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Morning Pulse Feb 10, 2011
Morning Pulse
Feb 10, 2011

Cement Sector: The war of survival is still on…

Synopsis…

All Pakistan Cement Manufacturers Association (APCMA) has released monthly numbers for the month of January’11. As per the data, during the 7MFY11 total dispatches of cement industry fell by 12% to 17.22m tons against 19.55m tons during the corresponding period of last year. On M-o-M basis, cement dispatches during the month of January’11 witnessed negligible decline of 1% to 2.47m tons over 2.49m tons during the month of December’10. In our today’s report we discuss cement sector performance and future outlook.

has remained a testing phase for the local players mainly due to 1) seasonal impact, as the first quarter normally does not generate healthy demand 2) moon soon rains and floods created a chaotic situation which did not allow local dispatches to bounce back and 3) delay in initiation of some mega projects (Diamer Basha Dam).

Persistent decline in export may end up…

Export dispatches posted sharp drop of 17% to 5.19m tons in 7MFY11 against 6.26m tons during the same period of last year. Threatening factor is that, normally, advent of 3Q comes up with healthy export dispatches whereas in Jan’11 export dispatches declined by 20% M-o-M basis due to sluggish construction activities abroad.

Total dispatches in 7MFY11

FY11 vs FY10 Export Trends

Tons

7MFY10

7MFY11

Y-o-Y

Local

13,284,222

12,016,230

-10%

Exports

6,262,824

5,194,859

-17%

Total

19,547,046

17,211,089

-12%

Tons

Jan FY10

Jan FY11

Y-o-Y

Local

2,274,218

1,907,353

-16%

Exports

683,584

565,853

-17%

Total

2,957,802

2,473,206

-16%

Tons

Dec-FY11

Jan-FY11

M-o-M

Local

1,785,618

1,907,353

7%

Exports

708,306

565,853

-20%

Total

2,493,924

2,473,206

-1%

Source: APCMA, Atlas Research

1.20 FY10 FY11 1.00 0.80 0.60 0.40 Millions July Aug Sept Oct Nov Dec Jan
1.20
FY10
FY11
1.00
0.80
0.60
0.40
Millions
July
Aug
Sept
Oct
Nov
Dec
Jan

Source: APCMA, Atlas Research

Pakistan has been excessively exporting its cement to GCC countries which was considered a key reason behind immense growth in exports. However, from past one year, GCC countries have become self-sufficient by having additional capacities. In addition to this, decline in export dispatches was also because of comparatively lower exports to India. During 7MFY the industry has exported mere 0.271m tons of cement to India which was 30% lowers than the same period of last year due to slow down in construction activities also India has additional available capacities which are quite enough to meet local demand. Afghanistan is the only market where Pakistan cement still has some attraction as 13% Y-o-Y growth was recorded in export

Demand contraction goes on and on…

During 7MFY11 local dispatches witnessed decline of 10% to 12.02m tons against 13.28m tons in the corresponding period of the last year. This decline in local dispatches was mainly because of slow down in construction activities across the country. 7MFY11 so far

Disclaimer: All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of publishing. However, in view of the natural scope for human and/or mechanical error, either at source or during production, Atlas Capital Markets (Pvt.) Limited accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the publication. All information is provided without warranty and Atlas Capital Markets (Pvt.) Limited makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained.

Analyst:

Muhammad Sarfraz Abbasi sarfraz.abbasi@atlascapital.com.pk (+92-21)-111-226-100 (Ext.404)

BUY

Market Snapshot Index

Chg

%

KSE 30

11930.39

-73.88

-0.62

KSE 100

12299.28

-61.66

-0.50

KSE ALL

8532.08

-39.47

-0.46

Key Data (DGKC) Market Cap(PRs bn)

10.45

Shares Outstanding (m)

365.10

Bloomberg

DGKC PA

12M Avg. Volume (m)

3.81

Key Data (LUCK) Market Cap(PRs bn)

22.85

Shares Outstanding (m)

323.38

Bloomberg

LUCK PA

12M Avg. Volume (m)

1.54

Key Data (ACPL) Market Cap(PRs bn)

4.47

Shares Outstanding (m)

87

Bloomberg

ACPL.PA

12M Avg. Volume (m)

0.093

150%

125%

100%

75%

50%

12M relative performance vs KSE ACPLL KSE-100 LUCK DGKC Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10
12M relative performance vs KSE
ACPLL
KSE-100
LUCK
DGKC
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11

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in comparison of last year. So far Afghanistan seems a permanent market for Pakistan, however, rising additional capacities with regional players seems to be an emerging potential threat.

Exports (tons)

7MFY10

7MFY11

Y-o-Y

Aghanistan

2,157,402

2,446,346

13%

India

386,752

271,978

-30%

Through Sea

3,505,505

2,367,636

-32%

Cement Exports

6,049,659

5,085,960

-16%

Clinker

213,165

108,899

-49%

Total Exports

6,262,824

5,194,859

-17%

Source: APCMA, Atlas Research

Future Outlook and recommendation…

We expect revival in demand during the 2H/FY11. We believe construction activities for flood affected people are inevitable. We also expect normal constructions activities in country are also going to be initiated as post harvesting Rabi crops farmers would be in better position to construct their houses or to do annual maintenance etc. Even though some key projects are kept on hold by the government however we believe, if the government wins back IMF’s confidence on the their conditions as well as giving a satisfactory response to the lenders (ADB, IDB and WB) would lead towards smooth inflows to Pakistan enabling country to focus on major pending projects. On the other hand, to enhance cement exports, some key Pakistani players have diverted their focus from GCC countries and India to Iraq, Sri Lanka and some african countries which includes Tanzania and Kenya. Our top picks from the sector are LUCK, DGKC and ACPL. We recommend a BUY stance for the LUCK (Fair value PRs85 upside potential 20%), DGKC (Fair value PRS39 upside potential 36%) and ACPL (Fair value PRS69 upside potential 34%)

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