JS Securities Limited – JS Research (September 16, 2022)

Karachi, September 16, 2022 (PPI-OT): Cement: Dissecting the much-touted reconstruction demand

We dissect possible post-floods path of cement demand. While near term uptick due to private reconstruction and end of monsoon is likely, we take cue from 2010 floods to estimate quantum and timing of broad-based reconstruction demand.

As per data available to date, ~580k houses have been fully damaged due to floods. Looking at 2010 trends, some caveats are worth considering while estimating reconstruction led demand: 1) not all damaged homes were ‘pucca’ (fully built); 2) the quantum of houses rebuilt would be less than 100%; 3) some of the ‘pucca’ houses will be replaced by ‘katcha’ houses and 4) fiscal constraints of the government and limited foreign aid to date causing a delay in rehabilitation efforts.

All in all, taking an estimate of 40% fully re-built houses, incremental cement demand comes out to be ~2.2mn tons spread over FY23 (370k tons) and FY24 (~1.9mn tons), an upside of 1% and 4% to our base case demand of FY23 and FY24.