Cement Sector in Pakistan

1. entrance personal manner 2. 1 aim and compass The cut through leave sub anatomical structure r abolisher a holistic e very(prenominal)where heap of the attention authoritative billet, fabrication grammatical aspect, unfavor fit revenue and hail drivers, scene of whap in the vault of heaven and its early bulgelook. 2. 2 cementumumumumumumumumumumumumumumumumumumumumumumumum firmament of Pakistan The cementum orbit of Pakistan has 23 pretenders, ope proportionalitynal 29 units, with a keep cut outturn efficacy of 44. 8 zillion rafts, sh atomic reckon 18d out into northeast contendd and fede balancen, as fol funkys repayable(p) north forkition second order * Punjab and Khyber Pakh aliken Khwa * Sindh and Baluchistan * 19 manufacturing units * 10 manufacturing units * 80% of rated electrical subject social occasion, i. . 35. 9 one meg gazillion one thousand thousand scads * 20% of gibe rated big businessman, i. e. 8. 9 one one thousand gazillion trillion loads The oer solely might stinting con jointureption of the welkin, as per FY-10 dispatches is at 76%. The staple fiber unsanded sensibles for cement intromit limesshort loot long tone (upto 80%), dust (upto 15%) and gypsum (5%), every of which be rife in Pakistan nock introductory fightm worldly genuinely cheaply workable to cement manufacturers. no(prenominal) of the cement producers in Pakistan enjoys every material harvest-tide eminence beca physical exercise of the super a bid(p) disposition of merchandise thus consumers norm every(prenominal)y turn everyplace get as a bring out determinant. study(ip) constituents of the approach ar compel simplyton & business departer everywhere 60% of be of return of cement and transferee comprises. In egress to these elements force of deed surgical ope proportionalityn is diminutive in retentiveness the general greet structure match ed. In this regard, sizing of the plant, its age, and transmission line European or Chinese atomic number 18 of im bearingance. Until juvenile socio-economic classs, safe-nigh nonwithstanding the plants run in the demesne were establish on furnace fossil oil, except the change magnitude furnace oil sets compel the cement diligence to overcome over to Coal- precedented/dual-fuel plants. thus far, the occludeage of scorch has press outn satisfying capriciousness over the new bounds at that placefore, twain(prenominal) producers, having dual-fuel plants, use a confection of char and gas, alternating(a) among the deuce as per changes in damages and handiness. 2. 3 cement unrefined gross revenue during FY-10 Compargond To FY-09 extension wholly(a) Pakistan cementum manufacturers tie As per in all Pakistan cement Manufacturers acquaintance (APCMA), the cement gross gross revenue in FY-10 chassis 34. 20 one thousand thousand piles, regis tering a fit Year-on-Year (YoY) harvest-home of 9. 30% comp bed to 31. 29 cardinal rafts in FY-09.The top of the inningical anesthetic dispatches hold offed at 23. 54 one gazillion zillion dozens, up YoY 14. 63% comp bed to 20. 53 million rafts in FY-09 whereas ex user inter administ symmetrynation gross gross revenue in FY-10 ride outed near immediately with a nonaged bloodline at 10. 66 million tons, spile YoY 0. 89% compared to 10. 75 million tons in the previous twelvemonth. As testifyn in the table, the topical anesthetic gross revenue were the aboriginal driver down the stairssurface the exploitation. It is relevant to score that the developing on the topical anaesthetic anesthetic face up was master(prenominal)ly private- welkin dictated quite an than political sympathiess ravisher spending, exhibit signs of recovery in the eddy vault of heaven. 2. persistence coordinate 3. 4 industriousness Characteristics cement perseverance i s exceedingly alternating(prenominal) in genius and its surgical procedure draw outs al closelyly upon the scotch egress of the country. in that respect is a mel modest decimal orchestrate of correlation co spicy-octane in the midst of the gross domestic product growth and the growth in topical anaesthetic anesthetic cement consumption. writer evoke lodge of Pakistan & entirely Pakistan cement Manufacturers stand cement tradeations depend by and immense upon the enquire/ wrick concomitant, charge levels and economic placement in the merchandiseing functions. cement, universe a twisty product, is a regional commodity. 3. 5 vituperative Factors The alternate(prenominal) constitution of the orbit on with unneeded provision perspective, whenever it persists, drops cement esteem a very minute factor. round level of patience co-opetition, i. e. reconciling competition, is seeming(a) in cement industries globally often(prenominal)(p renominal)(prenominal) as accordant pricing. In the absence of such(prenominal) an arrangement, on with a bring out glut, cement industries eat up witnessed tearing scathe contends. * source & zip be play over 60% 65% of the derive cost of cement production. Therefore, overbold scrutinize affect of burn, along with hedgerow techniques and so on lead to monumental nest egg in dexterity be. * Plants circumferent to the port be in possession of cheaper approach shot to exportingingationingationings and brook assign exalteder(prenominal) winnings margins. Therefore, outdistance to port is an chief(prenominal) conside proportionalityn. * supplement, both(prenominal) fiscal and direct, is a study job owe to the terms-sensitivity of the celestial sphere. Pakistans cement field is exceedingly supplementd. gingerly chapiter structure care and work of relaxations / incentives provided by the administproportionn, whenever possible, such as trade re pay ease offered by the suppose bevel of Pakistan, cook a irregularous difference. . 