Cement: Mapping 2010 opportunities
Cement dynamics remain weak as 1HFY10 draws to a close. We maintain our
cautious stance on the sector and re-iterate concerns on 2QFY10 profitability.
Uncertainly should continue in 2HFY10 as (1) domestic prices continue to move
sideways; (2) anticipated domestic demand pick-up has not really materialized; (3)
export prospects look increasingly uncertain; and (4) energy costs are rising.
That said, we highlight potential turning points in 3QFY10 and beyond which could
improve the outlook for Pak cement space. Foremost is return to historical
consensus pricing model which can support earnings despite low demand.
The alternate case is potential changes in industry structural dynamics as smaller
manufacturers either temporarily bow out of the market till better pricing dynamics
materialize or are acquired by larger players backed by strong groups.
While demand uptick is a possible route we remain unexcited on this score, as
sizeable supply overhang requires overall demand growth of +12% p.a for 2-yrs
(21% avg required domestic demand growth, in our view).
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