EUR 70.00 For Business Accounts Only

Pakistan Cement: FY20 a tough year for Pak Cements; 4Q witnesses contraction in losses

• Pakistan listed cement sector has cumulatively posted a loss of Rs13bn in FY20, with 4QFY20 recording a loss of Rs4.7bn. However, loss in 4QFY20 witnessed a contraction of 20% QoQ. This depressing bottom-line during FY20 was largely due to (1) decline in retention prices given stiff competition amongst manufacturers to gain market share and (2) slowdown in economic activity in 4QFY20 due to COVID-19 outbreak.
• The net sales of the sector declined by 17% YoY in FY20 to Rs242bn with 4QFY20 sales declining by 30% YoY and 18% QoQ. Volumetric sales of the sector grew by 2% YoY to clock in at 47mn tons during FY20, wherein local sales remained largely unchanged while exports increased 20% YoY.
• Local retention prices fell in the range of 18-22% YoY due to (1) competition over gaining market share amongst players, (2) increase in Federal Excise Duty (FED) to Rs2.0/kg (from Rs1.5/kg) in FY20 budget – which the companies were not able to completely pass through, (3) increase in dealer margins to penetrate and augment market share.
• Our sample includes 15 out of the 16 listed cement companies, with ~100% of of the sector’s market capitalization.
• Total effective capacity of cement industry in FY20 averaged at 64mn tons (total 69mn tons) vs. 56mn tons in FY19 with utilization ratio of 74% (local 63%) in FY20 compared to 84% in FY19 (local 72%).
• Clinker (exports: 4.2mn tons) dominated the total export figure of FY20 with 52% (FY19: 33%) contribution in total exports of 7.8mn tons. Exports to Afghanistan grew by 10% YoY despite frequent border closures.
• Exports to India remained nil during FY20 after imposition of 200% duties on pretext of Pulwama Attack.
• Gross margins during FY20 clocked in at 5% with 4QFY20 margins clocking in at a meagre 1% compared to 22% and 16% in FY19 and 4QFY19, respectively.
• Coal prices during FY20 averaged at US$70/ton (at two months lag) compared to US$94/ ton in FY19. However, PKR/US$ averaged at Rs158 in FY20 compared to Rs136 in FY19 – resulting in overall pressure on the expense side.
• Finance costs of the sector surged by 96% YoY to Rs18bn due to increase in borrowings along with high interest rates in FY20. In 4QFY20 however, finance costs fell by 20% QoQ owing to cuts in interest rates by the Central Bank.

Other operating expenditures declined by 64% YoY during the year due to lower expenses pertaining to Workers Welfare and Participation fund, which is linked to profitability.