AKD Quotidian about — Cements: Record high local off take in FY13!

Karachi, July 04, 2013 (PPI-OT): Local cement off take in FY13 has exceeded 25mn tons – a record high! Together with flattish exports, total cement dispatches in FY13 have clocked in at 33.43mn tons, up 3%YoY.

According to AKD Securities going forward, provided local dispatches continue to grow in the 5%YoY+ range and exports to neighbouring countries depict a rebound, cement sector profitability should continue to register an uptick. In this regard, AKD Securities points to sustained high cement prices and subdued coal prices as key ingredients leading to robust margins.

Moreover, with the industry now operating at a capacity utilization of 75%, channel checks suggest that cement manufacturers are mulling another round of expansions considering balance sheets are deleveraged and interest rates are at a multi-year low. At current levels, AKD Securities retains preference for DGKC and LUCK. Among the smaller players FECTC, KOHC and CHCC appear to be trading at relatively attractive levels.

Local dispatches: Local cement off take in Jun13 clocked in at 2.21 mn tons, down by 3%YoY but up by 5%MoM. As a result, FY13 local dispatches came in at a record high 25.lmn tons vs. 23.9mn tons in FY12, translating into growth of 5%YoY.

This was primarily driven by higher sales in the Northern region. Going forward, 1QFY14 sales may depict a seasonal slowdown in connection with Ramadan and the advent of monsoons. Nevertheless, overall FY14 local dispatches should continue to grow in the 5%YoY-’- range.

Export dispatches: Cement exports in Jun’13 have tagged in at 665k tons, down by 9%YoY and a steep 15%MoM where AKD Securities attributes the latter to likely lower exports to Afghanistan due to availability of cheaper priced Iranian cement and back of consensus over pricing.

For full-year FY13, exports have clocked in at 8.37mn tons, lower by 2%YoY. In this regard, while exports to Afghanistan and India both declined in FY13, exports over the sea routes (primarily to African markets) encouragingly picked up over the fiscal year.

Expansions ahead? Total FY13 cement dispatches have registered at 33.43mn tons, up 3%YoY. This represents a capacity utilization of 75% based on cement capacity of 44.77rnn tons.

Going forward, provided local dispatches continue to grow in the 5%Y0Y4- range and exports to neighbouring countries depict a rebound, another round of capacity expansions may occur ala FY06- FY08 when capacity utilization ranged from 80%-90%.

Channel checks suggest cement manufacturers are mulling another round of expansions considering balance sheets for the larger players are deleveraged and interest rates are at a multi-year low.

Investment perspective: With the new government expected to focus on infrastructure development, local dispatches growth over the medium-term should remain strong.

This coupled with sustained high cement prices and subdued coal prices leading to robust margins, should keep cement sector profitability on an uptick. At current levels, AKD Securities retains preference for DGKC and LUCK. Among the smaller players FECIC, KOHC and CHCC appear to be trading at relatively attractive levels.

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