Page | 1

ANALYSIS OF CEMENT INDUSTRY OF

PAKISTAN
Analysis of Pakistan Cement Sector

Page | 2

EXECUTIVE SUMMARY
This report provides a detail analysis of the cement sector. It covers number of factors that
include performance of cement industry, market share comparison of major market players,
exports, revenue and income generated by cement sector.
The first part of the report focuses on the performance of the cement industry. Pakistans cement
industry expanded greatly in terms of production during the last decade, but for the past few
years it is facing an intense competition because of the stagnant domestic demand. Recently,
there has been a gradual increase in the local market cement demand, thus improving the
profitability for the sector. It is also mentioned in the report that there has been a tremendous
increase in the production capacity, export and total production of cement.
In the second and third segment of the report, the market and financial structure of the cement
industry has been discussed. The market structure of Pakistans cement industry is oligopolistic
in nature as there are total 18 companies but only 5 of them control above 64% share. The
cement industrys production facilities are mainly concentrated in north of the country which is
around 83%, whereas south has only 17% of the facilities. In terms of financial structure, the
overall debt burden has reduced and the owners equity has increased in FY13. Therefore, it can
be stated that overall performance and financial records were very profitable in FY13 and the
records sustained in 6MFY14 as well.
In the last part of the report, the major market players and the competitive environment has been
discussed. A comparison between two leading companies has been made; the two main players
that hold a major market share in the cement industry are Lucky and D G Khan Cement. A
comparison for exports and different scenarios of coal prices has also been made.
In the end, the future outlook for the cement industry has been discussed which shows that the
strong profitability in the recent years has tremendously facilitated the cement sector to enrich its
financial position. With this continuous positive performance trend, the growth of cement sector
is expected to improve even further.

Page | 3

TABLE OF CONTENTS
1. Performance of Cement Industry
Introduction

05

06

1.1. Tables
Production variables 07
Historical analysis of cement production capacity & despatches
Statement of installed production capacity
Production & growth of cement

13

14

1.2. Graphs
Production and capacity

06

Production and capacity utilization

Net income and revenue

11

17

Cement retail prices Vs. capacity utilization 17

2. Market Structure

18

2.1. Tables
Demographics 19
Exports of cement

20

2.2. Graphs
Exports

21

Exports Breakup

21

Cements demand in local market

Cement utilization

23

Demand driver

24

Market share 24
3. Financial Structure
3.1. Tables
Profit & Loss 26

25

22

11

Page | 4

Debt & Equity 27

3.2. Graphs
Debt

28

Equity 28
Capital structure
4. Major Players

29

30

Comparison of two major players31

Cost factor32
Exports as a mean against PKR depreciation
Lucky Cement as the market leader

35

37

4.1. Tables
Comparison for different scenarios of coal prices

33

Sensitivity of PKR/US$ parity on Lucky Cement

36

Sensitivity of PKR/US$ parity on DGKC

36

4.2. Graphs
Comparison of Lucky cement & DGKC

31

Increase in net margin with higher retention prices 34

Increase in gross margin for FY13
5. Outlook

37

6. References

38

35

Page | 5

PERFORMANCE OF
CEMENT INDUSTRY

Page | 6

1. INTRODUCTION
Pakistans cement industry is one of the important factors of the countrys economy. Cement
sector of Pakistan with 44.6 mn per annum production, has a part of 1.2 percent in global cement
production. Mega projects initiated by public sector have provided a chance to the cement
producers to make expansions in production of cement. Besides these expansions there are
various challenges that cement sector of Pakistan is facing, most important challenge to be
seriously dealt is energy cost. Measures should be taken to reduce energy cost as it has an impact
on total input cost. Number of opportunities are yet untapped and need attention to be availed by
the cement producers. These opportunities include export markets, increasing trend in per capita
income or purchasing power parity. A public sector development program that includes
infrastructure, construction of industries and real estate are the core domestic demand drivers.

