Cement sales down 11pc YoY in Jan-March

KARACHI: Cement sales in Pakistan have witnessed a decline of 11 percent year-on-year (YoY) in the third quarter of FY23 on the back of an economic slowdown, higher construction cost, and unprecedented inflation in the country, according to a brokerage report shared on Wednesday.

The cement sales had clocked in at 11.8 million tonnes in Q3FY23, down 11 percent YoY and 5 percent quarter-to-quarter (QoQ). In nine months of the current fiscal year, the sales had dropped 18 percent YoY to 33.6 million tonnes, Topline Securities stated in its report.

The report maintained an overweight stance for the cement sector, projecting its earnings with a decline of 24 percent QoQ in Q3FY23. “Key reasons to remain overweight on the sector are lower than historic valuation multiples, economic recovery on completion of IMF programme, and falling coal prices.”

It attributed the shrinking cement dispatches to an economic slowdown in the country and an increase in the construction cost due to back to back hikes in interest rates. Commencement of Ramzan leading to lower work hours and unfavourable export pricing had played a catalyst role in the decline. According to the report, industry utilisation based on total sales clocked in at 63 percent during Q3FY23. Similarly local sales utilisation came in at around 56 percent during the quarter.

Cement players shifted their reliance from imported coal and added local and Afghan coal to their coal mix in the quarter. Resultantly, companies managed to improve their margins with efficient coal mix.

As per Pakistan Bureau of Statistics, cement retail prices in Q3FY23 averaged at Rs1,084/bag, an increase of 5 percent QoQ. In the North, retail prices averaged at Rs1,069/bag, up 4 percent QoQ and in the South retail prices averaged at Rs1,113/bag, up 6 percent QoQ.

The report also highlighted company wise earnings estimates, envisaging that Cement Universe earnings in the third quarter of the current financial year likely to clock in at Rs24.8 billion, up 90 percent YoY and 37 percent QoQ, mainly led by LUCK due to one-time gain on Morinaga.

Lucky Cement consolidated earnings may grow by 133 percent YoY and 72 percent QoQ to Rs54.46/share in Q3FY23, where major increase in earnings is attributable to gain on disposal of Morinaga from LCI. Unconsolidated earnings are likely to come at Rs12.5/share down 27 percent YoY while up 24 percent QoQ on lower volumetric sales and higher gross margins respectively, according to the report.

It projected that Kohat Cement likely to post earnings per share (EPS) of Rs8.82 in the third quarter, up 8 percent YoY, mainly on higher retention price by 27 percent YoY. However QoQ earnings were expected to fall by 9 percent amid decline in volumetric sales.

Similarly, Fauji Cement earnings, as per the report, to clock in at 1.13/share up 124 percent YoY. A significant jump in earnings was due to merger with Askari Cement. On QoQ basis, FCCL’s earnings were seen as remain flat.

DG Khan Cement was tipped to post EPS of Rs1.16, down 65 percent YoY and 6 percent QoQ, mainly on lower volumetric sales and higher finance cost owed to higher interest rates. The report projected Maple Leaf Cement with a consolidated EPS of Rs2.02, up 42 percent YoY, led by lower coal cost, and higher retention prices.