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Cherat Cement likely to see 20% fall in exports

Cherat Cement Company limited (CHCC) has apprised regarding expected pickup in the demand from the second quarter of FY23, as rehabilitation process kicks in with the flood affected areas returning to normal.

The management shared that the cement demand was not impacted in Peshawar and Mardan regions. However, Swat saw contraction due to the recent flash floods. Exports remained on the lower side of late and the company believes that the industry might see a 20 per cent decline in FY23 export sales.

It believes that the local dispatches might shrink 3 to 4 per cent on a YoY basis though there might be pressure due to the addition of new capacities.

CHCC currently estimates average coal inventory cost to be Rs55,000 to Rs57,000/tonne, where the company holds inventory for two to three months at any given point in time.

The management is of the view that the Afghan coal reserves are enough to fulfil Pakistan’s cement demand, despite power plants in the Northern Region shifting to Afghan coal. At present, more than 90 per cent of the coal mix comprises Afghan coal, which has a gross calorific value (GCV) of 6,500, similar to South African coal.

The coal from Mozambique has a lower GCV of 5,800. The company also uses some local coal (<10 per cent). Although, Thar coal has also been tested by some of the industry players but no material results have been achieved so far.

For power generation purposes, CHCC is using WHR (35 per cent of the power mix), solar (7 to 10 per cent), PESCO grid (10 per cent) and PEDO (3 to 4 per cent). The remaining requirement is met by a mix of gas and furnace oil where the expensive furnace oil is only used when the company faces gas outage, a common sight in the winter season.

The company expects the greenfield plant to commence commercial operations within 2 to 2.25 years after approval by the State Bank of Pakistan (SBP). At present, there are some delays in the process but the company had already started initial ground work, whereas a mining contract has also been obtained.

TRG Pakistan acting as catalyst to broad-brand PSX rally

RG Pakistan is yet again acting as a catalyst to a broad-based rally in the KSE-100 Index, similar to what was observed during the ascent of the Index from 39,500 to 42,800. This time though the trigger isn’t the buyback activity, rather another major shareholder in the company has commenced buying from available free float of 80 per cent.

The JS Group has notified on September 8, 2022 through the PSX that it has bought 432,158 shares on September 2, 2022 and the trading activity at the bourse since then indicates that close to 3.5 million shares have additionally been bought by the companies (in respect of which the notification will possibly be made to the exchange in the coming days).

Last trading day saw a spike in the trading activity, resulting in traded volumes to 15,096,000 with a 4 per cent uptick in the stock price vis-à-vis LDCP. Interestingly, the data indicates that the companies not only bought in the ready market but also in the futures market (September contract) that takes the incremental buying of 6 million, considering that the buying entity is the same, besides the notification on September 8, 2022 of 432,158 shares.

The JS Group, vide its notification on September 8, 2022, informed that the total shareholding by the group stood at 69.5 million shares, equivalent to 12.75 per cent.

This potential new addition of shares has apparently increased the direct shareholding to 14 per cent.

The investors would sense déjà vu when they look at HUMNL, another technology play where the JS Group exercised significant control in the past but the management broke free the influence with the increase in the shareholding of its own and eventually announced a buyback of shares, similar to what TRG did.

The KASB Securities sees renewed interest in buying shares from the market as an attempt to regain influence over how some financial matters, if not all, be dealt in a certain fashion.

One important statistic that the investors need to take into account is the VWAP (value weighted average price), especially since the beginning of the buyback activity that comes to around Rs88/share. Considering the magnitude of the trading volume and buyback activity since January 2022, one can easily decipher from the graph presented below that volumetric trading that took place below Rs80/share turned the tide in favour of the management.

OGDC to announce financial results by month-end

The Oil and Gas Development Company (OGDC) has so far corrected 10 per cent from its recent top and has seen nominal outflows from the foreign investors. The effective date for FTSE rebalancing lands in the coming week, which is likely to have nominal impact on the stock price performance. However, $6 million worth of net foreign selling since the middle of August 2022, which included selling of approximately 3.6 million shares of OGDC and Pakistan Petroleum Limited (PPL) from foreign corporates.

Analysts believe that as this programmed selling dissipates during this week, the E&P companies, particularly OGDC and PPL, will come out of slumber and contribute to a broad-based rally in the KSE-100 Index.

The company is yet to announce its full-year financial results for FY22 and is likely to announce the results by end of September 2022.

The two price drivers that aide healthy bottom-line in the fourth quarter of FY22 will be high rupee/dollar parity, as well as international crude oil prices, which were up 15 per cent on a quarter-on-quarter basis.