The concrete marathon

Uproar in the cement sector during the latter half of FY12 as strong bullish trends observed with stock prices multiplying, consistent with cement companies posting exponential growth during the fiscal year as demand rose in both the international and local markets. Given the strong demand, prices have surged to an average of Rs353.75 per bag in FY12 compared to Rs296.9 per bag in the prior fiscal. These have proven to be the premier cause of the extraordinary profits posted this year by cement manufacturers prominently Dera Ghazi Khan Cement (DGKC), Lucky Cement (LUCK) and Kohat Cement (KOHC); DGKC has posted profits of Rs3.12 billion for FY12 compared to Rs171 million in FY11; exhibiting an exponential increase of 18.5x YoY. Whereas, LUCK posted profits of Rs6.78 billion compared to Rs3.97 billion in the previous year posting a year-on-year increase of 71 percent. Cement corporations have improved on their leveraged position, as KOHC reduced its long-term debt to Rs1.658 billion from Rs3.536 billion in the previous year. The company also witnessed a reduction in its cost of capital. KOHC has submitted a nine-month profit (July-March) of Rs1 billion compared to Rs63 million in FY11. The improved profitability alludes to the improvement in both managerial and environmental efficiencies currently supporting the industry. These prospects have projected themselves on the Karachi Stock Exchange with cement sector turnover plummeting, and stock prices of established manufacturers increasing in multitude including those of DGKC, Lucky, Fauji Cement Company Limited (FCCL) and KOHC. KOHC turnover improved since the company strengthened its fundamentals and share prices soared to Rs58.83, which is a 684 percent increase since January 2012. Volume leaders were DGKC, FCCL and LUCK with an average daily volume of 10.5 million, 8.6 million and 2.9 million respectively. All stated companies have posted profits of above Rs1 billion, except for FCCL which reported in its financial statements finance costs of Rs1.2 billion reducing their profits significantly. The cement industry has emerged on the back of rising cement prices, declining coal prices, an easing regulatory environment and positive sales. Market sentiments of cautious optimism fueled by promises of continued growth have been observed in the sector.