Cement sector profitability projected to rise 7% in 2QFY25 on higher domestic demand

The profitability of Pakistan’s cement sector is projected to rise by 7% quarter-on-quarter (QoQ) in the second quarter of FY25, reaching Rs16.5 billion compared to Rs15.4 billion in the previous quarter, according to industry data compiled by Topline Securities. 

The increase is attributed to a 23% QoQ surge in domestic cement dispatches and a 22% reduction in finance costs.

The cement sector’s net sales for 2QFY25 are estimated to reach Rs107.7 billion, reflecting an 11% year-on-year (YoY) increase due to improved domestic retention prices and higher export dispatches. Capacity utilization climbed to 61% during the quarter, compared to 58% in 2QFY24 and 50% in 1QFY25.

Lucky Cement (LUCK) is expected to report consolidated earnings of Rs64.9 per share, up 8% YoY and 6% QoQ, driven by subsidiary profits, particularly from Lucky Motors. 

However, its unconsolidated earnings are projected to drop by 6% YoY to Rs21.78 per share, owing to reduced domestic dispatches and higher export volumes.

Kohat Cement (KOHC) is forecasted to post an EPS of Rs16.5, marking a 45% YoY increase due to higher retention prices and lower raw material costs. Despite this, QoQ earnings are expected to decline by 6%.

Fauji Cement (FCCL) is likely to record an EPS of Rs1.40, up 29% YoY and 6% QoQ, attributed to improved domestic dispatches and reduced finance costs.

DG Khan Cement (DGKC) is anticipated to show robust growth, with an unconsolidated EPS of Rs4.03, a 3.5x YoY increase due to higher domestic dispatches, better retention prices, and reduced finance costs.

In contrast, Maple Leaf Cement (MLCF) is expected to post a consolidated EPS of Rs1.51, down 29% YoY due to lower dispatches and higher raw material costs. However, its QoQ earnings are likely to improve on the back of increased domestic dispatches.

According to report, domestic dispatches rose sharply in 2QFY25, driven by reduced bag prices in the northern region and government-led demand from the south. The sector’s gross margins are projected at 30% for the quarter, consistent with 2QFY24 but slightly lower than 32% in the preceding quarter.

The sector relied on different coal sources, with southern players utilizing Richards Bay coal and northern operators opting for a mix of Afghan and local coal. Richards Bay coal prices averaged $110 per ton during the quarter, steady compared to previous periods.

Retention prices averaged Rs820 per bag in 2QFY25, showing a 5% YoY increase but a 4% QoQ decline. Other income for the sector is estimated at Rs5.4 billion, with Lucky Cement contributing 54% of the total.

With continued improvements in domestic dispatches and cost efficiencies, the cement sector shows potential for sustained growth. However, challenges such as fluctuating retention prices and rising input costs may require strategic adjustments to maintain profitability.