Cement industry in Pakistan posts Rs 18.4b profit

Aftab Ahmed

Islamabad: The cement industry in Pakistan has posted record profits of Rs18.4bn in 3QFY21, up 63% QoQ. Last year during the March quarter, the sector posted a loss of Rs5.8 billion.

On a sequential basis, the profitability increase of the cement industry in Pakistan was led by a 209% QoQ increase in profits (unconsolidated) of Lucky Cement (LUCK) and a 78% QoQ increase (unconsolidated) in earnings of DG Khan Cement (DGKC).

LUCK’s profits increased due to a rise in GP margins by 680bps and receipt of Rs2.85bn and Rs1.02bn dividends from Lucky Motors Corp and ICI Pakistan, respectively. Adjusted for this, LUCK posted a 64% QoQ jump in profits.

DGKC’s profits increased by 78% QoQ due to an increase in GP margins by 120bps and receipt of dividend income from MCB Bank (MCB) to the tune of Rs1.5bn. Adjusted for dividends in both quarters, profits of DGKC declined by 27% QoQ due to higher other charges and effective tax rate.

Net sales of the sector increased by 7% QoQ despite a decline in cement dispatches by 3% QoQ as retention prices in the quarter improved by 11% QoQ to an average of Rs350-380/bag.

The cement industry dispatched in 3QFY21, 14.7mn tons (-3% QoQ, +20% YoY), the second-highest quarterly sales in the history of Pakistan.

Average gross margins of the sector clocked in at 28.0% (+280bps QoQ, 2590bps YoY), the highest in the last 13 quarters, Topline Research said in a report. The surge in GP margins can be attributed to higher volumes and improved retention prices as mentioned above.

Finance cost of the sector remained largely unchanged QoQ (down 43% YoY) as retirement in debt during the quarter was compensated by a slight increase in KIBOR coupled with commissioning of different projects by companies (like coal, WHR plant) which resulted in expensing of finance cost.

Effective Tax Rate (ETR) during the quarter clocked in at 22%, unchanged from the previous quarter. ETR remains below the corporate tax rate of 29% as dividend incomes received by companies are taxed at 15%, which lowers the overall tax rate of the companies.

Other operating expenses increased by 50% QoQ, in line with profitability growth.

Selling and distribution costs increased by 2% QoQ despite a decline in overall unit sales by 3% QoQ and exports in Pakistan by 8% QoQ. We attribute this rise to an increase in global freight cost during the outgoing quarter.