CEMENT SECTOR

S.M. ABBAS ZAIDI,
Research Analyst
, PAGE
Aug 25 - 31, 2008

Pakistan Cement Industry, comprising of 26 companies with a total capacity of approx 34mn tons, as the overall sector has shown an increase from time to time. Pakistan's main cement export avenue includes UAE, India, South Africa and Afghanistan. The Cement Sector allocates utilization quota and pricing arrangements to operate in particular markets. The high capital cost, high economies of scale by the biggest, price setting by the cement sector and other operating efficiencies already achieved by most companies do not allow more companies to come into play so easily.

SYNOPSIS

Sector P/E

11.5%

Capacity in tones

37m

Local demand

30.4m

Export demand 9M FY ' 08

7m

Production in tones

21.9m

9M FY ' 08 Growth in %

24.79%

Domestic

8.68%

Export

140.24%

Source: FCEL

HIKE IN PRICES

The price increase of PAK Rs 40 to 45 per 50kg bag during the year, due to impact of rising coal & fuel prices, slowdown in the Government's infrastructure spend and instability in the economic and political situation have been passed on to the consumers. The coal prices in international markets reached to more than US $142/ton during FY08 which was US $80 last year and oil prices also touched US $150/barrel which has increased the cost of production.

SECTOR ANALYSIS

The Robust growth of 32% cement demand both in domestic and export markets during FY07 continued during FY08 and showed an increase of 25%. Total domestic consumption grew by 1% YoY while exports grew by whopping 157% YoY. The industry's debt to equity ratio is 60% the recent volatility in interest rates is likely to affect the financial cost. However, companies including DGKC, Lucky& MLCF have entered into interest swap agreements like Libor.

CEMENT SECTOR REVIEW (9MTHS'08)

CEMENT INDUSTRIES

PAT (RS M)

EPS (RS)

 
.

9MTHS'08

9MTHS'07

9MTHS'08

9MTHS'07

CHG, (%)

Al-Abbas Cement

(26)

(175)

(0.14)

(1)

85.1%

Attock Cement

349

613

483

8

-43.1%

Bestway Cement

(298)

(57)

(1.05)

(0)

-421.9%

Cherat Cement

(9)

156

(0.09)

2

-105.7%

Dadabhoy Cement

228

38

2.32

0

507.4%

Dandot Cement

(331)

(400)

(3.49)

(4)

17.2%

Dewan Cement

(157)

23

(0.44)

0

-792.4%

DG Khan Cement

487

1,154

1.92

5

-57.7%

Fauji Cement

156

468

0.23

1

-66.6%

Fecto Cement Limited

(46)

21

(1.02)

0

-321.2%

Flying Cement

(100)

126

(0.57)

1

-179.3%

Gharibwal Cement

(125)

(323)

(0.54)

(1)

61.4%

Javedan Cement

(29)

(92)

(0.51)

(2)

68.9%

Kohat Cement

(227)

198

(1.94)

2

-214.8%

Lucky Cement

2,014

1,345

7.65

5

49.7%

Maple Leaf Cement

(373)

80

(1.00)

0

-564.6%

Mustehkam Cement

(212)

(208)

(14.11)

(14)

-1.8%

Pakistan Cement

(271)

(443)

(0.24)

(0)

38.7%

Pakistan Slag Cement

(18)

(24)

(2.82)

(4)

24.3%

Pioneer Cement

(163)

(118)

(0.82)

(1)

-38.5%

Zeal-Pak Cement

(288)

(248)

(1.69)

(1)

-15.9%

.

5.62

2.133

. .

-73.6%

Courtesy: fnetrade.com

EXPORT DEMANDS

Local cement dispatches registered 7% growth at around 22m tons during FY08. Demands from Middle East & African countries have given a significant boost to the production which stood at about 24m tons in FY07. The upward trend is due to various factors which includes the acute shortage of cement in both developed and developing countries. Strong UAE demand along with the removal of cement custom duty in the region is the key reason for the higher exports from Pakistan. The other alternate markets like India and South Africa will remain the smaller pockets of opportunity, given logistic constraints. India with a demand deficit of 8m tones is partially fulfilled by our cement industry.

FUTURE OUTLOOK

Pakistan cement exports are all set to touch $ 1bn mark by 2010 after establishing its position as an exporter of cement and clinker in the region as cement manufacturers enhanced their role among competitors. The rising international and local cement prices provided good opportunity to the cement industry to increase its sales and profitability. The export of cement is expected to earn $425 million of foreign exchange by the end of current fiscal year i.e. 2007-08, followed by further impressive growth during the upcoming fiscal years. The industry projections suggest that the cement industry exports would reach to $735m by the end of 2008-09 and it will touch to $1.043 bn by the end of 2009-10. The industry is achieving milestones by recording highest ever volumes in exports, verifying the enormous potential the Pakistan cement industry possesses in the wake of timely expansions. Nevertheless, the demand and supply will be balanced and will remain favorable, going forward. So, the overall outlook of the cement sector appears positive under the current scenario.