AKD Quotidian about — Cements: Numbers disappoint!

Karachi, November 06, 2012 (PPI-OT): As per numbers provided to the press by the spokesman of All Pakistan Cement Manufacturers’ Association (APCMA), overall cement dispatches in 4MFY13 (Jut’12-Oct’12) depicted a disappointing increase of 0.4%YoY to stand at 10.47 million tons.

According to AKD Securities, volumes on the local front increased by 3.8%YoY to 7.5 million tons while exports declined by 7.5%YoY to 2.95 million tons. In Oct’12 alone, local dispatches remained flat YoY at 2.09 million tons despite the occurrence of Eid-ul-Adha holidays in the month (last year Eid occurred in Nov). Oct’12 exports declined by 20.5%YoY to 0.68 million tons underpinned by weakness on the Afghan export front. In this regard, export volumes to the country have been steadily declining with cumulative 4MFY13 exports to Afghanistan down by 9.5%YoY to stand at 1.6 million tons. Sea route exports, however, depicted some strength as they increased by 2.3%YoY to 1.2 million tons in 4MFY13.

Outlook – Watch out for Nov’12 growth! Local dispatches in Oct’12 remained flat despite the occurrence of Eid-ul-Adha holidays. In this regard, AKD Securities expects local dispatches in Nov’12 to depict a respectable increase compared to last year due to Eid being in the month of Nov’11. Going forward, AKD Securities remains positive on overall cement sector dynamics underpinned by a favourable pricing environment, lower input costs with current quarter coal price at US$86.5 per ton (last trade at US$83.7) and decreasing interest probable further monetary easing which should be particularly beneficial for the leveraged cement sector. Key players to watch in case of easing include FCCL, MLCF and DGKC.

Fertilizer: Offtake update Oct’12

As per unofficial numbers quoted by print media, Urea offtake for Oct’12 stood at dismal ~227k tons, down 14%MoM/56%YoY, bringing 10MCY12 offtake to ~3.95 million tons, down 12%YoY. DAP offtake in Oct’12 registered at ~169k tons, down 19%MoM/17%YoY, leading 10MCY12 offtake to stand at ~800k tons, down 17%YoY. Urea offtake depicted a jump in Jun’12 (that single month accounted for more than a quarter of 10MCY12 offtake due to price incentives) but has fallen off since then on expectations of higher urea import and curtailed purchasing power for farmers. Going forward, with sufficient urea inventory with dealers’, a sequential uptick in 4QCY12 offtake will likely require price cuts, something which could materialize if ENGRO receives gas supply. On the phosphates side, DAP offtake in Oct’12 reportedly stood at ~169k tons, down 19%MoM/17%YoY. Historically, DAP offtake depicts a sequential spike in 4Q owing to start of wheat sowing season whereby AKD Securities expects DAP offtake to remain healthy in the next few months. Although CY12 has been a tough year for the Fertilizer sector, AKD Securities sees some reversal of fortunes in CY13F on anticipated revival in farmers’ purchasing power (possible increase in wheat support prices inline with surge in int’l grain prices) and lower subsidized urea imports (higher int’l urea prices and potential re-entry to IMF fold). Within the AKD Fertilizer Universe AKD Securities retains AKD Securities’ liking for FATIMA and FFC, which offer upsides of 40.58% and 15.07% to respective target prices of PKR 36/share and PKR 133/share.