Equity Analysis /
Pakistan

Pakistan Cement: Price competition intensifies

    Intermarket Securities
    27 December 2019
    • As per our channel checks, cement prices in the North region has declined from its recent peak of PKR550/bag (Oct'19) and they have now gone below PKR490/bag in some areas. The main reason behind this decline is demand pressure amid the winter season. We understand that price competition is exacerbated by Cherat Cement (CHCC) trying to sell in other markets than its allocated areas.
    • Cement prices in Peshawar, Islamabad, Rawalpindi, Lahore and Faisalabad are hovering in the range of PKR480-510 per bag.
    • Moreover, in South market prices have fallen below recent high of PKR700/bag (Karachi). Price competition followed the recent commissioning of Power Cement's (POWER) new capacity in South. We understand presently Lucky Cement (LUCK), POWER and DGKC are selling at PKR660, PKR650 and PKR665 per bag, respectively. Attock Cement, however, is still selling at a premium of PKR20/bag.
    • It is worth highlighting the price competition has erupted before the commissioning of new capacities of LUCK, Kohat Cement and Pioneer Cement, which are now slated to be online by 3QFY20. There is thus the risk that the present price competition may persist and escalate when new capacities come online. 
    • We have an Underweight stance on the sector, with LUCK (TP: PKR554/sh) as our preferred pick given diverse business operations besides local cement and greater ability to withstand lower prices, courtesy cost efficiencies, and lack of leverage.