Pakistan Cement Industry Analysis

Lucky Cement
This report studies Lucky Cement as a target against other companies studied as a basis for comparative analysis in the industry. Lucky Cement is the largest cement manufacturer in Pakistan and its upcoming expansion in Karachi will take its capacity from 6. 5mntpa to 9mntpa, further cementing its spot as the market leader. Lucky Cement Limited was incorporated in Pakistan on September 18, 1993, under the Companies Ordinance, 1984 (the Ordinance). The shares of the company are quoted on all the three stock exchanges in Pakistan.
The Company has also issued GDRs which are listed and traded on the Professional Securities Market of the London Stock Exchange.

Business Profile Sector: Cement Industry
Products and Services: Lucky Cement aims at producing cement to suit every user. The following types of cement are available: Ordinary Portland Cement (OPC) Ordinary Portland Cement is available in a darker shade as well as in light shades in Lucky Star with different brand names to suit the requirement of users.
Sulfate Resistant Cement (SRC)
Sulphate Resistant Cement’s best quality is to provide effective and long-lasting strength against sulphate attacks and is very suitable for constructions near seashores as well as for canals linings. It provides very effective protection against alkali attacks. The company currently produces five brands:

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Lucky Cement
Lucky Star
Lucky Gold
Chairman
Lucky sulfate resistant cement(SRC)

Customers and End Markets
Lucky Cement aims at producing cement to suit every user.
At present, it is producing Grey Portland Cement and also Sulphate Resistant Cement. The customers are able to get Portland cement both in the dark shade as well as in light shade with different brand names to suit the requirement of the user. The Portland cement specifically made for the prefabrication industry with a lower setting time is also available. In addition, the plant also produces Slag cement for specific users.
Distribution Channels
Dealers, retailers, and block makers are an integral part of Lucky Cement’s sales strategy.
This strong network of more than 200 dealers, located at strategic locations throughout the country, has enabled the company to create an impressive distribution system and access to markets at even the remote parts of the country.
Financial Profile


30-Jun
30-Jun
30-Jun
30-Jun


2008
2009
2010
2011

 –
Restated
PKR
Reclassified
PKR

Gross Profit Margin
25. 69%
37. 26%
32. 55%
33. 48%

EBITDA Margin
23. 91%
31. 77%
23. 07%
25. 87%

EBIT Margin
18. 14%
27. 41%
17. 31%
19. 83%

Net Income Margin
15. 79%
17. 45%
12. 08%
15. 26%

Return on Invested Capital
9. 06%
19. 2%
11. 17%
12. 63%

Return On Equity
14. 35%
19. 77%
12. 50%
14. 29%

Return On Assets
7. 82%
11. 97%
8. 18%
9. 63%

Leverage Ratio
3. 84%
1. 82%
2. 33%
1. 99%

Debt to total capitalization
45. 51%
39. 43%
34. 49%
32. 60%

Profitability
The Profitability of the company is quite decent and shows an upward trend, which can be seen by the financial ratios of the firm. There was a slight dip in the year 2010 but then increased considerably in the year 2011. This was mainly due to the decrease in the cost of production for Lucky Cement (a decrease in the cost of raw materials).
The prospects of the company are bright, which are demonstrated by high net income margin and return on invested capital ratios.
Growth Profile
Lucky Cement is growing at a brisk pace, as the overall cement industry is facing a desirable scenario, which is also demonstrated by a high return on equity and return on assets ratio. The company is also paying its creditors back shown by the decrease in leverage and debt to total capitalization ratios, which is a positive sign for the firm, and shows that it is growing at a considerable rate.
Return on Investment
The Return on Investment of Lucky Cement from years 2008-2011 is above 10% on average, which is quite a decent number, and shows the Profitability of the firm’s investments. It is 12. 63% in the year 2011 and displays a favorable scenario for Lucky Cement.
Credit Profile
The Credit Profile of the company shows a positive sign as the firm’s debt to total capitalization ratio declined from 45. 51% in the year 2008, to 32. 60% in the year 2011. Moreover, the leverage ratio of Lucky Cement has also seen a decline, which shows that the company is paying back its debts and is maintaining a decent Credit Profile among its lenders and suppliers.
Attock Cement
Attock Cement Pakistan Limited (ACPL) is a public limited company, listed on KSE since 2002. The main business of the company is the manufacturing and sales of cement. ACPL is part of the Pharaon Group, which in addition to investment to the cement industry has diversified stakes in Pakistan mainly in the oil and gas sector, power, and real estate sector. The Attock Cement project was conceived and the company was incorporated in 1981, the plant finally commenced commercial production on June 1, 1988. The project is a Pak Saudi joint venture and involved an initial capital outlay of around Rs 1. billion with foreign exchange components of around the US $ 45 million. This made it one of the largest enterprises in the private sector. Pharaon Commercial Investment Company Limited holds 84. 06% of the total paid-up share capital whereas the general public holds a total of 15. 94% shares.
Business Profile Sector: Cement Industry
Products and Services: The main product of the Company is Ordinary Portland Cement (OPC) but in addition to this ACPL also produces Sulphate Resistant Cement (SRC) and PORTLAND BLAST FURNACE CEMENT (PBFC), which sells under the registered brand name of “FALCON CEMENT” in the market.
Distribution Channels: At ACPL Sales and Marketing team focuses on delighting customers through making available quality products at the market place. ACPL has a network of dealers all around Pakistan. ACPL keep on recognizing the efforts of its dealers through periodic incentive plans based on their sales performance. Sales and marketing forces lead to taking initiatives ahead of the competitors. Few examples of ACPL faster first includes the export of clinker to the UAE and Qatar, along with cement exports to Iraq.
Financial Profile


