Cement Sector Profits Expected to Increase in 2QFY25

The cement sector is poised for significant profitability growth in the second quarter of FY25, driven by higher domestic dispatches, increased retention prices, and lower raw material costs. Topline Securities said the sector is projected to report profitability of Rs. 16.5 billion for 2QFY25, marking a 7 percent quarter-on-quarter (QoQ) increase from Rs. 15.4 billion in the preceding quarter. This improvement is attributed primarily to stronger domestic sales volumes and better cost management, despite an estimated 22 percent QoQ rise in finance costs. On a year-on-year (YoY) basis, profitability across the sector is anticipated to rise by 15 percent, fueled by higher retention prices, improved export dispatches, and enhanced domestic sales. Net sales are expected to grow by 11 percent YoY to Rs. 107.7 billion in 2QFY25, further supported by robust retention prices and export performance. Capacity utilization for the sector is estimated to have reached 61 percent in 2QFY25, a notable increase from 58 percent in 2QFY24 and 50 percent in 1QFY25. Gross margins are predicted to clock in at 30 percent in 2QFY25 compared to 32 percent in 1QFY25, reflecting stable operational efficiencies. A closer look at regional dynamics reveals that players in the South region have benefited from the usage of Afghan and local coal, while those in the North region relied on Richards Bay coal. The average coal price for the quarter is expected to hover around $110 per ton, consistent with the previous quarter. Additionally, the average retention price for 2QFY25 is projected at Rs. 820 per bag, up 5 percent YoY but down 4 percent QoQ. Lucky Cement (LUCK) is forecasted to report consolidated earnings growth of 8 percent YoY and 6 percent QoQ, reaching Rs. 64.9 per share for 2QFY25. The YoY improvement is primarily attributed to higher profits from subsidiaries, especially Lucky Motors. However, on an unconsolidated basis, LUCK’s EPS is expected to decline by 6% YoY and 3 percent QoQ to Rs. 21.78 due to lower domestic dispatches. Gross margins are expected to settle at 30 percent for 2QFY25. Kohat Cement (KOHC) is expected to post an EPS of Rs. 16.5 for 2QFY25, marking a 45 percent YoY increase, primarily driven by higher retention prices and lower raw material costs compared to Punjab-based peers. However, QoQ earnings are projected to decline by 6 percent due to lower retention prices and reduced other income. Gross margins for KOHC are anticipated at 39 percent for the quarter. Fauji Cement Company Limited (FCCL) is likely to achieve an EPS of Rs. 1.40 for 2QFY25, reflecting a 29 percent YoY increase due to higher domestic dispatches and retention prices. QoQ earnings are expected to rise by 6 percent, supported by improved operational efficiencies. Gross margins are estimated at 33 percent for 2QFY25. DG Khan Cement (DGKC) is projected to record an uncons… EPS of Rs. 4.03 for 2QFY25, representing a 3.5x YoY increase. The growth is attributed to higher domestic dispatches, stronger retention prices, and lower finance costs. Gross margins are expected to reach 21 percent for 2QFY25. Maple Leaf Cement (MLCF) is expected to post an EPS of Rs. 1.51, marking a 29 percent YoY decline compared to Rs. 2.14 in 2QFY24. The decrease is due to lower domestic dispatches and increased raw material costs. However, QoQ earnings are forecasted to improve, driven by higher domestic sales. Gross margins are anticipated at 28 percent for 2QFY25. The cement sector remains well-positioned for continued growth, supported by favorable retention prices and improved demand dynamics. With Lucky Cement, Maple Leaf Cement, and Fauji Cement identified as top picks, analysts maintain an overweight stance on the sector. Despite challenges in raw material costs and coal price fluctuations, the sector’s operational resilience and demand recovery present a positive trajectory for the upcoming quarters.