Coal Costs Drop, Dividends Rise: What’s Driving Cement Sector Profitability?

Pakistan’s listed cement sector posted stellar earnings of Rs33.7 billion in 3QFY25, marking an impressive 89% year-on-year growth, though profits dipped 3% quarter-on-quarter as sales and gross margins softened slightly. While the sector continues to show strength compared to last year, short-term challenges, particularly declining domestic demand and softer pricing in the North, have led to a marginal sequential decline in performance.

Sales and dispatches: growth with a cautionary tone

Sector sales clocked in at Rs168.2 billion, up 6% YoY but down 15% QoQ, reflecting a slowdown in total dispatches and reduced retention prices, especially in the northern region.

• Domestic dispatches increased 2% YoY to 9.3 million tons, but slipped 7% QoQ.
• Export dispatches posted a 19% YoY rise, yet fell 35% QoQ to 1.7 million tons.

Average cement bag prices in the North dropped from Rs1,447 to Rs1,360, while prices in the South remained relatively stable at Rs1,382.

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Margins and input costs: fuel mix drives efficiency

The sector’s gross margins expanded by 2.9 percentage points YoY, reaching 29.7% due to improved cost management and a more efficient fuel mix. However, margins slipped from 33.0% in 2QFY25, mainly due to weaker domestic demand and lower pricing in the North.

• Southern players leaned on imported Richards Bay coal, which declined 7% YoY and 5% QoQ to around Rs37,000/ton.
• Northern players utilized a blend of Afghan and local coal, which also saw price drops of 14% and 8% YoY, respectively.

Earnings drivers: other income and cost control

While topline growth was modest, profitability got a significant boost from other income, which surged 150% YoY to Rs15.1 billion, with Lucky Cement (LUCK) alone contributing Rs10.9 billion. Dividends from Lucky Electric, LCI, and Lucky Motors played a major role in LUCK’s robust earnings.

Finance costs fell 38% YoY, thanks to lower interest rates, easing the burden on bottom lines across the sector. The effective tax rate stood at 29.0%, lower than the previous year’s 33.7%.

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Top performers and laggards

• LUCK remained the undisputed leader, contributing 40% to total sector profitability. It reported earnings of Rs 13.5 billion, up 174% YoY and 86% QoQ.
• Bestway Cement (BWCL) followed with Rs6.1 billion in profit, up 72% YoY, although down 18% QoQ due to softer gross margins and net sales.
• Maple Leaf Cement (MLCF) posted earnings of Rs2.8 billion, an 86% YoY increase, fueled by better margins and increased sales.

On the other hand, Dewan Cement (DCL) was the only listed company to report a loss of Rs31 million in the quarter.

EBITDA and profitability overview

The sector reported EBITDA of Rs48.9 billion, up 17% YoY, but down 21% QoQ, with margins settling at 29.1%, down from 31.6% in 2QFY25.

For the nine-month period (9MFY25), profitability rose by 50% YoY to Rs92.3 billion, driven by improved cost efficiencies, higher other income, and lower finance costs.

Outlook: short-term weakness, long-term strength

The sector may face QoQ earnings pressure in 4QFY25, owing to lower expected domestic dispatches due to Eid holidays in April and June. However, on a YoY basis, profitability is expected to improve, driven by lower coal prices and higher retention prices.

Analysts maintain an overweight stance on the sector with LUCK and FCCL highlighted as top picks, given their operational strength and diversified income streams.

📌 Summary highlights

• Earnings up 89% YoY, down 3% QoQ.
• Gross margin at 29.7%, boosted by lower fuel costs.
• LUCK dominates, contributing 40% of sector profits.
• Sector EBITDA: Rs48.9bn, margin: 29.1%.
• QoQ pressures are expected in 4QFY25, but long-term fundamentals remain strong.

Source: Topline Securities (Private) Limited

⚠️ This post reflects the author’s personal opinion and is for informational purposes only. It does not constitute financial advice. Investing involves risk and should be done independently. Read full disclaimer →