The credit of working either on 100 percent or in
some cases over capacity utilization probably goes only to the cement
sector has emerged as the most vibrant segment of the economy in
The phenomenal demand growth, however, relative to
the economic turnaround in the country especially in view of booming
housing and construction industry besides increasing exports to
Afghanistan, Dubai and other parts of UAE and in the Far Eastern
countries in the aftermath of devastating Tsunami waves in Malaysia
and adjoining areas.
Though almost all the leading cement manufacturing
units are currently engaged in expansion of their existing plants of
setting up new projects in view of growing demand, yet price factor
might force the government to allow import of cement from neighboring
India and China which is much cheaper as compared to the cement
available in the local market.
Although almost the entire cement units operating
in Pakistan have shifted from costly fuel oil to coal, yet the cement
price was on the higher side on the lame excuse of higher
international oil prices.
Despite a strong protest lodged by the construction
industry over what they called exorbitant cement prices stalling
growth in the housing sector, the strong cement cartel was not
prepared to pay heed to the hue and cry raised by the end users.
It is, however, learnt that the government was
actively considering withdrawal of the incentive of exemption of
central excise duty given to the cement sector some two years back in
the forthcoming federal budget in June this year.
Besides the house financing offered by the
financial sector, the development activity carried out by the local
government at a massive scale was the major factor for pushing up the
demand for the cement in Pakistan. It is for the first time that the
development funds allocated by the federal government construction of
roads, highways, bridges and other public development projects being
utilized to a great extent by the city governments in their respective
areas which of coursed helped boosting the demand.
On the other hand, the government was planning to
construct high dams including the controversial Kalabagh and Bhasha
dams. The construction of these dams means that a large production of
the units operating in Northern Zone of the country would be consumed
by these huge water reservoirs which will be another factor and should
be a boon for the cement sector. Despite increase in demand, and
profitability, the sector has yet to make its presence felt in the
capital market of the country.
After showing a slowdown during the past few
months, cement sales during April 2005 depict a considerable leap with
local dispatches soaring by 27% YoY to 1.65 million tonnes. According
to All Pakistan Cement Manufacturers Association (APCMA) the local
cement sales during the first ten months of the prevailing fiscal
(July-April 2005) to be at 12.10 million tonnes, which is 19% higher
as compared to 10.16 million tonnes during the corresponding period
last year. Cement exports were also up by 40% to 0.90 million tonnes.
On the back of tremendous demand growth, the
industry's cement dispatches have soared 21% to 13.3 million tonnes.
Overall, the higher demand figures have resulted from improved housing
and construction activities in the country, economic upturn and
increased exports to Afghanistan.
Resultantly, the capacity utilization during FY05
represents a rosy picture of the cement sector. The average
utilization levels have shot up nearly 14pps to approximately 90% as
against 76% during the previous year.
Looking at the capacity utilization of the leading
players it is interesting to note that they are operating almost at
100 percent capacity utilization which gives an idea about this
vibrant sector of the economy.
During first ten months of 2004-05 ended April
2005, the leading cement units including DG Khan Cement, Lucky Cement
and Pioneer Cement's capacity utilization stood at 102%, 105% and 107%
Similarly, Bestway Cement, Fauji Cement, Kohat
Cement and Maple Leaf Cement's operating levels are respectively at
112%, 97%, 96% and 87%. In the South, Attock Cement's utilization
level has stood at 94%.
The outlook for cement demand represents an
extremely upbeat picture of cement industry. The market experts
anticipate overall industry sales growth during FY05 at around 23-24%.
According to industry sources, presently the cartel of cement
manufacturers, known as Marketing Arrangement, is not in operation.
Housing activities in the country continue at a
fast pace, fuelling cement demand. At the same time, exports to
Afghanistan will continue to multiply with booming UAE, which is also
emerging as a lucrative market for the cement sector.
President Pervez Musharraf during last few months
has repeatedly mentioned the need for construction of new dams and
water reservoirs and for building national consensus towards it. These
prospects bode extremely favorably for domestic demand. Moreover,
given that the capacity additions by the cement manufacturers will be
gradual, excess supply concerns are mitigated, at least in the
Following are the synopsis of some of performing
cement units in Pakistan:
Lucky Cement's financial results reveal that profit
after taxation for the nine months ended March 2005 registered a 32%
growth to Rs582 million as against Rs442 million previously.