30-Jun
30-Jun
30-Jun
30-Jun


2008
2009
2010
2011


Restated
PKR
Reclassified
PKR

Gross Profit Margin
22. 27%
31. 80%
25. 53%
20. 23%

EBITDA Margin
24. 22%
28. 56%
20. 12%
14. 69%

EBIT Margin
16. 20%
22. 99%
16. 59%
11. 52%

Net Income Margin
8. 69%
17. 54%
13. 25%
8%

Return on Invested Capital
14. 06%
32. 07%
19. 23%
13%

Return On Equity
12. 31%
31. 24%
18. 84%
11. 80%

Return On Assets
7. 41%
21. 41%
14. 40%
8. 83%

Leverage Ratio
1. 93%
0. 90%
1. 08%
1. 54%

Debt to total capitalization
39. 84%
31. 47%
23. 56%
25. 11%

Profitability
The Profitability of Attock Cement is quite satisfactory too but not as good as Lucky Cement. The company’s gross profit margin was very low as compared to that of Lucky Cement, however, the firm’s net profit margin is at par. It can be seen that Attock Cement has more operating expenses as compared to Lucky Cement, which it needs to cut and achieve efficiency, to match with the Profitability performance of Lucky Cement.
Growth Profile Attock
Cement has a very fluctuating, or rather, a very inconsistent growth rate, as can be seen by the return on equity and return on assets ratios.
Both the ratios were fairly decent in the year 2008, but then both saw a decline in consecutive years 2009 and 2010, after which they came back to an acceptable level in the year 2011.
Return on Investment
The Return on Investment of Attock Cement was again very unpredictable, fluctuating drastically between years 2008-2011. It touched a very high 32. 07% in the year 2009, but then declined to a level which was similar to that in the year 2008. Overall, the return on invested capital was at a satisfactory level as compared to Lucky Cement, which shows the positive nature of the company’s investments.
Credit Profile
The Credit Profile of Attock Cement is a fairly acceptable one, as can be seen by the decreasing leverage and debt to total capitalization ratios. This means that Attock Cement, like Lucky Cement, is also paying back its creditors and suppliers, which will mean that the lenders will be happy to lend money and raw materials to the company, as they’re able to meet their financial obligations effectively.
D. G. Khan Cement
D. G. Khan Cement Company Limited (DGKCC), a unit of Nishat group, is the largest cement-manufacturing unit in Pakistan with a production capacity of 5,500 tons clinker per day.
It has a countrywide distribution network and its products are preferred on projects of national repute both locally and internationally due to the unparalleled and consistent quality. It is a list of all the Stock Exchanges of Pakistan.
Business Profile Sector: Cement Industry
Products and Services: There are two types of cement products of D. G. Khan:

Ordinary Portland Cement
Sulfate Resistant Cement

Distribution Channels: Two different products are produced at DGKCC namely Ordinary Portland Cement and Sulphate Resistant Cement.
These products are marketed through two different brands:

DG brand; Elephant brand Ordinary Portland Cement
DG brand Sulphate Resistant Cement DG Khan Cement Company supplies cement throughout Pakistan especially in the provinces of Punjab, Sind, and Baluchistan.

