Cement earnings persevere

The cement industry is returning to past financial glories in the first half of FY25, despite construction demand remaining weak throughout the period across domestic markets. But exports coming to the rescue and strong pricing power in nearly all markets have enabled cement companies to collectively expand their post-tax earnings by 31 percent. By no means, a small feat, this performance is consistent across most big and small players, with the exception of a few troubled companies that have been financially strained for a while.

As an industry (16 listed companies are used for this analysis) that relies heavily on imported coal, costs per ton sold only went up by 2 percent as companies diversify their fuel sources. International coal prices have remained constant over the past year which boded well for southern players that are procuring the material from South Africa while Afghan coal is still an option for northern players as long as it is the more affordable of the two. This together with the increase in net prices allowed margins to grow to an industry combined of 31 percent in 1HY25.

At roughly an 8 percent increase in revenue per ton sold, pricing has certainly come into play and was not diluted by costs at all. In fact, cost management has played a dominant role in determining the financial prowess of the cement industry historically, and that hasn’t changed. Despite higher exports leading to increased distribution expenses, overheads remained at 6 percent of revenue, the same as last year. Financial costs fell to 5 percent (from 6%) as interest rates came down. Other income provided cover—5 percent of revenue vs. 3 percent last year. Together this contributed to combined earnings reaching Rs57 billion, and a net margin of 16 percent. If other income as a share of revenue seems small, as a share of before-tax earnings, they were 20 percent (up from 18%) significantly buttressing the bottom line.

As the industry inches closer to the end of FY25, it is safe to assume that if prices remain at current levels, cement companies will end the year with an impressive growth trajectory. This will be set forth by exports contributing more than 20 percent to the mix and helping companies cover their fixed costs. Even if domestic demand does not recover in a major way, cement companies will always have pricing power to fall on.