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AKD Quotidian about — Cement Sector: sequential Volume Decline

Karachi: Latest statistics released by All Pakistan Cement Manufacturers Association (APCMA) reveal a growth of 3.5%YoY to 12.7mn tons in total cement dispatches in 5MFY12. Growth comes on the back of higher local dispatches (up 7.1%YoY) despite prevailing high cement prices, while exports reported a decline of 3.9%YoY (lower sea exports).

Sequentially however, total dispatches declined by 23%MoM in Nov’11, on the back of lower demand on both local and export front. Going forward, cement dispatches should remain on the lower side in Dec’11-Feb’12 (winter effect) and rebound in Spring. On a wider perspective, AKD Securities remains positive on the cement sector, keeping in view high retail prices and lower Cost (implementation of TDF & RDF, lower coal prices).

At current price levels, AKD Securities has a Buy stance on both LUCK (FY12F PER: 4.9x) and DGKC (FY12F PER: 8.5x), which offer respective upsides of 47% and 87% to AKD Securities’ target prices of PkR112.9/share and PkR33.9/share.

 

Cement Dispatches
(mntons) 5MFY12 5MFY11 YoY  Nov’11 Oct’11 MoM
Local  8.91 8.32 7.1%  1.64 2.09 -21%
North 7.28 6.96 4.7% 1.36 1.68  -19%
South 1.63 1.37 19.3% 0.28  0.40  -31%
Export  3.81 3.96  -3.9% 0.62 0.86 -28%
North 2.82 2.69 5.1%  0.45   0.63 -30%
South  0.99 1.28 -22.8% 0.17 0.22 -24%
Total 12.72 12.29 3.54% 2.26 2.95 -23%
Source: APCMA

 

Local dispatches witness seasonal decline: On a YoY basis, local cement dispatches witnessed a growth of 7.1% to stand at 8.91mn tons in 5MFY12. In this regard, dispatches in the North increased by 4.7%YoY against a growth of 19.3%YoY in the South. Sequentially however, local dispatches declined by 21.3%M0M to stand at t64riin tons in Nov’11. This marks the winter effect with dispatches in the North reporting a decline of 19.1%MoM, while dispatches in the South declined by 30.7%MoM in Nov’11.

Lower sea exports: As overseas markets become self-sufficient in cement, Pakistan’s exports declined by 3.9%YoY to stand at 3.81mn tons in 5MFY12. While sea exports declined by 23.04%YoY (to 137mn tons), exports to Afghanistan and India grew by 13.06%YoY (to 2.14mn tons) and 62.68%YoY (to 0.29mn tons) in 5MFY12. Sequentially however, total export volumes declined by 28%MoM (to 0.62mn tons) in Nov’11.

Investment Perspective: While the cement sector of the country should remain pressurized on the volume front in the near term (winter effect), AKD Securities’ overall outlook remains positive. High margins (High cement prices & low coal prices) coupled with the implementation of TDF & RDF plants, should continue to benefit cement companies on the margins front. At current price levels, AKD Securities has a Buy stance on both LUCK (FY12F PER: 4.9x) and DGKC (FY12F PER: 8.5x), which offer respective upsides of 47% and 87% to AKD Securities’ target prices of PkR112.9/share and PkR33.9/share.

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