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Pakistan Cement: Highest Ever Monthly Sales of 4.5mn tons in March, up 14% YoY

• We expect Pakistan cement industry to post highest ever sales of 4.5mn tons during a month, up by a robust 14% YoY in Mar 2018, as per channel checks. On monthly basis, dispatches are likely to see a stellar growth of around 20%, after posting average 4% MoM growth during 8MFY18. This will take capacity utilization of the industry to around 111% in Mar 2018.
• Local sales will likely post a healthy growth of around 12% YoY to a record 4.2mn tons and up 25% compared to monthly average cement consumption of 3.4mn tons seen in 8MFY18. One of the reasons for this demand is higher consumption from private sector stemming from various housing schemes. To note, private sector credit clocked-in at Rs5.1tn by Feb 2018, up 17% YoY.
• Double digit growth in exports will likely continue as dispatches are expected to post an exponential growth of over 60% YoY to settle at around 350k tons (up 17% MoM) thanks to additional export from new capacities in South region and devaluation of PKR against USD.
• During 9MFY18, cement sales are likely to grow by around 14% where local sales will be up by impressive 17%, slightly better than our estimates. This will take capacity utilization of the industry to ~96% in 9MFY18.
• The outgoing month also proved to be a fortunate period for North producers as cement prices increased by a cumulative Rs40/bag with another Rs10/bag increase expected from tomorrow, as per our dealers’ check. This will take North prices to Rs520-530/bag, in line with our expectations. Please see our report titled ‘Pakistan Cements: Sector Downgraded to Market Weight’ dated Sep 18, 2017, where we highlighted 4.5% correction in North cement prices in FY18 to average at Rs525/bag. However, prices in South has thus far remained intact, contrary to our expectations.
• Our top picks in the sector are Lucky Cement (LUCK), DG Khan Cement (DGKC) and Maple Leaf Cement (MLCF).