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The Bell about Construction & Materials – Elixir Securities Limited

Karachi: LUCK: Higher retentions to drive earnings growth during 2Q

Flattish cement offtakes during 2QFY12 to date
Local cement off take for the industry during first two months of 2QFY12 marked up by a mere 0.5% YoY to 3.73mn tons, whereas export dispatches stood at 1.47mn tons, down 5% YoY.

According to Elixir Securities Limited estimates industry dispatches to fall 1% YoY during 2Q with local volumes at 5.5mn tons and export dispatches at 2.2mn tons.

Export dispatches slowdown is expected due to weak export prices and Elixir Securities Limited’s channel checks suggest that exports have become unviable for some of the northern players with higher cost of production. Elixir Securities Limited expects LUCK to maintain 1Q market share in local and export dispatches at 16% and 25% respectively, which shall translate into dispatches of 1.4mn tons, up a mere 1% YoY.

Strong margins to drive earnings during 2Q
Local cement prices have shown phenomenal growth of 23% YoY during 2QFY12 to date and with retention of tax benefits allowed in FY12 Budget, local retention prices for LUCK during 2Q are expected at PKR5,284/ton, up 35% YoY. However, COGS/ton is expected to remain in line with 1Q at PKR3,202/ton, up 8% YoY, which shall lead to local EBTIDA margin of PKR2,218/ton, up 1.1x YoY. Export retention prices are estimated to decline by 6% YoY to PKR5,175/ton, translating into EBTIDA margin of PKR620/ton, down 24% YoY. Net selling price less logistic charges for exports is expected at PKR3,771/ton, up 3% YoY. While higher gas prices from Jan‐12 would put pressures on input cost, coal prices have corrected by 7% during 1HFY12. As such, cost would likely remain contained going forward while margins are expected to remain sustainable.

Elixir Securities Limited’s initial estimates driven by 2Q to date average prices (local and export) and cement dispatches during Oct‐11 and Nov‐11 suggest an EPS of PKR4.80 for 2QFY12, up 1.1x YoY.

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