Lahore High Court Orders Punjab Cement Industry to Pay 6% Royalty on Their Sales

The Lahore High Court’s larger bench has ruled against Punjab-based cement manufacturers, directing them to pay a 6 percent royalty on retention prices for raw material costs. Previously, Punjab-based manufacturers had been provisioning for raw material costs using the 6 percent formula, but had obtained a stay on the actual payment by furnishing bank guarantees. With the court now lifting the stay, these bank guarantees are likely to be encashed. Topline Securities said the verdict will be neutral in the medium to long term for companies already provisioning for this cost, such as Maple Leaf Cement (MLCF), Pioneer Cement (PIOC), Fauji Cement (FCCL), and Bestway Cement (BWCL). DG Khan Cement (DGKC), which also has operations in Punjab, will be similarly impacted. Meanwhile, cement manufacturers based in Khyber Pakhtunkhwa (KPK) continue to benefit from lower royalty rates of Rs. 350/ton. This cost advantage is significant when compared to Punjab’s 6 percent of net sales prices, which could translate to a difference of nearly Rs. 1,000/ton. Companies such as Kohat Cement (KOHC), Cherat Cement (CHCC), Lucky Cement (LUCK), and FCCL stand to benefit from this cost differential. It is also noted that many KPK-based manufacturers sell a portion of their output in Punjab, potentially enabling them to offer lower prices and gain market share amid a pricing-disciplined environment.