Overall revenues of this unit were up 40% to Rs2.77
billion with local and export sales respectively soaring by 22% and
420%. Gross margins of the company, however, depicted shrinkage to
33.6% on the back of higher coal and furnace oil prices. Financial
charges and other charges were respectively higher by 95% and 23%.
Meanwhile this unit is going to enhance output as
the higher production was in the pipeline with major expansions to
come online soon.
In terms of volumes the sales were up 32% to 1.019
million tonnes as compared to 0.769 million tonnes previously.
The sales in the domestic market were also
increased nearly by 14% to 0.818 million tonnes. The cement exports by
this unit rocketed to 0.200 million tonnes as against 0.052 million
during the corresponding period of last year.
It may be mentioned that Lucky Cement's expansion
plans are progressing on a fast track and it is expected that its
production facilities at Pezu and Karachi are expected to be completed
ahead of time. The production facility at the Pezu plant is partially
expected to come online by the end of July 2005 and the remaining
facility is scheduled to start production by the end of January 2006.
The Karachi production facility is also expected to
come online by March 2006.
The outlook for cement demand represents a glowing
future for the overall cement industry. Presently, the demand for
cement outstrips its supply evident by the fact that the industry is
operating at full capacity with the utilization levels of leading
players being well in excess of 100%.
DG KHAN CEMENT
DG Khan Cement yet another front line player in the
cement sector declared its earnings 58% higher compared to the
earnings during the corresponding period of last year. The sales are
to be fuelled on the back of higher capacity utilization. Margins are
to be supported on firming up of cement prices offsetting the impact
of hike in input costs (mainly coal).
Recently cement prices were raised by
approximately. Rs10/bag to around Rs250/bag indicating the
manufacturers' ability to pass on cost increases to the consumers. The
financial charges are estimated to show 19% increase ensuing from the
firming up of interest rates.
DG Khan Cement's earnings for the six months ended
December 2004 surged by a significant 59% to Rs644 million as against
Rs405 million during the corresponding period of last year.
Profitability improved on the back of the combined contribution of
higher sales and capacity utilization and firm cement margins.
According to All Pakistan Cement Manufacturers
Association (APCMA), cement sales during the first nine months of FY05
(July-March 2005) depicted a 20% increase to 11.73 million tonnes as
against 9.79 million tonnes during the corresponding period of last
DG Khan Cement is implementing an
optimization/de-bottlenecking plan, which is to enhance total
production capacity to 6700 tonnes per day as against 5500 tonnes per
day presently. The company has stated that the optimization of Unit-1
has been completed and the plant has resumed production. The
optimization of Unit-2 is in progress and is scheduled to be completed
during early FY06.
DG Khan Cement is also setting up a new cement
production line at Khairpur, District Chakwal. This plant is to have a
production capacity of 7,000 tonnes of cement per day and is scheduled
to come online during 2008. The new plant will enable the company to
capture the market of the Northern Punjab and NWFP provinces and make
export to Afghanistan from the northern borders more convenient. DG
Khan Cement has stated that the new plant will offer greater fuel and
energy efficiency and provide increased operational flexibility.
Pioneer Cement is one of the leading players
amongst the active corporate leaders. The company's earnings during
first half of the financial year were up 13% to Rs161 million as
against Rs142 million during the corresponding period of last year.
Sales soared by 45% to Rs870 million as against Rs600 million earlier.
This unit has also injected impressive investment in its expansionary
project which is reportedly in full swing and its production was
expected to come online soon.
Pioneer Cement's sales soared by 45% during first
half of the year which was mainly contributed mainly exports. Gross
margins marginally shrank to 31.7%. Nonetheless, gross profits were
42% to Rs276 million as against Rs194 million during the corresponding
period of last year.
The financial charges nearly halved to Rs66 million
resulting from balance sheet restructuring. Earnings before taxation
during first half of the financial marked a 390% increment. It may be
recalled that last year the bottom-line was boosted on the back of
deferred tax adjustment. The higher base effect limited the
improvement in the July-Dec 2004 after-tax earnings to 13%.
The expansion plan of the company is to enhance the
company's production capacity by 4,000 tonnes per day. Initially
Pioneer Cement was planning to augment the capacity of the existing
plant. Nonetheless, the company has opted for the new unit in order to
avoid longer production stoppages. The new plant is scheduled to come
online in October 2005.