Cement sector is having a tough fiscal year so far; and despite growth in dispatches, margins have fallen dramatically resulting in subdued bottom lines.

Bestway Cement (PSX: BWCL) which enjoys the highest capacity in the sector today reported a decent 12 percent growth in net revenues in 1QFY18, according to the company’s PSX notice. Speaking to BR Research, Musaddaq Ali Khan, Bestway’s Financial Controller told that this was brought forward by a net growth in volumetric dispatches of 16 percent where local dispatches grew by 21 percent and exports fell year-on-year. This is in line with the industry’s net growth in sales of 15 percent in the first quarter where exports fell by 17 percent. Musaddaq told that retention prices had come down on average by Rs200-250.

Conversely, Pioneer Cement (PSX: PIOC) had a rougher than average 1QFY18. According to Pioneer’s CFO Waqar Naeem, while cement quantitative sales grew by 10 percent, clinker sales dropped. This has contributed to a sobering top line exacerbated by high costs and resulting in a drop of 40 percent in the bottom line.

The downtime across the sector comes due to a rise in international coal prices that squeezed margins during the last two quarters of FY17. Both Bestway and Pioneer have plants in the north and have higher costs on average compared to those players in the south near the port. Average prices for coal went up on average from $60-65 per last fiscal year to nearly $100 per ton in 1QFY18.

For both Pioneer and Bestway, energy and power costs (where coal is a primary input) constitute majority (about 70%) of cost of production. Waqar Naeem told BR Research that though Pioneer has a Waste Heat Recovery (WHR) unit installed, much of power comes via the grid and power tariffs have not been adjusted down.

As the sector expands, finance costs are expected to go up. Bestway so far is internally financing its expansion of about 1.8 million tons, according to Mr Musaddiq, but might need debt financing later on. Pioneer expectedly saw an increase in finance costs as it embarks on more than doubling its capacity and taking over Galadari cement’s un-operational plant located in Hub having signed a MoU with the company.