PERFORMANCE REVIEW OF CEMENT INDUSTRY FOR THE YEAR 2007-08

By MUAHMMAD SALEEM WAHEED FCMA
Dec 29 - Jan 04, 2009

INDUSTRY CAPACITY:

The capacity of the cement industry has been showing growth at a faster rate than growth in the demand of the country and abroad ever since the start of export in 2002-03. During last five years the capacity of the sector has grown immensely to reach 37.16 million tons in 2007-08 from 16.32 million tons in 2002-03 on the back of domestic demand with severe shortage of cement in the region.

The Industry Capacity in 2007-08 has increased by 24% as against 44% rise in 2006-7 whereas just equal overall growth in dispatches has offset the impact of rise in the capacity stagnating capacity utilization at the last yearís level of 81%.

Comparative year-wise capacity is tabled as under:

YEAR CAPACITY TONS INCREASE %
2002-03 17.61 0%
2003-04 17.04 -3%*
2004-05 17.91 6%
2005-06 20.94 17%
2006-07 30.07 44%
2007-08 37.16 24%
*Rated capacity of Zeal Pak had been reduced to 0.36 mil tons
Source: APCMA

INDUSTRY DEMAND:

During the last five years, industry overall demand remained strong ranging 13% - 32% on account of exceptional increase in local demand on the back of significant GDP growth and expanding overseas markets. Overall dispatches have risen by 24% to 30.1 million tons in 2007-08 from 24.2 million tons dispatched in 2006-07.

LOCAL DEMAND:

Domestic demand has been registering a remarkable growth for the last five years at CAGR 12% on account of the increased construction activities in the housing sector and infrastructural development in the country. Demand of cement during 2007-08 stood at 22.4 million tons as compared to 21.05 million tons in 2006-07 showing a modest growth of 6.4% as against 24% impressive growth achieved in 2006-07 mainly on account of economy meltdown, political instability and social unrest in the country particularly NWFP where the deteriorated law and order situation has hampered construction activities, ever highest oil prices coupled with unprecedented global food inflationary pressures caused to drain out hard earned foreign exchange leaving adverse rupee/dollar parity.

EXPORT OF CEMENT:

Export of cement/clinker has witnessed a marvelous growth over last five years on the back of emerging demand from Middle East, India, South African countries and war torn Afghanistan and Iraq.

The industry has made ever highest export to the tune of 7.72 million tons in 2007-08 registering a magnificent growth of 173% over 2006-07 on account of the increased demand on the back of booming construction activities in the Middle East and India amid the growing shortage of cement in the region.

Comparative demand of cement data is given below:

YEAR DOMESTIC DEMAND EXPORT TOTAL EXPORT
  TONS GROWTH TONS GROWTH TONS GROWTH SHARE
2002-03 10.98 12% 0.43 353% 11.41 15% 4%
2003-04 12.52 14% 1.12 160% 13.64 20% 8%
2004-05 14.79 18% 1.57 40% 16.36 20% 10%
2005-06 16.91 14% 1.51 -4% 18.42 13% 8%
2006-07 21.05 24% 3.19 112% 24.24 32% 13%
2007-08 22.40 6.4% 7.72 142% 30.12 24% 26%
Source: APCMA

Pakistan has emerged on the map of world as a large exporter of quality cement. It has provided lucrative opportunities to Pakistani manufacturers to reap the benefits particularly those units which are operating in South Zone as they hardly bear 25% of freight charges being paid by units those operating in North Zone.

RISING EXPORT SHARE VERSUS DOMESTIC MARKET:

Contribution of export towards total sales has been increasing over the domestic sale. Export has contributed a bigger share of 26% in 2007-08 as compared to 13% in 2006-07 presenting 100% increase. Since the industry is increasing its dependence on export. Mounting dependence on export also increases external risks thus making export more risky as recession that began in USA is going to be deeper and would affect every country directly and indirectly. It may hamper large scale construction activities in the region. In addition, Iran alone is expected to come up with huge new capacities in 2009-2011. India and China will have surplus due to slowdown in their economy. There is a need to explore new export markets after Russia and South African countries.

