Cement Sector- Indirect beneficiary of higher development expenditure

June 14, 2021 (MLN): With the pro-capital market budget, Cement Sector appeared as one of the key beneficiaries as Federal Public Sector Development Program (PSDP) allocation has been increased to Rs900 billion in the budget for the FY22 from Rs630 billion last year- the highest ever PSDP announcement.

Aiming to adopt pro-growth policies for sustainable development of the economy, the provincial PSDP allocation has almost doubled from the budgeted amount for FY21, from Rs674bn to Rs1.2tn, taking the total PSDP allocation to Rs2.1tn compared to Rs1.3tn, depicting an increase of 61.5%.

This increased allocation will spur the construction sector activity and employment of a large, young workforce in the country.

Under the Naya Pakistan Housing Programme, the government allocated Rs30bn while it announced an Rs3bn markup subsidy for low-cost housing loans.

A report by Next Capital highlighted that Naya Pakistan Housing is one of the most important projects of this government. It suggested that special focus is needed for this project to achieve ambitious goals as the amount allocated is not sufficient for this housing project.

Meanwhile, specific allocations have been made for big-ticket dams where Rs23bn has been allocated for Diamer Bhasha Dam, Rs57bn has been earmarked for Dasu Dam and Rs6bn for Mohamad Dam. Market analysts believe that these mega structures will inevitably increase cement demand significantly. Apart from this, Neelum Jhelum Hydropower Project has been allocated Rs14bn.

Likewise, the amounts allocated to the National Highway Authority (Rs114bn) and Karachi's transformation plan (Rs98bn) may also leave a positive impact on the sector, as the demand for cement will increase as a result of a boost in construction projects.

Speaking to Mettis Global news about the budget impact on the cement sector, Abdul Samad, Chief Financial Officer (CFO) of Fetco Cement Limited said, “We do not see any obvious improvement for the cement sector currently.”

When asked about Naya Pakistan Housing Program he said, “Projects are not materialized yet and there is a major price concern regarding it. Although on the construction side, the government is working under some projects where cement could be utilized, helping the sector to grow and benefit in the near future.”

In the budget, as per a report by Spectrum Securities, there is no direct relief for the cement manufacturers. However, the higher allocation for PSDP and dam construction will bode well for overall cement demand.

Copyright Mettis Link News

Posted on: 2021-06-14T22:04:00+05:00