Islamabad, Jan 17: The cement industry is set to achieve remarkable profitability growth in the second quarter of FY25, fueled by increasing domestic demand, robust retention prices, and declining raw material costs. Analysts forecast the sector’s profitability to surge to Rs. 16.5 billion, a 7% increase from the previous quarter’s Rs. 15.4 billion.
This growth stems from a combination of higher domestic sales volumes and improved cost management, even amidst a 22% quarter-on-quarter rise in finance costs. On a year-on-year basis, profitability is projected to climb by 15%, driven by enhanced export performance, higher retention prices, and increased domestic sales. Net sales for the quarter are anticipated to rise 11% YoY, reaching Rs. 107.7 billion, supported by stable retention prices and export contributions.
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Operational Highlights
Capacity utilization in 2QFY25 is estimated at 61%, a significant improvement from 50% in the first quarter and 58% in 2QFY24. Despite a slight decline in gross margins to 30% compared to 32% in 1QFY25, the sector continues to exhibit strong operational efficiency.
Regional trends show varied dynamics, with Southern players leveraging Afghan and local coal, while Northern players depend on Richards Bay coal. Coal prices remained stable, averaging $110 per ton. Meanwhile, the average retention price rose 5% YoY to Rs. 820 per bag, despite a 4% decline from the previous quarter.
Key Players’ Performance
- Lucky Cement (LUCK): Consolidated earnings are expected to grow 8% YoY and 6% QoQ, reaching Rs. 64.9 per share. This growth is largely driven by subsidiaries, notably Lucky Motors. However, on an unconsolidated basis, LUCK’s EPS is predicted to decline by 6% YoY to Rs. 21.78 due to reduced domestic dispatches.
- Kohat Cement (KOHC): Forecasted EPS of Rs. 16.5 marks a 45% YoY surge, underpinned by favorable retention prices and lower raw material costs. QoQ earnings may dip by 6% due to reduced other income, with gross margins expected at 39%.
- Fauji Cement (FCCL): EPS is projected at Rs. 1.40, reflecting a 29% YoY growth. Operational efficiencies and higher domestic dispatches support a 6% QoQ earnings increase, with gross margins at 33%.
- DG Khan Cement (DGKC): A notable 3.5x YoY earnings jump is forecasted, with EPS reaching Rs. 4.03, driven by robust domestic dispatches and retention prices.
- Maple Leaf Cement (MLCF): Expected to post an EPS of Rs. 1.51, reflecting a 29% YoY decline but showing QoQ recovery due to improved domestic sales. Gross margins are estimated at 28%.
Outlook for the Sector
The cement sector remains poised for sustained growth, supported by resilient demand and stable retention prices. Despite challenges like fluctuating coal prices, the sector demonstrates operational strength and potential for further profitability. Analysts maintain an optimistic outlook, with Lucky Cement, Fauji Cement, and Maple Leaf Cement emerging as top picks for investors.
