Cement Sector Detailed Report, November 19 2018

TAURUS
SECURITIES LIMITED
A Subsidiary of National Bank of Pakistan
Taurus Securities Limited

REP‐040
A subsidiary of National Bank of Pakistan
Cements
Syed Faraz Abbas, CFA
Heading towards margin rationalization
+92 21 35216403
UAN: 111‐828‐787
research@taurus.com.pk
Taurus research is available on Bloomberg under TAUR & on Capital IQ
Stock Prices used are as of Nov 15, 2018

Monday, November 19, 2018
Cement
Sector Detailed Report TAURUS
SECURITIES LIMITED
Monday, November 19, 2018 A Subsidiary of National Bank of Pakistan
REP‐040
Heading towards margin ra onaliza on
FY2018 in a nutshell GDP Growth & Local Dispatches (mn tons)
Even though capacity utilization of the cement industry clocked in at 93% (effective GDP Growth (%)
Local Cement Dispatches Growth (%) ‐RHS
utilization of 95%) with the highest ever incremental dispatches (in number terms),
10% 30%
FY2018 proved to be a difficult year for the Pakistan Cement Sector wherein gross 8% 20%
margins of TSL cement universe contracted by 8.4ppts to clock in at 31% mainly on 6% 10%
4% 0%
account of high cost of production (Coal/FO/Brent price were up 20%/27%/26%
2% ‐10%
YoY) amidst limited pricing power and apprehensions over the upcoming supply
0% ‐20%
glut.
FY00
FY02
FY04
FY06
FY08
FY10
FY12
FY14
FY16
FY18
Similarly, Profit Before Tax (PBT) of TSL Cement Universe shrunk by a massive 24%
in FY2018, only to be shielded by deferred tax liability reversals and tax credits on Source: APCMA, Pakistan Economic Survey & TSL
Research
new expansions.
Pressures to amplify going forward

FY2019 Total Dispatches (mn tons)
Going into FY2019, we forecast the cement sector to remain under pressure wherein Local Exports
70
a cut down in the Federal PSDP spending in a general contractionary macro environ-
60
ment is bound to take its toll on the domestic dispatches which are expected to post
50
a negative growth rate for the first time since FY2011. However, exports from the 40
southern players are expected to push the total dispatches towards positive growth. 30
As far as the retention prices are concerned, we expect retention prices to start go- 20
ing down from the current levels once CHCCʼs capacity comes online in Dec-18, but 10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23
average retention prices for the year to be still above the FY2018 levels (Expected
average retention prices of the TSL cement universe to clock in at PKR 338/bag; up
6%YoY for FY2019). Source: APCMA & TSL Research
On the cost front, high fuel and power prices, PKR devaluation against the Green-
back and higher depreciation expense in COGS post commencement of commercial
operations from the expansions are bound to strike a dagger over the sector gross
Retention Prices (PKR/bag)
375
margins which are expected to clock in at 27%.
Similarly, PBT of the TSL cement universe is forecasted to drop by 18% YoY. 360
FY2020 & FY2021 to be no different 345

Even though we expect improvement on the domestic demand front on account of
330
improved fiscal space and demand emanating from PMʼs flagship housing scheme
315
(though we remain cynical with respect to the total houses promised to be built
wherein a successful execution of the program acts as a major upside trigger for our 300
TSL cement universe), an effective capacity utilization of 79%/76% in FY2020/2021 FY15 FY16 FY17 FY18 FY19 FY20 FY21
with collective additions of 15mn ton cement capacity in both years is bound to ex-
Source: Company Accounts & TSL Research
Syed Faraz Abaas, CFA
Faraz.abbas@taurus.com.pk
Direct: +92‐021‐35216403

2
Please refer to the end of the report for Analyst Certification and important disclosures. www.JamaPunji.pk
TAURUS
SECURITIES LIMITED
REP‐040

depreciation expense from the new plants is bound to keep margins of the cement TSL Cement Universe ‐ Margins
Gross Margins
players at 25%/24% in FY2020/FY2021 respectively. Similarly, expensing out of the
EBITDA Margins
50%
finance cost post commercial operations of the new plant is also expected to mas- Net Profit Margins
sively dent the bottom-line of the companies. 40%
Investment Strategy 30%

The recent buzz relating to the PMʼs housing project, improved export outlook
20%
(southern players) and a general discipline relating pricing (as depicted by healthy
10%
retail prices until now) has pushed the TSL cement stocks up by 29% against the
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23
FY24
FY25
KSE-100 index performance of 13%. However, we believe the expected commence-
ment of CHCCʼs Line III in Dec-18 may cause the prices to break down in the north-
Source: Company Accounts & TSL Research
ern region as CHCC has a history of fighting for market share albeit offering lower
prices and discounts and hence advise a cautious stance on the sector from hereon.
TSL Cement Universe

We have a ʻBUYʼ rating on ʻLUCKʼ, ʻMLCFʼ and ʻKOHCʼ with ʻLUCKʼ being our top pick
based on its significant non-cement revenue, a widespread geographical presence
and a leverage free balance sheet. We recommend ʻHOLDʼ on ʻDGKCʼ & ʻPIOCʼ
whereas recommend ʻSELLʼ on ʻFCCLʼ based on dilution of its market share going
forward.
TSL Cement Universe
EPS DPS FY19 P/E FY19 DY TP Price Return Total Return Stance
LUCK 29.87 9.00 16.65 2% 587 18% 20% BUY
DGKC 7.49 2.00 14.79 2% 119 7% 9% HOLD
MLCF 5.59 1.25 9.48 2% 62 17% 19% BUY
FCCL 2.55 2.25 10.13 9% 22 ‐15% ‐7% SELL
PIOC 5.75 2.75 9.23 5% 55 3% 9% HOLD
KOHC 12.26 4.00 8.27 4% 120 18% 22% BUY
Universe *10.66
Source: PSX, Company Accounts and TSL Research
*Excluding LUCK

3
Please refer to the end of the report for Analyst Certification and important disclosures.
Demand
growth to slow down in FY19 TAURUS
SECURITIES LIMITED
Industry local dispatches (mn tons)
Negative domestic demand growth forecasted in FY2019...
50
In the last 25 years, domestic demand has grown at a CAGR (FY1993-FY2018) of
6.6%. The growth appears more pronounced in the recent years where the focus of 40
the federal government on infrastructure and development spending along with the 30
CPEC-led demand has made local demand grow at a 5-Year CAGR (FY2013-2018) of 20
10.4%.
10
However, this time around the picture appears less rosy for the Pakistan Cement In-
‐
dustry. With local demand posting an extraordinary growth rate of 15.4% in FY2018
FY94
FY96
FY98
FY00
FY02
FY04
FY06
FY08
FY10
FY12
FY14
FY16
FY18
courtesy ʻheavy visibleʼ spending in the wake of then-upcoming general elections, the
demand is bound to slowdown in FY2019 partially due to a high base-effect and main-
ly due to structural challenges, the Pakistani economy is currently facing. Source: APCMA, TSL Research
With inflation bound to increase sharply once the lagged impact of the PKR devalua-
tion is felt, discount rate reaching the highest level since Jan-15 and cut in the federal
government public sector developmental spending budget, we forecast local demand Total Dispatches (mn tons)
to post a negative growth of 2.0% in FY2019 on account of 5% decline in the northern 50
region demand.
40
...total demand to still post nominal growth courtesy southern waters in 30
FY2019
20
With a collective addition of 5.4mn ton capacity in the southern region by the listed
10
players namely Lucky Cement Company Limited (LUCK), Attock Cement Pakistan Lim-
ited (ACPL) and D.G. Khan Cement Company Limited (DGKC) in FY2018, we expect an
‐
incremental c2.2mn ton dispatches in FY2019 in the southern exports mainly due to FY14 FY15 FY16 FY17 FY18 FY19E
the proximity of the region to the sea waters. In this regard, we consider Bangladesh Local Dispatches Exports
and African countries such as Senegal, Madagascar and Mozambique to be important
Source: APCMA, TSL Research
exporting destinations for Pakistan.
An analysis of the FY2018 cement exports number also paints a similar thesis wherein
our exports after falling for 8 straight years have posted a positive growth of c2% in
FY2018. This growth was mainly contributed by the southern region wherein its ex- Exports (mn tons)
ports grew 71% YoY (c0.5mn tons) post commencement of the LUCK and ACPLʼs ca- 10
pacity in December 2017. 8
The management of the aforementioned companies is also confident of easily surpas- 6

sing the above mentioned incremental export number, negating the widespread con- 4
cern of limited export markets available to Pakistan on the international front on ac- 2
count of political tensions, competition by the cheap Iranian Cement and the imposi-
‐
tion of anti-dumping duty by South Africa.
FY14 FY15 FY16 FY17 FY18 FY19E
In the light of the above, we believe the total demand to still post a nominal growth of North Exports South Exports
3% in spite of the challenges.

4
Improvement
from FY2020 & onwards TAURUS
SECURITIES LIMITED
Demand scenario to improve going into FY2020

PM's Housing Scheme‐ Highlights
The manifesto of the newly elected government of Pakistan – Tehreek-I–Insaaf (PTI)
Tenor 5 Years
has always been justice and accountability. In this regard, the PTI government has
frequently stressed upon the need to curb corruption and to make state institutions Planned Houses 5mn units
more autonomous. With the government actively planning to eliminate tax evasion Estimated Cost PKR 16trn
and frequent assurances by the government to increase direct taxation and widen the
tax net, we believe Pakistanʼs fiscal space to improve going into FY2020 when the PTI
Down Payment 20%
government presents its first budget. Furthermore, though we remain cynical (with Bank Financing PKR 13trn
regards to the total number – 5mn in 5 years- of houses promised to be built) under
Planned Innaugration Jan‐19
PTIʼs flagship Naya Pakistan Housing Program, the initial extra efforts are bound to
reflect in the dispatchesʼ number from late FY2019 to early FY2020. Thus we opine 1st Year Plan 1mn units
improvement in the domestic demand going into FY2020 where we expect the domes- Model Rent Equalization
tic demand to grow at a rate of 7%. (Total demand also forecasted to grow by the
Source: News Flows & Ministerial Announcements
same number).
Comfortable demand beyond FY2020
Beyond FY2020, we believe easing fiscal pressures will enable the government to Total Dispatches (mn tons)
spend more on visible infrastructure development to garner increased public support.
70
Similarly, one of the lowest per capita cement consumption in the region and an esti-
mated housing backlog of 10mn homes provides ample room for increase in cement 60
demand. Therefore, we estimate local demand to grow at an average rate of 9% over 50
our analysis period in line with the last 5-years construction sector growth. The local
40
demand, though, might easily post a double digit growth once the incremental de-
mand starts emanating from Diamer-Bhasha and Mohmand Dams. However, with the 30
required financing of cUSD 15-16bn (almost 40% for infrastructure and the rest for
20
power generation) and the Supreme Courtʼs and Prime Ministerʼs Dam Fund garnering
FY18 FY19 FY20 FY21 FY22 FY23
a mere USD58mn as of now, the construction of dams remains an uphill task (unless a
donor agency is involved) and hence has not been included in our analysis.

