The third quarter of the fiscal year FY25 reveals why the cement business is working so remarkablywell for some companies, and not so much for others.
At a time when combined earnings for cement makers are up 2.2x, at a time when 12 out of the 16 listed companies recorded a positive growth in post-tax earnings, at a time when domestic demand is virtually absent and yet margins for 9 out of 16 companies are higher than last year. That’s a broad win for the industry, if there ever was one. And yet, some companies simply stand out.
While mid-sized companies like Cherat and Kohat cement outperform larger players in terms of margins—as they frequently do—this time the light is shining on Mapleleaf Cement. The company that is treading on Lucky Cement’s path and winning.
Similar to Lucky, Mapleleaf’s investments are bearing fruit. For instance, in 3QFY25, 65 percent of MLCF’s earnings were buttressed by “other income” which materialized with dividends received from its wholly owned subsidiary Maple Leaf Power. Lucky’s other income was also similar—64 percent of before-tax earnings which came from 4 of its subsidiaries in addition to returns from short-term investments.
Through these investments, both companies were able to absorb high overheads than peers, 9 percent and 8 percent of revenue for Luck and MLCF respectively compared to industry average of 6 percent.Illustratively, Bestway which is arguably a much bigger player than Mapleleaf cement by every measure, and whose revenues were1.5x of MLCF’s in 3QFY25,which also happens to havelesser overheads (as % of revenue) than MLCF, earned much lower profits than the latter. Their difference in net margins is stark: 23 percent vs MLCF’s 47 percent.
The kicker is MLCF’s offtake during the nine-months this year dropped far more than Bestway, and yet both had the same level of gross margins. The use of alternative power sources (solar, coal, WHR) also gives MLCF quite the edge.
In an economy like Pakistan, where growth is inconsistent and frequent balance of payments crises lead to macroeconomic instability and slowdowns, cement companies that diversify both their markets and investments are better positioned to perform consistently, and better than others.
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