Cement dispatches rise despite political unrest

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Cement Sector

As per the latest numbers revealed by APCMA, Cement dispatches in Aug’14 increased by 23.2%YoY and 24%MoM to 2.78mn tons despite Eid Holidays amid prevaling political turmoil. Conseqently, local cement sales showed an impressive increase of 23.6%YoY and 13%MoM to 1.95mn tons as compared to 1.73mn tons in the same period last year. Meanwhile, Cement exports observed a similar rise, increasing by 22.3%YoY and 65%MoM to clock in at 0.82mn tons. Increase in the dispatches for Aug-14 compensated for the lower dispatches in July-14. Therefore, in 2MFY15, cement dispatches rose 3%YoY to 5mn tons(Local up 7% YoY, Exports down 7% YoY) against 4.85mn tons in the corresponding period last year. On a negative note, the recent flood in the Southern Punjab and other parts of the country would have a negative repercussions on development acitivities in the 2QFY15. However, owing to post flood reconstruction recovery could be seen in later part of FY15.

Coal Price

Low base effect depicting unclear picture
In Aug’13, cement dispatches posted lowest sales in FY13 due to Ramadan and Eid holidays last year. Hence we see a significant YoY growth in Aug’14 dispatches owing to lower base effect. Aside, the first 2MFY14 shows a brighter picture with a 3%YoY rise (domestic up 7% and exports down7%). We believe the increase in local offtakes came from ascend in construction activity post Ramadan. Going forward we expect local cement demand to increase on account of i) reconstruction in the aftermath of floods ii) release of PSDP funds for infrastructure projects.

Monthly cement Dispatches

Rise in exports volume- A good call
Exports have increased 22.3%YoY with exports from south rising 36%YoY. We believe the precedent uptick in export sales was on the back of rise in demand from Africa and other export destinations. Going forward we expect the exports to improve at a cautious pace as situation in Afghanistan is expected to ease once the National Unity Government is formed that would allow NATO troops to stay.

 

Cement Sector

Future outlook
We maintain our positive outlook for the sector with FY15 cement growth of 5%YoY. Furthermore,
after brief halt due to floods, reconstruction activities is set to propel the demand going forward. We
expect exports to gradually pick up on account of improving situation in Afghanistan and other
export markets. Also, we downplay the risk of anti dumping issue in South Africa which bodes well
for the exports. We reiterate our ‘BUY’ call on LUCK and DKGC with Jun’15 TP of PkR405/sh and
PkR100/sh respectively, and ‘HOLD’ on FCCL with TP of PKR20/sh.

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