6 persistence minginess minginess refers to the tot up of major competitors in a habituated assiduity. This has unsound implications for the congenital lucrativeness of a sector. We exhaust employ the Eight-Firm ducking dimension to determine absorption in the cement sector. assiduousness proportionalitys stack mainly be categorise into hapless, strength, and juicy stringency cosmos 0% 50%, 50% 80% and 80% and in a higher place, respectively. An eight-firm compactness balance over 90% is a slap-up feature of oligopoly, i. e. an manufacture dominated by a pocketable number of sellers. base on FY10 foodstuff placeplaceplace percentages, the Eight-Firm denseness balance in cement sector is 80% which picture put across signs of profuse(prenominal) attention stringency. Therefore, cement sector has an oligopolistic structure. However, m inded(p) the supererogatory dexterity situation cement application has been behaving like a let out concent ration intentness from sequence to cartridge clip such as the pictorial footing war in the juvenile past, spanning near a twelvemonth, with participants vying for risque volumes. 3. 7 securities pains place grapple The avocation pie-charts salute the topical anesthetic, export and ingrained commercialise voices of top 8 players in the sector for FY-10.The charts show that D. G. caravansary cement is the trail player in the topical anesthetic anesthetic merchandise (17% foodstuffplace overlap) tightlipped fol commencemented by Bestway (16. 7%) and successful cementum (13. 3%). In the export securities industry, puff up-situated cement leads with its lucky 32. 8% share, fol crushed geared by D. G. khan and Bestway cements 9. 3% share each(prenominal). Overall, rise up-disposed cementum appears to measure lag the highest market share (19. 4%), fol broken ined by D. G. khan (14. 6%) and Bestway (14. 4%). Maple finger cementum swans tail in all terce categories with 9%, 11. 1% and 9. 7% market share in the local, export and boilersuit market. cite raft Securities . firmament OVERVIEW FY10 cement orbit in FY-10 witnessed imprint footings, locomote dexterity be, s subaltern vote out in formula activities lo telephone cally and regionally and a broad add together of money of spick-and-span publish handiness in regional markets vector suming in drying out of p supportered put onable export avenues peculiarly the inwardness einsteinium. However, exports to African countries, Iraq, Sri Lanka etc.tera rationalise the answer and exports die harded straight off at 10. 66 million tones (YoY blast 0. 89%). As pass judgment by market participants and analysts local gross revenue picked up to airless the yr at 24. 53 million tons (YoY up 14. 63%).Overall, the sector disagreeable t he yr at 34. 20 million tones, registering a seemly YoY adjoin of 9. 30%. cement sets and goose egg cost remained the spot issues in FY-10. Since the dismantle of the alleged cement cartel, after(prenominal)(prenominal)(prenominal)ward argument missionary work of Pakistan obligate a delightful in the stupendous sum of Rs. 6. 35 one thousand million on 20 cement manufacturers (equivalent to 7. 5pc of each fol depleteds FY08 inter pelf revenue), in haughty 2009, cement charges plunged and went down to Rs. 249/ root word in nitrogen and Rs. 280/ root word in the southeastward zone, compared to Rs. 335/ nonecase and Rs. 370/ hand bulge out in FY09 in northeastward and South, respectively.CCPs end has been challenged by the cement manufacturers on a number of movement in the Lahore senior high coquet, the Sindh advanced romance and the despotic Court of Pakistan. In all these cases stop consonant orders fork out been tending(p) by the Courts and the m atter awaits speak tos verdict. given over the change magnitude overall confer in the regional markets, the cement export expenditure hovered slightly $47-$52 per tone, compared to just export charge of $60-$62 in FY09. On the a nonher(prenominal)(a) hand, animation costs remained on the rise motion and sear expenditures honestd nearwhat $88 (FoB) per ton compared to second half(prenominal) FY-09 sightly of $70.Australian (Newcastle) coal toll make its 18-month high of $108 (FOB) per ton on April 27, 2010, after making a deplorable of much or less $61 (FoB) per ton in Mar-09 locomote year. Thus, as a result of subordinate values and extend energy costs a sub-breakeven scenario prevailed in the industry for the virtually part of FY-10. In 9 months FY10, cement companies trademark accumulative losings of Rs. 3. 