The revenue of the cement sector is growing at a double-digit rate


Despite the ongoing macroeconomic challenges, Pakistan’s leading cement companies reported double-digit revenue growth in the second quarter of the current fiscal year (FY23).

“Recent key performance from top cement companies has put the sector back on the radar and demonstrated resilience to the ongoing macro correction,” JS Global cement sector analyst Waqas Gani Kukaswadia said in a report.

The sector reported a 14% rise in quarterly (QoQ) revenue on higher sales in October-December 2022, as the first quarter (July-September) was hit hard by catastrophic floods. Second-quarter revenue was up 42% year-over-year, despite rising financing charges, he said. Thus, the income of cement companies in the first half of the year increased by 21% compared to the year.

Lucky Cement, DG Khan Cement, Attock Cement, Fauji Cement, Maple Leaf Cement and Pioneer Cement grew by 23% in Q2FY23, taking first-half sales to Rs 167.8 billion, up 22.4%, Insight Ali Asif, a cement sector analyst at Securities, observed.

“Revenue increased mainly due to a 56% increase in holding prices,” he added.

However, local cement shipments fell by around 17% and exports by 49%, bringing total sales down to 21.7 million tonnes, Asif noted.

“The decline in sales is due to rising construction costs, high interest rates, low utilization of the Public Sector Development Program (PSDP) and political uncertainty further worsened by the floods.”

However, despite the decline in sales, revenues increased amid higher retention prices, which offset the impact of the decline, Asif said.

“The average gross profit for this quarter (October-December) was a positive surprise. The sector experienced impressive average QoQ margins in the second quarter despite higher input costs and higher inflation due to efficient coal inventory management,” Kukaswadia wrote in his report.

Mehroz Khan, cement sector analyst at Optimus Research, told The Express Tribune: “Alternative coal is a blessing in disguise for the cement sector, which will heal margins despite falling demand, import restrictions and higher energy prices.”

The price of coal imported from South Africa’s Richard’s Bay fell by $124 per tonne, or about 34,461 rupees, the lowest price since January 3, 2022, when the price was $121, or 21,358 rupees per tonne, Arif reported. Tahir Abbas, Head of Research, Habib Limited.

Coal prices are down 73% from a March 8, 2022 high of $460, or Rs 82,188 per tonne.

Asif of Insight Securities opined that the gross margin of cement companies increased by 110 basis points to 24.4% from 23.3% last year.

It has largely been linked to a shift to alternative fuels, renewable energy, including solar energy, and waste heat recovery (WHR), supplemented by the substitution of domestic and Afghan coal for imported coal.

In the first half of 2023 (July-December), the income of cement companies increased by about 20% compared to the same period last year, he said. Their earnings before interest, taxes, depreciation and amortization (EBITDA) rose 25.9% in the first half, up 130 basis points from 24.5% in the same period last year.

However, the profit margin decreased by 0.7 percentage points. The decline was due to rising interest rates and rising debt due to the expansionary cycle.

In the first half of 2023, the industry added about 9.7 million tons of capacity.

Published in The Express Tribune on March 10th2023.

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