Cement Sector Update-4Q profitability outlook
Outgoing FY11 for cement sector was a negative growth year since 2001. Cement dispatches fell by -8.23% YoY to 31.3 mn tons, the accurate figure previously projected by our research team. In last 5 years the dispatches CAGR remained 6.66% with bulk of growth came from exports (+30.82% 5Yr CAGR). Exports were 3.2mn tons in FY07 and closed the year FY11 at 9.41mn tons where as local dispatches posted insignificant growth of 1.09% 5YR CAGR.
Culprits behind the downfall were; floods badly marred the demand for cements coupled with slowing down economy growth, political unrest and law & order.
4Q Profitability to upsize for IIS cement universe players
Cement dispatches for 4Q11 remained 8.6 mn tons (+7.4% Q/Q) and cement prices scaled up by +34% Q/Q for the quarter to Rs390/ bag. Subsequently retention prices for the cement players improved for the quarter and margins would remain on higher side. We estimate 4Q11 earnings for LUCK, DGKC and ACPL to remain 3.43/ share (+9% Q/Q), 0.71/ share and 2.85/ share (+30% Q/Q) respectively.
Price decline and 1Q12 dispatches outlook
Post budget price reduction was not fully passed on by the players with slight decline of Rs10-12/ bag on different brands. As per historical analysis for (Apr-Sep) period, 55-60% cement sector dispatches comes from this period (considering Apr-Mar financial year). We believe in 1Q12 dispatches momentum to continue and register further profitability growth for the sector. In our opinion Lucky and DGKC cement to benefit most from this likely scenario and would remain in limelight. We expect 1Q12 cement dispatches to grow by (+9% YoY) largely due to low base effect in 1Q11 (due to floods) and support to continue from summer season construction demand.
We believe going forward cement demand to stem mainly from much needed country wide infrastructure development and DAMs construction for energy needs. We expect sectors’ dispatches to grow by 3.5% CAGR for next 5 years.
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