This extensive distribution is achieved through the following regional sales offices:

Lahore Regional Sales Office
Multan Regional Sales Office
Rawalpindi Regional Sales Office
DG Khan Regional Sales Office
Karachi Regional Sales Office

These regional sales offices operate in assigned areas and have a network of dealers in each area to achieve maximum sales in their territories. Moreover, direct sales are also made to institutional Clients for projects.
Financial Profile


30-Jun
30-Jun
30-Jun
30-Jun


2008
2009
2010
2011


Restated
PKR
Reclassified
PKR

Gross Profit Margin
15. 51%
31. 61%
17. 93%
24. 00%

EBITDA Margin
21. 25%
28. 05%
19. 24%
17. 91%

EBIT Margin
10. 25%
20. 33%
10. 74%
10. 32%

Net Income Margin
0. 24%
2. 46%
1. 61%
0. 95%

Return on Invested Capital
2. 9%
8. 55%
3. 77%
3. 93%

Return On Equity
0. 01%
2. 12%
1. 01%
0. 60%

Return On Assets
0. 06%
1. 03%
0. 56%
0. 36%

Leverage Ratio
8. 73%
4. 17%
6. 61%
5. 91%

Debt to total capitalization
43. 12%
51. 54%
44. 45%
40. 16%

Profitability
The Profitability of DG Khan Cement is very low and unsatisfactory as compared to the other two companies in the cement industry, Lucky and Attock Cement Ltd. DG Khan Cement is paying a hefty amount as interest expense, which can be seen by the lower net income margin ratio of the firm, ranging from 0. 4-2. 46%. However, the EBIT and EBITDA margins of DG Khan Cement were quite satisfactory, and at par with the other two companies in the industry.
Growth Profile
DG Khan Cement has a very poor growth rate, evident by the very low return on equity and return on assets ratios. The growth of the company is badly hampered by the interest expense and the debt the firm has taken. Furthermore, the debt to total capitalization ratio of the company is also very high (higher than the other two companies in the industry), which was more than 50% in the year 2009.
These are negative implications for the company, and the investors must be unhappy with the performance of the firm.
Return on Investment:
The return on invested capital for DG Khan Cement was also quite inadequate when comparing with that of Lucky and Attock Cement. It was 2. 39% in the year 2008, increased to 8. 55% in the year 2009, after which it settled on a level between 3-4% in the years 2010-2011. This adversity was again due to the high debt ratio and hefty interest payments made by the company, because of which the Return on Investments was very low as compared to its competitors.
Credit Profile:
As opposed to its competitors, DG Khan Cement has a really horrific Credit Profile, as it is maintaining its debt to total capitalization and leverage ratios at a very high level and took up more loan in the year 2009, due to which its Profitability is also getting affected adversely, and also its creditors and suppliers will be unwilling to lend DG Khan Cement more in the future, doubting the firm’s ability to pay them back, as it already has outstanding amounts to be received from the company.
Fecto Cement
Established at Sangjani, near Islamabad, the ISO 9001:2000 certified Fecto Cement Limited is Pakistan’s first anti-pollution cement manufacturing plant and also the first of its kind in South Asia. As one of the most integrated manufacturing units in the country, it has a rated capacity to produce 600,000 tonnes of clinker per annum
Business Profile Sector: Cement Industry
Distribution Channels: It supplies cement throughout Pakistan through a huge properly maintained distribution channel consisting of wholesalers, retailers, and finally to the customers.
Financial Profile


