March 08, 2023 (MLN): The cement industry in Pakistan is currently experiencing a disparity between its trading price and replacement cost as the average enterprise value (EV) per ton of cement is only $22, significantly lower than the replacement cost of $80-100 per ton.
This has led to an undervaluation of the industry, which has not been reflected in stock prices.
The industry has adjusted its earnings to account for the currency devaluation, but this has not been reflected in the stock prices, leading to a discrepancy between the industry's true value and its current trading price.
Despite the undervaluation, the north zone cement sector has been performing well, with the average earnings before interest, taxes, depreciation, and amortization (EBITDA) per ton of cement reaching $18 in 2QFY23 which is close to the historical high for the sector, according to Topline Securities.
While the undervaluation of the cement industry may seem concerning, it represents an opportunity for investors looking to invest in an undervalued sector with potential for growth. The industry's strong performance in the north zone also indicates that there is potential for growth in other regions of the country.