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Cement sector’s quarterly profit surges 45 percent to Rs17.04bln

KARACHI: Cement sector’s profit climbed 45 percent to Rs17.036 billion during the fourth quarter of the current fiscal year of 2018/19 as the industry got impressive tax benefits on account of investment in expansion, a brokerage said on Tuesday.
Analyst Nabeel Khursheed at Topline Securities said thirteen cement manufacturers that represent 97 percent of the industry’s market capitalisation recorded profit of Rs11.757 billion in the corresponding period a year earlier.
“While industry’s net earnings were significantly up by 45 percent YoY (year-on-year) in 4QFY18 thanks to tax benefits, pretax profits fell 36 percent YoY to a 4-year low of Rs11 billion,” Khursheed said in a report.
“Companies that booked huge tax benefits were ACPL (Attock Cement), BWCL (Bestway) and DGKC (Dera Ghazi Khan). Pretax profits were down mainly due to lower gross margins, which are at six-year low.”
Cement industry reported tax benefits of around Rs9.5 billion during the quarter on the back of tax credit under 65B of the Income Tax Ordinance 2001 on account of investment in new cement lines and adjustment of deferred taxes as a result of downward revision in future corporate tax.
The previous government announced corporate tax rate to be gradually reduced by one percent to 25 percent from 30 percent in the next five years. The industry’s gross margins fell 8.8 percentage points year-on-year to 26.6 percent in 4QFY18. Margins continued to fall amid increase in production costs on a 30 percent higher coal prices, a 47 percent increase in re-gasified liquefied natural gas, currency devaluation and oversupply concerns.
“Gross margins are moving down towards regional average of 20-25 percent,” Khursheed added. Cement off-takes rose 10 percent year-on-year in the April-June period, led by seven percent increase in local sales and 39 percent rise in exports.
“Exports grew thanks to currency devaluation, additional production from new capacities in south and higher clinker sales to regional countries on the back of closure of some clinker production lines in China,” the analyst said.
Financial charges were up 47 percent during the quarter, as producers took more debt to fund their upcoming expansions coupled with higher interest rates. In FY2018, cement manufacturers recorded profits of Rs54.4 billion, down four percent, while pretax earnings fell 25 percent. Yearly margins were at six-year low of 30 percent.
Source: The News