CAPACITY UTILIZATION:

Overall capacity utilization for the industry in 2007-08 stood at 81% the same level achieved in 20006-07 which is somewhat satisfactory under the circumstances prevailed during the year under review.

Exports have absorbed 21% of installed capacity in 2007-08 as against 11% in 2006-07 as shown in the table below:

CAPACITY UTILIZATION
YEAR LOCAL EXPORT TOTAL
2002-03 62% 3% 65%
2003-04 73% 7% 80%
2004-05 83% 9% 91%
2005-06 81% 7% 88%
2006-07 70% 11% 81%
2007-08 60% 21% 81%

The capacity utilization in case of domestic demand worked out to 60% in 2007-08 as compared to 70% attained in 2006-07. Despite the gap has to a greater extent, been filled by export yet there is a cause of concern as new capacities (Gharibwal 2.1 million tons and Khoat 2.1 million tons) are coming up and trial production has already commenced, taking capacity to 42.8 million tons. Dewan cement Line-II with a capacity of 0.98 million tons and Bestway Line-II having a capacity of 1.8 million tons are expected to come up in the third quarter of 2008-09 which would reach the capacity to 45.6 million tons. This will considerably shrink the capacity utilization leading huge demand and supply glut in the short term. The growth in demand 2008-09 is expected to be negative if the different negative demand growth scenarios are taken, the domestic capacity utilization would work out as under:

Growth in domestic demand -5% -10% -15%
Domestic Demand M/Tons 21.3 20.20 19.0
Capacity Utilization 47% 44% 42%

FINANCIAL PERFORMANCE:

There are 24 companies in the cement sector, 21 listed in KSE (After Pak Slag has been merged with Zeal Pak) and 3 unlisted companies (i.e. Askari Wah, Askari Nípur, A.C. Rohri). Financial data for the year 2007-08 have been compiled for 17 listed companies out of 21 listed companies. Mustekham and Zeal Pak Cementís financial results are not available so far. Pakistan Cementís financial year falls on 31st December thus no comparable data is available. Gharibwal Cement has released its financial results but there were no production activities and trading activities as production activities from their wet process plant might have kept suspended due to high oil prices and expansion of its 6700 tpd new line. Financial results of unlisted companies are not available as they do not declare their results publicly. Most of companies are showing export expenses under distribution expenses and some are deducting these directly from gross sales. Figures have been adjusted accordingly in order to make them comparable.

NET SALES REVENUE

The industryís net sales revenue for 2007-08 have robustly gone up by 34% to Rs.74,315 million from Rs.55,366 million as compared to the last year. Net sales have augmented by Rs.13,292 million due to rise in sales volume by 24% and Rs.5,657 million owing to increase in industryís average selling prices despite economic and political turmoil.

The industryís average retention price worked out to Rs.2,975 tons higher by 8% from Rs.2,749 per ton in 2007-08.

On the basis of per ton analysis, Attock Cement has secured first position in the highest selling price of Rs.3,579 per ton, followed by Al-Abbas at Rs.3,287 per ton, Dadabhoy at Rs.3,272 per ton. It is worth mentioning that southern zoneís units remained on the top of list as they are reaping benefits of higher ex-factory price than northern zone. Details, in ranking order, are given as under:

HIGHEST NET SALES PRICE PER TON
(AFTER REBATE & TRANSPORTATION CHARGES/RATE DIFFERENCE)
  FOR THE YEAR 2007-08 FOR THE YEAR 2006-07
COMPANIES RANK-ING QTY SOLD TONS NET
SALES RS/MLN
RS/TON RANK-ING QTY SOLD TONS NET
SALES RS/MLN
RS/TON
ATTOCK 1 1,394,487 4991 3,579 2 1,329,421 4560 3,430
AL ABBAS 2 353,633 1162 3,287 1 55,119 206 3,745
DADABHOY 3 115,690 379 3,272 11 260,292 705 2,707
THATTA 4 442,575 1415 3,198 4 339,578 1039 3,061
JAVEDAN 5 371,461 1185 3,191 3 336,085 1107 3,294
MAPLE LEAF 6 2,534,220 7816 3,084 10 1,359,162 3711 2,730
LUCKY 7 5,556,186 16958 3,052 12 4,639,991 12522 2,699
FAUJI 8 1,177,500 3546 3,011 5 1,143,091 3463 3,030
FECTO 9 792,506 2373 2,995 6 741,725 2200 2,967
CHERAT 10 1,027,323 3014 2,934 8 927,624 2620 2,824
KOHAT 11 472,726 1376 2,911 7 547,034 1554 2,840
DEWAN 12 1,593,698 4598 2,885 9 1,585,000 4330 2,732
D.G. KHAN 13 4,401,636 12446 2,828 14 2,527,306 6420 2,540
BEST WAYS 14 2,685,782 7487 2,788 16 2,249,973 5649 2,511
PIONEER 15 1,785,014 4854 2,719 15 1,267,242 3185 2,514
DANDOT 16 209,392 556 2,656 13 353,688 915 2,586
FLYING 17 61,904 158 2,557 17 478,145 1179 2,465
24,975,733 74315 2,975 20,140,476 55366 2,749

