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AKD Quotidian about — Cement Sector: Buy on Both Luck & DGKC

Karachi: Latest statistics revealed by APCMA depict a growth of 6%YoY in total cement dispatches in 4MFY12.

According to AKD Securities, growth stemmed from local dispatches, which posted a growth of 1O.3%YoY to stand at 7.3mn tons in 4MFY12. Exports however declined by 2.7%YoY to stand at 3.2mn tons in the review period. Going forward, while local dispatches should sustain growth (post a seasonal dip in winter), export dispatches should accelerate due to anticipated trade liberalization between India and Pakistan and ongoing development in Afghanistan. On the back of prevailing high cement prices, decline in coal prices, scheduled start of TDF & RDF plants, and the expected growth in cement dispatches, AKD Securities remains optimistic on the local cement sector. AKD Securities has a Buy stance on both LUCK (FY12F PER: 5.3x) and DGKC (FY12F PER:10.2x), which offer respective upsides to AKD Securities’ target prices of PkR113/share and PkR34/share.

Cement Dispatches-4M FY12

 

(mn tons) 4MFY12 4MFY11 YoY
Local 7,270,525 6,591,908 10.3%
North 5,921,106 5,495,743 7.7%
South 1,349,419 1,096,165 23.1%
Export 3,192,397  3,279,365  -2.7%
North 2,377,013  2,219,480  7.1%
South 815,384 1,059,885 -23.1%
Total 10,462,922 5,871,273 5.99%

 

Local dispatches up 1O%YoY: On the back of post flood reconstruction and construction of small dams, local cement dispatches grew by 10.3%YoY to stand at 7.3mn tons. In this regard, while dispatches in the North grew by 7.7%YoY (to 5.92mn tons), dispatches in the South grew by 23.1%YoY (to 1.35mn tons) in 4MFY12. On a sequential basis, local cement dispatches surged by 39.2%MoM to stand at 2.09mn tons in Oct’11, with dispatches in the South posting a growth of 73.4%MoM due to a lower base (recent Sindh floods). Going forward, while cement dispatches in the North should take a seasonal dip in Dec’11-March’12 (winter effect), dispatches in the South should continue to report a modest growth during the rest of FY12F.

Exports- a strategic shift towards the North: As the sea export markets contract (increased capacities in MENA & East Africa), cement manufacturers have started focusing on the land routes. In this regard, increasing cement demand in Afghanistan and the ongoing trade discussions with India, gain strategic importance. As per the 4MFY12 data, sea exports depicted a decline of 25%YoY, while exports to India and Afghanistan grew by 69%YoY (to O.25mn tons) and 17%YoY (to 1.8mn tons) respectively. Going forward, while exports to Afghanistan may also take a seasonal dip (sequentially) in the winters, AKD Securities expects 4QFY12 to depict a modest export growth to the country. Exports to India, on the other hand, should continue the uptrend.

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