Cement stocks have delivered solid capital gains for investors since 2012. The BR Cement index has risen from 1502 points, at the end of CY12; to 5150 points, at present. Initially investors interest was confined to the blue chips of the sector. However by FY15, the BR Cement Index galloped on the back of smaller cement companies.
The Chundrigar Road analysts seemingly can get enough. Research reports continue to extol the potential for future revenues; driven by domestic demand and investments on CPEC. However, past performance never guarantees the future. And the present is not as rosy as some may contend.
The rise of cement dispatches, which define the sectors top line, has been muted around three percent. More importantly, despite the banter of higher spend on infrastructure projects; the bulk of the rise in dispatches during FY15 is attributable to the beginning of the year. Cement dispatches for the rest of the year are in-line with the historical average: no major boom to report there.
Meanwhile export markets have dried up. And some recent developments such as the lifting of sanctions against Iran, raises the spectre of competition from foreign players. Input costs are low; but that is the case world over; not an indigenous phenomenon exclusive to Pakistani cement makers.
At the bourse, the cement rally is not as surefooted as it once was. Between the end of CY12 and mid-FY14, there was only one month when the BR Cement Index posted a significant decline. In the eleven months since then, the index has slipped noticeably, thrice. After peaking in mid-FY13, average trade volumes for the sector have also scaled down.
Stock prices are supposed to represent investors confidence in the future performance of a company. And the future includes China-Pakistan Economic Corridor; dams, highways, entire new cities. However stock prices also take reality checks from time to time. The onset of result season could be the cue for just such as occasion.
The key metric is the top line and that is dependent on sales; even if the sector enjoys sticky retail prices. After a strong start in FY15, cement dispatches have not impressed. The fourth quarter earnings reports may be a dampener for party in the sector.
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