2008
2009
2010
2011

Gross Profit Margin
8. 3%
23. 21%
5. 26%
18. 33%

EBITDA Margin
-2. 64%
13. 88%
-7. 77%
5. 42%

EBIT Margin
-51. 03%
11. 96%
-10. 04%
2. 78%

Net Income Margin
-3. 53%
9. 49%
-7. 17%
1. 98%

Return on Invested Capital
-4. 67%
13. 74%
-8. 02%
2. 47%

Return On Equity
-13. 80%
33. 80%
-30. 20%
8. 93%

Return On Assets
-51. 50%
15. 21%
-9. 33%
2. 95%

Leverage Ratio
-22. 30%
3. 11%
-9. 56%
11. 59%

Debt to total capitalization
61. 52%
55%
69. 10%
67%

Profitability The company has increased its gross profit margin from last year as sales have improved more than the rise in the cost of sales.
The net profit margin has improved as compared to the last year as the company was incurring a loss in 2010. However, it underperformed in comparison to the industry.
Growth Profile
The growth rate has considerably improved from last year but the overall industry growth is much more than Fecto. The company needs to increase its growth by retaining more than half of its earnings and re-investing it to increase its income in the coming years otherwise it will fall way behind the industry and would take a long time to recover.
Return on Investment
The Return on Investment has improved from the prior year.
This implies that the company is capitalizing its assets in a more efficient manner with an increase in the accumulated profits. However, it is not at all satisfactory in comparison to its competitors. Credit Profile: The debt to capitalization and leverage ratio is very high which means Fecto has more debt as compared to its equity. It has declined from the preceding year but it is fairly high with regards to its competitors. This shows a weak financial position as compared to the industry and poses a more default risk for the company.
Maple Cement
At the time of privatization in 1992, the capacity of Maple Leaf to produce
Ordinary Portland Cement (OPC) was 1000 tones per day (TPD). The second plant of 4000 TPD was commissioned in 1998 and the third plant of 6700 TPD came into production in 2006. It increased the total capacity to 11,700 TPD. The capacity of White Cement has also increased from 100 tpd to 500tpd with the addition of a new plant. This plant also has provisions for doubling the capacity to 1000tpd. Presently Maple Leaf cement has 9% of the market share of OPC and is a leading brand in Pakistan with a diverse customer base. It is also the largest producer of White Cement in the country with 80% of the market share.
Business Profile Sector: Cement Industry
Products and Services
The two main products are:

Ordinary Portland Cement (OPC) with a capacity of 11700 tones per day.
White Cement, its present capacity is 500 tones per day which shall be doubled to 1000 tones per day in the near future.

Financial Profile


2008
2009
2010
2011

Gross Profit Margin
16. 94%
32. 49%
21. 56%
16. 64%

EBITDA Margin
16. 88%
23. 19%
3. 45%
14. 14%

EBIT Margin
5. 73%
16. 27%
-3. 74%
4. 47%

Net Income Margin
-8. 65%
-6. 45%
-18. 96%
-13. 53%

Return on Invested Capital
1. 72%
9. 1%
1. 69%
1. 75%

Return On Equity
-8. 08%
-14. 63%
-50. 32%
-20. 37%

Return On Assets
-2. 58%
-3. 83%
-9. 90%
-5. 25%

Leverage Ratio
13. 47%
5. 35%
38. 80%
13. 52%

Debt to total capitalization
68. 02%
73. 80%
80. 32%
74. 23%

Profitability
The net profit margin increased by 5. 43% and settled at 13. 53% as compared to the prior year which was negative. This is a good sign as the company is moving towards Profitability as compare to the last two years. However, the company needs to improve its asset management in order to compete with the industry
Growth Profile
The growth rate is improving as compared to the previous year which is surely a green sign for the company. From last year the earnings have fairly increased but Maple Leaf is still underperforming as compared to the industry earning. A lot of efforts need to be put in for the company to be competing with the industry.
Return on Investment
The Return on Investment is almost the same as compared to the last year. This means that the company needs to increase its sales in order to get a favorable outcome in the coming years.
Credit Profile
The leverage ratio, as well as the debt to equity ratio, is fairly high as compared to the industry which refers to declining operational efficiency and ineffective asset management. Maple needs to decrease its reliance on debt to get a better ratio in the coming years.
Fauji Cement
A longtime leader in the cement manufacturing industry, Fauji Cement Company, headquartered in Rawalpindi, operates a cement plant at Jhang Bahtar, Tehsil Fateh Jang, District Attock in the province of Punjab. The Company has a strong and longstanding tradition of service, reliability, and quality that reaches back more than 13 years.
Sponsored by Fauji Foundation the Company was incorporated in Rawalpindi in 1992.
Business Profile Sector: Cement Industry
Products and Services: Ordinary Portland Cement is the major product.
Customers: The Company has been set up with the primary objective of producing and selling Ordinary Portland Cement. The finest quality of cement is available for all types of customers whether for dams, canals, industrial structures, highways, commercial or residential needs using the latest state of the art dry process cement manufacturing process.
Financial Profile


