Cement dispatches trivial growth of 4pc YoY

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Zubair Yaqoob

Karachi

Provisional cement data for the month of Dec’18 indicates a 1% MoM decline in dispatches to 3.87mn tons (Nov’18: 3.90mn tons) owed to weak demand in peak winter season and holidays on account of New Years.
Whereas a minor 4% YoY growth in Dec’18 was led by exports cushioning the overall drop and displaying a stunning 81% jump YoY to 0.59mn tons as PKR depreciation, US sanction on Iran and lobbying by environmental bodies to shut down plants globally that create pollution, has re-established Pakistan in the export market. Albeit, lackluster demand in North which triggered overall decline in local sales (down by 4% YoY to 3.27mn tons). With that said, offtake in 1HFY19 depicts a growth of 4% YoY to 23.11mn tons, primarily due to robust export data (+48% YoY to 3.55mn tons) amid strong overseas demand for clinker and cement while domestic offtake remained almost stagnant (-1% YoY to 19.56mn tons). Further dissection revealed that the North region remained under pressure with dispatches portraying a dip of 7% YoY in 1HFY19 to 16.94mn tons; local sales were down by 6% YoY to 15.48mn tons while exports followed a similar trajectory (down by 18% YoY to 1.47mn tons) given distance to the port.
In comparison, South displayed a stellar growth in total dispatches (+55% YoY) to 6.17mn tons; local offtake posted a decent upturn of 21% to 4.08mn tons, while exports remarkably jumped up by 243% to 2.08mn tons with sea-based exports taking off during the year.
Major laggards that pulled down overall dispatches during Dec’18 were FECTC (0.05mn tons; -18.7% YoY), FCCL (0.24mn tons; -16.9% YoY), CHCC (0.16mn tons; -15.7% YoY), BWCL (0.65mn tons; -10.2% YoY) and MLCF (0.26mn tons; -8.0% YoY) with all the players operating in North where local demand has been slower this year vis-à-vis SPLY. On the flipside, companies that outperformed include ACPL (0.23mn tons; +32.8% YoY with exports predominantly rigorous), DGKC (0.53mn tons; +22.3% YoY with its new line in South supporting offtake), LUCK (0.64mn tons; +3.2% YoY amid buyout exports) and KOHC (0.18mn tons; +3.0% YoY). For aforementioned reasons, outlies during 1HFY19 remained ACPL (1.65mn tons; +53.1% YoY), DGKC (2.98mn tons; +19.6% YoY) and LUCK (3.98mn tons; +8.1% YoY).
Meanwhile underperformers were CHCC (1.08mn tons; -14.6% YoY), FECTC (0.34mn tons; -14.0% YoY) and FCCL (1.52mn tons; -6.7% YoY). While post winter season and end of ban on high rises in Karachi could potentially aid local sales in upcoming months. On the pricing front, positive movement in North and South during the quarter in the wake of slower demand season has been favourable for sector wide margins.
Going forward, pricing power in North may be tested once again with scheduled capacity additions from CHCC and MLCF in 2HFY19. With the conclusion of 2QFY19, we preview earnings of the AHL Cement Universe. Despite robust dispatches and recovery in retention prices, cost pressures during the quarter vis-à-vis last year including 26% deprecation in the PKR against USD on average and 10% YoY higher coal prices had an adverse impact on sector margins.
Albeit, we forecast profitability of LUCK, DGKC, ACPL, MLCF and KOHC to shrink by 21%, 23%, 20%, 38% and 6% YoY, respectively.

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