CEMENT INDUSTRY OPTIMIZING PRODUCTION CAPACITY
Cement demand figures during July-August 2005 portray an upbeat trend
By AMANULLAH BASHAR
Sep 19 - 25, 2005
Currently, the entire cement industry is engaged in the optimization and expansion of existing production capacity, besides putting huge investment in new cement units which is reflecting demand growth of cement at domestic as well as export fronts.
Following is a brief about the two leading cement units of the country i.e. D.G. Khan and Maple Leaf which in fact represent the present situation identical to the entire cement industry in Pakistan.
In accordance with the trend, Maple Leaf Cement, a leading cement unit, is currently busy in optimizing a dry process grey plant through up-gradation of essential equipment, which would increase the plant's capacity by 700 tons per day to 4,000 tons per day. This capacity expansion is expected to come on-line next month i.e. October 2005, sources said.
Maple Leaf Cement's cost effective expansion project with the aim to increase the annual grey cement capacity to 3.7m tons (up 146% from 1.5m tons previously) is also expected to come online by FY07.
Cement demand figures during July-August 2005 portray an upbeat trend. Cement dispatches during the first two months of the current fiscal soared by 9.4% to 2.94 million tons as compared to 2.68 million tons during the corresponding period of last year.
Domestic consumption in August increased by 17.6% to 1.35m tons. However, exports marginally declined by 1.0% to 286,391 tons. Average industry capacity utilization in August stood at 93% as against 82% during the corresponding period of last year.
Maple Leaf Cement's financial results for the year ended June 2005 are scheduled to be announced on September 17, 2005.
It is estimated that Maple Leaf's earnings would increase by 39% to Rs678million as against Rs487million during the last year. This translates into an EPS at Rs2.51 compared to Rs1.80 during FY04. This rise is to ensue from an increase in sales volumes coupled with firm domestic cement prices.
The financial charges are also expected to substantially decline thereby fueling the bottom-line. A positive stance is suggested on Maple Leaf Cement. Maple Leaf Cement's earnings for the period ended March 2005 surged by 15% to Rs513.7million as against Rs446.7million during the corresponding period last year.
The profitability of the unit improved on the combined contribution of improved cement margins, higher capacity utilization and lower financial charges.
D.G. KHAN CEMENT
Another leading unit, D.G. Khan Cement, is also engaged with capacity optimization and expansion plans by implementing an optimization/de-bottlenecking strategy, which will enhance total production capacity to 6,700 tons per day as against the present 5,500 tons per day .
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 reportedly scheduled to be completed during early FY06.
D.G. 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 tons of cement per day. The plant is scheduled to come on-line during 2008. The new plant will enable the company to capture the market of the Northern Punjab and N.W.F.P. provinces and to make export to Afghanistan from the northern borders more convenient. The new plant will offer greater fuel and energy efficiency and provide increased operational flexibility. Cement demand figures portray an upbeat trend in the industry. Cement sales during the first two months of FY06 (July-August 2005) depict 9.4% surge to 2.935m tons compared to 2.683m tons during the same period last year. Domestic sales increased by 10.7% during July-August 2005. Total exports stood at 286,000 tons. Industry capacity utilization during August 2005 stood at approx. 93% compared to 82% previously.
It is estimated that earnings of this unit for the year to soar 42% to Rs1,185 million as against Rs830million during the preceding year.
This translates into an EPS at Rs6.42 compared to Rs4.50 during FY04. Market analysts were of the view that the company is to declare Rs2/share cash dividend. Moreover, the possibility of 10-20% bonus pay out cannot be ruled out. D.G. Khan's FY05 capacity utilization is estimated at around 90%. Net sales and gross profit are expected to depict healthy growth on the back of improved sales and prices compared to the preceding year. During July-March 2005, D.G. Khan's local sales and exports increased by 14% and 97% to 1.08m tons and 0.24m tons, respectively. Margins remained firm despite higher fuel and coal costs, resulting in 39% increase in gross profits to Rs1, 393m. D.G. Khan Cement's operating expenses and financial charges rose by 33% and 22%, respectively. The effective tax rate during the nine months stood at 17%, markedly lower by 13pps compared to 30% previously.
PRODUCTION OF CEMENT
Source: Federal Bureau of Statistics