Cement sales to dip 5pc in FY25, rebound by 3pc in FY26

KARACHI: Although the International Monetary Fund (IMF) and Government of Pakistan have broadly reached an agreement on the budget for fiscal year 2025-26, the real estate policy remains pending among few other issues. Hence, the question: what is in store for cement sales?

Seeing it as a major trigger for the economic revival, the government has been considering special tax relief to the construction sector, but taking the IMF on board is proving difficult.

Analysts expect local cement demand and sales for industry to decrease by 4-5 per cent in FY25 and increase by 3 per cent in FY26.

Read more: Pakistan’s budget: promise on paper, patience on the ground

In April 2025, the cement price in Pakistan ranged from Rs1,325 to Rs14,00 per 50 kg bag.

The price of Lucky Cement was Rs1,375 per 50 kg bag, Pioneer Cement Rs1,380, Bestway Cement Rs1,339 and DG Khan cement 14,00.

CEMENT INDUSTRY

Earlier this month, the Topline Securities Limited, earlier in the month held a cement conference. The key takeaways of the event are mentioned below.

The four-day conference started with Pioneer Cement (PIOC) CFO Waqar Naeem as the keynote speaker.

• Favourable outcome expected in Punjab royalty issue:

According to Naeem, the PIOC management is expecting a positive outcome in the royalty imposed on bag prices in Punjab.

The matter is in the courts and two or three hearings are taking place per week. Engagement is also taking place directly with the mining department and management has not ruled out an out of court settlement.

Although the mechanism of linking royalty with bag prices is legally questionable, management is expecting some increase in royalties from earlier Rs250 per tonne even if the decision/settlement is in favour of cement manufacturers.

• Basis for volatility in gross margins:

Gross margins for the company have remained volatile with margins at 30 per cent in Q1, 42 per cent in Q2 and 26 per cent in Q3 of FY25.

In the first quarter, the company recorded raw material expenses on maximum retail price (MRP).

However, expense was recorded on ex-factory price in the first quarter and reversal of higher provision recorded in the first was also taken which led to higher margins during the three-month period.

• Fuel mix tilted towards local coal:

Fuel mix for the company is 80 per cent local coal and the remaining 20 per cent from Afghanistan. Current price of local coal for the company is Rs37,000-38,000 per tonne. It is Rs39,000-40,000 for the Afghan coal.

The PIOC expects to maintain its fuel mix at the current range and use of alternative fuel and biomass is not under consideration. It is also using high sulphur local coal in its mix.

• Low reliance on grid in power mix:

Power mix of the company is 25 per cent waste heat recovery (WHR), 70 per cent coal-fired boiler and 5 per cent grid. The average cost of generation for the company is Rs21-22 per unit.

• Retention price increase in recent times:

Current retention for the company is Rs16,000 per tonne. The price bottomed out at Rs14,500 per tonne in FY25. However, with recent increase of prices in the north, prices have rebounded to above Rs16,000 per tonne.

Read more: Pakistan’s budget dilemma — will the middle class finally be heard?

• New sales tax mechanism:

Management aims to increase retention price further from Rs16,000 per tonne. This is especially relevant in light of the new sales tax collection mechanism, which will be based on average bag prices as recorded by Pakistan Bureau of Statistics.

• Growth expected in domestic sales in FY26:

Management expects growth of domestic sales in FY26 after a decline in FY25. However, they plan to re-evaluate the projections in light of the current security situation.

• No incentives expected for exports:

The PIOC Management does not expect any incentives – export rebates/cash backs and discounted finance rates – for cement export. It is of the view that the government focus is on increasing tax revenue rather than giving subsidies. 

MAPLE LEAF CEMENT

Mohsin Naqvi, the CFP of MLCF, says the company is venturing into healthcare with Novacare Hospitals. The plan is to build and operate three hospitals in major cities. This first hospital is already under construction in Islamabad with operations expected to start at the end of 2026.

The total expected cost of the first hospital is $100mn. This will have a 50/50 debt/equity component. MLCF has already invested Rs4.7bn in equity with Rs8.0bn further expected. It currently owns 99.59 per cent equity in Novacare with plans to include a foreign equity partner at 20 per cent share.

• Further diversification in the Fertilizer segment:

MLCF has acquired 34.4 per cent shareholding in Agritech Limited (AGL), a listed fertilizer manufacturer. The reconstituted board of the acquired company is now composed of three members from MLCF, three from Fauji Fertilizer (FFC) and three independents.

• Restructuring of Rs18.5bn preference shares of AGL:

MLCF along with FFC has already acquired 45 per cent of Rs18.5bn preference shares of AGL and plan is to increase the acquisition to 70-75% with negotiations underway.

• Future outlook of Fertilizer:

The management expects fertilizer outlook to improve since current lower sales and higher inventory is due to the farm economics – lower wheat prices. The situation will eventually balance itself out and fertilizer sales will improve. Talks are underway with the government regarding fertilizer export with a condition of maintaining a higher stock of inventory.

• Lower effective tax rate:

Tax rate of the company is lower due to Maple Leaf Power, which is tax exempt.

• Power generation mainly from in-house sources:

Power mix of the company is composed of 56 per cent coal, 34 per cent WHR, 6 per cent solar and 4 per cent grid. Average power cost per kWh for the company is Rs14.77.

• Fuel mix expected to compose of 40 per cent Biomass:

Current coal costs for the company are Rs43,000 per tonne for pet coke, Rs50,000 per tonne for Afghan coal and Rs41,000 for local coal. Biomass cost for the first none months of FY25 is Rs20,000 per tonne and contribution to fuel mix was 28 per cent. The plan is to increase biomass contribution to 40 per cent. Overall average fuel costs for the company till March 2025 is Rs32,000 per tonne, which is 8 per cent lower than the same period of FY24.

• Local cement demand outlook:

Management expects local sales for industry to decrease by 4-5 per cent in FY25 and increase by 3 per cent in FY26.

Royalty case in Punjab: The management expects that the decision might be against the cement manufacturers in case of royalty on bag prices. If this is the case then manufacturers will move the appeal to the Supreme Court where they expect a favourable outcome.

• No plans of further expansion/acquisition in cement:

The management communicated that they have no further plans of expansion of cement capacity and venturing into the south region either through acquisition or greenfield expansion.