Cement Profitability Rises 7% QoQ in 2QFY25

ISLAMABAD: The Topline Cement Universe is anticipated to report profitability of Rs16.5 billion in 2QFY25, compared to Rs15.4 billion in 1QFY25, representing a 7% QoQ increase, primarily due to higher domestic dispatches. This rise in profitability is further supported by a 22% reduction in finance costs QoQ. However, the impact of higher domestic dispatches and lower coal costs has been partially offset by lower retention prices, particularly in the North region.

Year-on-year (YoY), profitability is projected to grow by 15%, largely due to higher domestic retention prices and reduced production and finance costs. Net sales are expected to rise by 11% YoY, reaching Rs107.7 billion in 2QFY25, driven by higher domestic retention prices and increased export dispatches.Local Cement Dispatches in Pakistan Projected to Rise 3% MoM in Oct 2024

QoQ growth in cement dispatches during 2QFY25 is attributed to lower bag prices in the North and government-led demand in the South. Capacity utilization in the cement sector increased to 61% in 2QFY25, compared to 58% in 2QFY24 and 50% in 1QFY25. Gross margins for the sector are expected to reach 30% in 2QFY25, consistent with 2QFY24 but slightly lower than the 32% recorded in 1QFY25.

In terms of coal sourcing, cement producers in the South primarily relied on Richards Bay coal, while those in the North utilized a mix of Afghan and local coal. Richards Bay coal prices averaged $110 per ton during 2QFY25, remaining relatively stable compared to 1QFY25 and 2QFY24. The average retention price for 2QFY25 is estimated at Rs820 per bag, reflecting a 5% YoY increase and a 4% QoQ decline.

Sector-wide other income is estimated at Rs5.4 billion, representing a 7% YoY and 19% QoQ decline. Lucky Cement is expected to contribute 54% to the sector’s other income.

We maintain an overweight stance on Pakistan’s cement sector, with Lucky Cement (LUCK), Maple Leaf Cement (MLCF), and Fauji Cement Company Limited (FCCL) as top picks.

Lucky Cement’s consolidated earnings are projected to increase by 8% YoY and 6% QoQ, reaching Rs64.9 per share in 2QFY25, primarily due to higher profits from subsidiaries, especially Lucky Motors. On an unconsolidated basis, LUCK’s earnings are likely to decline by 6% YoY and 3% QoQ to Rs21.78 per share, attributed to lower domestic dispatches and higher export sales. Gross margins are expected at 30%, compared to 33% in 1QFY25 and 36% in 2QFY24. No payout is anticipated with the results.

Kohat Cement (KOHC) is expected to report earnings per share (EPS) of Rs16.5, reflecting a 45% YoY increase due to higher retention prices and lower raw material costs compared to peers in Punjab. QoQ earnings, however, are likely to decline by 6% due to lower retention prices and other income. Gross margins are projected at 39%, down from 43% in 1QFY25 but up from 26% in 2QFY24. No payout is expected.

Fauji Cement (FCCL) is forecasted to post an EPS of Rs1.40, marking a 29% YoY increase due to higher domestic dispatches and retention prices. QoQ earnings are anticipated to rise by 6% due to increased domestic dispatches and reduced finance costs. Gross margins are expected at 33%, slightly below the 34% in 1QFY25 but consistent with 2QFY24.

DG Khan Cement (DGKC) is likely to report an EPS of Rs4.03, a 3.5x YoY increase driven by higher domestic dispatches, retention prices, and lower finance costs. Gross margins are projected at 21%, up from 20% in 1QFY25 and 13% in 2QFY24. No payout is anticipated.

Maple Leaf Cement (MLCF) is expected to report a consolidated EPS of Rs1.51, down 29% YoY due to lower domestic dispatches and higher raw material costs. However, QoQ earnings are projected to increase due to improved domestic dispatches. Gross margins are estimated at 28%, compared to 32% in 1QFY25 and 35% in 2QFY24. No payout is expected.