Despite the seasonal odds cement industry is off to a flying start in FY12, thanks to a healthy growth of 8.2 percent in cement dispatches and double-digit rise in local cement prices, during the first quarter ended by September 30, 2011. This price-cum-volume nexus is quite visible in the 1QFY12 financial results released yesterday by the two cement giants, Lucky Cement and DG Khan Cement. The top lines of both the manufacturers got a tremendous boost in 1QFY12. If DGKC saw its sales growth by a whopping 44 percent, Lucky wasn far behind with a stellar growth of 34 percent. For Lucky, the domestic sales growth of 21 percent pushed the top line higher, even as export sales declined by 13 percent due to slowdown in loose cement exports. Despite witnessing hikes in per ton cost of sales, primarily due to increase in coal prices, fuel, packing and raw material costs, both manufacturers significantly reined in their manufacturing costs. In addition to a limited growth of 18.9 percent, the cost of sales for Lucky also declined by 800 bps as percentage of net sales over the same period of last year. DGKC also controlled its manufacturing costs significantly, as cost of sales grew by only 24.8 percent over the same period of last year. This is visible in that out of every 100 rupees of sales in 1QFY12, DGKC spent Rs.69.91 on manufacturing overheads, down from Rs.80.77 per Rs.100 of sales spent on the same in 1QFY11. Healthy local sales, price appreciation and controlled manufacturing costs bode well for the two companies gross profits. Luckys gross profits increased by 68.29, and DGKC saw the same to grow by a multiple of 1.25 during the period under review. That doesn mean it is all without a blip! Both cement manufacturers saw some unrestrained growth in their operating overheads. Despite declining exports the distribution cost for Lucky increased by 34 percent and for DGKC by 94.5 percent. Moreover, the administrative expenses more than doubled for Lucky and grew by 22.43 percent for DGKC. However, these hikes couldn impact the ensuing margins much as the two expense heads exhausted less than 14 percent of the respective net sales of two companies in 1QFY12. Both manufacturers also had their finance costs decline during the period. Formidable top line growths as well as overall controlled operating expenditures did wonders for the two companies bottom lines. While Luckys profit after tax doubled, DGKC witnessed its net profits increase by more than 13 times during the period under review. Going forward, growth in local cement demand would be dependent on PSDP releases for large infrastructure projects and a possible uptick in post-flood reconstruction activities. Future prices may likely inch higher if prices of raw materials go up. On the export front, cozying up to India bodes well for cement exports to the country. Moreover, regional markets like Sri Lanka, Iraq and other African countries also hold promise. Expected upbeat demand from Afghanistan is also likely to boost cement export demand.
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LUCK DGKC
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Rs (mn) 1QCY12 1QCY11 chg 1QCY12 1QCY11 chg
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Net Sales 7,496 5,584 34% 5,088 3,527 44%
Cost of sales 4,581 3,852 19% 3,556 2,849 25%
Gross margin 38.88% 31.02% - 30.09% 19.23% -
Distribution cost 922 688 34% 635 326 95%
Finance cost 81 143 -43% 448 488 -8%
PAT 1,505 726 107% 317 22 1334%
Net margin 20.1% 13.0% - 6.3% 0.6% -
EPS (Rs) 4.66 2.25 107% 0.73 0.05 1360%
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Source: KSE notices
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