5
Capacity
– 74mn ton post expansion TAURUS
SECURITIES LIMITED
Industry Capacity to reach c74mn tons by FY21 Upcoming Capacity Expansions

Company Region Mn Tons COD* Type
With the 1.2mn ton expansion of Cherat Cement Company Limited (CHCC) in January MLCF North 2,300 FY19 Brown Field
2017, the industry has entered into a new phase of expansionary cycle to take ad- CHCC North 2,237 FY19 Brown Field
vantage of the demand arising out of the China Pakistan Economic Corridor (CPEC) PIOC North 2,520 FY20 Brown Field
and various retail projects in the wake of low per capita cement consumption and a KOHC North 2,457 FY20 Brown Field
FLYNG North 630 FY20 Brown Field
housing backlog of approximately 10mn units.
LUCK North 2,600 FY20 Brown Field
With the commencement of 1.3mn ton Lucky Cement Company Limited (LUCK) ca- POWER South 2,426 FY20 Brown Field
pacity in Dec-17, Attock Cement Pakistan Limited (ACPL) capacity of 1.2mn ton in Jan GWCL North 2,500 FY21 Brown Field
-18, D.G Khan Cement Company Limited (DGKC) Capacity of 2.9mn ton in June-18 DGKC North 2,200 FY21 Brown Field
#Total 19,869
and Bestway Cement Company Limited (BWCL) capacity of 1.9mn tons in June-18,
Source: Company Notices, Annual Accounts & TSL Research
the cumulative capacity additions in this expansionary cycle stand at 8.5mn tons till
#Excluding Galadari Cement (Gulf) Ltd
date. (5.4mn tons/3.1mn tons in South/North respectively).
*Expected Commercial Operation Date
Current Cement Capacity & Recent Additions (tons)
Company Capacity Additions Current
Askari Cement Limited 2,677,500 ‐ 2,677,500
Attock Cement Pakistan 1,795,500 1,200,000 2,995,500
Bestway Cement Limited 7,962,750 1,890,000 9,852,750
Cherat Cement Company Limited 1,225,500 1,200,000 2,425,500
Dandot Cement Limited 504,000 ‐ 504,000
Dewan Cement Limited 2,898,000 ‐ 2,898,000
D.G.Khan Cement Limited 4,221,000 2,898,000 7,119,000
Fauji Cement Company Limited 3,433,500 ‐ 3,433,500
Fecto Cement Limited 819,000 ‐ 819,000
Flying Cement Limited 1,197,000 ‐ 1,197,000
Gharibwal Cement Limited 2,110,500 ‐ 2,110,500
Kohat Cement Company Limited 2,677,500 ‐ 2,677,500
Lucky Cement Limited 7,386,000 1,300,000 8,686,000
Maple Leaf Cement Factory Limited 3,370,500 ‐ 3,370,500
Pioneer Cement Limited 2,030,250 ‐ 2,030,250
Power Cement Limited 945,000 ‐ 945,000
Thatta Cement Limited 488,250 488,250
Total 45,741,750 8,488,000 54,229,750

North 37,149,000 3,090,000 40,239,000

South 8,592,750 5,398,000 13,990,750

Source: APCMA & TSL Research
Around c20mn ton expansions (listed players only) are still in the pipeline and are ex-
pected to come online latest by FY2021 (refer to the table for timeline) taking the to-
tal industry capacity to c74mn tons from current c54mn tons post expansionary cycle.
Post Expansions, the Southʼs name-plate cement capacity will stand at 16.4mn tons (a
91% increase from pre expansion capacity of 8.6mn tons). Similarly, the Northʼs ca-
pacity is expected to clock in at 57.7mn tons (a 55% increase from pre expansion ca-
pacity of 37.1mn tons).

6
Pricing
pressures to prevail TAURUS
SECURITIES LIMITED
Capacity utilization
Effective Capacity Utilization to bottom at 76%
110%
With Industry operating at a 25-year high capacity utilization of 93% in FY2018
90%
(effective capacity utilization of 95%), the capacity utilization of the industry is set to
drop going into FY2019 on account of full-year availability of LUCK,ACPL & DGKC ex- 70%
pansions along with new capacity additions of BWCL,MLCF and CHCC plant. 50%
We forecast the effective utilization of the industry to clock in at 84% in FY2019 be- 30%
fore falling further to 79% in FY2020 when the incremental effective capacity of
FY19E
FY14
FY15
FY16
FY17
FY18
FY20F
FY21F
FY22F
FY23F
8.2mn ton comes online.
Total North South
The capacity utilization is set to bottom out at 76% (at our demand assumptions) in
FY2021 with the addition of 7.7mn ton incremental capacity. Source: APCMA, TSL Research
Domestic Retail Prices to take a dip Historical Cement Prices (Pkr/bag)
North 600
With the expected addition of CHCC 2.2mn ton Line-III in Dec18, we believe the do- Price war
500
Price war
mestic prices can see some hiccups going into 2HFY2019. To recall, with the addition
400
of 1.2mn ton Line-II in Jan-17, CHCC was culpable of breaking down the pricing disci-
300
pline where the northern prices (Peshawar prices taken as a proxy here) fell down 6%
in 3QFY17 post CHCCʼs expansion. 200
100
MLCFʼs expansion schedule to commence production in April-19 can also exert a bit of
FY02
FY04
FY06
FY08
FY10
FY12
FY14
FY16
FY18
pressure on retail prices. With effective capacity utilization of the region forecasted to
drop to 84% from previous yearʼs 97%, we have assumed an average retail price of
PKR575/bag in FY2019 for the region (Note that the current retail prices in the north- Source: TSL Research
ern region hover around PKR600/bag).
Prices and Capacity Utlization ‐ North
Going beyond FY2019, we assume an average retail bag price of PKR555 in FY2020 650 100%
when the capacity utilization of the region is forecasted to drop to 77%. Similarly we 600 90%
assume retail bag prices of PKR561 in FY2021 where we believe the prices to start
550 80%
rising toward the second half of the fiscal year.
500 70%
South
450 60%
As far as the southern region is concerned, we believe the players have agreed to fo- 400 50%
cus their attention towards the export markets post commencement of their capaci-
FY19E
FY20F
FY21F
FY22F
FY23F
FY14
FY15
FY16
FY17
FY18
ties. Our conversation with various stakeholders suggest that the companies are ready
to export their surplus even if it merely covers their variable cost (already happening Prices (PKR/bag) Utilization (RHS)
in the case of DGKC) and hence we assume average domestic south prices similar to
current price levels of PKR590/bag in FY2019.
Prices and Capacity Utlization ‐ South
However, towards the end of FY2020 and in FY2021, we believe Power Cementʼs ca-
650 100%
pacity of 2.4mn ton might disrupt the arrangement of the big players and hence we
600 90%
assume per bag retail prices at PKR584 and PKR572 respectively for FY2020 and
FY2021 respectively, a discount of 1% and 3% from the FY2019 prices. 550 80%
500 70%
450 60%
400 50%
FY19E
FY20F
FY21F
FY22F
FY23F
FY14
FY15
FY16
FY17
FY18
Prices (PKR/bag) Utilization (RHS)

7
Margin
rationalization - name of the game TAURUS
SECURITIES LIMITED
Gross Margins to settle at a more justifiable level

Coal Prices Vs TSL Universe Gross Margins
FY2016 saw the cement industry enjoy all-time high gross margins of 45% courtesy
low coal prices (FOB) which averaged US$53/ton in FY2016. In FY2017, coal prices 120 50%
were up 46% YoY which led to a decline of gross margins of the industry by 5ppts to 100 40%
40%. 80 30%
FY2018, however, proved to be a very difficult year for the Pakistan Cement industry, 60 20%
since limited pricing power and an average coal price of US$93/ton pushed the sector 40 10%
margins to 31%. 20 0%
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
Going into FY2019, we expect further pressures on the gross margins of the cement
players on the back of currency devaluation against the greenback, rising inflation, Coal prices (USD/ton) Gross mar gins (RHS)
rise in gas prices (LUCK to be the most affected since it is heavily dependent on gas
for its captive power generation), expected rise in the grid tariff, downward sticky coal Source: Bloomberg & TSL Research
prices and depreciation (COGS portion) on the new expansions (where most players
are expected to use straight line or reducing balance method thus impacting the gross TSL Universe ‐ Retention Prices (PKR/bag)
margins irrespective of the utilization levels). Furthermore, increasing portion of ex- 375
ports (low margins as compared to local sales) in the sales mix will also exert down-
360
ward pressure on the gross margins.
345
We expect our universe margins at 27% in FY2019.
330
Beyond FY2019, we believe the limited pricing power of the industry players on ac-
count of surplus capacities will continue to pressurize the gross margins in the short 315
run (25%/24% in FY2020/FY2021) before gross margins settling at an average of
300
28% in the long run.
Source: Company accounts & TSL Research
Margins ‐ TSL Universe
50% Gross Margins EBITDA Margins Net Profit Margins
40%
30%
20%
10%
FY15 FY16 FY17 FY18 FY19E FY20F FY21F FY22F FY23F FY24F FY25F
Source: Annual Accounts & TSL Research

