Cement: No shrinkage yet

To say that the cement industry has managed to come out of the first half of the fiscal year 2024—a very tough period for the economy by any measure—fairly unscathed would be an understatement. Cement companies are passing with flying colors. The combined revenue of the industry (15 companies under watch) grew 20 percent, as industry sales rose 10 percent—15 percent of which came through from exports (in 1HFY23, export share was 8%). This translated to after-tax earnings of an estimated Rs43 billion, up 24 percent from 1HFY23 in combined performance.

Companies like Lucky Cement, Bestway, Fauji, and DG Khan Cement at the top of the pack saw revenues grow by a lot more than small or mid-sized cement players, but due to improved retention prices across the board in comparison with reduced costs—that have been optimized through the use of renewable energy and multiple coal sources—margins for nearly every company either grew or maintained as last year. As a cumulative, the industry saw margins grew to 27 percent in 1HFY24 compared to 26 percent last year.

With record-high interest rates, companies have focused on paying back their loans to reduce their debt levels. This allowed finance costs (combined for 15 cement companies) to increase to 6 percent from last year’s 5 percent. Without the payback, these costs would have ballooned. Other income also grew for several companies that buttressed the bottom lines by 12 percent in 1HFY24. Primarily though, the real work happened during procurement of materials and dispatching as costs were maintained as cement prices rose in the market. To compare, we estimate the revenue and costs per ton sold. The estimated revenue per ton sold grew 10 percent while costs grew by less—at 7 percent. This facilitated the eventual earnings improvement during the first half.

Since December though, demand has been taciturn—with overall dispatches slipping compared to FY23. In 8MFY24 for instance, total dispatches are up by 2.5 percent versus the same period last year. The third quarter is turning out worse than hoped, if not worse than planned. How the companies have done the latter will certainly reflect in the upcoming quarters’ financial performance. For now, let them celebrate.