AKD Quotidian about — Cements: Positive Volumes but Dewan news flow dominates!
Karachi: While official data is yet to uploaded at the APCMA website, news reports indicate domestic cement sales for Mar’12 at a whopping 2.55mn tons – the highest ever monthly figure.
According to AKD Securities, in cumulative 9MFY12, local sales were up 8.4%YoY to stand at 17.4mn tons. On the flipside, exports for Mar12 were down by 237%VoV to 625.4k tons while cumulative 9MFY12 exports were down 7.8%YoY to 6.2mn tons. Going forward, AKD Securities expects local volumes to remain on the higher side given probable infrastructure development and construction activities in the country ahead of upcoming general elections. However, exports are likely to remain muted in the near term given depressed export volumes to the Middle East and lower than expected volumes to Afghanistan. Impressive local volumes and better pricing ability are likely to result in a sustained rally across the board in cement scrips in the near term. In this regard, continued news flow regarding M and A activity within the sector is also keeping investor interest intact with Dewan Cement Limited (DCL) the focal point of takeover rumours. Based on average sector EV/ton basis (after removing outliers), AKD Securities arrive at an indicative value of PkR5.2 per share for DCL. The scrip is already trading close to AKD Securities’ indicative value, however, if market murmurs are to be believed, the acquisition price could be at a significant premium to current market price, potentially within the PkR8-PkRIO per share range.
Cement Sales – Local Up, Exports Down! The story within the sector has changed drastically from a few years back when exports were the focus of all attention. Current upward swing in the sectors profitability has been on account of positives unfolding within the domestic market – both in terms of volumes as well as prices. Domestic volumes in Mar’12 have reportedly come in at a whopping 2.55mn tons – the highest ever monthly figure. This was compared to 2.22mn ton in Mar’11. While the break-up between North and South is not available at the moment, AKD Securities believes the growth is likely to have mainly come in the Northern region where sales volumes last year at 1.11mn tons were lower than the average of 1.8mn- 1.0mn tons seen in the previous years.
Exports have continued to disappoint with cumulative 9MFY12 exports reportedly standing at 6.2mn tons – down 7.8%YoY. Of particular worry are Mar’12 exports at 625.4k tons – down 23.7%YoY. This represents the second consecutive month where exports have declined by more than 20%YoY. Even the much vaunted Afghanistan volumes have failed to materialize with exports to the country reportedly registering a tepid 2%YoY growth in QMFY12. Going forward, AKD Securities believes exports are likely to remain muted in the near term given depressed export volumes to the Middle East and lower than expected volumes to Afghanistan.
M and A Rumours – Dewan acquisition at a premium to market price? Market has been ripe of-late with rumours of acquisitions refusing to die down. In this regard, Dewan Cement is one of the prominent names that has sprung up. Note that the company is facing litigation given its non- payment of interest over debt. Resultantly, results for the company have been qualified. Best indicator in AKD Securities’ view for cements would be EV/ton where the sector is on average trading at EV/ton of US$45.1 (PkR4,099.6). Taking the sector’s indicative EV/ton on Dewan’s reported capacity at – 2.6mn tons clinker and last reported debt figure of PkR8.6bn, AKD Securities arrive at an indicative equity value of PkR5.2 per share. The stock is already trading at PkR5.7 per share, close to AKD Securities’ indicative price. That said, if market murmurs are to be believed, the acquisition price will likely be at a premium to market price, with figures in the range of PkR8-PkR1O being quoted.