All Pakistan Cement Manufacturers’ Association (APCMA) has released provisional dispatches numbers for the month of January 2016, depicting slowdown in demand growth. The growth in offtake during January 2016 was 5.3%YoY as compared to 10.5%YoY during December 2015.

Owing to slower pace of construction activity during winter domestic demand grew by slightly more than 10%YoY in January 2016 as compared to 19.3%YoY a month ago. However on a cumulative basis, demand has grown at a healthy pace of 6.2%YoY during first seven months of current financial year.

Domestic offtake remained robust at 15.4%YoY owing to strong PSDP spending and record high construction related private sector credit growth, up 35% in November 2015, last seen in 2007-08.

Cement manufacturers outpacing the industry during the period included KOHC (+21%YoY), PIOC (+10.5%YoY) and FCCL (+8.6%YoY). LUCK remained the worst hit with dispatches going down by 5.8%YoY to 3.73 million tons on account of higher tilt towards exports whereas DGKC and MLCF were able to register decent growth of 4.2%YoY and 3.9%YoY, respectively, however still remaining below the industry average.

Going forward, while domestic demand is anticipated to continue its growth momentum (7% industry growth expected across medium term), the downfall in exports (-25%YoY in 7MFY16) is likely to normalize from FY17F as impact of anti-dumping duties imposed by Iraq and South Africa wears off. Moreover, any pickup in CPEC related activities can provide room for dispatches to grow further. That said, risk of slowdown in domestic demand growth remains on account of possible cut in PSDP spending to meet fiscal deficit requirements (4.3% of GDP) under IMF program.

Investment Perspective: Considering strong fundamentals in place in terms of: 1) healthy domestic demand, 2) lower input costs and 3) swift deleveraging in the current lower interest rate environment, analysts maintain overweight stance on the sector.

 

 

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