Cements: Downplaying the Concerns

 

          We downplay the concerns surrounding any negative impact of PKR depreciation on our cement universe profitability as the recent dip in international coal prices have more than offset impact of PKR/USD depreciation (9.3% since FYTD), we believe

 

          As per our estimates, depreciation of PKR10/USD presents a negative 1.5%-2.5% on our cement universe earnings; whereas, any USD5/ton contraction in coal prices translates into an upside EPS impact of 5% on our Cement Universe

 

          The recent upward revision in power tariffs by Ministry of Water and Power (also includes fuel price adjustment) will result in an increment of roughly 15-18 per bag on the cement manufacturers. Given the already peaking level of domestic prices, we foresee a gradual pass through of increase in power cost thus keeping intact our earnings estimates

 

          On cumulative basis, the overall dispatches surged by 3.3% YoY to 29.48mn tons in 11MFY12 as against 28.55mn tons in the same period last year. Local dispatches remained strong with an upside of 8.4% YoY to 21.64mn tons while exports continue to remain lackluster as the total exports of the sector fell by 8.6% YoY to 7.84mn tons

 

          We expect the trend in dispatches to continue in 1QFY13 on account of aggressive PSDP utilization owing to 1) pre-election populist measures and 2) start-up and completion on new/pending water/power projects

Cements: Downplaying the Concerns