Pakistan's cement sector enters volume-led upcycle

September 21, 2026 (MLN):  Pakistan’s cement sector is making a definitive transition away from an earnings phase previously driven by cost-containment measures and price adjustments, entering a multi-year, volume-led demand recovery.

Underpinned by falling borrowing costs, easing inflationary pressures, and targeted fiscal incentives for construction, local cement dispatches surged 10% year-over-year in FY26 lithe highest growth rate recorded since FY21.

According to a KTrade Research cement outlook domestic cement demand will maintain a steady compound annual growth rate (CAGR) of 6.7% between FY27 and FY31, gradually lifting plant utilization rates into the ~70s percentage range over the next three years.

Investment analyst Abdur Rahman in the report notes that as operational plants move toward mid-cycle capacity levels, improved fixed-cost absorption and operating leverage will expand margins and drive strong, multi-year profit growth across major producers.

The crux of the sector's long-term financial forecasts, target valuations, and corporate performance metrics across key listed entities are detailed below:

Macroeconomic Drivers and Fiscal Policies

The macroeconomic climate in Pakistan has turned supportive for construction and building materials.

Easing inflationary pressures have enabled the State Bank of Pakistan to cut policy interest rates significantly, lowering the cost of capital and reviving private-sector real estate and commercial projects.

Stable exchange rate conditions and single-digit inflation expectations continue to support business and consumer confidence.

On the fiscal side, the federal budget reinforces this growth trajectory.

The Public Sector Development Programme (PSDP) has been allocated PKR 3.7 trillion (2.6% of GDP), including PKR 365 billion for transport and communication networks and PKR 103 billion for water sector projects.

Major public construction projects driving physical cement consumption include the Karachi-Quetta-Chaman corridor (N-25), the Hyderabad-Sukkur Motorway (M-6), the Karachi-Rohri section of ML-1, Mohmand Dam, and Diamer Bhasha Dam.

Additionally, the government’s Wazir-e-Azam Apna Ghar Program aims to mobilize PKR 1 trillion in subsidized housing finance to construct 500,000 home units over five years, which is projected to generate roughly 0.6 million tons of incremental cement demand annually.

Further tax relief such as cuts in Property Withholding Taxes under sections 236C and 236K, the abolition of Section 7E, and a reduction in the top-tier Super Tax on cement corporate earnings from 10% to 8% directly enhances bottom-line earnings.

Structural Cost Optimization and Energy Transition

During the preceding period of weak volume dispatches, manufacturers made investments to structurally lower their cost profiles.

Because power and fuel (coal, electricity, and gas) represent roughly 60% of total manufacturing costs, companies shifted toward captive power generation and alternative fuel sources.

Over one-third of the sector's total power requirements are now met through renewable energy investments, including a combined installed capacity of 231 MW in solar power and 189 MW in Waste Heat Recovery (WHR) systems.

Furthermore, producers have optimized their fuel mix by incorporating pet coke, domestic coal, Afghan coal, and alternative biomass or industrial waste, while reducing dependence on costly grid electricity.

Combined with declining finance costs following debt paydowns and lower interest rates, sector gross margins are expected to average 29.3% over FY27–29F, while net margins are projected to expand to an average of 17.4%.

Corporate Action, M&A Consolidation, and Valuation Gap

KTrade Research, which reinitiated an Overweight stance on the cement sector, highlights that listed cement producers are trading at an aggregate enterprise value of ~US$ 52 per ton.

This reflects a ~48% discount relative to the cost of establishing a new greenfield production facility (US$ 100–125/ton).

This deep valuation discount has accelerated M&A activity and strategic corporate restructuring across the sector:

Maple Leaf Cement (MLCF): Acquiring full control of Pioneer Cement (PIOC) after securing a 69.8% controlling stake, expanding its market share to ~15.4% and positioning it as the third-largest producer in Pakistan.

Fauji Cement (FCCL): Jointly acquired a ~92% stake in Attock Cement (ACPL) alongside KAPCO, securing immediate operational presence in the South region and access to sea-based export channels.

D.G. Khan Cement (DGKC): Undertaking a brownfield project to install an 11,000 MTPD clinker line (Pakistan's largest single line), lowering heat consumption to 680–690 kcal/kg and replacing older capacity.

Kohat Cement (KOHC) & Gharibwal Cement (GWLC): Advancing greenfield and brownfield projects in Punjab to capture future regional market share.

Trading at an aggregate 3.8x FY27F EV/EBITDA against a 10-year historical average of 5.2x, valuations leave substantial room for multiple expansion and equity re-rating as plant utilization and earnings growth continue to recover.

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