Home ›› 06 Jun 2023 ›› Stock
The profitability of the country’s cement producers may severely be hampered in the coming year, as the government in the proposed budget for the fiscal year 2023-23 has increased duty on the import of cement clinker.
The production cost of cement manufacturers will soar significantly, according to industry insiders, as the government has raised the duty on the clinker import by Tk 200 per tonne for FY24, which may push small companies into an adverse situation.
The big market players will be able to stay afloat by cutting fixed costs, but the small companies will no longer be able to navigate this challenge, several industry insiders said.
The small-cap companies will mandatorily have to increase their product prices, which will push them into tough competition in the market, affecting their overall profitability, a high official of a cement company told The Business Post on condition of anonymity.
Currently, cement makers pay a duty of Tk 500 per tonne on the import of clinker, while commercial importers pay Tk 750 per tonne.
The budget for FY24 proposed to increase it to Tk 700 for cement manufacturers and Tk 950 for commercial importers.
Cement makers, as per industry insiders, imported clinker, the key material for cement production, worth over $1 billion in 2022.
As per manufacturers, there are now 37 cement factories active in the country of which seven firms are listed with the capital market.
The listed cement producers are LafargeHolcim Bangladesh Limited, Heidelberg Cement Bangladesh Ltd, Confidence Cement Ltd, Premier Cement Mills PLC, Crown Cement PLC, Meghna Cement Mills Ltd, and Aramit Cement Limited.
Most cement makers posted fabulous profit growth in the January-March quarter of the fiscal 2022-23, thanks to an increase in sales, a decline in production costs, and increased prices of finished products.
Out of the seven cement companies listed on the country’s capital market, at least four firms witnessed a year-on-year profit rise in the quarter.
On the other hand, two firms suffered profit declines, while the remaining one suffered losses in the January-March quarter.
Cement manufacturers said, due to the duty increase of 40 per cent on the clinker import, will raise the product price at the consumer level, which will pose a very negative impact on their profits in the next fiscal.
Large companies will somehow tackle the impact of the duty increase, but the fiscal decision will throw the small producers into hot waters, they added.
As a result, stocks of cement companies may also suffer owing to investors’ aversion towards the sector, capital market analysts said.
Kazi Shafiqur Rahman, company secretary at Premier Cement, told The Business Post, “Currently, a duty of Tk 500 against the import of per tonne of clinker needs to be paid, while commercial importers pay a duty of Tk 750 per tonne. The increase in tariff will affect our profitability on a large scale.”
“Also, advance income tax (AIT) is not being refunded at the end of the year. Last year, about Tk 40 crore of AIT was charged from cement producers, but it was not refunded to us, creating an extra tax burden for the sector.”
Regarding the increase in the price of cement, he said that currently, the country’s cement factories can produce 30 million tonnes of cement annually.
Against the demand of around 70 million metric tonnes of cement per year, the country’s cement manufacturers are currently producing 30 million tonnes annually.
“Now, big companies are trying to increase their production capacity. So, they will be able to survive in the market without increasing the product price; instead by reducing the fixed cost, but small firms will have no way to tackle the challenge,” Shafiqur Rahman continued.
The proposed budget will decline the market competence of small cement producers, this official believes.
Listed cement producers’ recent performance
LafargeHolcim Bangladesh Limited (LHBL) posted a 102 per cent year-on-year jump in net profit to Tk 191 crore in the first quarter of the year 2023.
The multinational’s net sales jumped by 37 per cent to Tk 854 crore in the first quarter of 2023 compared to Tk 625 crore in 2022.
Its earnings per share (EPS) increased to Tk 1.64 for the January-March quarter this year against Tk 0.81 for the same quarter last year.
HeidelbergCement Bangladesh, another multinational cement producer, reported a net profit stood at Tk 38.69 crore in the first quarter of 2023, compared to a loss of Tk 16.77 crore in the corresponding quarter last year.
Its earnings per share stood at Tk 6.85 at the end of March this year, which was Tk 2.97 negative at the end of March last year.
Crown Cement’s earnings per share jumped to Tk 1.52 in the January-March period or the third quarter of the fiscal year 2022-23, which was Tk 0.16 in the same period last fiscal.
The company’s net profit jumped to Tk 22.57 crore in the January-March quarter of the current fiscal from Tk 2.37 crore in the same quarter last fiscal.
Premier Cement Mills posted more than 20 times higher profits year-on-year in the January-March quarter of the current fiscal year.
The cement maker reported Tk 30.81 crore in net profit in the third quarter (January-March) of the fiscal year 2022-23, against the profit of Tk 1.51 crore in the same quarter last fiscal.
Confidence Cement Ltd reported Tk 15.11 crore in net profit in the January-March quarter of the current fiscal year, down more than 29 per cent that the profit of Tk 21.44 crore in the same quarter of the last fiscal year.
Meghna Cement Mills Ltd made a net profit of Tk 12 lakh in the January-March period or third quarter of the fiscal year 2022-23, which was over more than 91 per cent down from the profit of Tk 1.41 crore in the third quarter of the previous fiscal.
Aramit Cement Limited, another listed cement maker incurred a net loss of Tk 13.45 crore in the January-March quarter of the fiscal year 2022-23.