Page | 7

PRODUCTION VARIABLES
Table 1
Yearly Average Input Rate, Inflation & US $ Exchange Rate
Financial
Year

2011-2012

Furnace

Coal-

Electricit

oil

R.Bay

Gas
(Rs./MM

Diesel

Petrol

Paper
Bag

Inflation

BTU)
(Rs./KWH
(Rs./Ton) (US$/Ton)
Cement Captive (Rs./Litre) (Rs./Litre) (Rs./Bag)
)

US

(%)

60,380

116.3

8.2

590.9

421.2

93.2

85.9

20.7

12.0

2010-2011

47,317

108.2

7.1

536.4

382.4

81.4

75.5

19.0

14.0

2009-2010

39,137

75.9

6.2

495.7

353.3

69.3

66.8

16.6

11.7

2008-2009

33,910

94.9

5.6

441.9

381.0

60.6

68.0

17.0

20.8

2007-2008

31,444

94.5

5.2

40.8

13.1

12.0

2006-2007

20,107

51.7

4.0

36.8

10.8

7.8

2005-2006

20,300

48.0

3.7

34.3

9.0

7.9

2004-2005

13,331

53.7

3.6

25.4

8.9

9.3

2003-2004

11,282

42.2

3.6

21.6

10.2

4.6

2002-2003

10,787

25.0

3.6

20.5

10.8

3.1

2001-2002

9,341

29.2

3.2

15.8

10.1

3.5

(3-Months)

Page | 8

2000-2001

9,679

31.5

3.2

10.0

4.4

1999-2000

6,678

25.5

3.4

9.5

3.6

1998-1999

5,728

26.6

3.7

9.5

5.7

1997-1998

6,031

33.3

3.3

9.3

7.8

1996-1997

6,164

36.1

3.4

11.8

1995-1996

3,308

39.7

3.0

10.8

1994-1995

2,843

35.9

2.7

13.0

1993-1994

2,822

31.0

2.2

11.3

1992-1993

2,585

34.7

2.0

9.8

1991-1992

2,450

39.5

2.0

10.6

Source: APCMA

Page | 9

Figure 2

Cement Capacity (Mln Tons)

50
45
40
35
30
25
20
15
10
5
FY
13

FY
11

FY
09

FY
07

FY
05

FY
03

FY
01

FY
99

FY
97

FY
95

FY
93

FY
91

The cement production capacity was maximum in FY10 but in later years it decreased a bit and
stood 44.8mln tons in FY12, FY13 and 6MFY14.
Figure 3
50
45
40
35
30

Mln Tons

25
20
15
10
5
0
FY04

FY05

FY06

FY07

FY08

FY09

FY10

Export (Mln Tons)

FY11

FY12

FY13 6FY14

P a g e | 10

Source: PACRA

The cement export was recorded to be 8mln tons in FY13, it registered a meager decline of 2%,
mainly because of the entry of Iranian cement in Afghanistan. In 6MFY14 the export again
increased by 1mln ton and became 9mln ton.

P a g e | 11

Figure 4

Total Production (Mln Tons)

FY
13

FY
11

FY
09

FY
07

FY
05

FY
03

FY
01

FY
99

FY
97

FY
95

FY
93

FY
91

Mln Tons

50
45
40
35
30
25
20
15
10
5
0

Total Production (Mln Tons)

Source: PACRA
There was a ~3% rise in the cement production during FY13, total cement production stood at
33mln tons. The production of cement is recorded to be 15mln tons during 6MFY14. There is a
direct relation of demand and production.
Above graph shows that there has been a continuous increase in the production of cement after
FY 2003. This sector experienced an upsurge in the demand of cement after the year 2003.
Production and supply is directly correlated with demand of cement. Pakistan faced heavy floods
during 2003 and 2007. Earthquake of 2005 caused destruction on a mass level. This increase in
demand of cement occurred because of the rehabilitation activities in northern regions of
Pakistan as well in Azad Kashmir. Besides these rehabilitation activities government started
different development projects.
From 2010 to 2014, almost all of Pakistan was badly affected by the destructing flood. Badly
affected areas were of Punjab and Khyber Pakhtun Khuawa (KPK), Sindh was also effected.