8
Assumptions
TAURUS
SECURITIES LIMITED
FY19 FY20 FY21 FY22 FY23
Average Exchange Rate (USD/PKR) 135 140 147 153 160
Average Retail Price (North) PKR/bag 575 555 565 591 624
Average Retail Price (South) PKR/bag 590 584 572 599 632
FOB Coal Prices (USD/Ton) 92 85 83 80 77
Captive Gas Prices (PKR/mmbtu) *935 964 1,026 1,092 1,163
RLNG Prices (PKR/mmbtu) 1,761 1,726 1,693 1,769 1,848
Grid Cost (PKR/Kwh) 13 14 15 16 16

Source: TSL Research & Company Accounts
*Increased gas prices were effective from Sept 27,2018
# Risk Free Rate of 12% used for valuation

9
DGKC:
Hot waters beckoning TAURUS
SECURITIES LIMITED
REP‐040
We downgrade our stance on DGKC from ʻBuyʼ to ʻHoldʼ as we revise down our earning
assumptions on account of sharp decline in the gross margins courtesy hefty depreciation
HOLD
expense being incurred on the new expansion and no captive generation facility on the Target Price-Jun’19 LDCP
new plant . Similarly, interest bearing debt of cPKR36bn (Debt/Total Asset Ratio of 28%)
119 111
in a rising interest scenario is also a big negative for DGKC.
upside Free Float
The scrip is currently trading at a FY2019E P/E of 14.8x against our universe P/E (Ex-
LUCK) of 10.7x. However, we advise investors to look at the Price/ Cash Flow Earnings 7% 50%
(Net Income Plus Depreciation; referred to as NIPD in the report) ratio under current
D.G. Khan Cement Company Limited
scenario as we believe that players who have expanded will naturally be at a disadvantage
Stock price 111
when earnings are considered since their earnings will absorb a high depreciation ex- Outstanding shares (mn) 438
pense. Market Cap (PKR bn) 49
Market Cap (USD mn) 362
DGKC currently trades at a FY2019E Price (P)/Cash flow Earning/NIPD (CFe) of 6.0x Free Float Market Cap (PKR bn) 24
against our universe P/ CFe of 8.3. Along with general restoration in the pricing arrange- Free Float Market Cap (USD mn) 181
Major Sponsors Nishat Group
ment, being cheap on P/CFe ,we believe, is one of the main reason where the scrip has Bloomberg Ticker DGKC PA
rallied 26% since the announcement of its dismal 1QFY19 result. However, the recent 3M Avg. daily value traded (PKRmn) 432
3M Avg. daily volume (000) 4335
performance has also limited further upside in the stock and hence has been downgraded
3M High 114
to ʻHoldʼ. 3M Low 77
Gross Margins to take a tumble 1‐Month Return 42%
FYTD Return 4%
With additions of c46bn to the operating fixed assets in FY2018 (mainly on HUB expansion) and CYTD Return ‐14%
Source: Company, PSX and Bloomberg
the company adopting a mix of straight line and reducing balance method, we believe DGKCʼs
gross margins to nosedive to 20% in FY2019 mainly on account of hefty depreciation of approxi-
mately PKR6.1/share (Pre-tax) from the new plant. Furthermore, lack of captive generation at the Relative Performance
Hub Plant (barring the 1MW solar power plant) is also expected to keep the margins under pres- 50% KSE‐100 DGKC
sure for DGKC.
30%
Heavy finance costs to dent the earning profile
10%
With cPKR36bn interest bearing debt on its balance sheet, we flag a 4.0x increase in the finance ‐10%
cost of the company in FY2019 as the company will now start expensing the finance cost post
‐30%
commencement of the Hub plant. We estimate pretax interest expense of PKR5.9/share for
‐50%
FY2019.
Aug‐18
Nov‐17
Dec‐17
Jan‐18
Mar‐18
Nov‐18
Feb‐18
Apr‐18
May‐18
Jun‐18
Sep‐18
Oct‐18
Jul‐18
Other Income to provide support to the otherwise lamentable earnings
DGKCʼs investment portfolio is valued at PKR32.6b with exposure in Banks, Insurance, Textiles,
Source: PSX & TSL Research
Oil, Dairy, Paper and Hospitality businesses. With core earnings set to suffer on behalf of the
aforementioned DGKC specific factors in general and broad increase in the input costs in particu- Relative Performance
lar, we believe other income (estimated at PKR2.1bn or 4.9/share-pretax ) is expected to provide
50% KSE‐100 Cement Sector
some respite to the otherwise deplorable core cement earnings.
30%
Capacity based market Share may drop to 7.3% in the northern region
10%
DGKCʼs current capacity-based share in the northern region stands at 10.5%. With the company
‐10%
incurring a high level of leverage on its Hub expansion, the company has yet not started any
groundwork for its 2.2mn ton expansion in the northern region. The expansion was initially ‐30%
scheduled for commencement in FY2021, however if the company fails to go through with the ‐50%
expansion, DGKCʼs capacity-based market share may drop to 7.3% in the northern region post-
Aug‐18
Nov‐17
Dec‐17
Jan‐18
Mar‐18
Nov‐18
Feb‐18
Apr‐18
May‐18
Jun‐18
Sep‐18
Oct‐18
Jul‐18
expansionary cycle.
Risks to our valuation: i) Price war ii) sharp rise in the fuel and power costs particularly on ac- Source: PSX & TSL Research
count of surge in global coal prices and local grid tariff and iii) sharp rise in interest rates.

At a glance TAURUS
SECURITIES LIMITED
DGKC ‐ Gross & EBITDA Margins DGKC ‐ Significant Depreciation Expense
Gross Margins EBITDA Margins EPS NIPDPS(Cashflow Earning)
35
45% 30
25
35% 20
15
25%
10
5
15%
FY15A
FY16A
FY17A
FY18A
FY20F
FY21F
FY22F
FY23F
FY19E
‐
FY15 FY16 FY17 FY18 FY19E FY20F FY21F FY22F FY23F
NIPDPS = Net Income Plus Depreciation Per Share
DGKC ‐ Local Retention Prices (PKR/bag)
350
340
330
320
310
FY19E
FY20F
FY21F
FY22F
FY23F
FY15A
FY16A
FY17A
FY18A
DGKC‐ Debt/Total Assets DGKC ‐ Dispatches (mn tons)
30%
Exports Local Dispatches
25% 8
7
20% 6
5
15%
4
10% 3
2
5%
1
0% 0
FY15 FY16 FY17 FY18 FY19E FY20F FY21F FY22F FY23F
FY19E
FY15A
FY16A
FY17A
FY18A
FY20F
FY21F
FY22F
FY23F
Source: Annual Accounts & TSL Research Source: Annual Accounts & TSL Research

11
Financial
Snapshot - DGKC TAURUS
SECURITIES LIMITED
Financial Statement Summary (PKR mn)
Income Statement (PKR mn) FY15A FY16A FY17A FY18A FY19E FY20F FY21F FY22F FY23F
Net Sales 26,105 29,704 30,136 30,668 45,388 45,490 48,904 52,056 57,277
Gross Profit 9,455 12,668 11,845 8,740 9,111 8,371 8,823 10,068 12,242
Operational Profit 8,236 11,146 10,314 7,217 5,577 4,883 4,995 5,824 8,668
Other Income 2,320 2,379 2,118 3,027 2,136 2,388 2,634 2,750 2,902
EBIT 9,829 12,611 11,541 7,889 6,847 6,476 6,790 7,618 10,407
Operational EBITDA 10,117 13,018 12,376 9,522 10,342 9,444 9,405 10,296 13,215
EBITDA 11,709 14,483 13,603 10,194 11,612 11,036 11,201 12,090 14,954
Finance Cost 282 130 383 519 2,599 2,390 1,981 1,534 841
Profit After Tax 7,625 8,790 7,975 8,838 3,283 3,246 3,878 4,902 8,173
EPS 17.40 20.06 18.20 20.17 7.49 7.41 8.85 11.19 18.65
Balance Sheet (PKR mn) FY15A FY16A FY17A FY18A FY19E FY20F FY21F FY22F FY23F
Property, Plant & Equipment 29,959 39,577 62,448 76,494 69,950 66,769 63,938 61,346 59,179
Non‐ Current Assets 42,965 52,583 81,071 92,813 86,269 83,088 80,258 77,666 75,498
Cash & Banks 258 7,010 422 469 595 664 625 733 719
Current Assets 31,426 30,836 27,301 29,076 32,896 35,426 38,309 41,399 44,437
Investments 37,774 30,767 35,608 32,278 33,880 35,642 37,580 39,926 42,056
Total Assets 74,391 83,418 108,371 121,889 119,165 118,515 118,567 119,064 119,935
Total Liabilities & Equity (PKR mn) FY15A FY16A FY17A FY18A FY19E FY20F FY21F FY22F FY23F
Long Term Financing 714 2,400 12,520 17,730 13,523 9,555 6,120 2,685 394
Total Non current Liabilities 5,512 7,578 18,653 22,201 18,008 14,055 10,635 7,217 4,942
Short Term Borrowings 1,826 3,451 8,571 12,210 7,200 8,100 8,200 7,500 4,000
Curr. Portion of Long term loans 647 1,151 524 2,337 4,207 3,968 3,435 3,435 2,291
Total Current Liabilities 6,583 10,057 14,850 22,553 22,602 23,534 24,003 23,894 20,181
Total Liabilities 12,095 17,635 33,502 44,755 40,610 37,589 34,639 31,110 25,123
Total Equity 62,296 65,783 74,869 77,134 78,556 80,926 83,928 87,954 94,812
Total Liabilities & Equity 74,391 83,418 108,371 121,889 119,165 118,515 118,567 119,064 119,935
Key metrics
Particulars FY15A FY16A FY17A FY18A FY19E FY20F FY21F FY22F FY23F
EPS 17.40 20.06 18.20 20.17 7.49 7.41 8.85 11.19 18.65
NIPD per share (NIPDPS) 21.70 24.33 22.91 25.43 18.37 17.82 18.92 21.40 29.03
DPS 5.00 6.00 7.50 4.25 2.00 2.00 2.00 3.00 9.00
BVPS 142.19 150.15 170.89 176.06 179.30 184.71 191.56 200.75 216.41
P/E (x) 6.4 5.5 6.1 5.5 14.8 15.0 12.5 9.9 5.9
P/ NIPD (x) 5.1 4.6 4.8 4.4 6.0 6.2 5.9 5.2 3.8
Gross Profit Margin 36% 43% 39% 28% 20% 18% 18% 19% 21%
Operational Profit Margin 32% 38% 34% 24% 12% 11% 10% 11% 15%
EBIT Margin 38% 42% 38% 26% 15% 14% 14% 15% 18%
EBITDA Margin 45% 49% 45% 33% 26% 24% 23% 23% 26%
Operational EBITDA Margin 39% 44% 41% 31% 23% 21% 19% 20% 23%
Net Profit Margin 29% 30% 26% 29% 7% 7% 8% 9% 14%
Dividend Yield 5% 5% 7% 4% 2% 2% 2% 3% 8%

