Elixir Securities Limited – Flash Note

Karachi, October 10, 2018 (PPI-OT): Lucky Cement Limited – Dispatches Grow 19% YoY in Sep-18; Significantly Better than Provisional Numbers

As per the news citing All Pakistan Cement Manufacturers Association (APCMA), cement industry’s dispatches clocked in at 3.8mn tons for the month of Sep-18, up 19%YoY on the back of 10/78% YoY jump in domestic sales / exports. The offtakes quoted by APCMA are significantly better than the provisional numbers floating in the market, which put Sep-18 sales at ~3.5mn tons.

Dissecting local dispatches in terms of regions exhibits North’s 3%YoY growth to 2.4mn tons while local dispatches in South clocked in at 0.64mn tons (up 49%YoY owing to low base effect of last year). Exports in North declined by 5%YoY to 0.29mn tons but improved 4.5x in South to 0.42mn tons.

The improvement in exports from South is due to recent expansions by Lucky Cement (LUCK), Attock Cement (ACPL) and D.G. Khan Cement (DGKC); as these players have started to divert their excess capacity towards lower priced exports.

During 1QFY19, domestic sales remained flat YoY at 9.0mn tons (North/South: 7.1/1.8mn tons), due to lower offtakes in Aug-18. Total exports remained strong during the quarter as Southern players were tapping into regional markets (total exports during 1QFY19: 1.8mn tons, up 39%YoY). Total dispatches during the outgoing quarter grew by 4.5%YoY to 10.8mn tons.

Although the dispatches improved MoM due to low base effect in Aug-18, we expect dispatches to remain modest going forward owing to 1) expected slowdown in economy, 2) cuts in Public Spending Development Program (PSDP) after entry into IMF and 3) drop in construction activities amidst rising interest rates (i.e. Home Financing). Incorporating the above concerns into our projections, we have revised down our demand forecast (local offtakes) for FY19 to 0% (FY18A: 16%). Our average long term demand forecast for local offtakes stands at 5%.

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