P a g e | 12

Government started rehabilitation activities in these areas that in result increased the demand of
cement positively effecting cement production. Public Sector Development Program (PSDP) has
a positive impact on demand of cement and in result of production of cement. There is a political
stability in Pakistan in terms of civil government. Government is focusing more on
developmental programs and developing infrastructure. PSDP is one of its example. Government
spending in this regard played a role of catalyst in increasing domestic demand. In FY 2012,
government allocated +8% of total funds this figure was increased to +19% in FY 2013. In FY
2014, cement sector continues to show growing trend because of government policies.

Figure 5:
Cement Capacity, Export and Total Production of Graph

P a g e | 13

Pakistan Cement-Production & Capacity Utilization

100
90
80
70
60
50
40
30
20
10
0

Percentage

FY
91
FY
93
FY
95
FY
97
FY
99
FY
01
FY
03
FY
05
FY
07
FY
09
FY
11
FY
13

Mln tons

50
45
40
35
30
25
20
15
10
5
0

Cement Capacity (Mln Tons)

Export (Mln Tons)

Total Production (Mln Tons)

Capacity Utilization (%)

Cyclical Impact

Source: PACRA
Table 2
Historical Analysis of Cement Production Capacity & Despatches (Operational Units Data)
From the table above we can extract all recent data to construct the above graph.
July
to
June

19901991
19911992
19921993
19931994
1994-

Productio
n
Capacity
(Mn.
Tonnes)

% age
Chang
e

Local
Despatche
s
(Mn.
Tonnes)

% age
Chang
e

8.89

Export
s

0.00%

7.29

0.00%

(Mn.
Tonnes
)
-

8.89

0.00%

7.71

5.79%

8.89

0.00%

8.32

9.048

1.77%

10.173

12.43%

% age
Total
Change Despatche
s
(Mn.
Tonnes)

% age
Change
(Total)

Capacity
Utilizatio
n
% age

0.00%

7.290

0.00%

81.99

0.00%

7.712

5.79%

86.74

7.94%

0.00%

8.324

7.94%

93.62

8.136

-2.26%

0.00%

8.136

-2.26%

89.92

8.380

3.00%

0.00%

8.380

3.00%

82.37

P a g e | 14

1995
19951996
19961997
19971998
19981999
19992000
20002001
20012002
20022003
20032004
20042005
20052006
20062007
20072008
20082009
20092010
20102011
20112012
20122013
20132014
20142015
(2Month

10.173

0.00%

9.431

0.00%

9.431

12.54%

92.70

9.650

12.54
%
2.33%

12.504

22.91%

0.00%

9.650

2.33%

77.17

15.528

24.18%

9.193

-4.73%

0.00%

9.193

-4.73%

59.20

16.410

5.68%

9.621

4.65%

0.00%

9.621

4.65%

58.63

16.379

-0.19%

9.937

3.29%

0.00%

9.937

3.29%

60.67

15.534

-5.16%

9.933

-0.04%

0.00%

9.933

-0.04%

63.95

16.101

3.65%

9.833

-1.01%

0.107

9.940

0.06%

61.73

16.321

1.37%

10.980

0.472

11.452

15.21%

70.16

17.279

5.87%

12.545

13.663

19.31%

79.08

17.909

3.65%

14.788

1.565

16.353

19.69%

91.32

20.83

16.31%

17.049

1.505

-3.83%

18.554

13.46%

89.08

30.50

46.41%

21.034

3.228

30.77%

79.23

23.54%

22.577

30.293

24.86%

80.14

42.28

12.22%

20.325

-9.97%

10.981

114.46
%
139.06
%
42.31%

24.262

37.68

11.66
%
14.25
%
17.88
%
15.29
%
23.38
%
7.33%

100.00
%
342.53
%
137.02
%
39.96%

31.306

3.34%

74.05

45.34

7.24%

23.567

10.649

-3.03%

34.216

9.29%

75.46

42.37

-6.55%

22.002

15.95
%
-6.64%

9.428

31.430

-8.14%

74.17

44.64

5.35%

23.947

8.84%

8.568

11.47%
-9.12%

32.515

3.45%

72.83

44.64

0.00%

25.06

4.64%

8.37

-2.26%

33.43

2.82%

74.89

44.64

0.00%

26.15

4.34%

8.14

-2.84%

34.28

2.54%

76.79

44.64

0.00%

3.681

7.35%

1.33

-6.72%

5.01

3.22%

67.36

1.118

7.717

P a g e | 15

)
Source: APCMA

Table 3
Statement of Installed Production Capacity
As on September 2014

P a g e | 16

Sr. No.