2008
2009
2010
2011

Gross Profit Margin
18. 56%
31. 75%
13. 54%
17. 35%

EBITDA Margin
18. 56%
17. 12%
32. 61%
21. 35%

EBIT Margin
16. 96%
30. 98%
9. 61%
12. 48%

Net Income Margin
11. 66%
18. 96%
6. 57%
8. 98%

Return on Invested Capital
3. 69%
9. 90%
1. 95%
1. 71%

Return On Equity
4. 45%
10. 39%
2. 60%
3. 86%

Return On Assets
3. 32%
4. 70%
0. 93%
1. 32%

Leverage Ratio
4. 18%
8. 29%
25. 70%
20. 40%

Debt to total capitalization
25. 0%
67. 06%
62. 60%
55. 90%

Profitability: The profit margin has increased as compared to the previous year but if we match it with the past performance of the company it is still at a declining rate. This decrease is also due to the overall decline in the cement industry
Growth Profile: The growth rate has improved but it is not much satisfactory when compared with the industry. In order to compete with the dominant companies, Fauji needs to utilize its assets in a more efficient manner
Return on Investment:
As compared with 2011 to 2010 it has been in the same position, Fauji needs to increase its growth by retaining more than half of its earnings and re-investing it to increase its income in the coming years otherwise it will fall way behind the industry and would take a long time to recover.
Credit Profile: The Credit Profile of the company is fairly below the industry. However, the leverage ratio of Thatta Cement has seen a remarkable increase, which shows that the company is paying back its debts and is maintaining a decent Credit Profile among its lenders and suppliers.
Thatta Cement
Thatta Cement Company Limited was incorporated in 1980 as a public limited company. It was a wholly-owned subsidiary of the State Cement Corporation of Pakistan (Pvt. ) Limited. The manufacturing facility was commissioned in 1982. The plant-based dry process technology had a total installed capacity of 1,000 tons per day of clinker. The plant was supplied by M/s. Mitsubishi Corporation, Japan. In the year 2004, the consortium of Mr. Arif Habib and Al-Abbas Group acquired 100% shares of the Company from the Privatization Commission and took over its management control.
Business Profile Sector: Cement Industry
Products and Services:

Ordinary Portland Cement
Sulfate Resistant Cement
Portland Blast Furnace Slag Cement
Ground Granulated Blast Furnace Slag

Customers and End Markets:
Some of the valued customers:

Lucky Paragon (Ready-Mix)
DGDP, FWO (Frontier Works Organization), Siam Group, CGGC, AJK, SAMBU Pakistan, Bahria Icon, Envicrete, Hubcrete, and Atlas Ready Mix.

Financial Profile


2008
2009
2010
2011

Gross Profit Margin
14. 69%
27. 69%
17. 96%
12. 88%

EBITDA Margin
8. 95%
21. 50%
5. 96%
0. 79%

EBIT Margin
5. 65%
18. 96%
2. 63%
-2. 04%

Net Income Margin
2. 79%
11. 36%
0. 06%
-4. 02%

Return on Invested Capital
39. 15%
84. 50%
36. 40%
36. 28%

Return On Equity
6. 92%
26. 45%
0. 12%
-10. 64%

Return On Assets
2. 94%
0. 07%
14. 37%
3. 75%

Leverage Ratio
6. 11%
16. 77%
7. 25%
68. 25%

Debt to total capitalization
0. 57%
4. 56%
0. 46%
0. 51%

Profitability
Profitability has declined as compared to the previous year due to the performance of the plant was badly affected by frequent interruptions in power supply by HESCO.
The substantial loss is also due to the increase in the production cost such as the purchase price of raw materials and a huge increase in fuel and power cost.
Growth Profile
The growth rate is declining as compared to the last year mainly due to the increase in COGS and also the company has also invested in the long-term. There is also an increase in the distribution cost which is due to the increase of appreciation in exports related to freight and other charges which increased by 11. 61% despite a decrease in sales volume of export by 18. 3%.
Return on Investment:
The return on invested capital is the same as the previous year which is fairly high as compared to the other companies. This means that the return from investments is considerably more than the industry average.
Credit Profile: The Credit Profile of the company is not much satisfactory. Moreover, the leverage ratio of Thatta Cement has also seen a decline, which shows that the company is paying back its debts and is maintaining a decent Credit Profile among its lenders and suppliers

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