AKD Quotidian about — Cements: Highest September on record!

Karachi, October 07, 2013 (PPI-OT): According to data released by the All Pakistan Cement Manufacturers Association (APCMA), cement dispatches picked up in Sep’13 after the dual impact of Ramadan/monsoon rains.

According to AKD Securities, local sales increased by a strong 19%YoY/36%MoM to clock in at 2.14mn tons during while exports, although posting the 20th YoY decline since the start of FY12, rebounded by 20%MoM to 0.81mn tons. As a result, 1QFY14 dispatches clocked in at 7.80mn tons, up by 1%YoY/lower by 12%QoQ where the sequential slowdown was attributable to seasonality and holidays during 1QFY14.

Going forward, Taurus Securities Limited believes that the cement sector is poised for a rebound given the strong recovery in sales volumes, resolution of disputes amongst cement manufacturers and increasing share of higher-margin local sales amidst strong domestic demand. In this regard, Taurus Securities Limited takes recent poor price performance in cement sector scrips (sector market cap down 10.7% since FYTD high) as an opportunity to build fresh positions where Taurus Securities Limited retains AKD Securities for LUCK and DGKC.

Sep13 Cement Despatches
                                               Dispatches ('000 tons)      1QFY14       YoY   QoQ      Sep'13     YoY     MoM
                                               Local Sale:
                                               North                         4,569      4%    -16%      1,751     17%      34%
                                               South                           987      -6%   -22%        385     31%      47%
                                               Total Local                   5,556    2.17%   -17%      2,136     19%      36%
                                               Export Sale:
                                               North                         1,545     -12%   -1%         582     -8%      33%
                                               South                           696     36%     8%         233     26%      -3%
                                               Total Export                  2,241      -1%    2%         815     -0.4%    20%
                                               Grand Total                   7,797      1%    -12%      2,951     13%      31%

Strong off take in Sep’13: Cement dispatches picked up in Sep’13 the dual impact of Ramadan/monsoon rains. Specifically, local increased by a strong 19%YoY/36%MoM to clock in at 2.14mn tons Sep’13. At the same time, although exports continued to decline on a YOY basis (-0.4%YoY to 0.81mn tons in Sep’13), the same rebounded by robust 20%MoM.

The latter was largely due to uptick in exports to Afghanistan where Taurus Securities Limited flags LUCK, FCCL, CHCC as KOHC as some players with close proximity to the border. As a result, overall Sep’13 cement sales clocked in 2.95mn tons, up 13%YoY/31%MoM, the highest September on record (data available since FY99).

1QFY14 was encouraging: Total cement dispatches in 1QFY14 clocked in at 7.80mn tons, representing an increase of 1%YoY even as sales came off by 12%QoQ. This sequential slowdown in sales was attributable to seasonality and holidays during 1QFY14 where typically the Apr-Jun quarter is the best for cement sales. Growth over the corresponding period last year was led by a 2%YoY increase in local dispatches while exports came off by 1%YoY.

Investment perspective: Taurus Securities Limited believes that price discovery in the cement sector, which has stagnated of late, is poised for improvement given the strong recovery in sales volumes, resolution of disputes amongst cement manufacturers and increasing share of higher-margin local sales amidst strong domestic demand. With recent developments suggesting a supportive operating environment for at least the next six months and an expected margin uptick in 2QFY14 (going by recent increase in ex-factory prices in the north by PkR15-PkR20/bag), Taurus Securities Limited believes current levels provide suitable entry points in cement sector scrips. AKD Securities preferred plays are LUCK and DGKC.