Name Of Unit

Operational
Capacity
Cement (tons)
1,102,500

Askari Cement Limited - Wah

Al-Abbas Cement Limited - Nooriabad, Dadu

Askari Cement - Nizampur

1,575,000

Attock Cement Pakistan - Hub Chowki, Lasbela

1,795,500

Bestway Cement Limited - Hattar

1,228,500

Bestway Cement Limited - Chakwal

3,600,000

Bestway - Mustehkum Cement Limited - Hattar

1,086,750

Cherat Cement Company Limited-Nowshera

1,102,500

Dandot Cement Limited - Jehlum

10

Dewan Hattar Cement Limited - Hattar

11

Dewan Hattar Cement Limited Dhabeji

12

D.G.Khan Cement Limited - D.G.Khan

2,110,500

13

D.G.Khan Cement Limited - Chakwal

2,110,500

14

Fauji Cement Company Limited - Fateh Jang

3,433,500

15

Fecto Cement Limited - Sangjani

16

Flying Cement Limited - Lilla

1,197,000

17

GharibWal Cement Limited - Jehlum

2,110,500

18

Kohat Cement Company Limited - Kohat

2,677,500

19

2,047,500

20

Lafarge Pakistan Cement Company Limited Chakwal

Lucky Cement Limited - Pezu

21

Lucky Cement Limited - Indus Highway, Karachi

3,600,000

22

Maple Leaf Cement Factory Limited - Daudkhel

3,370,500

23

Pioneer Cement Limited - Khushab

2,030,250

24

Thatta Cement Limited Thatta

Total

945,000

504,000
1,134,000
787,500

819,000

3,786,000

488,250
44,642,250
Source: APCMA

P a g e | 17

Table 4
PRODUCTION AND GROWTH OF CEMENT
(000 tons)
Fiscal Year
1992-1993
1993-1994
1994-1995
1995-1996
1996-1997
1997-1998
1998-1999
1999-2000
2000-2001
2001-2002
2002-2003
2003-2004
2004-2005
2005-2006
2006-2007
2007-2008
2008-2009
2009-2010
2010-2011
2011-2012
2012-2013

Production of Cement
8,558
8,100
7,913
9,567
9,536
9,364
9,635
9,314
9,674
8,935
10,845
12,862
16,353
18,564
22,739
26,751
28,380
31,358
28,716
29,557
31,098

(%)
Percent growth of Cement
2.84
(5.35)
(2.31)
20.90
(0.32)
(1.80)
2.30
(3.33)
3.84
2.72
9.16
18.69
27.14
13.52
22.49
17.64
6.09
10.49
(8.43)
2.93
5.21
Source: Pakistan Bureau of Statistics

Note: (i) Figures represent percent growth over previous year

(ii) Figures in brackets represent negative growth

Cement production showed a considerable increase till 2010 but there was a slight decrease in
the later years, though in 2013 production again increased and got stable.

Net Income and Revenue

P a g e | 18

Figure 6

Net Income
250
200
150

Mln tons 100

50
0
FY08

FY09

FY10

FY11

FY12*

-50

In FY13 the net income was the most. It was between 30 to 40 PKR Bln.

Figure 7

FY13*

P a g e | 19

Pakistan Cement Sector: Revenue

250
200
150

PKR Bln 100

50
0
FY08

FY09

FY10

FY11

FY12

FY13

-50
Pakistan Cement Sector: Revenue

In FY13 there was an increase in sales and margins also improved, thus the overall revenue
increased.

