Karachi: Pakistan's cement sector has reported a significant profit increase of 20% quarter-on-quarter in the first quarter of fiscal year 2026, amounting to Rs37.5 billion. This growth reflects a 55% rise compared to the same period last year. However, when excluding Lucky Cement's contributions, sector profits actually declined by 10% on a quarterly basis.
The sector's net sales reached Rs181.7 billion, marking a 15% year-on-year growth and a 6% increase from the previous quarter. This growth was largely driven by increased domestic dispatches, which rose by 14% year-on-year and 3% quarter-on-quarter, totaling 9.6 million tons. Export dispatches also saw a year-on-year rise of 21%, despite a quarterly decline of 3%.
Price fluctuations were noted with average bag prices in the northern region declining by 2% to Rs1,382, whereas in the southern region, prices increased by 3% to Rs1,449. Gross margins stood at 31%, slightly down from 34% in the previous quarter, due to reduced retail prices.
The southern cement producers relied on Richards Bay coal, which saw a price drop of 18% year-on-year and 1% quarter-on-quarter. Meanwhile, northern producers used Afghan and local coal. Despite the price decline, sector profitability remained strong, supported by lower coal costs and increased dispatches.
Other income for the sector increased significantly, driven by a Rs6.0 billion dividend to Lucky Cement from its subsidiary, Lucky Electric Power. Lucky Cement accounted for 69% of the sector's total other income.
EBITDA for the sector was Rs56 billion, reflecting a 17% year-on-year increase but a 2% decline from the previous quarter. The EBITDA margin was 31%, slightly down from 32.8% in the last quarter. Finance costs decreased significantly due to monetary easing, allowing companies to reduce their debt.
The sector's effective tax rate decreased to 30%, down from 33% the previous year. Lucky Cement, Bestway Cement (BWCL), and Fauji Cement Company Limited (FCCL) together contributed 62% to the overall profitability, with Lucky Cement alone accounting for 39%.
Lucky Cement's profitability surged by 2.2 times year-on-year, mainly due to a substantial increase in other income and gross profit. On a quarterly basis, its profitability grew by 2.5 times. Lucky Cement achieved the highest gross margins in the sector at 39%.
BWCL and FCCL also contributed significantly, with BWCL's earnings increasing by 35% year-on-year but declining by 13% quarter-on-quarter. FCCL's earnings slightly decreased year-on-year and dropped by 16% quarter-on-quarter, affected by reduced other income.
Looking ahead, the sector's profitability is expected to continue its momentum into the second quarter of FY26, bolstered by strong domestic and export demand, along with lower coal and finance costs. Lucky Cement, FCCL, and MLCF remain top picks for investment within the sector.