Cement Sector Earnings Flat in 2QFY26

The cement sector earnings remained muted in 2QFY26, with sector-wide profit after taxation broadly flat at Rs34.3bn (up 1% YoY), as marginal revenue growth of 1% YoY to Rs191.6bn was largely offset by gross margin compression of 2ppt YoY to 32%. A sharp 46% YoY decline in finance costs provided meaningful bottom-line support, without which the earnings outcome would have been considerably weaker.

Revenue Growth Highly Concentrated

Company-wise revenue performance presents a highly polarized picture. This divergence underscores a key structural theme: companies with export optionality are outperforming, while domestic-focused players, particularly in the northern zone, continue to face pressure amid persistent supply surplus and subdued demand.

The situation was further fueled by the Afghan border closure, resulting in retention prices declining by 4% YoY. In contrast, retention prices in the south increased by 5% YoY, bringing the overall average retention prices down by 2% YoY.Cement Profits Rise 60% in 4QFY25

FLYING Cement posted the strongest topline growth of 45% YoY, driven by improved capacity utilization as dispatches rose 65% YoY. ACPL followed with 30% YoY growth, supported by strong export volumes (up 23% YoY) and better retention prices from its southern operations.

PIOC and GWLC posted meager growth, while FECTC and FCCL posted high-single-digit gains. In contrast, most of the sector, including MLCF, KOHC, POWER, LUCK, DGKC, and BWCL, reported flat to marginally negative revenue growth, reflecting weak local pricing amid an oversupplied market. The most impacted was CHCC, with revenue declining 11% YoY, primarily due to a sharp drop in exports (down 71% YoY) following the Afghan border closure, which also dragged volumes down 2% YoY.

Gross Margins: Winners and Losers Sharply Defined

Gross margins contracted 2ppt YoY to 32% at the industry level, as a 2% YoY decline in cement prices more than offset the relief from a 22% YoY fall in international coal prices. The unavailability of Afghan coal, typically a cheaper fuel source, further pressured cost structures for northern-zone players, limiting the passthrough benefit of softer global energy prices. Companies that expanded margins were largely those recovering from depressed bases or with access to alternative, lower-cost fuel blends.

GWLC (up 17ppt YoY to 27%), THCCL (up 10ppt YoY to 32%), and POWER (up 9ppt YoY to 38%) led the expansions, while DGKC (up 7ppt YoY) and ACPL (up 6ppt YoY) also improved, the latter benefiting from its southern location and relatively better coal sourcing flexibility. The compression story is more telling. KOHC, PIOC, and BWCL, all northern-zone players, saw margins fall 10ppt YoY, 12ppt YoY, and 11ppt YoY respectively, reflecting their higher exposure to Afghan coal disruption and weak local retention prices. FECTC’s margin collapsed to just 7% (down 3ppt YoY), taking the biggest hit due to low prices and the high cost of coal. LUCK and CHCC, by contrast, held steady at 36%, suggesting better cost management or pricing positioning in their respective markets.