Figure 8
Cement Sector: Revenue and Income

P a g e | 20

Pakistan Cement Sector- Revene and Income

Pkr Bln

250

25.00%

200

20.00%

150

15.00%

100

10.00%

50

5.00%

0
-50

FY08

FY09

Net Income (PKR Bln)

FY10

FY11

Revenue (PKR Bln)

FY12*

FY13*

0.00%
-5.00%

Net Margin

Source: PACRA
The graph above is a combined graph of net income, net margin, revenue and shows an increase
in all the three factors.
Figure 9
Cement Retail Prices and Cement Capacity Utilization

Cement Retail Prices Vs Capacity Utilization

Percentage

600

120

500

100

400

80

300

60

200

40

100

20

0
40575
Capacity Utilization (%)

PKR/ bag

0
Seasonal Impact

Retail Prices (PKR/bag)

Source: PACRA

P a g e | 21

Market
Structure

P a g e | 22

POPULATION DEMOGRAPHICS
Given the accelerated pace of urbanization in the country two million people shifting
from rural to urban areas annually the demand for housing is likely to remain upbeat.
According to a study by the State Bank of Pakistan (SBP), Pakistan has a housing backlog
of approximately 8.5 mn units with an annual addition of 300k units to the outstanding
backlog. Given annual population growth of around 1.6% and house density of 6.7,
approximately 400k new houses need to be built annually, which should boost demand.

Table 5
Pakistan has a housing backlog of 8.5 mn units which is growing every year
Description
Population (mn)
Population density
Urban Population
Projected growth
Rate of urbanization
Housing Backlog
Annual increase in housing backlog
Room density
Per capita GDP (US$)
GDP (FY12) US$bn

Statistics
181
202.4/km
37%
1.60%
2%
8.5 mn units
300k
6.7
1,270
234
Source: SBP, Credit Suisse estimates

Table 6
Excellent demographics as 57% of the population is below the age of 25
Category
0-14
15-24
25-34
35-44
45-54
55 and above

Population (mn)
63.8
38.8
28.8
20.2
13.6
15.8

% of total
35.2%
21.4%
15.9%
11.2%
7.5%
8.7%
Source: SBP

Table 7

EXPORT OF CEMENT

P a g e | 23

|----------------Cement---------------|
Financ Afghanist
ial
an
Years Via Land
20012002
20022003
20032004
20042005
20052006
20062007
20072008
20082009
20092010
20102011
20112012
20122013
20132014
20142015
(3-

Export
Breakup

India
Via Sea &
Land

Other
Total
Countries
Exports
Via Sea
Quantity in Metric Tons

%age
Incr/
(Decr)

North
Zone

South
Zone

106,620

106,620

100.00%

106,060

560

430,322

41,500

471,822

342.53%

428,602

1,720

1,118,293

- 1,118,293

137.02%

1,088,218

30,075

39.96%

1,516,370

48,800

-3.83%

1,409,492

95,667

114.45%

1,929,938

139.06%

5,111,607

1,297,9
83
2,605,0
13
3,763,3
51

1,407,900

1,413,994
-

1,565,170
-

1,505,159
390,973 3,227,854

1,725,476
786,672

1,106,127

2,777,826

7,716,620
634,455

908,690

39.34%

6,989,136

4,017,361

722,968

-0.96%

6,952,774

4,726,996

590,104

10,752,48
6
283,436 10,649,15
6
200,169 9,427,943

-11.47%

6,688,655

4,715,109

605,453

- 8,567,830

-9.12%

6,266,327

4,404,633

482,214

- 8,374,103

-2.26%

6,105,815

3,655,201

677,305

- 8,136,528

-3.37%

5,418,214

835,457

189,564

- 2,060,490

-8.13%

1,277,874

3,148,306

Source: APCMA

3,696,3
81
2,739,2
84
2,301,5
03
2,268,2
88
2,718,3
14
782,616

P a g e | 24

Figure 10

Pakistan Cement Exports

Mn Tons

40

40

30

30

20

20

10

10
6M
FY
14

FY
12

FY
10

FY
08

0
FY
06

FY
04

Percentage

Export from South Zone (Mln Tons)

Export from North Zone (Mln Tons)

Total Exports (Mln Tons)

Total Production (Mln Tons)

Share of Exports in Total Production (%)

Source: PACRA
Figure 11

P a g e | 25

Pakistan Cement Exports Breakup

12

100

10
Total Exports (Mln Tons)

75
8

Mn Tons

Afghanistan Via Land (%)

50

India Via Sea & Land (%)

Cement & Clinker - Other
Countries Via Sea (%)

Percentage

4
25
2
0

Source: PACRA

Figure 12
Demand of Cement in Local Market

Local Cement Consumption (Mln Tons)

35
30
25
20

Local Cement Consumption (Mln Tons)

Mln tons 15
10
5
0
FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

Source: APCMA
Local cement consumption showed an improvement as it increased to 24mln tons in FY13.

