AKD Quotidian about — Cement Sector: Nov13 Cement Dispatches : AsiaNet-Pakistan

AKD Quotidian about — Cement Sector: Nov13 Cement Dispatches

December 6, 2013 | Brokerage | Share:

Karachi, December 06, 2013 (PPI-OT): Cement dispatches for Nov’13 have reportedly clocked in at 2.7mn tons posting a subdued growth of 3%YoY as compared to 2.6mn tons in Nov’12.

According to AKD Securities Limited, in this regard, while domestic dispatches displayed strong growth of 9%YoY to clock in at 2.1mn tons, export dispatches posted the eighth consecutive month of YoY decline, clocking in at 601k tons (-13%YoY). Going forward, while AKD Securities Limited expects sequential growth to remain subdued during the Dec- Feb period due to the onset of winter in the North, AKD Securities Limited may witness YoY growth in the coming months led by an increase in local demand.

On the pricing front, THCCL and POWER recently increased retail prices in the South region by PkR15/bag, an increase of 3%. In this regard AKD Securities Limited believes competitors will likely follow with a similar increase in prices in the South as well as the North in two phases (PkR15/bag likely in Dec’13 and a further PkR10/bag increase in the new calendar year). At current levels, AKD Securities Limited has a Buy rating on DGKC (FY14F P/E: 6.0x) where AKD Securities Limited’s target price of PkR108/share offers 38% upside.

5MFY13 cement dispatches: Cement dispatches for Nov’13 have reportedly clocked in at 2.7mn tons, posting a subdued growth of 3%YoY compared to dispatches of 2.6mn tons in Nov’12. In this regard, while domestic dispatches displayed strong growth of 9%YoY to clock in at 2.1mn tons, export dispatches posted the eighth consecutive month of YoY decline, clocking in at 601k tons (-13%YoY).

The sharp drop in export dispatches was largely due to an eleven day strike by transporters during November and a slowdown in demand from Afghanistan and India. As a result, total dispatches during 5MFY13 clocked in at 13.18mn tons, up by a muted 0.4%YoY where local dispatches clocked in at 9.7mn tons (+1.9%YoY) while exports clocked in at 3.5mn tons (-3.4%YoY). Going forward, while AKD Securities Limited expects sequential growth to remain subdued during the Dec- Feb period due to the onset of winter in the North, AKD Securities Limited may witness YoY growth in the coming months led by an increase in local demand due to increased private sector investment in real estate. However, exports to Afghanistan are likely to continue being dragged down by competition from cheaper Iranian cement which will become a larger factor after relaxation in sanctions on Iran by the Western powers.

Price hike on the cards: AKD Securities Limited understands that THCCL and POWER recently increased retail prices in the South region by PkR15/bag, an increase of 3%. In this regard, AKD Securities Limited believes competitors will likely follow with a similar increase in prices in the South as well as the North. Note that cement companies have only passed on PkR10/bag of the expected PkR35/bag impact of increase in electricity tariffs.

This PkR15/bag increase will bring the total pass through of cost to PkR25/bag implying another possible round of increases in cement prices by PkR10/bag. While Mr. Muhammad Ali Tabba, Chairman of the All Pakistan Cement Manufacturers Association and CEO of LUCK in a recent interview stated that an increase of 5% (i.e.PkR25/bag) in cement prices is inevitable, AKD Securities Limited believes that the increase in cement prices will come in two phases where AKD Securities Limited is likely to see an increase of PkR15/bag in Dec’13, in line with the increase in cement prices already announced by THCCL and POWER, and a second round of increase in prices by PkR10/bag in the new calendar year. Note that an increase in prices by PkR15/bag will result in an annualized EPS impact of 10% and 14% for LUCK and DGKC, respectively (already incorporated in AKD Securities Limited’s financial models).

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