12
LUCK:
As safe as a house TAURUS
SECURITIES LIMITED
REP‐040
We pitch Lucky Cement Company Limited as our top pick with June 2019 SOTP based tar-
get price of PKR 587/share offering 18% upside. The scrip remains well shielded from Buy
sector headwinds on account of high diversification (46% Non-Cement Revenue on the Target Price-Jun’19 LDCP
consolidated book of FY2018), sufficient cash available on its balance sheet to almost
completely finance its new ventures without the incurrence of debt (hedging the scrip in a
587 497
upside Free Float
rising interest rate environment) and most importantly, high growth in consolidated earn-
ings going forward, mainly from the scheduled commencement of Kia Lucky Motors Paki- 18% 40%
stan Limited and 660MW super-critical coal power plant in 4QFY2019 and 3QFY2021 re-
spectively. Lucky Cement Limited
Stock price 497
Diversity - A hedge against sector headwinds Outstanding shares (mn) 323
Market Cap (PKR bn) 161
With no leverage on its balance sheet, LUCK stands immune in an environment of high interest
rates. Furthermore, a 46% Non-Cement Revenue on the consolidated book of FY2018 makes Free Float Market Cap (PKR bn) 64
LUCK better equipped to handle any disruptions in its core business. Free Float Market Cap (USD mn) 480
Major Sponsors Yunus Brothers Group
Southern waters – negating the widespread concern of a price war in the southern Bloomberg Ticker LUCK PA
region 3M Avg. daily value traded (PKRmn) 330
With a scheduled collective capacity addition of 5.4mn tons in the southern region, there was a 3M High 574
3M Low 396
widespread concern amongst the market participants relating to the ability of the southern play-
1‐Month Return 21%
ers to maintain their pricing discipline.
FYTD Return 2%
CYTD Return ‐3%
Now, with the commencement of the production from the new expansions and southern prices
Source: Company, PSX and Bloomberg
remaining strong, we opine that the industry (particularly the big players) has learnt harsh les-
sons from the previous price wars and will not engage in any such misadventure again. This is Relative Performance
evident from the export numbers of the southern region which have grown 2.12x YoY in 1QFY19
KSE‐100 LUCK
(a true representative period bearing the impact of total 5.4mn ton southern expansion). 50%
Strong local prices in the southern region, already established dealer network and state-of-the-art 30%
export terminal at Karachi Port to export the surplus (albeit at low margin as long as the contribu- 10%
tion margin remains positive) puts LUCK in a favorable position with the largest capacity based
‐10%
share in the southern market of 35%.
‐30%
660MW supercritical coal power plant to unlock the earnings growth
‐50%
After achieving the financial close of the project on June25, 2018, the company is now confident
Mar‐18
May‐18
Jan‐18
Oct‐18
Nov‐17
Dec‐17
Nov‐18
Jul‐18
Apr‐18
Jun‐18
Aug‐18
Feb‐18
Sep‐18
of achieving commercial production from the project in Mar-2021. With an estimated project cost
of USD 885million (75%/25% Debt/Equity), the project is bound to contribute an incremental EPS
of cPKR25.0/26.0 (on foreign/local coal barring indexation) to consolidated earnings beyond
FY2021. The project contributes PKR89/share towards our target price. Relative Performance
KIA Lucky Motors Pakistan Limited (KLM) – Motoring along KSE‐100 Cement Sector
50%
KLM is LUCKʼs entry into the auto segment. The objective of the Company is to carry out the busi-
30%
ness of assembling, marketing, distribution and sales of Kia vehicles, parts and accessories in Pa-
kistan in collaboration with Kia Motors Corporation, South Korea [part of Hyundai Motor Group]. 10%
KLM was awarded with category “A” Greenfield investment status in June 2017 by the Ministry of ‐10%
Industries and Production and is the first company to get such status under the Automotive De-
‐30%
velopment Policy 2016 – 2021.
‐50%
KLM started construction of the project in November 2017 and has also signed a New Entrant
Mar‐18
May‐18
Jan‐18
Oct‐18
Nov‐17
Dec‐17
Nov‐18
Jul‐18
Apr‐18
Jun‐18
Aug‐18
Feb‐18
Sep‐18
Agreement with Ministry of Industries & Production under the Automotive Development Policy
2016-2021 in December 2017.


TAURUS
SECURITIES LIMITED
REP‐040
On 1st June 2018, KLM started its Complete Built Up (CBU) operations. It has opened up several
company-owned / third-party operated dealerships in some of the metro cities of Pakistan. The HOLD
LUCK TP ‐Breakup
Project aims to start commercial production in second quarter of calendar year 2019. Core value 307
LUCK has to-date invested PKR7.4bn out of total planned investment of PKR14b (representing Portfolio value (ICI) 77
70% of the equity stake) in the estimated project of USD190mn. KLM contributes PKR45/share Iraq Venture 34
towards our target price.
Congo Venture 30
1.2mn ton clinker production facility in Iraq– adding value to the existing Iraq Oper-
ations KIA Lucky Motors 45
In order to become self-reliant for clinker-availability in Iraq (only grinding operations currently), Wind farm 5
a Greenfield clinker production facility with a capacity of 1.2million tons per annum is planned to
Coal Power Plant 89
be setup in Samawah, Iraq as a joint venture with a local partner.
Target Price(PKR) 587
The project cost is estimated at USD109 million and the financial close and commercial operations
are expected in 4QCY2018 and 1QCY2020.
The project will improve the gross margins of the companyʼs Iraq operations going forward and is
expected to contribute PKR34/share (including the existing grinding operations) towards our tar-
get price.
Brownfield expansion at Pezu Plant - 2.6 million tons per annum
Continued delay in expansion plans for North following leasing issues with the Punjab govern-
ment, LUCK has decided to expand its existing plant in Pezu by 2.6 million ton per annum which
will take its capacity based share to 11% in the northern region post expansion. Civil works at the
site are currently in progress and the project remains on target to achieve commercial operations
in the last quarter of calendar year 2019.
Risks to our valuation: i) Price war ii) delays in the commencement of the above mentioned
projects and iii) unanticipated rise in the fuel and power costs.

At a glance

TAURUS
SECURITIES LIMITED
REP‐040

LUCK ‐ Gross Margins LUCK ‐ EBITDA Margins HOLD
50% 50%
45% 45%
40% 40%
35% 35%
30% 30%
25% 25%
20%
20%
FY15A
FY16A
FY17A
FY18A
FY19E
FY20F
FY21F
FY22F
FY23F
FY15A
FY16A
FY17A
FY18A
FY20F
FY21F
FY22F
FY23F
FY19E
Source: Company Accounts and TSL Research Source: Company Accounts and TSL Research
LUCK ‐ Local Retention Prices (PKR/bag)
380
360
340
320
300
280
FY19E
FY15A
FY16A
FY17A
FY18A
FY20F
FY21F
FY22F
FY23F
Source: Company Accounts and TSL Research
LUCK ‐ Dispatches(mn tons) vs Utilization LUCK ‐ Dispatches (mn tons)
Dispatches (mn tons) Utilization 12 Local dispatches Exports
12 100%
10
10 8
90%
6
8
4
80%
6 2
4 70% 00
FY15A
FY16A
FY17A
FY18A
FY20F
FY21F
FY22F
FY23F
FY19E
FY15A
FY16A
FY17A
FY18A
FY20F
FY21F
FY22F
FY23F
FY19E
FY19E
FY15A
FY16A
FY17A
FY18A
FY20F
FY21F
FY22F
FY23F
Source: Company Accounts and TSL Research Source: Company Accounts and TSL Research

Please refer to the end of the report for Analyst Certification and important disclosures. 15
Financial
Snapshot—LUCK TAURUS
SECURITIES LIMITED
Net Sales 44,761 45,135 45,687 47,542 52,651 54,439 58,735 67,673 78,196
Gross Profit 20,183 21,746 21,298 16,952 16,425 16,941 17,278 21,234 26,032
EBIT 15,938 18,400 18,778 15,119 12,681 12,443 12,480 15,760 19,787
EBITDA 18,207 20,945 21,359 18,094 15,848 16,087 16,661 20,007 24,105
Profit After Tax 12,432 12,944 13,692 12,197 9,659 10,858 9,198 11,719 15,421
EPS 38.44 40.03 42.34 37.72 29.87 33.58 28.44 36.24 47.69
Long Term Investments 10,925 12,422 13,314 24,981 48,840 58,518 79,453 79,453 79,453
Total Non Current Assets 46,068 46,515 50,969 66,043 97,994 111,549 129,625 126,800 124,006
Cash & Bank 16,445 26,806 33,738 27,435 1,894 1,394 1,490 1,042 8,707
Total Current Assets 27,018 39,395 46,368 42,956 18,767 18,795 20,424 22,011 32,061
Total Assets 73,086 85,909 97,337 108,999 116,761 130,343 150,049 148,811 156,066
Total Equity 59,259 69,323 79,785 86,367 93,439 101,387 107,350 116,159 127,053
Key metrics
EPS 38.44 40.03 42.34 37.72 29.87 33.58 28.44 36.24 47.69
DPS 9.00 10.00 12.00 13.00 9.00 10.00 9.00 14.00 19.00
BVPS 183.25 214.37 246.72 267.08 288.94 313.52 331.96 359.20 392.89
P/E (x) 12.9 12.4 11.7 13.2 16.6 14.8 17.5 13.7 10.4
P/ NIPD (x) 10.9 10.4 9.9 10.6 12.5 11.1 12.0 10.1 8.1
EBIT Margin 36% 41% 41% 32% 24% 23% 21% 23% 25%
EBITDA Margin 41% 46% 47% 38% 30% 30% 28% 30% 31%
Dividend Yield 2% 2% 2% 3% 2% 2% 2% 3% 4%