P a g e | 26

Figure 13

Cement Utilization
30
25
20
Utilization-Domestic Demand
15

Utilization-Export Demand

Utilization Capcity (Million Tonnes)

10
5

FY

FY

19
91
19
FY 93
19
FY 95
19
FY 97
19
FY 99
20
FY 01
20
FY 03
20
FY 05
20
FY 07
20
FY 09
20
FY 11
20
13

Source: APCMA
The Utilization-Domestic demand increased in the years 2013 and 2014 but in the same year
there was a decrease in Utilization-Export demand.
Figure 14

P a g e | 27

Pakistan Cement Sector-Demand Driver

525

35

450

30

375

25

300

20

PKR Bln 225

15

150

10

75

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

Mln tons

Federal Public Sector Infrastructure Development Programme Spending (PKR Bln)

Provincial Annual Infrastructure Development Programme Spending (PKR Bln) *
Local Cement Consumption (Mln Tons)

Source: PACRA

Market Share

Others; 23%
Attock Cement ; 6% Lucky Cement ; 20%
Bestway Cement ; 11%
Pioneer Cement ; 4%
DG Khan Cement ; 15%
Lafarge Cement ; 6%
Kohat Cement ; 5% Maple Leaf Cement ; 10%

Figure 15

P a g e | 28

Source: Pakistan Observer News

Financial
structure

P a g e | 29

P a g e | 30

Table 8
FINANCIAL DATA: PROFIT AND LOSS
The table below shows the profit and loss in cement industry till the year 2011. As it can be seen
there was a major loss of 13.6 billion PKR in the time period of 2009-2010.
Financial Year

Profit

(Loss)
(Rs.- Billions)

2010-2011

5.98

(5.27)

2009-2010

4.84

(13.60)

2008-2009

10.32

(4.95)

2007-2008

3.30

(9.52)

2006-2007

5.57

(3.71)

2005-2006

17.74

(0.41)

2004-2005

10.18

(0.39)

2003-2004

6.17

(0.94)

2002-2003

0.80

(1.93)

2001-2002

1.55

(1.52)

2000-2001

0.66

(3.14)

1999-2000

1.12

(1.43)

1998-1999

0.19

(3.96)

1997-1998

0.08

(2.81)

1996-1997

0.24

(1.99)

1995-1996

0.85

(0.89)

1994-1995

1993-1994

1992-1993

1991-1992

P a g e | 31

Source: APCMA
Table 9
FINANCIAL DATA: DEBT AND EQUITY
The table below shows a reduction in debt burden and increase in capital structure of the cement
industry.
Financial Year

Debt

Equity
(Rs.- Billions)

2010-2011

125.3

114.2

2009-2010

126.4

99.9

2008-2009

125.30

100.8

2007-2008

110.58

109.43

2006-2007

98.22

97

2005-2006

78.74

72.12

2004-2005

46.94

45.53

2003-2004

35.81

33.36

2002-2003

43.48

24.83

2001-2002

40.12

21.64

2000-2001

40.52

19.88

1999-2000

36.17

21.14

1998-1999

37.11

20.92

1997-1998

35.26

24.59

1996-1997

28.29

24.43

1995-1996

19.74

25.38

1994-1995

1993-1994

1992-1993

1991-1992

P a g e | 32

Source: APCMA

CAPITAL STRUCTURE OF CEMENT INDUSTRY

Figure 16

Debt (PKR Bln)

200
180
160
140
120
100
80
60
40
20
0
FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

Source: PACRA
The burden of debt (PKR Bln) tremendously reduced in FY12 and FY13.
Figure 17

FY13

P a g e | 33

Equity
200
180
160
140
120
100
80
60
40
20
0
FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

Source: PACRA

As seen through the graph the overall capital structure improved in FY13 dramatically.

