Cement sector is heavily leveraged as well as energy intensive. The recent reduction in policy rate and the decline in global oil prices bodes well for the sector. First quarter results are expected with some pleasant surprises for investors. However, this may not translate into any reduction is cement price or increase in dividend payout.
Lucky Cement
(LUCK) is expected to post unconsolidated earnings of PKR5.6 billion (EPS: PKR19.1) for 1QFY25 as against PKR6.9 billion (EPS: PkR23.6) for the same period last year, reflecting a decline of 13%YoY. The decline is primarily attributed to lower gross margins, which are expected to drop to 30.7% from 36.9% during the period under review due to an increased proportion of exports in the sales mix, coupled with higher coal prices. Total turnover is projected to increase by 5%YoY to PKR30.9 billion, as higher retention prices offset the impact of change in the sales mix, while, total sales volumes remaining almost flat YoY at 2.18 million tonnes. Distribution expenses are forecasted to rise by 54%YoY, driven by increased export volumes. On a consolidated basis, earnings for the quarter are expected to decline to PKR52.8/ share as compared to PKR60.4/ share, a decline of 13%YoY, largely due to lower income from core cement operations and reduced profitability contribution from foreign cement operations amid PKR appreciation.
Fauji Cement Company
(FCCL) is projected to report earnings of PKR3.0 billion (EPS: PKR1.24) in 1QFY25, as compared to PKR2.6 billion (EPS: PKR1.1) for the same period last year, an increase of 17%YoY. This annual growth in earnings is primarily driven by higher sales and improved gross margins. Revenue is anticipated to grow by 11%YoY, mainly due to a 14%YoY increase in retention prices, although offtakes slightly declined by 1%YoY to 1.33 million tonnes as compared to 1.34 million tonnes. Gross margins are expected to rise to 34.5% from 31.1%, supported by higher retention prices and lower power costs, given 20%YoY reduction in grid tariffs and the company’s 48% reliance on the grid. Finance cost is likely to increase by 29%YoY due to the inclusion of expansion-related financing costs.
Maple Leaf Cement
(MLCF) consolidated earnings for 1QFY25 are expected to decline to PKR1.5 billion (EPS: PKR1.43), from PKR1.6 billion (EPS: PKR1.55), down 8%YoY. The annual decline in profitability is primarily driven by a 9%YoY drop in the company’s turnover to PKR15.2 billion, from PKR16.7 billion. Revenue decline is mainly attributed to 20%YoY fall in offtakes, declining 0.85 million tonnes from 1.1 million tonnes. However, 16%YoY increase in retention prices helped offset some of the impact of the volumetric decline. Gross margins are anticipated to rise to 33.4% from 31.3%, as higher retention prices outweighed the impact of increased royalty rates. Additionally, a 20%YoY reduction in grid tariffs contributed positively to margins.
Kohat Cement
(KOHC) is projected to post earnings of PKR2.4 billion (EPS: PKR12.1) for 1QFY25E, as compared to PKR2.2 billion (EPS: PKR11.4), an increase of 7%YoY. The earnings growth is primarily driven by an expansion in gross margins and lower finance cost. Net sales are expected to decline by 13%YoY to PKR9.6 billion, mainly due to a 22%YoY drop in offtakes to 0.59 million tonnes from 0.76 million tonnes. However, gross margins are projected to improve to 34.8% from 29.2%, supported by an 11%YoY rise in retention prices and a reduction in power costs due to a 20%YoY decrease in grid tariffs, given the company’s 65% reliance on grid power. Other income is anticipated to grow by 30%YoY, driven by 39%YoY increase in cash and short-term investments.
Pioneer Cement
(PIOC) is anticipated to post earnings of PKR1.3 billion (EPS: PKR5.8) for 1QFY25E, as compared to PKR0.9 billion (EPS: PKR4.1), up 42%YoY. The said growth is driven by an expansion in gross margins and reduced financial charges. Sales are anticipated to decline by 10%YoY to PKR7.8 billion, primarily due to a 23%YoY drop in offtakes. However, partially mitigated by 17%YoY rise in retention prices. Analysts project gross margins to improve to 36.1% from 30.4%, owing to the higher retention prices. Additionally, finance cost is expected to drop by 54%YoY to PKR437 million, from PKR950 million, due to 38% reduction in outstanding debt during the period.
Cherat Cement
(CHCC) 1QFY25 earnings are anticipated to decline to PKR1.3 billion (EPS: PKR6.5), from PKR1.5 billion (EPS: PKR7.9), a decline of 17%YoY. The said decrease is primarily driven by a drop in sales volumes coupled with a slight contraction in gross margins. Sales are expected to decline by 11%YoY to PKR8.9 billion, due to a decline of 16YoY in offtakes to 0.59 million tonnes as compared to 0.70 million tonnes in SPLY. Gross margins are expected to dip by 133bps to 29.2% from 30.5% in SPLY, as 2.5xYoY surge in gas tariffs offset the benefits of higher retention prices, given the company’s reliance on gas for over 50% of its power needs. Financial charges are projected to decrease by 55%YoY to PKR191 million due to a reduction in outstanding debt.