16
FCCL:
Sitting on the fence TAURUS
SECURITIES LIMITED
REP‐040
With a 31% rally in the scrip in the last 30 days, we downgrade our stance on FCCL from
ʻBuyʼ to ʻSellʼ with a revised target price of PKR22/share mainly on account of lack of posi- Sell
tive triggers ahead where the companyʼs capacity based market share in the northern re- Target Price-Jun19 LDCP
gion is set to decline to 6.0% from current 8.5% as the company has not announced any
formal expansion plans yet.
22 26
Downside Free Float
The scrip currently offers 15% downside from its last close with a FY2019E dividend yield
of 9%. -15% 55%
Downgrade to Sell
Fauji Cement Company Limited
With a 31% rise in the scrip price in the last 30 days, FCCL offers 15% price downside from our Stock price 26
discounted cash flow based target price of PKR22/share. Outstanding shares (mn) 1380
After incorporating the FY2019E dividend yield of 9%, the stock still offers a negative total return Market Cap (USD mn) 265
of 7% and hence has been downgraded to ʻSELLʼ since the stock lacks excitement going forward. Free Float Market Cap (PKR bn) 20
Free Float Market Cap (USD mn) 146
Capacity Based Market Share to drop to 6.0% Major Sponsors Fauji Group
Bloomberg Ticker FCCL PA
With further expected capacity additions of 17.4mn tons in the northern region, we estimate 3M Avg. daily value traded (PKRmn) 145
FCCLʼs capacity based market share to drop to 6.0% from current 8.5%. 3M Avg. daily volume (000) 6117
3M High 27
The company operated at 97% utilization in FY2018 and will have to expand by almost 1.5mn 3M Low 20
tons in order to maintain its market share. With recent devaluation, the expansion would cost 1‐Month Return 31%
FYTD Return 15%
around PKR17-18bn (Assuming European Plant and a Greenfield expansion).
CYTD Return 12%
To recall, the company was amongst one of the last players to announce expansion in the previ- Source: Company, PSX and Bloomberg
ous expansionary cycle as well and hence we do not rule out expansion announcement by FCCL
going forward (which would then be an upside trigger for the stock), however, as of now there Relative Performance
has been no official communication by the company in this regard. KSE‐100 FCCL
50%
Lowest top-line and bottom-line growth in our universe
30%
With no announced upcoming expansion, FCCL remains a laggard in our TSL cement universe
10%
where it offers average top-line growth of 6% as against growth of 12% for our cement universe.
‐10%
Similarly it also offers the lowest EBITDA & normalized bottom-line growth in our universe.
‐30%
Expensive on EV/Ton
‐50% Mar‐18
May‐18
Jan‐18
Oct‐18
FCCL trades at an EV/Ton of USD78 as against our universe EV/Ton of USD70; a premium of
Nov‐17
Nov‐18
Dec‐17
Apr‐18
Jul‐18
Jun‐18
Feb‐18
Aug‐18
Sep‐18
12%.With the stock lacking positive triggers going forward, we believe the premium to be unjusti-
fied where we believe our fair value brings FCCLʼs enterprise value closer in line with the industry. Source: PSX & TSL Research
Relative Performance
Downside risks to our valuation: i) Price war ii) unanticipated rise in the fuel and power costs KSE‐100 Cement Sector
whereas Upside risk to our valuation includes expansion announcement & any favorable devel- 50%
opment pertaining to 12.5MW captive solar power plant which FCCL is considering to setup. 30%
(material information dated August 03, 2018)
10%
‐10%
‐30%
‐50%
Mar‐18
May‐18
Jan‐18
Oct‐18
Nov‐17
Dec‐17
Nov‐18
Jul‐18
Apr‐18
Jun‐18
Aug‐18
Feb‐18
Sep‐18

At a glance

TAURUS
SECURITIES LIMITED
REP‐040

FCCL ‐ Gross Margins FCCL ‐ EBITDA Margins HOLD

50% 50%

42% 42%

34% 34%

26% 26%

18% 18%

10% 10%

2%
2%
FY15A FY16A FY17A FY18A FY19E FY20F FY21F FY22F FY23F
FCCL ‐ Local Retention Prices (PKR/bag)

370

350

330

310

290

270
FCCL ‐ Debt/Total Assets FCCL ‐ Dispatches(mn tons) vs Utilization
25% 4.0 110%
20% 100%
3.5
90%
15% 3.0
80%
10% 2.5
70%
5% 2.0 60%
0%
FY15A FY16A FY17A FY18A FY19E FY20F FY21F FY22F FY23F Dispatches Utilziation

Please refer to the end of the report for Analyst Certification and important disclosures. 18
Financial
Snapshot - FCCL TAURUS
SECURITIES LIMITED
Net Sales 18,642 20,044 20,423 21,161 23,189 23,498 24,533 25,968 27,467
Gross Profit 7,027 9,165 4,438 5,115 6,108 5,367 5,066 5,397 6,317
EBIT 6,386 8,335 3,777 4,246 5,107 4,482 4,266 4,535 5,313
EBITDA 7,677 9,692 5,093 5,663 6,529 5,911 5,697 5,971 6,756
Finance Cost 706 503 153 148 210 93 62 41 35
Profit After Tax 4,116 5,367 2,613 3,429 3,512 3,245 3,211 3,463 4,106
EPS 2.81 3.89 1.89 2.49 2.55 2.35 2.33 2.51 2.98
Others 234 158 87 87 87 87 87 87 87
Cash and Short Term Invest. 2,597 2,990 518 532 1,243 2,965 3,814 3,842 3,518
Current Assets 6,414 7,499 5,662 6,338 6,418 8,318 9,730 9,947 9,829
Total Assets 30,528 29,358 27,752 29,049 28,191 28,713 28,794 27,725 26,363
Long Term Financing 4,000 1,486 1,063 637 318 106 ‐ ‐ ‐
Short Term Borrowings 6 78 312 1,639 200 220 140 150 120
Curr. Portion of Long term loans 2,525 2,526 426 426 319 212 106 ‐ ‐
Total Equity 17,419 18,428 19,681 20,489 21,203 21,961 22,374 21,175 19,686
Key metrics
EPS 2.81 3.89 1.89 2.49 2.55 2.35 2.33 2.51 2.98
DPS 2.50 2.75 0.90 2.00 2.25 2.00 2.25 3.75 4.50
BVPS 12.62 13.36 14.26 14.85 15.37 15.92 16.22 15.35 14.27
P/E (x) 9.2 6.6 13.6 10.4 10.1 11.0 11.1 10.3 8.7
P/ NIPD (x) 6.6 5.3 9.0 7.3 7.2 7.6 7.7 7.3 6.4
EBIT Margin 34% 42% 18% 20% 22% 19% 17% 17% 19%
EBITDA Margin 41% 48% 25% 27% 28% 25% 23% 23% 25%
Dividend Yield 10% 11% 3% 8% 9% 8% 9% 15% 17%

19
MLCF:
Low cost winner TAURUS
SECURITIES LIMITED
REP‐040
We reiterate our ʻBuyʼ stance on MLCF with a June-19 target price of PKR 62/share. The
scrip currently trades at a FY2019E P/E of 9.5x against our industry P/E (Ex-LUCK) of
BUY
10.7x and in spite of the fact that it has rallied 52% in the last 30 days, we believe the Target Price-Jun’19 LDCP
scrip still offers a decent total return of 19% from its closing price of PKE53/share.
62 53
Maple Leaf Power Limited offers key advantages upside Free Float
Reduced reliance on grid
17% 45%
Maple Leaf Power Limited (MLPL), a 100% owned subsidiary of MLCF, started commercial produc-
tion from its 40MW coal fired power plant on Oct 12, 2017. This coal fired power plant, in addition Maple Leaf Cement Factory Limited
to the existing indigenous generation resources, is expected to eliminate the companyʼs reliance Stock price 53
Outstanding shares (mn) 594
on Faisalabad Electricity Supply Corporation (FESCO) for its power needs in FY2019. Beyond
FY2019, as the company utilizes its new capacity (hence requiring more power), the company will Market Cap (USD mn) 235
require power from FESCO however its reliance on the grid throughout our analysis period does Free Float Market Cap (PKR bn) 14
not go above 35% of the total power needs. Free Float Market Cap (USD mn) 106
Major Sponsors Saigol Group
Tax Savings Bloomberg Ticker MLCF PA
3M Avg. daily value traded (PKRmn) 263
Apart from offering fuel savings, MLPL also offers tax advantages to its parent company. MLCF
has entered into a power purchase agreement (valid for 20 years) with MLPL at a NEPRA ap- 3M High 57
proved base tariff of PKR12.92/KwH. Now, MLCF pays 12.92/KwH (Fuel + ROE component) to 3M Low 35
MLPL on its unconsolidated books. The ROE component remains untaxed since MLPL is a tax ex- 1‐Month Return 52%
FYTD Return 7%
empt entity hence offering overall tax savings to MLCF when the books are consolidated.
CYTD Return ‐18%
Agreement with Pakistan Railways extended for three more years Source: Company, PSX and Bloomberg
MLCF also benefits from lower inland transportation costs wherein the company has extended the
contract with Pakistan Railways for transportation of coal from Karachi to Daudkhel and for the
transportation of cement on its way back till June 2021. 50% KSE‐100 MLCF
2.3mn ton brownfield expansion assumed from FY2020 30%
MLCF is working on a 2.3mn ton expansion at its existing site in Iskandarabad. The project is be- 10%
ing financed approximately 17% through a rights issue, 54% through bank loans and the rest ‐10%
through internal cash flows of the company and is estimated to cost PKR26bn. The company has ‐30%
already incurred PKR20bn on the project as of now with 75% of the civil work being completed.
‐50%
The company expects commercial production to start from 4QFY2019, however, following the
Aug‐18
Nov‐17
Dec‐17
Jan‐18
Mar‐18
Nov‐18
Feb‐18
Apr‐18
May‐18
Jun‐18
Sep‐18
Oct‐18
Jul‐18
initial delays due to the ʻHoldʼ order by the Environmental Protection Agency (EPA), we have as-
sumed the new line to start commercial operations from the start of FY2020. This would take the
capacity based share of the company in the northern region from current 8.4% to 9.8% post ex- Source: PSX & TSL Research
pansionary cycle.
Leverage remains a threat
The companyʼs Debt/Total Asset ratio currently stands at 36%. Any adverse interest rate move-
30%
ment is bound to take its toll on MLCF, where we expect FY2020 and FY2021 to be crucial years
for MLCF where the interest coverage ratio is expected to fall from 7.3 in FY2018 to 1.8x and 2.0x 10%
respectively on account of company expensing the finance costs, capitalized earlier on account of ‐10%
expansion. ‐30%
Downside risks to our valuation: i) Price war ii) unanticipated rise in the coal prices iii) sharp ‐50%
rise in the interest rates and iv) cost over runs and delay in the commissioning of the new expan-
Aug‐18
Nov‐17
Dec‐17
Jan‐18
Mar‐18
Nov‐18
Feb‐18
Apr‐18
May‐18
Jun‐18
Sep‐18
Oct‐18
Jul‐18
sion.

