Analyst Note – Cement Dispatches for July not so encouraging

Analyst Note – Cement Dispatches for July not so encouraging

APCMA has announced official cement dispatches for Jul13. The numbers reveal a grim, albeit an expected, picture in which total dispatches have declined by 8% YoY.

 

	1mo ending		%	1mo ending		%
mn MT	Jun13	Jul13	r	Jul12	Jul13	r
Local	2.22	1.85	(17)	2.06	1.85	(10)
Export	0.67	0.75	13	0.76	0.75	(1)
Total	2.88	2.59	(10)	2.82	2.59	(8)

  Source: APCMA

 

·         Local dispatches were the key culprits in bringing the dispatch figure down as they declined by 10% YoY to 1.85mn MT. We had anticipated this declining trend on account of an early resumption of the monsoon season. In addition, contruction activity slows down during the month of Ramadan and Jul13 had 20 days of Ramadan compared to 10 days in Jul12.

·         Higher cement prices also contributed to the curtailment of local demand as cement prices have risen by 15% YoY to PKR 504/bag.

·         The axel load restrictions also played a significant role in dampening the overall local demand for cement manufacturers.

·         On the export front, dispatches have remained relatively stable registering 0.75mn MT sales; however, the breakup of the dispatches discloses a different story as the northern region exports have declined by 15%  YoY while the southern region exports have risen by 61% YoY. The decline in the northern region can be attributed to excess supply entering Afghanistan from both Iran and Iraq. Growth in exports from the southern region was caused by excess demand in the East African countries.

·         Keeping the recent rainy season, flooding and the power tariff hike in mind, we recommend a cautious approach while making fresh investment in the cement sector. The result season may, however, provide some excitement in the cement scrips on the back of substantial earnings growth and significant payouts.

·         We have a NEUTRAL stance on LUCK (Jun14 TP: PKR 250/sh) and FCCL (Jun14 PT: PKR 14/sh). We have a BUY call on DGKC with a Jun14 TP of PKR 121/sh. ACPL (Jun14 TP: PKR 150/sh) offers a downside of 9% from its current price of PKR 170/sh. We, however, have not incorporated potential expansion plans for ACPL in our financial valuations as no material announcement has been made public by the company as yet.