By: Sonia Agarwal
92 21 5612290- 94 Ext 335
Foundation Securities Pvt Ltd
Though cut in power tariff is a welcome development, we highlight its impact is less profound than the direct impact of 44% decline in oil prices on cement players. The increasing cost differential between WAPDA and FO fired power generation (~PKR1/kwh) may compel the players to opt for in-house power generation going forward, in our view. We believe the cumulative impact of the aforementioned developments (FO price down ~26% and WAPDA tariff down ~16%) may create room for margin expansion in 2HFY15 if the cement prices would remain intact. However, we eye a token price cut of PKR10-15/bag in retail prices to partially dilute the positive impact.
Overall, we remain positive on the sector with LUCK as our preferred pick.
In-house generation: a better alternative: The govt. has recently reduced power tariff for industrial consumers by ~16% to reflect the moderation in oil prices (43% down since Jul’14). The tariff cut bodes well for the companies relying primarily on national grid (FCCL, KOHC, LPCL, PIOC, ACPL, BWCL).