COST OF SALES

The industryís cost of goods sold has shown a hefty 44% escalation which has resulted 24% increase in sales volumes and 20% due to abnormal inflationary pressure on inputs prices i.e. coal, electricity which constitutes 65% of COGS, packing material, stores & spares and other overheads.

In relation to net sales, it has gone up by 8% from 79% in 2006-07 to 85% in 2007-08. It means that the industry could not pass on the full impact of increase in cost of production to the consumers due to price war amongst the industry players in the early part of the financial year 2007-08. Comparative table is appended below:

LOWEST COST OF PRODUCTION PER TON
  FOR THE YEAR 2007-08 FOR THE YEAR 2006-07
COMPANIES RANK-ING QTY SOLD TONS COST OF SALES RS/MLN RS/TON RANK-ING QTY SOLD TONS COST OF SALES RS/MLN RS/TON
LUCKY 1 5,556,186 12595 2,267 2 4,639,991 8847 1,907
D.G. KHAN 2 4,401,636 10531 2,392 1 2,527,306 4388 1,736
BEST WAYS 3 2,685,782 6479 2,412 3 2,249,973 4637 2,061
PIONEER 4 1,785,014 4340 2,431 6 1,267,242 2813 2,220
FAUJI 5 1,177,500 2888 2,452 4 1,143,091 2372 2,075
MAPLE LEAF 6 2,534,220 6492 2,562 12 1,359,162 3401 2,502
FECTO 7 792,506 2130 2,687 13 741,725 1992 2,686
THATTA 8 442,575 1206 2,725 11 339,578 828 2,437
KOHAT 9 472,726 1289 2,726 8 547,034 1210 2,213
CHERAT 10 1,027,323 2834 2,759 10 927,624 2242 2,417
ATTOCK 11 1,394,487 3887 2,788 7 1,329,421 3006 2,261
JAVEDAN 12 371,461 1096 2,952 15 336,085 1029 3,062
DEWAN 13 1,593,698 4706 2,953 9 1,585,000 3719 2,346
AL ABBAS 14 353,633 1047 2,961 17 55,119 336 6,089
DADABHOY 15 115,690 372 3,220 14 260,292 699 2,687
DANDOT 16 209,392 793 3,786 16 353,688 1122 3,172
FLYING 17 61,904 435 7,034 5 478,145 1061 2,218
    24,975,733 63121 2,527   20,140,476 43701 2,170

GROSS PROFIT

Industryís gross profit in 2007-08 slightly dropped from Rs. 11,665 million in 2006-07 to Rs. 11194 million as compared to last year. Gross margin to net sales stood at 15% as against 21% in 2006-07 due to increase in inputs prices. Despite upsurge in net sales by 34%, gross profit depicted a decrease by 6pps.

