better margins, cost efficiencies and location advantage. While, northern players continued to suffer from lower prices coupled with limited export potential due to higher inland freight. Farhan Bashir Khan, at Investcap research, said that positive measures such as inland freight subsidy, alongside materialisation of infrastructure projects would improve overall dispatches and thereby narrow down the domestic supply glut, which in turn could result in revival of prices. Prices in the north escalated by Rs10-20/bag on MoM basis and the gap between northern and southern zone prices has also narrowed down from Rs15/bag during 1QFY10 to Rs5/bag by end of Apr-10, with north being at a discount.