At a glance TAURUS
SECURITIES LIMITED
MLCF ‐ Gross Margins MLCF ‐ EBITDA Margins
45%
45%
40% 40%
35% 35%
30% 30%
25%
25%
20%
20%
FY20 F
FY21 F
FY22 F
FY23 F
FY15A
FY16A
FY17A
FY18A
FY19E
FY19E
FY15A
FY16A
FY17A
FY18A
FY20F
FY21F
FY22F
FY23F
MLCF ‐ Local Retention Prices (PKR/bag)
430
400
370
340
310
FY15A
FY16A
FY17A
FY18A
FY19E
FY20F
FY21F
FY22F
FY23F
MLCF‐ Debt/Total Assets MLCF ‐ Dispatches(mn tons) vs Utilization
40% Dispatches (mn tons) Utilization
6.0 110%
5.5
30% 100%
5.0
4.5 90%
20% 4.0
3.5 80%
10% 3.0
70%
2.5
2.0 60%
0%
FY20F
FY21F
FY22F
FY23F
FY15A
FY16A
FY17A
FY18A
FY19E
FY20 F
FY21 F
FY22 F
FY23 F
FY15A
FY16A
FY17A
FY18A
FY19E

21
Financial
Snapshot - MLCF TAURUS
SECURITIES LIMITED
Net Sales 20,720 23,416 23,885 25,684 25,068 30,622 33,679 38,025 43,925
Gross Profit 7,496 10,013 9,376 8,525 7,614 7,690 7,888 9,645 12,237
EBIT 5,584 7,511 7,044 6,183 5,242 4,789 4,592 5,867 7,877
EBITDA 7,356 9,329 8,940 8,542 7,618 8,448 8,291 9,545 11,598
Finance Cost 1,083 436 174 847 1,052 2,610 2,262 1,733 1,127
Profit After Tax 3,454 4,843 4,776 4,573 3,316 2,179 2,330 4,133 5,436
EPS 5.82 8.16 8.04 7.70 5.59 3.67 3.92 6.96 9.16
Cash, Bank & Inv. 255 454 527 717 1,282 1,395 1,291 1,417 1,960
Current Assets 7,439 8,344 10,679 13,687 14,680 17,619 18,600 18,861 20,423
Total Assets 31,221 32,025 39,063 60,238 66,092 65,967 63,649 60,834 59,474
Long Term Fin. & Finance Lease 666 1,407 3,161 12,942 16,715 13,244 9,772 6,326 3,322
Short Term Borrowings 2,556 1,425 3,138 5,785 5,624 5,700 5,500 4,200 2,050
Curr. Portion of Loan & Lease 2,179 168 424 811 2,357 3,471 3,471 3,446 3,004
Total Equity 17,663 21,295 23,666 30,809 32,528 33,297 33,922 35,667 38,289
Key metrics
EPS 5.82 8.16 8.04 7.70 5.59 3.67 3.92 6.96 9.16
DPS 2.00 4.00 3.75 2.50 1.25 0.50 0.75 2.00 2.75
BVPS 29.75 35.87 39.86 51.89 54.79 56.08 57.14 60.08 64.49
P/E (x) 9.1 6.5 6.6 6.9 9.5 14.4 13.5 7.6 5.8
P/ NIPD (x) 6.0 4.7 4.7 4.5 5.5 5.4 5.2 4.0 3.4
EBIT Margin 27% 32% 29% 24% 21% 16% 14% 15% 18%
EBITDA Margin 36% 40% 37% 33% 30% 28% 25% 25% 26%
Dividend Yield 4% 8% 7% 5% 2% 1% 1% 4% 5%

22
KOHC:
Poised for the ‘next big step’ TAURUS
SECURITIES LIMITED
REP‐040
We Recommend ʻBuyʼ on KOHC with a June-19 DCF based target price of PKR 120/share
offering 18% upside from its last close. Our ʻBuyʼ stance is premised upon i) Recent com-
BUY
missioning of the grinding mill removing a perennial bottleneck ii) upcoming expansion of Target Price-Jun’19 LDCP
2.5mn ton along with WHR (Waste Heat Recovery) and iii) Investment property & short
120 101
term investments providing cushion in a rising interest rate scenario
Upside Free Float
The scrip trades at a FY2019E P/E of 8.3x as compared to our universe (Ex-LUCK) P/E of
10.7x and offers a FY2019E dividend yield of 4%. 18% 23%
Grinding Mill removes a perennial bottleneck Kohat Cement Company Limited
Stock price 101
In a notice to the bourse dated April 30, 2018, KOHC informed its stakeholders that its grinding
Outstanding shares (mn) 201
mill of 105tph grinding capacity has successfully started commercial operations. Market Cap (PKR bn) 20
To recall, the company was unable to operate at an optimal capacity (last 3-year average utiliza- Free Float Market Cap (PKR bn) 5
tion of 76% vs. 89% of the region) on account of bottlenecks in its cement grinding process. Free Float Market Cap (USD mn) 35
Now, with the commercial operation of the new mill, the company has effectively expanded its Major Sponsors ANS Capital
Bloomberg Ticker KOHC PA
cement capacity by c0.8mn ton.
2.5mn ton expansion to be the ʻnext big stepʼ 3M Avg. daily volume (000) 157
3M High 110
The company is working on 2.5mn ton grey cement line at its existing site. The expansion is esti- 3M Low 79
mated to cost the company c15bn ton and is planned to be financed 50% by debt and the re- 1‐Month Return 25%
FYTD Return 15%
maining by the internal cash generation of the company. The expansion is assumed to commence
CYTD Return ‐4%
operations in April-2020. This expansion will take the capacity based share of the company to Source: Company, PSX and Bloomberg
8.9% in the region from the current 6.7%.
Along with the expansion, the company also plans to install a 5MW WHR which will take the total
50% KSE‐100 KOHC
WHR capacity of the company to 20MW post expansion.
30%
Liquidity to act as a buffer
10%
KOHC holds an investment property for capital appreciation at a cost of PKR3.7bn. The market
‐10%
value of the land is estimated at PKR5.1bn (pretax gain of PKR7.1 per share should the company
‐30%
dispose-off the land or revalue it).
‐50%
The company also holds PKR3.9bn in short term investments (placements with commercial banks
Aug‐18
Jan‐18
Mar‐18
Nov‐17
Dec‐17
Feb‐18
Apr‐18
May‐18
Sep‐18
Oct‐18
Nov‐18
Jun‐18
Jul‐18
and mutual funds).
Looking at the cash flow position of the company (and assuming 50% of the expansion to be fi-
nanced by internal cash generation as suggested by the management of KOHC), we believe that
the company might liquidate its short term investments in order to adhere to its target capital
structure.
Similarly, the investment property gives KOHC a ʻgood problem to haveʼ wherein the company
30%
can either keep the property in anticipation of further capital appreciation or sell off the property
should it decide to decrease the leverage portion of financing. However, the latter seems unlikely 10%
in our opinion. ‐10%
‐30%
Downside risks to our valuation: i) Price war ii) unanticipated rise in the fuel and energy pric-
es iii) sharp rise in the interest rates and iv) cost over runs and delay in the commissioning of the ‐50%
expansion.
Aug‐18
Nov‐17
Dec‐17
Jan‐18
Mar‐18
Oct‐18
Nov‐18
Feb‐18
Apr‐18
May‐18
Jun‐18
Jul‐18
Sep‐18

At a glance TAURUS
SECURITIES LIMITED
KOHC ‐ Gross Margins KOHC ‐ EBITDA Margins
50% 50%
40% 40%
30% 30%
20% 20%
10% 10%
FY15A
FY16A
FY17A
FY18A
FY19E
FY20F
FY21F
FY22F
FY23F
FY15A
FY16A
FY17A
FY18A
FY19E
FY20F
FY21F
FY22F
FY23F
KOHC ‐ Local Retention Prices (PKR/bag)
400
370
340
310
280
250
FY15A
FY16A
FY17A
FY18A
FY19E
FY20F
FY21F
FY22F
FY23F
KOHC‐ Debt/Total Assets KOHC ‐ Dispatches(mn tons) vs Utilization
30% 5 Dispatches (mn tons) Utilization 90%
4 80%
20%
3 70%
10% 2 60%
1 50%
FY19 E
FY20F
FY21F
FY22F
FY23F
FY15A
FY16A
FY17A
FY18A
0%
FY15 A
FY16 A
FY17 A
FY18 A
FY19E
FY20F
FY21F
FY22F
FY23F