On the per ton basis, Attock Cement remained at No.1, has earned the highest gross profit at Rs.792 per ton lower by 32% as compared to Rs.1,169 per ton earned during the same period last year, followed by Lucky Cement at Rs.785 per ton, Fauji Cement at Rs.559 per ton as compared to Rs.792 per ton and Rs.955 per ton earned during the last year. While Dewan,

Dandot and Flying Cement have sustained gross losses. Ranking in gross profit is illustrated as under:

HIGHEST GROSS PROFIT /(LOSS) PER TON
  FOR THE YEAR 2007-08 FOR THE YEAR 2006-07
COMPANIES RANK-ING QTY SOLD TONS GROSS PROFIT RS/MLN RS/TON RANK-ING QTY SOLD TONS GROSS PROFIT RS/MLN RS/TON
ATTOCK 1 1,394,487 1104 792 1 1,329,421 1555 1,169
LUCKY 2 5,556,186 4363 785 4 4,639,991 3675 792
FAUJI 3 1,177,500 658 559 2 1,143,091 1091 955
MAPLE LEAF 4 2,534,220 1324 522 14 1,359,162 310 228
THATTA 5 442,575 209 473 6 339,578 212 624
D.G. KHAN 6 4,401,636 1915 435 3 2,527,306 2032 804
BEST WAYS 7 2,685,782 1008 375 7 2,249,973 1013 450
AL ABBAS 8 353,633 115 326 17 55,119 -129 (2,344)
FECTO 9 792,506 244 307 11 741,725 208 281
PIONEER 10 1,785,014 514 288 10 1,267,242 372 294
JAVEDAN 11 371,461 89 239 13 336,085 78 232
KOHAT 12 472,726 87 185 5 547,034 343 628
CHERAT 13 1,027,323 179 175 8 927,624 378 407
DADABHOY 14 115,690 6 53 15 260,292 5 20
DEWAN 15 1,593,698 -108 (68) 9 1,585,000 611 385
DANDOT 16 209,392 -237 (1,130) 16 353,688 -207 (586)
FLYING 17 61,904 -277 (4,477) 12 478,145 118 247
    24,975,733 11194 448   20,140,476 11665 579

FINANCIAL CHARGES

The industryís financial charges have exhibited a phenomenal rise of 45% from Rs.4,691 million in 2006-07 to Rs.6,810 million in 2007-08 mainly on account of abnormal increase in Kibor by more than 300 bps and the impact of depreciation in value of Pak rupee. Financial charges being a major cost item has hit the profitability of the industry as it is highly leveraged.

On per ton analysis, the industryís financial charges were at Rs.273 per ton in 2007-08 as against Rs.233 per ton in 2006-07. Its impact remained lesser at 17% on per ton basis mainly due to impressive growth by 24% in volumetric sales. Lucky Cement which ranked at 9 in 2006-07 came up with the lowest cost at Rs.23 per ton in 2007-08 as it has made heavy debt-servicing in the year under review, followed by Dadabhoy at Rs. 51 per ton, Cherat at Rs.79 per ton whereas Dandot Cement is heavily leveraged as its financial cost worked out highest at Rs.1088 per ton, followed by Maple Leaf at Rs.715 per ton. Comparative table, in ranking order, is given below:

LOWEST FINANCIAL CHARGE
  FOR THE YEAR 2007-2008 FOR THE YEAR 2006-2007
COMPANIES RANK-ING TONS RS/MLN RS./TON RANK-ING TONS RS/MLN RS./TON
LUCKY 1 5,556,186 127 23 9 4,639,991 863 186
DADABHOY 2 115,690 6 51 1 260,292 6 22
CHERAT 3 1,027,323 82 79 5 927,624 76 81
KOHAT 4 472,726 49 104 3 547,034 18 34
ATTOCK 5 1,394,487 154 110 4 1,329,421 102 77
FAUJI 6 1,177,500 147 125 7 1,143,091 207 181
THATTA 7 442,575 85 193 15 339,578 137 405
DEWAN 8 1,593,698 325 204 14 1,585,000 553 349
FECTO 9 792,506 177 223 6 741,725 69 93
PIONEER 10 1,785,014 413 231 12 1,267,242 366 289
AL ABBAS 11 353,633 88 250 13 55,119 17 304
JAVEDAN 12 371,461 99 268 10 336,085 75 222
D.G. KHAN 13 4,401,636 1750 398 8 2,527,306 468 185
BEST WAYS 14 2,685,782 1236 460 17 2,249,973 1212 539
FLYING 15 61,904 31 503 2 478,145 13 27
MAPLE LEAF 16 2,534,220 1813 715 11 1,359,162 338 249
DANDOT 17 209,392 228 1,088 16 353,688 172 485
    24,975,733 6810 273   20,140,476 4691 233

NET PROFIT

The Cement Industry has earned net profit to the tune of Rs.924 million in 2007-08 as compared to Rs.5,679 million earned during the last year registering a massive decline of 84% on account of rise in inputs prices, increase in distribution cost due to higher export expenses and increase in interest charges coupled with impact of devaluation of Pak rupee on foreign currency loans.

