Pakistan's listed cement sector reported record earnings of PKR22.4bn (US$58.18m), up eight per cent YoY in the 2QFY23-24. This earnings growth is primarily due to higher gross margins and other income. Major contributors to the profitability of the cement sector in the 2QFY23-24 were Lucky Cement (LUCK), followed by Bestway Cement (BWCL) and Fauji Cement (FCCL), according to Topline Pakistan Research,

Analysts believe these achievements were made despite a fall in cement dispatches. Nevertheless, sector sales increased by nine per cent YoY to PKR179bn in the 2QFY23-24, led by a 16 per cent YoY increase in average cement prices. Local dispatches declined by 12 per cent YoY to 10.1Mt in 2QFY23-24. However, the decline in total cement dispatches was restricted to one per cent YoY due to a 166 per cent growth in cement exports in 2QFY23-24.

During 2QFY23-24, cement players in the southern region mostly relied on Richards Bay coal, while those in the northern region used a combination of Afghan and local coal. Richards Bay coal prices fell 30 per cent YoY but were up eight per cent QoQ to PKR48,000/t in the 2QFY23-24. Similarly, average Afghan and local prices were up seven per cent YoY and 11 per cent QoQ to PKR43,400/t in the 2QFY23-24.

Selling and distribution costs were up 130 per cent to PKR7.4bn in the 2QFY23-24 when compared with the 2QFY23-24, owing to the implementation of axle load regulations and the inflationary environment.

The sector's other income was up 163 per cent YoY to PKR6.6bn in the 2QFY23-24, amid higher dividend and interest income. Of the PKR6.6bn sector's other income in the 2QFY23-24, 46 per cent (PKR3bn) was contributed by Lucky Cement.

The sector's finance cost was PKR9.6bn in the 2QFY23-24, up 41 per cent YoY due to higher interest rates and borrowings. The sector reported an effective tax rate of 32 per cent in the 2QFY23-24 vs 27 per cent in the 2QFY22-23 and 35 per cent in the 1QFY23-24.

Separately, in the 1HFY23-24, profitability increased by 23 per cent YoY to PKR43.6bn, owing to higher retention prices and other income.

Outlook 
The analyst expects healthy gross margins led by lower coal prices and in-house power generation ability to keep the profitability of the cement sector upward, despite the anticipated low cement demand due to election, Ramadan and Eid festivities in the 3QFY23-24.