Morning Briefing for January 06, 2014 – Standard Capital

Karachi, January 06, 2014 (PPI-OT): Cement sector in limelight – good local dispatches | export decline marginalized

The cement sector association APCMA reports highest ever domestic sales during 1st half.

According to Standard Capital, the total local cement dispatches in during July- Dec 2013 had grown by 2.1% to 11.976mn tons as against 11.727mn tons in the same period last year. This Standard Capital feels is a good omen in the context of public spending which is now taking place in few provinces. Standard Capital is also witnessing housing boom where consumption of cement would likely to increase. Hence local dispatches could go at around 35mn tons during FY14 as per Standard Capital’s estimation. Standard Capital has liking for CHCC (cost efficiency) and FECTC. Standard Capital has mentioned earlier that Standard Capital is hearing news of dam construction wherein Standard Capital expects yearly consumption of 5.0mn tons.

December sales increased by 4% is a good news
Cement sales in December 2013 went up by 4% to 2.326mn tons m-o-m basis compared to 2.242mn tons. This is despite harsh winter and against analyst expectation. It has also to do with decreasing export dispatches. This again is a good aspect that local dispatches are showing increasing trend which makes a strong case for cement sector companies who are also relishing price increase phenomenon. The retail prices are now exceeding Rs500 per bag wherein Standard Capital sees increasing margins for cement companies.

Exports decrease is not a bad news
Exports are under pressure and decreased by 1.8p% during Jul-Dec 2013 to 4.145mn tons compared to 4.222mn tons. However, in December 2013 export volume rose by 7.8p% to 625,000 tons compared to 580,000 tons during same month last year. But 625,000 is a miniscule number and reflect problems on trade with neighbouring India and Afghanistan. It is reported by APCMA that export decline has been offset by local dispatches which is favourable aspect for cement players. So far India is creating problem by putting non tariff barriers wherein only 0.202m tons being sent their thus showing 3.25% decrease. It’s being reported by APCMA that Pakistani cement is of better quality as against India but India is also currently feeling pinch of rear recession in construction activity. As for Standard Capital’s pet Afghanistan market there is huge decline of 14.4% wherein only 2.065mn tons could be exported in six months. The decline has a lot to do with relations with Afghanistan and influx of Iranian cement (Iranians capacities are coming online). As per APCMA, cement exports to other countries by sea increased by 17.2% to 1.878mn tons July-Dec period compared to 1.603mn tons a year earlier.

Standard Capital likes CHCC (PE5x) and FECTC (PE 3.5x).