In comparison with net sales, it has plunged to 1% as compared to 10% last year. On per ton basis, Lucky cement which was at No.4 in 2006-07 climbed on top line earning at Rs.482 per ton as compared to Rs.549 per ton earned last year, followed by Fauji Cement at Rs.351 per ton and Attock Cement at Rs.312 per ton. D.G.Khan which had earned last year at Rs.642 per ton and remained at No.1, has turned into red and sustained a loss of Rs.12 per ton. Out of 17 companies, there are only 6 companies out of 17 companies which have posted a net profit of Rs. 3,746 million while the largest share was contributed by Lucky Cement. Comparative data, in ranking, is as follows:

HIGHEST NET PROFIT /(LOSS) PER TON
  FOR THE YEAR 2007-08 FOR THE YEAR 2006-07
COMPANIES RANK-ING QTY SOLD TONS NET PROFIT RS/MLN RS/TON RANK-ING QTY SOLD TONS NET PROFIT RS/MLN RS/TON
LUCKY 1 5,556,186 2678 482 4 4,639,991 2547 549
FAUJI 2 1,177,500 414 351 3 1,143,091 646 565
ATTOCK 3 1,394,487 435 312 2 1,329,421 796 599
THATTA 4 442,575 40 89 7 339,578 47 137
BEST WAYS 5 2,685,782 169 63 13 2,249,973 52 23
CHERAT 6 1,027,323 10 10 6 927,624 184 199
D.G. KHAN 7 4,401,636 -53 (12) 1 2,527,306 1622 642
PIONEER 8 1,785,014 -180 (101) 14 1,267,242 -93 (74)
FECTO 9 792,506 -82 (103) 12 741,725 19 26
JAVEDAN 10 371,461 -42 (114) 15 336,085 -90 (268)
MAPLE LEAF 11 2,534,220 -676 (267) 11 1,359,162 42 31
AL ABBAS 12 353,633 -108 (306) 17 55,119 -142 (2,576)
DEWAN 13 1,593,698 -499 (313) 8 1,585,000 207 130
KOHAT 14 472,726 -222 (471) 5 547,034 248 454
DANDOT 15 209,392 -419 (2,002) 16 353,688 -437 (1,236)
DADABHOY 16 115,690 -265 (2,290) 9 260,292 14 55
FLYING 17 61,904 -273 (4,403) 10 478,145 17 35
    24,975,733 924 37   20,140,476 5679 282

EARNING PER SHARE

Earning per share during the year under review has massively went down as compared to last year. Most of companies in the sector have shown loss per share, however, EPS of Lucky and Bestway have maintained its rising trend at Rs.9.84 and Re 0.60 per share over the last year and the rest are showing downfall in their EPS as compared to last year due to the reason described above.

The comparative statement given below shows earning/loss per share in ranking order:-

. 2007-08 2006-07
RANKING

COMPANIES

EARNING PER SHARE RS. EARNING PER SHARE RS.
1 LUCKY 9.84 9.67
2 ATTOCK 6.03 11.04
3 FAUJI 0.85 1.73
4 BEST WAYS 0.60 0.18
5 THATTA 0.50 0.58
6 CHERAT 0.11 1.93
7 D.G. CEMENT (0.21) 6.43
8 AL ABBAS (ESSA) (0.59) (1.19)
9 JAVEDAN (0.76) (1.61)
10 PIONEER (0.93) (0.50)
11 DEWAN CEMENT (1.39) 0.74
12 FLYING CEMENT (1.55) 0.09
13 FECTO (1.80) 0.42
14 KOHAT (1.90) 2.12
15 MAPLE LEAF (1.96) 0.03
16 DADABHOY (2.96) 0.33
17 DANDOT (4.72) (5.54)