Pakistan’s cement industry is expected to be on track for recovery following a trough in the business cycle, which has seen disappointing cement demand and capacity utilisation rates fall to just 52 per cent, according to a report by IMS Research.
Sales in the 5MFY24-25 declined 11 per cent YoY, due to increased real estate sector taxation and a 14 per cent rise in cement prices since the start of the year, driven by higher federal taxes and a significant increase in royalties on raw materials in Punjab. Furthermore, the research house anticipates further cuts in government spending on projects to address revenue shortfalls. Therefore, IMS Research has revised its FY24-25 demand forecast to a five per cent YoY decline.
Nevertheless, in related news, the 1QFY24-25 company results showed that industry profitability remains resilient, despite the headwinds from slow demand and increased taxes. Ongoing efforts to invest in renewables and declining Afghan coal prices should ensure sustainable profitability. However, ongoing monetary easing, stabilising inflation and industry pricing discipline position the sector for stronger earnings growth.
Analysts expect demand to recover in the 2HFY24-25, led by rapid monetary easing, followed by an eight per cent growth in FY26-27. Stabilising inflation combined with industry pricing discipline will position the sector for stronger earnings growth going forward.
Exports are expected to remain a key tool for managing fixed costs, particularly for Lucky Cement Ltd and DG Khan Cement Co. In the north, Cherat Cement Co Ltd and Fauji Cement Company Ltd will likely benefit from Afghanistan’s economic recovery; these companies are eyeing a 10-15 per cent growth in exports to that country in FY24-25.
by Abdul Rab Siddiqi, Pakistan