24
Financial
Snapshot - KOHC TAURUS
SECURITIES LIMITED
Net Sales 12,472 14,020 13,540 13,439 15,713 17,362 21,641 26,168 31,921
Gross Profit 4,815 6,497 5,827 4,353 3,913 3,939 4,487 5,836 7,784
EBIT 4,731 6,252 5,520 4,077 3,536 3,482 3,959 5,234 7,182
EBITDA 5,122 6,692 6,017 4,599 4,066 4,105 4,892 6,277 8,352
Finance Cost 94 78 85 107 92 209 823 654 485
Profit After Tax 3,322 4,408 3,545 2,980 2,462 3,273 2,869 3,491 5,143
EPS 16.54 21.95 17.65 14.84 12.26 16.29 14.28 17.38 25.60
Investment Property 417 2,156 3,063 3,656 3,656 3,656 3,656 3,656 3,656
Cash and Short Term Invest. 6,279 6,037 5,715 5,984 1,878 3,423 3,044 3,375 4,691
Current Assets 8,434 9,218 8,929 10,407 6,545 8,613 9,403 10,760 13,306
Total Assets 17,061 19,345 20,192 23,316 27,672 35,198 35,600 36,913 39,489
Long Term Financing 995 711 426 142 2,683 6,392 4,794 3,196 1,598
Short Term Borrowings 598 598 200 ‐ 150 ‐ ‐ ‐ ‐
Curr. Portion of Long term loans 431 284 284 284 142 1,598 1,598 1,598 1,598
Total Equity 10,797 13,770 15,306 17,977 20,130 22,599 24,263 26,950 30,888
Key metrics
EPS 16.54 21.95 17.65 14.84 12.26 16.29 14.28 17.38 25.60
DPS 9.00 6.00 14.00 5.00 4.00 6.00 4.00 6.00 16.00
BVPS 53.76 68.56 76.20 89.50 100.22 112.51 120.80 134.17 153.78
P/E (x) 6.1 4.6 5.7 6.8 8.3 6.2 7.1 5.8 4.0
P/ NIPD (x) 5.5 4.2 5.0 5.8 6.8 5.2 5.4 4.5 3.2
EBIT Margin 38% 45% 41% 30% 23% 20% 18% 20% 22%
EBITDA Margin 41% 48% 44% 34% 26% 24% 23% 24% 26%
Dividend Yield 9% 6% 14% 5% 4% 6% 4% 6% 16%

25
PIOC:
Comes with high risk TAURUS
SECURITIES LIMITED
REP‐040
We downgrade PIOC with a June-19 Discounted Cash flow based target price of PKR55/
share. The stock has rallied 52% in the last 30 days and offers limited upside going for-
HOLD
ward.
Target Price-Jun’19 LDCP
Though the stock has positive triggers going forward, a heightened tail-risk in the form of 55 53
increasing level of leverage and a declining interest cover seems to be big red flags and Upside Free Float
warrant a cautious approach going forward.
3% 55%
The scrip currently trades at a FY2019E P/E of 9.2x against our industry (Ex-LUCK) P/E of
10.7x and offers a total return of 9%. Pioneer Cement Limited
Stock price 53
Grinding Mill resolves a long-standing issue Outstanding shares (mn) 227
Cement dispatches based capacity utilization of the company has averaged at a lowly 66% in the
last 5 years against the effective average utilization of 83% in the northern region during the Free Float Market Cap (PKR bn) 7
same period. Similarly, the company commands a much lesser dispatches based market share as Free Float Market Cap (USD mn) 49
compared to its capacity share (4.2% dispatches based market share against 5.3% capacity share Major Sponsors Vision holdings
Bloomberg Ticker PIOC PA
in FY2018).This is mainly due to the mismatch between companyʼs clinker production and grind-
ing capacity. Now, with the enhancement of the companyʼs grinding millsʼ capacity to 345 tons 3M Avg. daily volume (000) 1924
per hour, the company stands in a favorable position to increase its cement dispatches. 3M High 53
3M Low 35
Integrated Brownfield Expansion to increase market share 1‐Month Return 52%
FYTD Return 27%
With the 9000TPD expansion, the companyʼs cement capacity will stand at 4.5mn tons per an-
CYTD Return ‐9%
num post expansion. The expansion is scheduled to commence commercial production in FY2020 Source: Company, PSX and Bloomberg
taking the companyʼs capacity based market share to 7.9% from the current 5.0% in the north-
ern region post expansionary cycle. Relative Performance
50% KSE‐100 PIOC
We estimate the total integrated expansion to cost PKR28bn and has been assumed to com-
mence commercial production from 2HFY2020. 30%
10%
Captive Generation and operational efficiencies to reduce fuel and power costs
‐10%
With the company also building a 24MW coal fired power plant and a 12MW Waste Heat Recovery
‐30%
(WHR) plant to meet the power needs of its new expansion, our calculation suggests that the
company will be completely self-sufficient for power generation for this additional 2.5mn ton. ‐50%
Aug‐18
Nov‐17
Dec‐17
Jan‐18
Mar‐18
Nov‐18
Feb‐18
Apr‐18
May‐18
Jun‐18
Jul‐18
Sep‐18
Oct‐18
With the operational efficiency of the new machinery and the power savings arising due to captive
generation, we anticipate gross margins of the company to clock in at 29%/30% in F2021/
FY2022 vs. the industry margins of 24%/25% respectively. Source: PSX & TSL Research
Caution! Leverage poses a significant threat Relative Performance

PIOC currently has an interest bearing debt of PKR14.3bn on its balance sheet translating into a 50% KSE‐100 Cement Sector
Debt/Total Asset ratio of 43%. As per our estimates, the company would have to finance almost 30%
70% of the expansion through debt and hence we forecast companyʼs Debt/Total Asset ratio to
10%
reach 57% in FY2020. Furthermore, development of Galadari Cement (Gulf) Limited Hub Project
(not included in our analysis) might also require additional borrowings resulting in further lever- ‐10%
age. ‐30%
Similarly, PIOCʼs Interest Coverage Ratio is also expected to fall from 24.3x in FY18 to an alarm- ‐50%
Aug‐18
Nov‐17
Dec‐17
Jan‐18
Mar‐18
Oct‐18
Nov‐18
Feb‐18
Apr‐18
May‐18
Jun‐18
Jul‐18
Sep‐18
ing 1.5x in FY2021 indicating the vulnerability of the company.
Downside risks to our valuation: i) Price war ii) sharp rise in the fuel and power costs iii) un-
anticipated delay and cost overruns on the integrated expansion and iv) sharp rise in interest Source: PSX & TSL Research
rates.

At a glance TAURUS
SECURITIES LIMITED
PIOC ‐ Gross Margins PIOC ‐ EBITDA Margins
45% 50%
40% 44%
35% 38%
32%
30%
26%
25%
20%
20%
FY20 F
FY21 F
FY22 F
FY23 F
FY15A
FY16A
FY17A
FY18A
FY19E
FY19E
FY20F
FY21F
FY22F
FY23F
FY15A
FY16A
FY17A
FY18A
PIOC ‐ Local Retention Prices (PKR/bag)
360
350
340
330
320
310
300
FY15A
FY16A
FY17A
FY18A
FY19E
FY20F
FY21F
FY22F
FY23F
PIOC‐ Debt/Total Assets PIOC ‐ Dispatches(mn tons) vs Utilization
80% 4.0 Dispatches Utilization 90%
3.5
60% 80%
3.0
40% 2.5 70%
2.0
20% 60%
1.5
0% 1.0 50%
FY19E
FY20F
FY21F
FY22F
FY23F
FY15A
FY16A
FY17A
FY18A
FY20 F
FY21 F
FY22 F
FY23 F
FY15A
FY16A
FY17A
FY18A
FY19E

27
Financial
Snapshot - PIOC TAURUS
SECURITIES LIMITED
Net Sales 8,426 9,367 10,631 10,121 11,073 15,391 18,126 20,672 26,365
Gross Profit 3,166 4,005 4,428 2,811 2,773 3,851 5,200 6,136 8,100
EBIT 3,520 3,864 4,104 2,308 2,241 3,043 4,203 5,003 6,620
EBITDA 3,820 4,244 4,566 2,819 2,762 4,245 5,977 6,837 8,515
Finance Cost 56 17 35 95 407 1,486 2,776 2,433 1,982
Profit After Tax 2,496 2,519 2,918 1,644 1,306 1,557 1,427 2,569 3,503
EPS 10.99 11.09 12.84 7.24 5.75 6.85 6.28 11.31 15.42
Others 110 116 115 120 124 128 133 137 142
Cash and Short Term Invest. 3,098 3,017 2,932 1,500 1,622 1,213 1,298 1,476 864
Current Assets 4,674 4,268 5,408 6,071 4,994 4,514 5,081 5,430 6,059
Total Assets 12,114 14,768 17,760 29,111 37,200 45,961 45,014 43,789 42,782
Long Term Financing 337 ‐ 1,388 7,891 16,185 18,447 13,638 9,092 4,546
Short Term Borrowings 621 645 807 2,440 2,600 2,800 5,300 6,300 6,500
Curr. Portion of Long term loans 37 ‐ 113 375 375 4,921 4,809 4,546 4,546
Total Equity 8,333 10,670 12,248 13,629 14,310 15,583 16,726 18,784 21,606
Key metrics
EPS 10.99 11.09 12.84 7.24 5.75 6.85 6.28 11.31 15.42
DPS 6.25 6.25 5.50 4.07 2.75 1.25 1.25 2.25 3.00
BVPS 36.69 46.97 53.92 60.00 63.00 68.60 73.63 82.69 95.12
P/E (x) 4.83 4.79 4.13 7.33 9.23 7.75 8.45 4.69 3.44
P/ NIPD (x) 4.31 4.16 3.57 5.59 6.60 4.37 3.77 2.74 2.23
EBIT Margin 42% 41% 39% 23% 20% 20% 23% 24% 25%
EBITDA Margin 45% 45% 43% 28% 25% 28% 33% 33% 32%
Dividend Yield 12% 12% 10% 8% 5% 2% 2% 4% 6%

