Despite having different dynamics coming into play, Lucky (PSX: LUCK), Cherat (PSX: CHCC) and Fauji (PSX: FCCL) remained consistent in one trend: their gross margins. Since fuel and power costs range between 50-70 percent of cost of goods, coal prices have hit these companies hard. In fact, imported coal prices climbed about 35 percent between Septembers of this year and last. For companies in the north, this price is a lot higher since they have to pay a higher freight as well.

Whereas Lucky, king of the south and leader of the pack occupying nearly 18 percent of the market share with a strong command on costs and logistics saw a drop in margins to 37 percent (1QFY17:51%); Cherat’s margins further ponied down to 25 percent despite more than doubling its revenue on account of its fresh new plant that came online in the second half of FY17.

Fauji, of course is another story since the company lost its second production plant to an accident and has been paying a hefty price because of that. It has been buying expensive clinker from nearby companies in the north. Margins remained significantly low at 17 percent further down from already low levels of last year (1QFY17: 24%). To bring these costs down, Fauji installed a waste heat recovery unit which will be operational by Jan-18.

As they are located in the north, both Cherat and Fauji saw a drop to their retention prices by a margin of Rs10-15 per 50kg bag despite an increase in FED in June. The difference in retention prices between north and south players stands to be between Rs80-100 per 50kg bag. Players in the north have been trying to clear volume faster as demand appears to be dwindling.

The industry grew volumetrically by 15 percent in 1QFY18. Lucky was consistent with this growth—local dispatches grew by 14 percent with a subsequent decline of 25 percent to its exports. Cherat’s doubling of capacity has boded well for the company translating into a massive surge in revenue—local dispatches had grown by 169 percent in 1QFY18.

All three companies have managed to lower overheads as a share of revenues—Lucky is at 8 percent of sales; Cherat at 5 percent; Fauji at 3 percent in 1QFY18 whereas they used to be 11 percent, 9 percent and 4 percent respectively in 1QFY17. Lucky’s distribution costs were lower due to a decline in exports since they take up much of this cost. Moreover, whereas Lucky is not debt financed, Cherat’s borrowing for its third line will continue to keep finance costs high.

On the upside, Lucky has several different projects—the 660MW power plant, its investment with Kia and Congo plant– which will pad its consolidated bottom-line in the coming future. Cherat’s third production line is on its way while Fauji’s damaged production plant restored operations just a few days ago. While Fauji’s margins will recover slightly, margins for most other cement makers are expected to sustain at these levels as there are no expectations for a price hike. In fact, those in the South will soon be lowering prices as new expansions come through and competition picks up.