The profitability of Pakistan’s cement sector is expected to decline by 6% year-on-year (YoY) in 1QFY25, according to a report by Topline Research. The decrease is primarily due to a 20% YoY drop in domestic dispatches, highlighting ongoing challenges in the local market.
Net sales are anticipated to fall by 3% YoY to Rs91.5 billion, mainly driven by reduced local dispatches. However, higher export sales provided some cushion to the declining domestic numbers. Average capacity utilization also saw a decline, settling at around 50%, down from 55% in 1QFY24.
Cement players in the North and South regions faced rising coal costs, further limiting profitability. North-based producers relied on a mix of Afghan and local coal, while the South players continued using Richards Bay coal. Average coal prices from Richards Bay slightly increased from $108 per ton to $110 per ton in the previous quarter.
Despite the challenges, the sector managed to record a 3% quarter-on-quarter (QoQ) profitability increase, reaching Rs13.3 billion. This was driven by reduced financial charges and higher retention prices, particularly in the Khyber Pakhtunkhwa region. The average retention price for 1QFY25 stood at Rs930 per bag, a 12% YoY rise, helping mitigate some of the losses from decreased dispatches.
Cement producers in the Topline universe such as Lucky Cement, Kohat Cement, and Fauji Cement showed varied performance. Lucky Cement’s earnings are expected to drop by 16% YoY due to lower local dispatches, while Kohat Cement’s earnings are likely to increase by 5% YoY, driven by higher retention prices. Fauji Cement is expected to report an 11% YoY rise in earnings due to an efficient power mix, emphasizing increased reliance on renewables.
Gross margins across the sector are also anticipated to drop to 29% in 1QFY25, down 2% YoY. Strikes by dealers and increased bag prices contributed to the dip in domestic dispatches, which totaled 8.13 million tons compared to 10.13 million tons in the same period last year.
Topline Research maintains an “overweight” stance on the cement sector, with Lucky Cement, Maple Leaf Cement, and Fauji Cement listed as top picks. Despite the short-term declines, the research emphasizes opportunities for growth through higher export sales and potential cost efficiencies in the coming quarters.
