PIOC Sees Margin Swings, Royalty Relief Likely

Staff Report

Islamabad: Topline Securities organized the Pakistan Cement Conference 2025. Day 4 of conference started with a session on Pioneer Cement (PIOC), where the key speaker of the session was Mr. Waqar Naeem, CFO of PIOC.

Favourable outcome expected in Punjab royalty issue: PIOC management is expecting positive outcome in the royalty imposed on bag prices in Punjab. The matter is in the courts and 2-3 hearings are taking place per week. Engagement is also taking place directly with mining department and management has not ruled out an out of court settlement.

Although the mechanism of linking royalty with bag prices is legally questionable, management is expecting some increase in royalties from earlier Rs250/ton even if the decision/settlement is in favour of cement manufacturers.

Basis for volatility in gross margins: Gross margins for the company have remained volatile with margins at 30/42/26% in 1Q/2Q/3QFY25 respectively. In 1QFY25 company recorded raw material expense on Market retail price (MRP). In 2QFY25, expense was recorded on Ex-Factory price and reversal of higher provision recorded in 1QFY25 was also taken which led to higher margins in 2QFY25.

Fuel mix tilted towards local coal: Fuel mix for the company is 80/20% Local/Afghan Coal. Current price of Local Coal for the company is Rs37-38k/ton and Afghan Coal is Rs39-40k/ton. Company expects to maintain its fuel mix at current range and use of alternative fuel and biomass is not under consideration. Company is also using high sulphur Darra (Local) coal in its mix.

Low reliance on grid in power mix: Power mix of the company is 25% Waste Heat Recovery (WHR), 70% Coal Fired Boiler and 5% Grid. The average cost of generation for the company is Rs21-22/Unit.Pakistan Cement Players Begin Talks to Resolve Market Share Disputes

Retention price increase in recent times: Current retention for the company is Rs16k/ton. The price bottomed out at Rs14.5k/ton in FY25, however, with recent increase of prices in North prices have rebounded to above Rs16k/ton.

New sales tax mechanism: Management aims to increase retention price further from Rs16k/ton. This is especially relevant in light of new sales tax collection mechanism where collection will be based on average bag prices as recorded by Pakistan Bureau of Statistics.

Growth expected in domestic sales in FY26: Management expects growth of domestic sales in FY26 after decline in FY25. However, in light of current security situation they plan to re-evaluate the projections.

No incentives expected for exports: Management does not expect any incentives being provided for export of cement such as Export Rebates/Cash backs and discounted finance rates. PIOC is of the view that government focus is on increasing tax revenue rather than giving subsidies.

Maple Leaf Cement (MLCF) – Key Takeaways

Topline Securities organized the Pakistan Cement Conference 2025. Day 4 of conference concluded with a session on Maple Leaf Cement (MLCF), where the key speaker of the session was Mr. Mohsin Naqvi, CFO of MLCF.

Venture into healthcare with Novacare Hospitals: MLCF is currently on the way to venturing into hospital business with Novacare Hospitals. Plan is to build and operate a total of three hospitals in major cities. This first hospital is already under construction in Islamabad with operations expected to start at the end of 2026.

Total expected cost of the first hospital is US$100mn. This will have a 50/50 Debt/Equity component. MLCF has already invested Rs4.7bn in equity with Rs8.0bn further expected. MLCF currently owns 99.59% equity in Novacare with plans to include a foreign equity partner at 20% share.

Further diversification in Fertilizer segment: MLCF has acquired 34.4% shareholding in Agritech Limited (AGL) a listed fertilizer manufacturer. Reconstituted board of the acquired company is now composed of 3 members from MLCF, 3 from Fauji Fertilizer (FFC) and 3 independent board members.
 Restructuring of Rs18.5bn preference shares of AGL: MLCF along with FFC has already acquired 45% of Rs18.5bn preference shares of AGL and plan is to increase the acquisition to 70-75% with negotiations underway.
 Future outlook of Fertilizer: Management expects fertilizer outlook to improve since currently lower sales and higher inventory is due to farm economics being hurt by lower wheat prices. The situation will eventually balance itself out and fertilizer sales will improve. Talks are underway with government regarding exports of fertilizer with condition of maintaining higher stock of inventory.
 Lower effective tax rate: Tax rate of the company is lower due to Maple Leaf Power which is tax exempt.
 Power generation mainly from in-house sources: Power mix of the company is composed of 56/34/6/4% from Coal/WHR/Solar/Grid. Average power cost per kWh for the company is Rs14.77.
 Fuel mix expected to compose of 40% Biomass: Current coal costs for the company are Rs43k/ton for Pet Coke, Rs50k/ton for Afghan coal and Rs41k/ton for local coal. Biomass cost for 9MFY25 for the company is Rs20k/ton and contribution to fuel mix was 28%. Plan is to increase biomass contribution to 40%. Overall average fuel costs for the company in 9MFY25 is Rs32k/ton which is 8% lower than 9MFY24.
 Local cement demand outlook: Management expects local sales for industry to decrease by 4-5% in FY25 and increase by 3% in FY26.
 Royalty case in Punjab: Management expects that the decision might be against the cement manufactures in case of royalty on bag prices. If this is the case then manufacturers will move the appeal to Supreme Court where they expect a favourable outcome.
 No plans of further expansion/acquisition in cement: Management communicated that they have no further plans of expansion of cement capacity and venturing into South region either through acquisition or greenfield expansion.