Pakistan's cement sector net earnings have dropped by 38 per cent YoY to PKR8.224bn (US$62m) in 1QFY19 on the back of a number of factors, including a surge in international coal prices (12 per cent YoY), the devaluation of the Pakistani rupee against the US dollar (18 per cent YoY) and higher fixed costs (depreciation and financial cost) on the account of plant expansion.

This observation was made by market analysts at Karachi-based Spectrum Securities Ltd following their evaluation of the financial results of 12 leading cement companies, which represent 93 per cent of the cement sector in terms of market capitalisation.

Gross margin remains under pressure
According to the analysts' report, revenue grew by three per cent YoY to PKR62.150bn while industry dispatches rose by four per cent YoY to 10.8Mt during 1QFY19 ,but higher financial and distribution costs depleted earnings.

Outlook
Analyst expects the demand for cement will increase in the near future as the government is planning to build 5m houses with programme registration now having started. The expected foreign investment in housing schemes would also clear the ambiguity regarding the implementation of this initiative.

The cut in the public sector development programme (PSDP) target in revised budget created uncertainty on cement demand as the government released only 15 per cent PSDP untill 19 October 2018.

Furthermore, Pakistan is able to obtain US$6bn from Saudi Arabia, which would ease pressure on the external account. Therefore, rupee-dollar parity would remain stable and keep future costs of imported coal steady.