Update Pulse

June 08, 2011

Cement Sector: Dispatches slow down continues

Total dispatches in 11MFY11 (M.Tons)

Tons
Local Exports Total

11MFY10
21,460 9,757 31,216

11MFY11
19,944 8,535 28,479

Y-o-Y -7% -13% -9% Y-o-Y -10% -9% -9% M-o-M -8% -6% -8%

BUY
Market Snapshot Index KSE 30 11903.73 KSE 100 12314.99 KSE ALL 8565.10 Key Data (DGKC) Market Cap(PRs bn) Shares Outstanding (m) Bloomberg 12M Avg. Volume (m) Key Data (LUCK) Market Cap(PRs bn) hares Outstanding (m) Bloomberg 12M Avg. Volume (m) Key Data (ACPL) Market Cap(PRs bn) Shares Outstanding (m) Bloomberg 12M Avg. Volume (m) Chg 119.21 103.34 67.30 % 1.01 0.85 0.79

Pakistan Research

Synopsis
Total industry dispatches witnessed a decline of 9% YoY to 27.48m tons. Local dispatches declined by 7% YoY to 19.95m tons against 21.46m tons in 11MFY11. 11MFY11 export dispatches posted a negative growth of 9% YoY to 8.54m tons Escalating input costs remains a top challenge in dwindling demand scenario. Federal Budget 2011-12 seems slightly favoring to the sector in terms of duties reduction coupled with higher allocation of PSDP and bigger share of PSDP allocated to the mega project may bode well. We suggest a BUY stance on LUCK, DGKC and ACPL.

Tons
Local Exports Total

May-FY10
2,084 957 3,041

May-FY11
1,879 876 2,755

Tons
Local Exports Total

Apr-FY11
2,047 932 2,980

May-FY11
1,879 876 2,755

8.86 365.10 DGKC PA 3.35

Source: APCMA, Summit Capital Research

Total dispatches declined by 9% in 11MFY11

As per the data released by All Pakistan Cement Manufacturers Association (APCMA) for the month of May11, during the 11MFY11 local dispatches recorded a decline of 7% YoY to 19.95m tons as against 21.46m tons in 11MFY11. On monthly basis, during the month of May11, local dispatches dropped by 10% YoY to 1.88m tons as against 2.080m tons in the same period last year. On MoM basis local dispatches during the month of May11 also seen lower by 8% to 1.88m tons against the previous month. During 11MFY11 export dispatches were also recorded 13% YoY lower to 8.35m tons as against 9.76m tons in the same period last year. Cement exports to India were seen 20% YoY lower to 0.52m tons as against 0.65m tons in 11MFY11. Exports through sea also substantially declined by 31% YoY as these reached 3.60m tons as against 5.20m tons in the same period last year. Afghanistan remained the only destination where exports witnessed a growth of 17% YoY to 4.25m tons in comparison of 3.64m tons in corresponding period last year. On monthly basis, exports to Afghanistan and India in May11 posted a recorded a sharp decline of 36% and 23% YoY to 0.57m tons and 0.89m tons respectively. As far as the MoM basis export are concerned, these were recorded 6% lower compare to previous month. Impact of budgetary measures on industry The GoP has honored the longtime demand of the cement manufacturers to eradicate duties on cement sales. SED has been abolished completely however, FED on cement would be phased out in three years. hence, in FY12 FED of PKR500/MT will be charged. Moreover, downward revised GST is also a good omen for the cement industry as its impact will be on key inputs would reduce production cost. The GoP has also raised PSDP to PKR730bn (58% higher than last year) in the budget for 2011-12. An amount of PKR10bn out of this fund has would be allocated to ERRA (Earthquake Rehabilitation and Reconstruction Authority) which would boost up construction activities. Moreover, allocations of PKR18bn for the Diamir Bhasha Dam and PKR10.8bn for Neelum Jhelum Hydro Project would improve cement demand given projects are materialized timely. Recommendation Our top picks of the sector LUCK, DGKC and ACPL. We recommend a BUY stance for the LUCK (Fair value of PKR85, upside potential 16%), DGKC (Fair value of PKR39, upside potential 62%) and ACPL (Fair value of PKR69, upside potential 28%)

23.76 323.38 LUCK PA 1.30

4.68 87 ACPL.PA 0.05

175%

12M relative performance vs KSE

KSE-100 LUCK ACPL DGKC

140%

105%

70%

35% Aug-10 Sep-10 Feb-11 Jun-10 Apr-11 Dec-10 Oct-10 May-11 Jan-11 Nov-10 Mar-11 Jun-11 Jul-10

Muhammad Sarfraz Abbasi Sarfraz.abbasi@summitcapital.com.pk 021-35376125 B-209, Park Towers, Clifton, Karachi

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