lahore - The 9MFY13 cement sector profitability remained robust, where sector clocked up earnings growth of 125 per cent YoY led by steady volumetric growth margin expansion and dip in financial costs due to de-leveraging of balance sheets.

Industry sources said that April 2013 cement offtake stood at 2.94m tons, down 2 per cent YoY and 12 per cent MoM. Resultantly, 10MFY13 cement sales have registered at 27.48m tons, up 3 per cent YoY.

The MoM decline in April sales is largely seasonal and is due to limited availability of labour for the construction industry due to the ongoing wheat harvesting season.

Based on sample of 10 companies, constituting 82 per cent of the sector’s market capitalisation, 9MFY13 cement sector earnings have clocked in a growth of 125 per cent YoY.

Overall sales growth, which surged by 19 per cent YoY, was driven by higher volumetric sales (up 4 per cent YoY) and constant uptick in average retention prices over the period under review.

On the other hand cost pressures remained restricted, rising only by 6 per cent YoY owing to softer coal prices (-21 per cent YoY). Resultantly, sector gross margin expanded to 38 per cent vs. 30 per cent in the same period last year. Strong margins also led to higher cash flow generation, which allowed majority of cement companies to de-leverage their balance sheets. Consequently, financial costs of the sector also plunged by 10 per cent YoY. On a sequential basis, 3Q earnings ticked up by 4 per cent QoQ mainly on volumetric uptick (up 4 per cent QoQ).

However, gross margin declined by 1ppt to 38 per cent as against 39 per cent recorded in 2Q. Note that the number is slightly distorted due to DGKC’s lower margins as the company undertook a maintenance shutdown on one of its plants for almost a month in 3Q.

Experts said that April 2013 cement offtake stood at 2.94m tons, down 2 per cent YoY. Not surprisingly, the same is down by 12 per cent MoM due to seasonality. Note that April typically witnesses a slowdown in construction activity as the start of the wheat harvesting season in Punjab diverts labor away from the construction industry.

This is reflected in domestic cement volumes for the month, which are down 12 per cent MoM to 2.25mn tons. Moreover, local sales have also lost some steam in the absence of government spending with the caretaker set up now in place. Thus, local sales only managed a growth of 1 per cent YoY. Exports too have declined by 11 per cent YoY and 12 per cent MoM as higher inventory levels in Afghanistan coupled with some transport and logistical issues restricted the export offtake. After incorporating the April sales figure, 10MFY13 cement dispatches have registered at 27.48mn tons, up by 3 per cent YoY.