28
Sensitivity
Analysis TAURUS
SECURITIES LIMITED
Impact of change in retail prices on FY19E Earnings
LUCK DGKC MLCF PIOC KOHC FCCL
PKR10/bag Increase ‐ EPS 31.94 8.56 6.14 6.42 13.44 2.76
change 2.07 1.07 0.56 0.67 1.19 0.22
% change 7% 14% 10% 12% 10% 8%
PKR5/bag Increase ‐ EPS 30.90 8.03 5.86 6.08 12.85 2.65
change 1.03 0.54 0.28 0.34 0.59 0.11
% change 3% 7% 5% 6% 5% 4%
Base Case ‐ EPS 29.87 7.49 5.59 5.75 12.26 2.55
PKR5/bag Decrease ‐ EPS 28.83 6.96 5.31 5.41 11.66 2.44
change (1.04) (0.53) (0.28) (0.34) (0.59) (0.11)
% change ‐3% ‐7% ‐5% ‐6% ‐5% ‐4%
PKR10/bag Decrease ‐ EPS 27.80 6.43 5.03 5.08 11.07 2.33
change (2.07) (1.06) (0.56) (0.67) (1.19) (0.22)
% change ‐7% ‐14% ‐10% ‐12% ‐10% ‐8%
Source: TSL Research
Impact of change in FOB coal prices on FY19E Earnings
USD10/ton Increase ‐ EPS 26.88 5.61 4.58 4.69 10.71 2.24
change (2.99) (1.88) (1.01) (1.05) (1.55) (0.31)
% change ‐10% ‐25% ‐18% ‐18% ‐13% ‐12%
USD5/ton Increase ‐ EPS 28.37 6.55 5.08 5.22 11.48 2.39
change (1.50) (0.94) (0.50) (0.53) (0.77) (0.15)
% change ‐5% ‐13% ‐9% ‐9% ‐6% ‐6%
Base Case ‐ EPS 29.87 7.49 5.59 5.75 12.26 2.55
USD5/ton Decrease ‐ EPS 31.36 8.44 6.09 6.28 13.03 2.70
change 1.49 0.95 0.50 0.53 0.77 0.15
% change 5% 13% 9% 9% 6% 6%
USD10/ton Decrease ‐ EPS 32.86 9.38 6.59 6.80 13.81 2.85
change 2.99 1.89 1.01 1.05 1.55 0.30
% change 10% 25% 18% 18% 13% 12%

29
Sensitivity
Analysis TAURUS
SECURITIES LIMITED
Impact of change in exchange rate on FY19E Earnings
PKR10 deval. against USD 29.24 7.21 5.01 5.03 11.26 2.39
change (0.63) (0.28) (0.57) (0.72) (1.00) (0.16)
% change ‐2% ‐4% ‐10% ‐12% ‐8% ‐6%
PKR5 deval. against USD 29.56 7.35 5.30 5.39 11.76 2.47
change (0.31) (0.14) (0.29) (0.36) (0.50) (0.08)
% change ‐1% ‐2% ‐5% ‐6% ‐4% ‐3%
Base Case ‐ EPS 29.87 7.49 5.59 5.75 12.26 2.55
PKR5 apprec. against USD 30.18 7.63 5.87 6.11 12.76 2.62
change 0.31 0.14 0.29 0.36 0.50 0.08
% change 1% 2% 5% 6% 4% 3%
PKR10 apprec. against USD 30.49 7.77 6.16 6.47 13.26 2.70
change 0.62 0.28 0.57 0.72 1.00 0.16
% change 2% 4% 10% 12% 8% 6%
Impact of change in interest rate on FY19E Earnings
200 bps increase 30.71 6.63 5.42 5.64 12.35 2.53
change 0.84 (0.86) (0.17) (0.11) 0.09 (0.02)
% change 3% ‐12% ‐3% ‐2% 1% ‐1%
100 bps increase 30.29 7.06 5.50 5.69 12.30 2.54
change 0.42 (0.43) (0.08) (0.06) 0.05 (0.01)
% change 1% ‐6% ‐2% ‐1% 0% 0%
Base Case ‐ EPS 29.87 7.49 5.59 5.75 12.26 2.55
100 bps decrease 29.45 7.93 5.67 5.80 12.21 2.55
change (0.42) 0.44 0.08 0.06 (0.05) 0.01
% change ‐1% 6% 2% 1% 0% 0%
200 bps decrease 29.03 8.36 5.75 5.86 12.16 2.56
change (0.84) 0.87 0.17 0.11 (0.09) 0.02
% change ‐3% 12% 3% 2% ‐1% 1%

30
Cement
Sector Detailed Report
SECP Research En ty No fica on Number: REP‐040

Analyst Certification
The research analyst(s), if any, denoted by AC on the cover of this report, who exclusively reports to the research department head, primarily
involved in the prepara on, wri ng and publica on of this report, cer fies that (1) the views expressed in this report are unbiased and inde‐
pendent opinions of the Research Analyst which accurately reflect his/her personal views about all of the subject companies/securi es and (2)
no part of his/her compensa on was, is or will be directly or indirectly related to the specific recommenda ons or views expressed in this re‐
port.
The research analyst or any of its close rela ves do not have a financial interest in the securi es of the subject company aggrega ng more than
1% of the value of the company and the research analyst or its close rela ve have neither served as a director/officer in the past 3 years nor
received any compensa on from the subject company in the past 12 months. The Research analyst or its close rela ves have not traded in the
subject security in the past 7 days and will not trade in next 5 days.

Disclaimer
This report has been prepared by Taurus Securi es Ltd (hereina er referred as TSL) and is provided for informa on purposes only. Under no
circumstances is to be used or considered as an offer to sell or solicita on of any offer to buy. While all reasonable care has been taken to en‐
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TSL may, to the extent permissible by applicable law or regula on, use the above material, conclusions, research or analysis in which they are
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consider this report as only a single factor in making their investment decision.

31
Cement
Sector Detailed Report
Disclosure of Financial Interest
TSL or any of its officers and directors does not have a significant financial interest (above 1% of the value of the securi es of the subject company)
in the securi es of the subject company. However, NBP and BOK, being associates of TSL, may trade or have significant financial interest, under
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oned or issues described herein at any me and may make a purchase and/or sale, or offer to make a purchase and/or sale of any such securi es
or other financial instruments from me to me in the open market or otherwise. TSL or its employees may trade contrary to the recommenda on
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Taurus Stock Rating System

TSL employs a 3‐ er ra ng mechanism i.e ‘BUY’, ‘HOLD’ and ‘SELL’, which is based upon the level of expected return for a specific stock. When total
return (capital gain + dividends) exceeds 16%, a ’BUY’ ra ng is assigned. A ‘SELL’ ra ng is issued whenever total return is less than ‐6% and for re‐
turn in between the 2 ranges, ‘HOLD’ ra ng is meted out. Different securi es firms use a variety of ra ng terms/systems to describe their recom‐
menda ons. Similar ra ng terms used by other securi es companies may not be equivalent to TSL ra ng system.
Time horizon is usually the annual financial repor ng period of the company (unless otherwise men oned in the report). Ra ngs are updated daily
and can therefore change daily. They can change because of a move in the stock's price, a change in the analyst's es mate of the stock's fair value,
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Target price risk disclosures

Any inability to compete successfully in the markets may harm the business. This could be a result of many factors which may include (but not lim‐
ited to) geographic mix and introduc on of improved products or service offerings by compe tors. The results of opera ons may be materially
affected by global economic condi ons generally, including condi ons in financial markets. The company is exposed to market risks, such as chang‐
es in interest rates, foreign exchange rates and input prices. From me to me, the company may enter into transac ons, including transac ons in
deriva ve instruments, to manage/offset certain of these exposures.

Valuation Methodology
To arrive at our period end target prices, TSL uses different valua on methodologies including
• Discounted cash flow (DCF, DDM)
• Jus fied price to book (JPB)
• Rela ve Valua on (P/E, P/B, P/S etc.)
• Equity & Asset return based methodologies (EVA, Residual Income etc.)
SECP JamaPunji Portal link: www.JamaPunji.pk
Frequently Used Acronyms

TP Target Price DCF Discounted Cash Flows FCF Free Cash Flows
FCFE Free Cash Flows to Equity FCFF Free Cash Flows to Firm DDM Dividend Discount Model
SOTP Sum of the Parts P/E Price to Earnings ratio P/Bv Price to Book ratio
P/S Price to Sales EVA Economic Valued Added BVPS Book Value per Share
EPS Earnings per Share DPS Dividend per Share DY Dividend Yield
ROE Return on Equity ROA Return on Assets JPB Justified Price to Book

32

Cement Sector Detailed Report, November 19 2018

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Cement Sector Detailed Report, November 19 2018

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TAURUS

Taurus Securities Limited

A subsidiary of National Bank of Pakistan

Pressures to amplify going forward

FY2020 & FY2021 to be no diﬀerent 345

sively dent the bottom-line of the companies. 40%

Investment Strategy 30%

TSL Cement Universe

The management of the aforementioned companies is also conﬁdent of easily surpas- 6

Demand scenario to improve going into FY2020

Comfortable demand beyond FY2020

Industry Capacity to reach c74mn tons by FY21 Upcoming Capacity Expansions

Gross Margins to settle at a more justiﬁable level

FY19 FY20 FY21 FY22 FY23

Average Exchange Rate (USD/PKR) 135 140 147 153 160

Average Retail Price (North) PKR/bag 575 555 565 591 624

Average Retail Price (South) PKR/bag 590 584 572 599 632

FOB Coal Prices (USD/Ton) 92 85 83 80 77

Captive Gas Prices (PKR/mmbtu) *935 964 1,026 1,092 1,163

RLNG Prices (PKR/mmbtu) 1,761 1,726 1,693 1,769 1,848

Grid Cost (PKR/Kwh) 13 14 15 16 16

Brownﬁeld expansion at Pezu Plant - 2.6 million tons per annum

FCCL ‐ Gross Margins FCCL ‐ EBITDA Margins HOLD

2.3mn ton brownﬁeld expansion assumed from FY2020 30%

in our opinion. ‐10%

Caution! Leverage poses a signiﬁcant threat Relative Performance

ing 1.5x in FY2021 indicating the vulnerability of the company.

40% 2.5 70%

SECP Research En ty No fica on Number: REP‐040

TSL Research Dissemination Policy

Taurus Stock Rating System

Target price risk disclosures

SECP JamaPunji Portal link: www.JamaPunji.pk

Frequently Used Acronyms

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