Pakistan’s Cement Industry Targets 2.4% Growth in FY25 Amid Higher Exports

Islamabad: The cement sector in Pakistan is projected to witness a modest 2.4% year-over-year growth in FY25, driven predominantly by an uptick in export volumes despite a downturn in domestic sales, which have hit a seven-year low. Total cement dispatches for FY24 were recorded at 45.29 million tons, with exports showing a significant 56% increase to 7.11 million tons, thanks in part to decreased international coal prices boosting export viability.

According to AKD Securities Limited, the modest rise in FY24 was led by strong performance in the South region, which saw a 62% jump in exports. However, domestic challenges such as elevated construction costs, higher inflation, and record interest rates have dampened local sales, which fell by 5% year-over-year to 33.2 million tons. June 2024 saw a particular decline in local sales by 12% year-over-year, primarily due to fewer working days amid Eid holidays and an 18% drop in clinker exports from the South.

Federal budget measures for FY25 have also doubled the Federal Excise Duty on cement from PKR 100 per bag to PKR 200 per bag. Despite this increase, the industry's strong pricing power has enabled companies to pass these costs onto consumers, resulting in a price surge to over PKR 1,400 per bag. Additionally, the Federal Public Sector Development Program (PSDP) allocation has been raised by 75% year-over-year to PKR 1.15 trillion, which could bolster demand from public projects despite traditionally low utilization rates.

The report also highlights challenges such as rising gas prices for captive use, which have increased to PKR 3,000/mmbtu from PKR 2,750/mmbtu. This price hike is set to impact companies like CHCC and LUCK, which derive a significant portion of their power from gas. Despite these cost pressures, the industry outlook remains optimistic with projections of export growth around 13% year-over-year, driven by lower coal prices and stable freight rates.

Overall, AKD Securities maintains a bullish outlook for the sector, anticipating strong gross margins, robust earnings, and benefits from potential monetary easing. LUCK, FCCL, and MLCF are highlighted as top picks for investors in the coming fiscal year.