AKD RESEARCH

July 08, 2024

REP-019
PAKISTAN
Cement

Cement offtakes: 2.4%YoY growth expected VISTA

in FY25
Usama Rauf
 Cement dispatches reached 45.29mn tons in FY24, an increase of 2%YoY, driven by higher [email protected]
export volumes, while domestic sales fell to a seven-year low. 111-253-111 Ext: 634
 Budget FY25 introduced an increase in FED on cement, however, industry has pass on this
increase to customers, resulting in cement prices rising by PkR125-149/bag.
Cement dispatches in Jun’24
 We project FY25’s industry growth at 2.4%YoY, primarily on the back of increase in ex-
(mn tons) Jun-24 YoY MoM FY24 YoY
ports.
North Domestic 2.61 -8.4% -5.0% 31.55 -3.7%
 We maintain a bullish outlook on the sector supported by healthy gross margins, strong South Domestic 0.47 -26.3% -23.0% 6.64 -8.3%
earnings, and monetary easing. Our preferred picks stands as LUCK, FCCL & MLCF. Total Domestic 3.08 -11.7% -8.3% 38.18 -4.6%

Cement offtakes - Modest growth on higher exports: Cement dispatches reached 45.29mn North Exports 0.11 14.2% -33.2% 1.46 36.3%

tons in FY24, an increase of 2%YoY. The modest growth was primarily driven by higher export South Exports 0.36 -24.3% -51.8% 5.65 61.7%

volumes, while domestic sales fell to a seven-year low (33.2mn tons | down 5%YoY). The said Total Exports 0.47 -17.9% -48.5% 7.11 55.7%

decline in the local sales was mainly attributed to a slowdown in construction activities due to Total Sales 3.55 -12.6% -16.9% 45.29 1.6%

elevated construction costs, higher inflation, and record interest rates. Meanwhile, exports wit- Source: APCMA & AKD Research
nessed a 56% annual growth to 7.11mn tons. South region played a major role in this surge (up
62%YoY), as with the drop in the international coal prices enhanced exports viability.
In Jun’24, local sales declined by 12%YoY to 3.1mn tons, due to less working days amid Eid holi-
days. Similarly, exports also dropped by 18%YoY, primarily due to reduced clinker sales from the
South.
Budgetary measures to further increase construction costs: Federal budget FY25 introduced an
increase in FED on cement, doubling it from PkR100/bag to PkR200/bag. However, the sector's
pricing power allowed it to pass on this increase to customers, resulting in cement prices rising
by PkR125-149/bag, bringing prices to over PkR1,400/bag. Furthermore, Federal PSDP allocation
Cement Sector vs. KSE100 Index
for FY25 has been increased by 75%YoY to PkR1.15tn compared to FY24’s revised allocation of
PkR0.7tn. Historically, PSDP utilization has remained lower than total allocation, and likewise
100%
expected for current year as well. Nevertheless, the increase (even with low utilization), is ex-
80%
pected to support the current level of demand from public projects at a minimum. On the down-
side, increased taxes on income (personal, AoP, and salaried individuals), along with taxes on 60%

developers, are expected to negatively impact local cement demand. 40%

Captive Gas benefit almost diminished: OGRA recently has announced another hike in the gas 20%

prices for the captive usage to PkR3,000/mmbtu (w.e.f 1st Jul’24) vs. PkR2,750/mmbtu previous- 0%
ly. This increase is expected to significantly impact CHCC and LUCK, as they source ~50% and
-20%
14% of their power from gas, respectively. As per our calculations, aforementioned price hike
Nov-23
Dec-23
Aug-23

Feb-24
Jul-23

Sep-23

May-24

Jul-24
Oct-23

Jan-24

Apr-24

Jun-24
Mar-24

will have a -ve annual impact of 4.4% on CHCC and 1.5% on LUCK's earnings. To note, captive gas
prices have increased by 2.5xYoY, rising from PkR1,200/mmbtu in Jun’23. The said substantial KSE-100 Index Cement Sector

increase has eroded the competitive advantage of these companies. Despite this, power gener-
ated from captive gas at the revised rates still remains cheaper than grid rates, calculated at
~PkR29.5/kWh.
Investment Perspective: We project FY25’s industry growth at 2.4%YoY primarily due to in-
crease in exports. Whereas, local cement sales growth is expected to remain subdued, as impact
of broad-based growth and higher allocation of PSDP is likely to be overshadowed by a signifi-
cant increase in cement prices required to pass on the impact of incremental FED. On the con-
trary, exports are expected to increase by ~13% YoY, South/North 15%/3% YoY, given lower coal
prices and stable freight rates amid tapping new export markets. Subsequently, total industry
utilization is expected to remain at 55%, with cement prices averaging at ~PkR1.5k/bag during AKD Securities Limited
the year. However, we anticipate companies with higher leverage to benefit from monetary
easing. Overall, we maintain a bullish outlook on the sector supported by healthy gross margins,
strong earnings, and monetary easing. Our preferred picks are LUCK, FCCL & MLCF.
AKD RESEARCH

Lower sales along with expansions; brings industry utilization to a historical low

