Morning Call about – Elections and wheat harvesting dragging demand by 10% MoM – Arif Habib Limited

Karachi, May 31, 2013 (PPI-OT): Cement dispatches slide by 10% MoM in May-13

As per the provisional numbers (29 Days) available with us, cement dispatches for May-13 appear to suffer a 10% MoM decline to 2.8mn tons.

According to Arif Habib Limited the drag mainly came from a massive 14% MoM drop in domestic sales to 2mn tons as construction activities were hit by seasonal wheat harvesting period coupled with elections related activities. Exports on the other hand, posted a modest 2% MoM improvement to 0.8mn tons, which however was not sufficient to keep the total demand from falling into the red zone.


                  July-May                       May                Apr
000 tons       FY13     FY12      YoY       FY13   FY12   YoY   Δ FY13   MoM Δ
Industry      30,473    29,494    3%        2,806  2,918   -4%    3,123   -10%
Local         22,780    21,658    5%        2,036  2,096   -3%    2,368   -14%
Export         7,693     7,837   -2%          770     821  -6%      754     2%

Domestic demand supporting 11MFY13 dispatches growth
A 10MFY13 analysis of cement dispatches mirrors a completely different picture, where strong 5% YoY growth domestic demand plays the pivotal role for the sector to achieve a 3% YoY growth to 30.5mn tons, despite exports lagging behind by a modest of 2%.

Domestic demand; heading for the historic high
Despite a slower May, Arif Habib Limited expects domestic demand to post a 6% YoY growth in FY13 to the highest ever of 25mn tons in FY13. Going forward, however, Arif Habib Limited expects this growth momentum to subdue a little due to absence of election related spending and expected lower govt spending to bring some fiscal discipline in short term.

Arif Habib Limited expects cement demand to grow at 4% CAGR in next 5 years as Arif Habib Limited expect s the new gov’t with a track record of implementing huge infrastructure projects would increase the spending going forward.

Overweight stance is maintained
Strong fundamentals like firmed cement prices (7% up YoY) coupled with falling coal prices (19% down YoY), healthy demand outlook and lower financial burden make us believe that the sector will outperform going forward. Following table summarizes Arif Habib Limited tops picks in the sector along with selected financial highlights.


Scrip   EPS   P/E  P/B  EV/ton  EV/EBITDA   Target Price  Upside 
KOHC   20.7   3.8  1.7   3,871    2.5           140.0     79% 
DGKC   13.7   5.7  0.9   6,646    2.7           110.0     41% 
LUCK   30.4   5.9  1.4   7,053    4.0           240.0     34% 
FCCL    1.7   6.9  1.0   7,529    4.3            15.2     29% 
ACPL   21.3   6.2  1.7   6,308    3.6           149.0     13% 

Source: AHL Research 

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