Analyst:

Muhammad Sarfraz Abbasi

sarfraz.abbasi@atlascapital.com.pk
(+92-21)-111-226-100 (Ext.404)

Morning Pulse Feb 10, 2011

BUY
Cement Sector: The war of has remained a testing phase for the local players
mainly due to 1) seasonal impact, as the first quarter
Market Snapshot
Index Chg %
survival is still on… normally does not generate healthy demand 2) moon
soon rains and floods created a chaotic situation which
KSE 30
KSE 100
11930.39
12299.28
-73.88
-61.66
-0.62
-0.50
did not allow local dispatches to bounce back and 3) KSE ALL 8532.08 -39.47 -0.46
Synopsis… delay in initiation of some mega projects (Diamer Basha
All Pakistan Cement Manufacturers Association Dam). Key Data (DGKC)
Pakistan Research

(APCMA) has released monthly numbers for the month Market Cap(PRs bn) 10.45
Persistent decline in export may end up… Shares Outstanding (m) 365.10
of January’11. As per the data, during the 7MFY11 total
Bloomberg DGKC PA
dispatches of cement industry fell by 12% to 17.22m tons Export dispatches posted sharp drop of 17% to 5.19m
12M Avg. Volume (m) 3.81
against 19.55m tons during the corresponding period of tons in 7MFY11 against 6.26m tons during the same
last year. On M-o-M basis, cement dispatches during period of last year. Threatening factor is that, normally, Key Data (LUCK)
the month of January’11 witnessed negligible decline of advent of 3Q comes up with healthy export dispatches Market Cap(PRs bn) 22.85
1% to 2.47m tons over 2.49m tons during the month of whereas in Jan’11 export dispatches declined by 20% Shares Outstanding (m) 323.38
December’10. In our today’s report we discuss cement M-o-M basis due to sluggish construction activities Bloomberg LUCK PA
sector performance and future outlook. abroad. 12M Avg. Volume (m) 1.54
FY11 vs FY10 Export Trends
Total dispatches in 7MFY11 Key Data (ACPL)
Tons 7MFY10 7MFY11 Y-o-Y 1.20 FY10 FY11 Market Cap(PRs bn) 4.47
Local 13,284,222 12,016,230 -10% 1.00 Shares Outstanding (m) 87
Bloomberg ACPL.PA

Millions
Exports 6,262,824 5,194,859 -17% 0.80
12M Avg. Volume (m) 0.093
Total 19,547,046 17,211,089 -12% 0.60

0.40 12M relative performance vs KSE

Tons Jan FY10 Jan FY11 Y-o-Y 150%

Aug

Sept

Oct

Jan
Dec
Nov
July
ACPLL KSE-100
Local 2,274,218 1,907,353 -16% 125% LUCK DGKC

Exports 683,584 565,853 -17% Source: APCMA, Atlas Research

100%
Total 2,957,802 2,473,206 -16% Pakistan has been excessively exporting its cement to 75%

GCC countries which was considered a key reason

Tons Dec-FY11 Jan-FY11 M-o-M 50%
behind immense growth in exports. However, from past

Apr-10

Aug-10
Feb-10

Oct-10

Feb-11
Jun-10

Dec-10
Sep-10

Jan-11
Nov-10
May-10
Mar-10

Jul-10
Local 1,785,618 1,907,353 7%
one year, GCC countries have become self-sufficient
Exports 708,306 565,853 -20% by having additional capacities. In addition to this,
Total 2,493,924 2,473,206 -1% decline in export dispatches was also because of
Source: APCMA, Atlas Research comparatively lower exports to India. During 7MFY the Atlas Capital Markets (Pvt.) Ltd
industry has exported mere 0.271m tons of cement to
B-209, Park Towers, Clifton, Karachi
Demand contraction goes on and on… India which was 30% lowers than the same period of last
Equity Research: Equity Sales:
During 7MFY11 local dispatches witnessed decline of year due to slow down in construction activities also Tel: 92 (21) 5376125 Tel: 92 (21) 5368261-8
10% to 12.02m tons against 13.28m tons in the India has additional available capacities which are Fax: 92 (21) 5376126 Fax: 92 (21) 5376122
corresponding period of the last year. This decline in quite enough to meet local demand. Afghanistan is the Money Market: Corporate Finance:
local dispatches was mainly because of slow down in only market where Pakistan cement still has some Tel: 92 (21) 5376128 Tel: 92 (21) 5824991
attraction as 13% Y-o-Y growth was recorded in export Fax: 92 (21) 5376129 Fax: 92 (21) 5376122
construction activities across the country. 7MFY11 so far
Financial Products Distribution:
Disclaimer: All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time
Tel: 92 (21) 5376125
of publishing. However, in view of the natural scope for human and/or mechanical error, either at source or during production, Atlas Capital Markets (Pvt.)
Fax: 92 (21) 5376126
Limited accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the publication. All
information is provided without warranty and Atlas Capital Markets (Pvt.) Limited makes no representation of warranty of any kind as to the accuracy or Atlas Research is available on Bloomberg and
completeness of any information hereto contained. Thomson Financial
 in comparison of last year. So far Afghanistan seems a
permanent market for Pakistan, however, rising
additional capacities with regional players seems to be
an emerging potential threat.
Pakistan Research

Exports (tons) 7MFY10 7MFY11 Y-o-Y

Aghanistan 2,157,402 2,446,346 13%
India 386,752 271,978 -30%
Through Sea 3,505,505 2,367,636 -32%
Cement Exports 6,049,659 5,085,960 -16%
Clinker 213,165 108,899 -49%
Total Exports 6,262,824 5,194,859 -17%
Source: APCMA, Atlas Research

Future Outlook and recommendation…

We expect revival in demand during the 2H/FY11. We
believe construction activities for flood affected people
are inevitable. We also expect normal constructions
activities in country are also going to be initiated as
post harvesting Rabi crops farmers would be in better
position to construct their houses or to do annual
maintenance etc. Even though some key projects are
kept on hold by the government however we believe, if
the government wins back IMF’s confidence on the
their conditions as well as giving a satisfactory response
to the lenders (ADB, IDB and WB) would lead towards
smooth inflows to Pakistan enabling country to focus on
major pending projects. On the other hand, to enhance
cement exports, some key Pakistani players have
diverted their focus from GCC countries and India to
Iraq, Sri Lanka and some african countries which
includes Tanzania and Kenya. Our top picks from the
sector are LUCK, DGKC and ACPL. We recommend a
BUY stance for the LUCK (Fair value PRs85 upside
potential 20%), DGKC (Fair value PRS39 upside potential
36%) and ACPL (Fair value PRS69 upside potential 34%)