Karachi, March 18, 2022 (PPI-OT): Pakistan Cement: PIOC Market overplaying concerns

We update investment case for PIOC, adjusting our assumption for coal mix after company has increased reliance on Afghan coal to shield gross margins in times of ballooning coal prices and tweaking our sales volume assumption with volumes for 3QFY22TD disappointing.

After adjustments, we forecast PIOC to post an EPS of PkR10.3/8.3 for FY22/23 with an assumption of coal prices averaging at USD181/ton for FY23 against USD161/ton for FY22 while for 3QFY22/4QFY22 we expect coal prices to average at USD170/230/ton.

Leverage on the balance sheet remains high where for 1HFY22, company has partially finance principal repayment and finance cost using short term borrowings. Moving forward, we expect company to covert short-term borrowings into long term in order to improve repayment timelines.

We maintain our Buy call on the stock with a TP of PkR131.2/sh, providing an upside of 76% where we opine that current levels provide a good entry point as market seems to have overplayed the concerns regarding coal prices.