Karachi: The cement sector, having experienced a sharp 26% decline from its peak at the beginning of January 2026 due to the ongoing Middle East conflict, is now considered deeply undervalued, offering a potentially attractive entry point for investors. Despite the challenges, the fundamental aspects of the sector remain largely intact, as evidenced by the trading patterns of eight major stocks that represent 73% of the sector's market capitalization. These stocks are currently trading at a significantly discounted forward P/E ratio of 7.13x for the fiscal year 2027, and 6.43x when excluding ACPL.

According to JS Global, the sector's enterprise value per ton (EV/ton) has decreased to approximately $35/ton, marking a 26% discount from about $47/ton less than two months ago. The recent increase in cement prices by around Rs60 per bag in the North and Rs25 per bag in the Southern region is anticipated to counterbalance the 22% rise in coal prices, which have climbed to approximately $110/ton since the conflict began. North-based companies such as CHCC, KOHC, MLCF, and FCCL are poised to benefit significantly, as many have shifted to relying on cheaper local coal for over half of their needs.

The sector's margins are expected to maintain resilience; however, there are key risks that could impact performance. These risks include a 30% increase in maritime freight costs, rising inland logistics expenses, elevated selling and distribution costs for exports, potential disruptions in coal supply, and a slowdown in demand due to increased prices or possible monetary tightening if the conflict continues.