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‘Cement companies booking losses’

Staff Report

KARACHI: Most of the listed cement companies have registered huge losses from operations during the first nine months of the current fiscal year, industry sources say.

They say that 85 percent of the listed cement companies have incurred losses amounting to Rs 5 billion during first nine months of the current fiscal. These losses occurred mainly due to rising cost of doing business and an imbalance in supply-demand phenomenon, resulting in depressed market prices, said industry officials. The manufacturers, resultantly, have no option but to resort to window dressing their financial results with the help of deferred taxation to convert their losses into profit.

Fauji, Lucky and Attock are only three cement companies showing profit from operations worth Rs 2.4 billion during first three quarters of current fiscal, said an official. Out of these three, Lucky and Attock are able to fetch profit from operations due to their presence near to port in South Zone. An easy access to port has made them viable to export maximum quantity of cement comparing with other plants located in the North Zone, he added.

Huge investments were made in the cement industry over the last five years. The equity of cement manufacturers has increased from Rs 26.30 billion in 2002-03 to Rs 93 billion in 2006-07, which indicates an exponential rise of 254 percent, said the official. The industry’s debt has also shot up to Rs 102 billion in 2006-07 from Rs 43 billion in 2002-03, showing an increase of 137 percent, he added.

Nine months results of the listed cement stocks reveal that their Earning Per Share (EPS) is ranging from a negative of Rs 14.11 to a positive of Rs 7.65, indicating a huge variation in profitability due to high cost of doing business on one hand and depressed retail prices on the other. The industry’s EPS as a whole is negative Rs 1.80 for the same period.

Rate of return on equity for the nine months of current fiscal is -9.30 percent while it was 5.64 percent in 2006-07, 17.81 percent in 2005-06, 18.33 percent in 2004-05, 13.63 percent in 2003-04 and -0.54 percent in 2002-03.

Rate of return on equity for fertilizer sector alone is ranging from 25 percent to 42 percent, said a source. Similarly, rate of return on equity for consumer goods sector is 85 percent. Power sector is bagging a fixed 15 percent rate of return on equity, as guaranteed by the government. Manufacturers in cement sector are thinking seriously of shifting their investments to power and other sectors to secure an attractive rate of return, he added.

It may be noted that in neighbouring counties, the demand for cement is around 40 million metric tonnes annually. In Pakistan, present demand for cement is 22.4 million metric tonnes annually against an installed capacity of 37.2 million metric tonnes, creating a surplus of 14.8 million metric tones annually. The cement industry in Pakistan has expanded capacity from 17.8 million metric tones in 2003 to 37.2 million metric tones in 2007 and is expected to rise further to 50 million metric tones in 2010.

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