Cement offtakes down 13%YoY in Jun’24 ...Local cement dispatches at 7-years low

60.0

9.0
4.50

5.3
50.0
0.7

7.8
6.5
4.7
0.6

4.6
0.9
0.5
3.80

7.1
0.6

40.0
0.7

0.6
0.7

4.7
5.9
0.5
0.4

7.2
3.10

0.4

8.1
30.0
0.4

8.4
8.6
9.4

48.1
47.6
0.6

41.1
40.3

40.0
40.0
3.8

38.1
2.40 20.0

35.7
3.5

3.5
3.5

33.0
3.4
3.3
3.3

3.3

3.1

28.2
3.0

26.1
2.9

25.1
23.9
2.8

22.0
2.3
1.70 10.0

1.00 0.0

FY12

FY15

FY18

FY21
FY11

FY24
FY13
FY14

FY16
FY17

FY19
FY20

FY22
FY23
Jan-24
Oct-23

Mar-24

Apr-24
Jul-23
Jun-23

Aug-23

Dec-23

Feb-24

May-24

Jun-24
Sep-23

Nov-23

Local sales Exports Local sales Exports

Utilization levels at historical lows ...Cement prices on the constant incline (PkR/bag)

100% 1,590

1,470
94%

80%
86%
85%

84%

83%

1,350
78%
77%

76%
75%
75%
74%

73%

1,230
60%
60%

1,110
55%

40% 990

870
20%
750
Jul-22

Sep-22

Nov-22

Jul-23

Sep-23

Nov-23

Jul-24
May-23

May-24
Jan-23

Jan-24
Mar-23

Mar-24
0%
FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20

FY21

FY22

FY23

FY24

Avg North Price Avg South Price

International Coal prices eased to US$100/ton levels ...High leveraged stocks to remain beneficiaries of rate cut

400 0.70 10%

350 0.60 8% 8%
300 0.50
6%
250
0.40
200 4%
0.30
150 2% 2%
0.20 1%
1%
100 0%
0.10 0%
0%
50
-1%
0.00 -2%
0
DGKC

CHCC

KOHC
LUCK

MLCF

FCCL

PIOC
Jul-22

Jul-23

Jul-24
Jan-23

Jan-24
Oct-22

Oct-23
Apr-23

Apr-24

Debt to Equity 1% cut impact of FY24 EPS (RHS)

Source: PSX & AKD Research

AKD RESEARCH
Company-wise dispatches FY24
mn tons Jun-24 Jun-23 YoY May-24 MoM FY24 FY23 YoY
LUCK
Domestic 0.48 0.66 -28% 0.54 -11% 6.23 6.20 0%
Exports 0.27 0.07 294% 0.25 5% 2.26 1.16 95%
Total 0.75 0.73 2% 0.79 -6% 8.49 7.36 15%
MLCF
Domestic 0.30 0.32 -5% 0.32 -4% 3.75 3.99 -6%
Exports 0.01 0.01 -8% 0.02 -53% 0.16 0.12 38%
Total 0.31 0.33 -5% 0.34 -8% 3.92 4.11 -5%
FCCL
Domestic 0.46 0.38 21% 0.45 2% 4.59 4.46 3%
Exports 0.03 0.03 -8% 0.05 -44% 0.51 0.42 22%
Total 0.49 0.41 18% 0.50 -3% 5.10 4.88 5%
DGKC
Domestic 0.28 0.32 -11% 0.32 -10% 3.61 4.12 -12%
Exports 0.06 0.19 -67% 0.33 -81% 1.24 0.93 33%
Total 0.35 0.51 -32% 0.65 -47% 4.85 5.05 -4%
CHCC
Domestic 0.18 0.19 -10% 0.20 -11% 2.22 2.54 -13%
Exports 0.03 0.03 11% 0.05 -31% 0.40 0.33 21%
Total 0.21 0.22 -7% 0.25 -15% 2.62 2.87 -9%
PIOC
Domestic 0.19 0.23 -20% 0.19 -2% 2.36 2.70 -13%
Exports - - n.m - n.m - - n.m
Total 0.19 0.23 -20% 0.19 -2% 2.36 2.70 -13%
KOHC
Domestic 0.20 0.25 -17% 0.22 -6% 2.53 2.96 -14%
Exports 0.00 0.01 -81% 0.00 -38% 0.04 0.03 34%
Total 0.20 0.25 -19% 0.22 -6% 2.57 2.99 -14%
ACPL
Domestic 0.10 0.12 -16% 0.11 -15% 1.24 1.36 -9%
Exports 0.05 0.13 -62% 0.14 -63% 1.11 0.68 64%
Total 0.15 0.25 -41% 0.25 -41% 2.34 2.03 15%
POWER
Domestic 0.09 0.12 -21% 0.11 -20% 1.27 1.46 -14%
Exports 0.01 0.09 -90% 0.06 -84% 1.25 0.79 57%
Total 0.10 0.21 -51% 0.17 -41% 2.51 2.26 11%
BWCL
Domestic 0.54 0.58 -7% 0.59 -8% 6.78 6.42 6%
Exports 0.00 0.01 -47% 0.01 -60% 0.12 0.08 55%
Total 0.55 0.59 -7% 0.60 -9% 6.91 6.50 6%
DCL
Domestic 0.11 0.12 -12% 0.12 -14% 1.42 1.49 -5%
Exports - - n.m - n.m - - n.m
Total 0.11 0.12 -12% 0.12 -14% 1.42 1.49 -5%
FECTC
Domestic 0.04 0.04 -3% 0.04 1% 0.52 0.53 -1%
Exports 0.00 0.00 169% 0.00 8% 0.01 0.02 -44%
Total 0.04 0.04 -1% 0.04 1% 0.53 0.55 -3%
GWLC
Domestic 0.11 0.11 2% 0.11 4% 1.19 1.35 -12%
Exports - 0.00 -100% - n.m 0.00 0.00 -99%
Total 0.11 0.11 1% 0.11 4% 1.19 1.35 -12%
THCCL
Domestic - 0.05 -100% 0.04 -100% 0.47 0.44 8%
Exports - - n.m - n.m - - n.m
Total - 0.05 -100% 0.04 -100% 0.47 0.44 8%
Source: APCMA & AKD Research
AKD RESEARCH

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