By: M. Taha Bin Yamin
+(92 21) 32469141 ‐ 50 ‐Ext 542
Shajar Capital Pakistan (Private) Limited.
We review the results of the Shajar’s Cement Universe (top ten players excluding LPCL) in the 1QFY15. Overall the sector posted topline and bottomline growth of 7%YoY and 6%YoYrespectively during 1QFY15 which stemmed from i) 4.7%YoY improvement in dispatches ii) 6% uptick in cement prices iii) 6% decrease in international coal prices. Top players in this regard were PIOC, KOHC and APCL.
Cost of sales increased at an average of 9%YoY to keep the gross profitability growth restricted to 4%YoY. On broader basis, the declining coal prices phenomenon was diluted by the electricity tariff hike in 1QFY14; however industry leader i.e. LUCK was though shielded by its increase but other factors (higher packing costs, plant maintenance cost) restricted LUCK’s gross profitability.
On margins front, the Gross Margins (GMs) of the sector saw slight erosion as they declined by 100bps to 35% vs. 36% in 1QFY14.
The sector’s other income grew by respectable 33%YoY with major increase led by that of LUCK and DGKC (up 72mn and 143mn respectively) on account of improved liquidity and diversification.
The sector is currently trading at a dividend yield of 3% and P/E of 8.3x, we maintain our overweight stance on the sector on the back of increased PSDP utilization leading to uptick in demand.