Cement manufacturers likely to enjoy bright prospects.

The onset of the winter season is likely to have adverse impact on cement sales in November 2020 due to local dispatches likely to decline up to 27%MoM. Northern region is expected to witness a contraction up to 30%MoM, while sales in the South are likely to fall max by 15%MoM. The sequential decline is likely to be higher than the past two years' average decline of 15%MoM during the month of November.

It is believed because of restricted development work in the Northern region due to early onset of the winter season and increasing number of COVID-19 cases. That said, local sales are likely to be up 2-6%YoY during November2020. The exports are likely to decline by 1-3%MoM, while they are expected to be higher by 6-8%YoY.

Capacity utilization in November 2020 is expected to fall to 82% as compared to over 100% for October 2020 (adjusted for dead capacities of Flying Cement, Dewan Cement Hattar and Dandot Cement). For 5MFY21, industry utilization is likely to hover at 86%.

Cement prices in the North region during November 2020 have averaged at Rs545/bag, down Rs5/bag. In the South region, prices remained same as last month at Rs611/bag.

November 2020 numbers should not dampen investors' expectations. Pakistan's leading brokerage house, Topline Securities has revised its earnings forecasts for cement sector on the back of higher than expected sales and cost efficient projects like coal power plant, Waste Heat Recovery (WHR) and BMR under taken by various players.

The brokerage house has revised volumetric sales numbers for FY21 and expects growth of 18-21% in local dispatches as against earlier estimate of 7.5%.

Upward revision in dispatches stems from robust construction activities across the country ushered by: 1) the construction package, 2) initiation of civil works on dams, 3) injection of additional liquidity via housing loans, 4) continuation/extension of CPEC projects, and 5) pent up demand of last two years as local dispatches remained stagnant.

Cost optimization measures are...