Cement Sector Profitability Review: 1HFY14 In our today’s morning report we will discuss cement sectors (13 companies) profitability performance for the period 1HFY14 and latest updates of dispatches along with outlook of the sector. Profits slowing down Cement sector profitability reported upside of 8% YoY for the period 1HFY14 translating into PAT of PKR 14,797 million as against PAT of PKR 13,683 million in same period last year. Profitability of the sector has slowed down YoY basis but QoQ basis +28.5% upside is an eye opener. Net revenues of the sector improved by 10% YoY on back of higher retention prices both local and international, but volumetric sales improved locally while exports slipped marginally, thus resulting in marginal growth in volumetric sales. Similarly gross margins dropped by 94bps to 33.68% for 1HFY14 versus 34.62% in 1HFY13. Margins declined due to increase in cost of sales due to hike in power tariff since Aug’13 and cement players took some time in passing on the cost pressure. Favorably finance cost declined as most of the players opted to retire long term debt in the wake of better profitability, followed by lower interest rate scenario. Big players still performing Despite sector didn’t perform well but few players remained in spot light. Top 5 out performers are THCCL, +267%, FCCL +36%, KOHC +25% and LUCK +20% YoY. On the flip side laggards have been DCL -18% YoY, ACPL -9% and DGKC -8.5%. Volumes up 2% YoY in 8MFY14 As per latest released numbers of APCMA, cement sales improved by ~2% YoY to 21.57 million MT. The break up reveals that Export declined by 2% YoY to 5.29 million MT and Local demand improved by 3% YoY to 16.27 million MT. Coal prices down again at USD 74/ton Coal prices have come down to USD ~74/ton from USD ~84/ton a quarter back. This is really a favorable factor for cement players. If prices continue to sustain these levels for few weeks, we believe cement players with sizeable cashflows would book cheaper coal for FY15. We have estimated USD 84/ton coal price for FY15, we would update the impact on our coverage companies based on new average prices for FY15. Outlook At current levels we recommend investors to focus on cement players with captive power generation facilities like, LUCK, DGKC, FCCL, MLCF in particular.
Posted on: Mon, 10 Mar 2014 04:35:38 +0000
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