Morning Briefing – Standard Capital

Karachi, May 15, 2013 (PPI-OT): Trivial issues for cement players – point to ponder

Afghanistan syndrome
There are many cement companies which are about to show exponential earnings growth at the conclusion of FY13.

According to Standard Capital expects their sales spree may receive some dent if one of the neighbouring country, Afghanistan, continues to put restrictions on Pakistani supplies. At present, Afghanistan has put levies and also loaded some further taxes and hence supplies could still be restricted through these barriers. Going forward, there is an argument that cement supplies could diminish once US forces would pull out of Afghanistan. However, Standard Capital believes that Afghanistan could still be a good market for Pakistan since the country is land locked and bracing for basic infrastructure development.

India syndrome
Recent election victory by business friendly party has been hailed by all and sundry especially trade and industry representatives from eastern neighbour India. Standard Capital believes India is still a good market for Pakistani supplies especially DG Khan Cement is poised to cash in on the opportunity along with Maple Leaf Cement.

The recent conciliatory statements from PM elect towards this direction is a good omen for these cement players since there is a huge demand-supply gap in India where even far and wide states and provinces are witnessing infrastructure boom. Indian demand-supply gap is said to be around 60m tons to 70m tons but the question is whether India would be gracious enough to provide access to Pakistani cement players.

Though Pakistani supplies would only be miniscule since India has the penchant of imposing non tariff barriers and other punitive measures to restrict supplies, which would off-course a big challenge for PM elect. Though Standard Capital believes LUCK group was said to be contemplating plant in East Punjab in competition with DG Khan Group but these things may take time.

Trivial story
Standard Capital believes Indian market may not be a substitute for Afghanistan in the short run. Secondly, local development projects pursued by incumbent Punjab administration would take a bit longer due to fiscal constraints. Hence Standard Capital sees trivial issues persist for cement players who are selling cement bags at higher prices.

As per Standard Capital universes, Kohat Cement is the most undervalued along with Pioneer Cement. However, India syndrome would be beneficial for DG Khan Cement.

Leave a Reply