Morning Call

April 7, 2011

Cement Dispatches Construction and Materials

Strong recovery in march is paving the way for healthy 4QFY11
Cement dispatches record a MoM increase of 25% in March
Spring of FY11 brought some respite to the dispatches starved cement sector, as
total volumes recorded a 22% MoM increase in March 2011, as per the figures
Coal price (US$/ton) released by All Pakistan Cement Manufacturers Association (APCMA). Seasonal
130 nature of the business lead to a 25% MoM improvement in the domestic volumes,
120
which were heartily supported by a 15.5% MoM jump in exports.

110 March on March comparison still mirrors a gloomy picture

100 Worrisome factor, however remains 3.8% YoY drop in the domestic sales of
March 2011 to 2.2mn tons, which reflects the slow beginning of the reconstruction
90
activity. A longer than normal stretch of winter season may have had its impact on
80 the domestic demand in March 2011, while cut in PSDP could also further result
May-10

Jul-10
Aug-10
Sep-10

Nov-10
Dec-10
Jan-10
Feb-10
Mar-10
Apr-10

Jun-10

Oct-10

Jan-11
Feb-11
Mar-11
Apr-11

in slowdown in dispatches.

Source: Bloomberg July-Mar Mar Feb

000
tons FY11 FY10 YoY Δ FY11 FY10 YoY Δ FY11 MoM Δ
Cement prices (Ex-Factory PKR/ton)
Industry 22,742 25,244 -9.9% 3,043 3,240 -6.1% 2,488 22.3%
7,000
Local 16,017 17,384 -7.9% 2,223 2,310 -3.8% 1,778 25.0%

6,000
Export 6,724 7,860 -14.5% 820 930 -11.8% 710 15.5%

Source: APCMA
5,000 9MFY11 figures still suffering decline
On 9MFY11 basis, the industry suffered a YoY contraction of 9.9% in dispatches
4,000 to 22.7mn tons. This was mainly on account of 7.9% YoY drop in domestic sales
due to the catastrophic floods that ravaged the country in 1QFY11. Slowdown in
demand from Middle East took its toll on exports, which shrank by 14.5% YoY.
Outlook
Source: AHL Research
Cement dispatches are expected to strengthen in 4QFY11 as the country enters
in reconstruction phase. We expect local demand to stand at 23.1mn in FY11,
posting a 1.8% YoY decline, whereas exports are expected to suffer a 16.2% YoY
contraction, taking total dispatches to 32mn in FY11 from 34.2mn a year back.
A 17% increase in ex-factory price since December 2011
Ex-Factory prices have been tracing a rising trajectory since December 2010,
registering a 17.1% jump. With strong recovery expected in cement sales in last
quarter coupled with a 17.1% rise in Ex-factory prices and cooling off coal prices,
the cement companies look all set to post healthy gains in 3QFY11.
Recommendation
Lucky Cement Limited (LUCK) remains our top pick in the sector as it offers a
sizeable upside potential of 41.4% to our December 2011 target price of PKR
97.1/share. The Stock is trading at FY11E PER of 5.8x, reflecting a 47.8%
discount to the average AHL Cement Universe PER of 1.1x.
Analyst
Syed Abid Ali AHL Cement Universe Target price (PKR) Current price (PKR) Upside
abid.ali@arifhabibltd.com
Lucky Cement 97.1 68.67 41.4%
021-32462589 Ext. 253
Attock Cement 69 54.9 25.7%
www.arifhabibltd.com D.G Khan Cement 30.1 25.39 18.6%
Source: AHL Estimates
Disclaimer: The information contained herein is compiled from sources AHL believes to be reliable, but we do not accept responsibility for its accuracy or completeness. It is not intended to be an
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any liability whatsoever for any direct or consequential loss arising from the use of this publication and its contents. AHL may, from time to time, have a consulting relationship with a company
1
being reported upon. All opinions and estimates contained herein constitute our judgment as of the date mentioned in the report and are subject to change without notice.