Though cement sector entered FY26 with renewed momentum with a glorious jump in earnings in 1QFY26 aided by higher volumes, the second quarter of the fiscal year is tempered by falling exports and reduced support from non-core income sources.
Nevertheless, industry margins have remained level at 33 percent in 2QFY26, same as last year, and only slightly better than the previous quarter which points toward a more stable performance for the industry thus far.
Cumulatively, 11 out of 16 companies, show a marginal growth in the topline (1%) in 2QFY26 year on year, and a 4 percent growth compared to 1Q.
Earnings have also grown moderately (5%) year on year, though they are down 12 percent compared to the first quarter. That push in the first quarter is attributed to a significant other income accumulated by cement players that supported the bottomline. As a share of before-tax earnings, other income stood at 29 percent in 1Q, which has slid down 33 percent to 19 percent of earnings in 2Q.
Finance costs have fallen dramatically in the past year with heavy lifting done by ongoing deleveraging and falling interest rates. As a share of revenue, finance costs have reduced to 2 percent in the first and second quarters; down from 4 percent.
At the top of the pyramid is Lucky Cement that shapes the industry’s trajectory. In the first quarter, the company posted a formidable 43 percent net margin as it benefited from significantly diversified income streams. In the second quarter, profitability has declined sequentially as other income stream contributed less meaningfully to the bottomline. Even so, remains ahead of sector aggregates.
Bestway Cement is absentfrom this analysis as it has not yet posted its second quarter financials. This leaves a partial gap in assessing the full competitive dynamic in the industry particularly in the north where export and price dyanmics have become more intense.
Among other large caps, Fauji cement remains stable with slightly softer revenues and operating profit but steady net earnings supported by reduced finance costs. DGKC operated in the south and north zones has deleveraged significantly which has contributed to lower borrowing costs, delivering strong bottom-line growth. Gross margins have been lifted by robust cost controls and benefits from lower coal and energy costs. DGKC demonstrates operational efficiency gains. The other sharp performer is Attock Cement that has sustained its 1Q rebound with stronger revenues, improved margins and rising earnings. The company’s new owners should be pleased. In contrast, Mapleleaf Cement has seen profits ease from one quarter to the next as margins have narrowed and non-core income support faded.
Demand recovery is real within the cement industry, most of the growth driven by domestic markets, the gains made by industry players are not just volume driven, but amplified by financial gains in the form of reduced leverage and non-core income.
The industry will see a firmer volumetric growth in the coming months as domestic demand revitalizes. Capacity utilization is improving tentatively as exports growth remains troublesome. The next phase of the cycle will likely hinge less on financial engineering and more on whether producers will hold out on the fight for prices without sacrificing market share.
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