Islamabad, Pakistan's cement sector experienced a mixed bag of results in recent months, as per the latest industry analysis. Cement dispatches saw a 5% month-on-month and 19% year-on-year decrease in February 2024, totaling 3.26 million tons. This decline was partly attributed to February's shorter duration and a slowdown in construction activities influenced by election-related disruptions. Conversely, the sector witnessed a rise in profitability and a reduction in debt levels, buoyed by gross margin expansions and higher retention prices. Additionally, the recent drop in international coal prices to $100 per ton presents a favorable outlook for the industry, potentially reducing production costs and enhancing profitability further.
According to AKD Securities Limited, the cement industry's dispatches were negatively impacted by external factors, including the elections and seasonal slowdowns. However, on a daily dispatch basis, domestic dispatches increased by 3% month-on-month. Exports from the North surged by 95% month-on-month, thanks to a recovery from the previous month's low base when the Pak-Afghan border was closed. South exports, however, declined by 24% month-on-month, affected by higher freight costs amid the Red Sea crisis. Despite these challenges, the industry has shown resilience, with total sales in the first eight months of FY24 increasing by 3% year-on-year to 30.55 million tons, driven by strong sales at the beginning of the fiscal year.
The sector's profitability outlook remains positive, with AKD universe profitability increasing by 8% quarter-on-quarter and 26% year-on-year, excluding one outlier. This improvement has enabled companies to reduce their debt, with total debt for the AKD cement universe (excluding FCCL) decreasing by 24% year-on-year as of December 2023. The decrease in international coal prices and the narrowing price gap between local and international coal are also poised to benefit the sector, especially if international prices fall below $90 per ton.
Cement prices have maintained their strength, with the average price per bag rising by 11% year-on-year to PKR 1,234. The industry is also witnessing an influx of payouts, with companies like CHCC, LUCK, and PIOC beginning to announce dividends after a hiatus, reflecting increased profitability levels and reduced debt burdens.
Looking ahead, the sector faces challenges in the current quarter (3QFY24) due to election activity, Ramadan, Eid festivities, and unfavorable weather conditions. However, with local sales expected to remain stable and a potential increase in exports, total cement dispatches for FY24 could reach 45 million tons, up 2-2.5% year-on-year. The AKD Securities Limited maintains a bullish stance on the cement sector, highlighting LUCK, FCCL, and MLCF as preferred picks, with positive growth projections and expected dividend yields making the sector attractive for investors.