By: Mohammad Ali Amin
KASB Securities Limited
+92 21 111 222 000 Ext. 331
Concerns over a possible cement price cut have begun to surface, following the govt’s directive to CCoP to ascertain reasons for status quo on prices of major commodities, including cement, post steep cuts in POL prices.
We believe a PRs10-15/bag cut in cement prices, due to the cut in POL prices, is plausible in the near term; as this would help cement producers both (1) comply with govt pressure and (2) keep margins intact.
5MFY15 sales are up 6.4%YoY, overshooting our FY15 estimate of 4%, led by (1) 9.5%YoY surge in local dispatches on encouraging private spending and gradually increasing PSDP disbursement, and (2) modest recovery in exports in recent months (Oct-14 to date).
We expect cement demand to remain strong in 2HFY15, though the seasonality (winter) effect might keep sales relatively soft in Dec/Jan.
Though a PRs10-15/bag may create a temporary wave of nervousness at the bourse, we believe margins to remain strong on account of (1) stronger expected 2HFY15 dispatches and (2) declining trend in coal prices. We prefer LUCK and DGKC in KASB Cement universe.
Concerns over cement price cut begin to surface…
We see concerns on cement prices and margin emerge given government’s focus on bringing down various product prices, including cement, on the back of recent cut in petroleum prices. A PRs10‐15/bag cut in cement prices is plausible, which can achieve dual objectives of complying with the government pressure and keeping the margin intact. Meanwhile, strong growth in domestic sales for 5MFY15 has opened up the possibility of cement sales overshooting our FY15 growth estimate of 4%. While potential price cut may give rise to a temporary nervousness at the bourse, we maintain our liking for cement sector with LUCK (PO: PRs513/sh) and DGKC (PO: PRs108/sh) as our top picks in the KASB Cement Universe.