Figure 18

FY13

P a g e | 34

Pakistan Cement sector- Capital Structure

Pkr Bln

200

70

180

63

160

56

140

49

120

42

100

35

80

28

60

21

40

14

20

FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13
Debt (PKR Bln)

Percentage

Equity (PKR Bln)

Debt / (Debt + Equity) (%)

Source: PACRA

P a g e | 35

MAJOR PLAYERS

COMPARISON OF TWO MAJOR MARKET PLAYERS

Lucky and D G Khan Cement hold a major market share in the cement industry. Therefore, the
cement industry depends greatly on these two market leaders. As these two market leaders have
superior market export profile and the capability to identify new markets, especially in the case
of Lucky cement which has an exclusive competitive advantage of making a way into both the

P a g e | 36

Northern and Southern regions of Pakistan. Moreover Lucky plans to establish a 0.9 million tons
grinding plant in Iraq. Expected to be operational in the fiscal year 2014, the plant would
enhance Luckys export profile.
Figure 19

A mix of local and exports would ensure Lucky's utilization to remain higher in industry
7.5

Mn Tons

100

92

4.5

84
Percentage

76

1.5

68

FY09

FY10

FY11

FY12

FY13

FY14E

FY15

60

Local (LHS) Mn tons

Exports (LHS) Mn tons

Utilization

Industry

Source: Company data, Credit Suisse estimates

Figure 20

P a g e | 37

DGKC's good turnover for its capacity utilization

6

120

108

4
Mn Tonnes

96

3
84

72

1
0

Percentage

FY09

FY10

FY11

FY12

FY13

FY14E

FY15E

Local (LHS) Mn tonnes

Exports (LHS) Mn tonnes

Utilization

Industry

60

Source: Company data, Credit Suisse estimates

COST FACTOR
Due to the decrease in coal prices by 17 % and the successful installation of alternative fuel
supply measures such as Waste Heat Recovery (WHR) and Tyre/Rubber Derived Fuel (TDF),
have also helped to cut down the production costs of cement.

IMPROVEMENT IN PROFIT MARGINS DUE TO DECLINE IN COST OF

COAL
Coal which is one of the main factors considered in making cement constituting to 40% of the
total production cost. The recent decline trend in the international coal prices gives an edge to the
cement manufactures to gradual increase in cement prices (retention prices up 25% in FY12). As
a result, industry average EBITDA/ton has risen to US$15 (PRs1359) in 3QFY12 from US$8
(PRs710) in FY11.

Comparison of Lucky Cement and DGKC for different scenarios of coal prices are
given below

P a g e | 38

Table 10
Sensitivity of Lucky Cements FY13E earnings to coal prices
Scenario 1 Scenario 2 Base case Scenario 3 Scenario 4
Coal price US$/ton
125
115
105
95
85
Cost of production/
3,463
3,362
3,260
3,159
3,058
ton
Gross Margin
39.7%
41.4%
43.2%
45.0%
46.7%
EBITDA margin
32.8%
34.6%
36.3%
38.1%
39.9%
Net profit
7,293
7,797
8,300
8,804
9,308
Earnings impact
-12.1%
-6.1%
6.1%
12.1%
Source: Company data, Credit Suisse estimates

Table 11

Sensitivity of DGKCs FY13E earnings to coal prices

Scenario 1 Scenario 2 Base case Scenario 3 Scenario 4
Coal price US$/ton
125
115
105
95
85
Cost of production/
3,878
3,790
3,701
3,613
3,524
ton
Gross Margin
33%
34%
36%
37%
39%
EBITDA margin
27%
29%
31%
32%
34%
Net profit
2,817
3,055
3,292
3,530
3,768
Earnings impact
-14.4%
-7.2%
7.2%
14.4%
Source: Company data, Credit Suisse estimates

Figure 21

P a g e | 39

Higher retention prices and decline cost pressure will drive unit EBITDA higher
7000
6000
5000
4000
PRS/ton

3000
2000
1000
0
FY09

FY10

FY11

Retention price

FY12E

Cost of production

FY13E

FY14E

FY15E

EBITDA

Source: Company data, Credit Suisse estimates

Figure 22
Net Margin (EBITA) to increase with higher retention prices
40
35
30
Perecentage

