Pakistan Cement Sector Profitability Seen Rising 16% in 1QFY27
KARACHI: Profitability of Pakistan’s cement sector is expected to increase by 16% year-on-year in the first quarter of FY27, supported by higher local cement sales and improved retention prices, according to a research report by Topline Securities.
The brokerage expects the combined profitability of its cement universe to reach Rs32.4 billion in 1QFY27, compared with Rs27.8 billion in the same period last year, representing a 16% increase year-on-year and 16% growth quarter-on-quarter.
The expected improvement in earnings is primarily attributed to higher net sales resulting from increased cement retention prices and stronger domestic volumes. On a quarterly basis, profitability is also expected to benefit from higher other income, particularly dividend income from Lucky Electric Power Company (LEPCL) to Lucky Cement (LUCK).
The sector’s net sales are projected to reach Rs143 billion in 1QFY27, up 25% year-on-year and 14% quarter-on-quarter. The annual increase is expected to be driven by higher cement prices and growth in domestic cement dispatches.
According to the report, local cement dispatches increased by 8% year-on-year during the quarter, while exports declined by 11%. On a quarterly basis, domestic dispatches rose 9% due to stronger demand, while export volumes increased 10%.
Cement prices increased by around Rs100 to Rs150 per bag during 1QFY27 compared with the same quarter last year. The increase was mainly attributed to higher fuel costs amid elevated international coal prices and diesel prices.
The report expects the sector’s finance costs to rise 51% year-on-year to Rs3.4 billion in 1QFY27, mainly due to Maple Leaf Cement, which accounts for nearly 57% of the sector’s finance costs following debt raised for its acquisition of Pioneer Cement.
Meanwhile, Richards Bay coal prices averaged around $113.93 per ton in 1QFY27, compared with $113.2 per ton in 4QFY26 and $90.3 per ton in 1QFY26.
The gross margin of the cement sector is projected at 35% in 1QFY27, compared with 36% in the previous quarter and 33% in 1QFY26. The year-on-year improvement is expected to reflect higher retention prices, which have outpaced the increase in coal costs, supported by greater use of renewable energy in the power mix.
Other income of the sector is estimated at Rs14.2 billion, up 9% year-on-year and 27% quarter-on-quarter, primarily due to the expected dividend received by Lucky Cement.
The brokerage does not expect any dividend payouts from companies in its cement universe during 1QFY27.
Company-wise outlook
Lucky Cement: Consolidated earnings of Lucky Cement are projected to rise 11% year-on-year but decline 3% quarter-on-quarter to Rs16.7 per share. The annual increase is expected to be driven by improved local cement operations and higher other income. On an unconsolidated basis, EPS is projected at Rs10.3, up 3% year-on-year and 52% quarter-on-quarter, supported by higher cement sales and other income, including an expected dividend from LEPCL.
Kohat Cement: Kohat Cement is expected to post EPS of Rs3.1, down 4% year-on-year and 14% quarter-on-quarter. Gross margins are projected to improve to 36% from 34% a year earlier, supported by better retention prices. The annual earnings decline is attributed to lower other income, while the quarterly decline is expected due to margin normalization.
Fauji Cement: Fauji Cement is projected to report EPS of Rs2.1, representing a 56% year-on-year increase but a 5% quarter-on-quarter decline. Higher retention prices, improved gross margins and contribution from associates are expected to support annual earnings growth.
DG Khan Cement: DG Khan Cement’s unconsolidated EPS is expected at Rs7.5, up 52% year-on-year and 7% quarter-on-quarter. Higher retention prices, improved domestic dispatches and lower finance costs are expected to support profitability. Gross margins are projected at 27%, compared with 22% in 1QFY26.
Cherat Cement: Cherat Cement is expected to post EPS of Rs10.50, up 18% quarter-on-quarter but down 2% year-on-year. The slight annual decline is expected due to lower export volumes and higher coal costs, while the quarterly recovery is attributed to improved margins following line-stoppage costs in the previous quarter.
Maple Leaf Cement: Maple Leaf Cement is projected to post consolidated EPS of Rs3.8, up 47% year-on-year but down 11% quarter-on-quarter. The annual increase is primarily attributed to the consolidation of Pioneer Cement, partly offset by higher finance costs associated with acquisition debt. The quarterly decline is expected to reflect lower gross margins amid higher fuel costs.
The report projects Maple Leaf Cement’s gross margin at 35% in 1QFY27, compared with 34% in 1QFY26 and 44% in 4QFY26, when margins benefited from a one-off impact related to the change in treatment of royalty expenses.
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