25
20
15
10
FY09

FY10
Lucky

FY11
DGKC

FY12

FY13

FY14E

FY15E

Average

Source: Company data, Credit Suisse estimates

P a g e | 40

Figure 23

Increase in gross margin for the FY13

45
40
35
30

Percentage 25
20
15
10
FY09

FY10

FY11

Lucky's

DGKC

FY12

FY13

FY14E

FY15E

Average

Source: Company data, Credit Suisse estimates

EXPORTS AS A MEAN AGAINST PKR DEPRECIATION

The weakening external account situation and its negative impact on the Rupee raises concerns
on the possible negative impact on cement, as coal and furnace oil costs (5% of total production
cost) are considered in US dollars. While PKR depreciation inflates the cost profile of cement
majors, dollar based exports (21% of total) provide more than a perfect hedge. It is estimated that
for 5% Rupee depreciation, there is an increase in average production cost by approximately 2%,
but it also improves revenues by 1%. Provided Lucky has a higher quantum of exports 2.3 mn
tons versus 1.3 mn tons for DGKC, every 5% PKR depreciation improves Luckys earnings by
0.6%. In contrast, the net impact on DGKCs earnings from a 5% PKR depreciation is a small
-0.2% change.

P a g e | 41

Table 12

Sensitivity of PKR/US$ parity on Lucky Cement

All figs in PKR mn
PKR/US$
Net export revenue
Coal cost
Net profit
% change

-10%
86.3%
9,286
8,304
8,204
-1.2%

-5%
Base case 5%
10%
90.8
95.6
100.4
105.4
9,775
10,293
10,804
11,344
8,741
9,204
9,662
10,145
8,250
8,300
8,349
8,401
-0.6%
0.0%
0.6%
1.2%
Source: Company data, Credit Suisse estimates

Table 13

Sensitivity of PKR/US$ parity on DGKC

All figs in PKR mn
PKR/US$
Net export revenue
Coal cost
Net profit
% change

-10%
86.3%
5,382
5,430
3,303
0.3%

-5%
Base case 5%
10%
90.8
95.6
100.4
105.4
5,665
5,965
6,261
6,574
5,716
6,019
6,318
6,634
3,298
3,292
3,286
3,280
0.2%
0.0%
-0.2%
-0.4%
Source: Company data, Credit Suisse estimates

P a g e | 42

LUCKY AS THE MARKET LEADER

Lucky being the top market leader in the cement sector has both attractive valuations (FY13E
EV/EBITDA of 3.7x and EV/tons of US$76) and has a reputable position as a market leader in
terms of both costs and innovation. The company has continued to remain ahead of other
companies in the industry and this is reflected by its plans to grow geographically with
investment in Democratic Republic of Congo and Iraq with a local JV partner. Moreover, it has
shown interest in acquiring the non-paint operations of ICI Pakistan, which is planning to head
out of the non-paint business in Pakistan.

OUTLOOK
From the above data we conclude that expected trends in cement industry is healthy. Cement
industry will have growth trends in the economy if the GDP rises, thus positively effecting
demand of cement. In addition, competitiveness of cement sector depends on the regulations
developed for cost of production; discount rates must be lowered down in order to reduce
industrys debt-equity ratios. As the development expenditure incurred by the government
increases, cement demand will increase, thus posing direct relationship. One major weakness of
the Pakistani cement sector is its Oligopolistic Market Structure. There is a need of intense
competition as it will lead to efficient production in the market.

P a g e | 43

REFERENCES
(USGS Minerals Information: Mineral Commodity Summaries, 2013)
(Cement - An Overview Sector Study:The Pakistan Credit Rating Agency, 2014)
(Export Analysis; All Pakistan Cement Manufacturer Association, 2014)
(Installed Capacity; All Pakistan Cement Manufacture Association, 2014)
(Financial Data: Debt and Equity; All Pakistan Cement Manufcturer Assocition,
2014)
(Financial Data: Profit and Loss; All Pakistan Cement Manufacturer Association,
2014)
(Pakistan Bureau of Statistics, 2013)
(Ministery for Planning, Development & Reforms, 2013)
(State Bank of Pakistan: Statistics of the Banking System Quaterly Edition, 2014)