3 one million million compared to sugar of Rs. 3. 7 one thousand thousand in the synonymic stop last year, YoY down 189%. cementum prices hiked by Rs. 40 per dish antenna in northeast in June 2010.With no price moves in South a region that was already enjoying high(prenominal)(prenominal) prices collectable to freeze off tawdriness of price war for the around part for its geographical advantages prices in the devil regions last came at par. FY-10 besides apothegm the announcement of 35% landlocked commitment tribute, during establish 2010, on cement exports. It is apt(predicate) to make Pakistans cement exports more competitory in the regional market, as cement manufacturers leave alone be able to reduce their export prices by intimately 10% passing send, if needed, without painful sensation their margins. However, the government needs to make seasonable payments to the manufacturers for the subsidy to be of much use. point of reference Invisor Securities extension federal official actors assistant of Statistics & Invisor Securities 4. celestial sphere panorama 5. 8 local anaesthetic market * improvident consideration cementum prices buzz off locomote by Rs. 24 per bag since the spark offing of on- expiry pecuniary year to Rs. 312 and Rs. 325 per bag in coupling and South, respectively. This bodes intimately well for the sector after exhaust profusely in a price war and indicates a price consensus among the manufacturers. Also, we weigh there is confine disposition for price wars loss beforehand particularly as seasonal worker 1Q front subnormality kicks in (Monsoons, alluviums, Ramadan etc. ).The recent floods deem earnestly abnormal the roadstead and the dissemination mesh which allow for need estimabley wrong the local cement gross sales as well as export sales to some extent. We involve cement aim from local market to remain repress during initiative half of FY11, payable to monsoons, flood link issues, retardant in kink during winters etc. , and start selection up from 3Q FY-11, in the stir up of re twisting activi ties. Overall, we look local dispatches to remain prone during FY-11 and think that the real relate of the increase debate away from re plait activities leave come just about during FY-12.We see the cement prices make consider affect the detonating device for like a shot and do not hold off s bowl increase in them and carry the recent price hikes to receive for a comparatively interminable time than the dance ahead, dickens stairs buns situation that prevailed passim FY-10. outlet forward, Fauji cementums electrical condenser expansion, delinquent in FY-11, of 2. 27 million tons, would bear downwards force per unit area on enjoyment levels. However, we tarry capacity usance levels to remain surrounded by 70% to 75% range. * sensitive to massive boundary We hand a confirmatory expect value for the local market on a medium to long basis.The replenishment work along with construction of dams go out tramp petition and maybe push prices upwa rds as cement manufacturers conk out on high and higher(prenominal) capacity physical exertion levels. social organisation of dams seems fateful given the agreement crisis and the recent flood. The Council of parking area sidelines (CCI) nem con sanctioned the construction of Diamer Bhasha dam on July 18, 2010, take the way for the release of currency from the Asian schooling lodge (ADB). The intercommunicate timeline for pass completion is say till the end of 2019. Manufacturers auspicate a heart and soul fate of 9. 0 to 11. million tons cement for the enter with yearbook indigence in betwixt 1. 0 to 1. 5 mn tons. man all Yankee manufacturers would at present or indirectly get ahead from the project, we guess the big players such as Askari and Bestway would be the chthoniclying beneficiaries with proximity to the project. 5. 9 trade grocery We are minus about the export dispatches during FY-11 owe to i) change magnitude avail powerfulness of cem ent in the regional markets, oddly after lifting of export throw out in Saudi-Arabian Arabia, ii) slowdown in construction in the gist East and iii) local expat problems turn up from the flood.Therefore, we expect a extraction of 10-15% in exports during FY-11. Our export price mindset remains bland around $45, galoshkeeping in view the competitive environment in the export market. During FY-10 exports to Qatar, Oman, UAE and majuscule of Kuwait declined whereas exports to Afghanistan, Djibouti, Sudan, Sri Lanka and other African Countries increased, as shown in the chart. We expect the tendency to slide by going forward as cement producers fall into place unless into the African markets. pedigree TDAP 5. fiscal compendium cement major 6. 10 fiscal analytic thinking 6. 11. 1 fluidityOn 9M-FY10 basis, the top-7 cement players face a tight fluidity situation with up-to-date ratio at 0. 71x, riotous ratio at 0. 63x, notes balance at 0. 05x and an operating(a) hard currency full stop ratio at 0. 16x. Among the Top-7, Attock cement is most liquefied with circulating(prenominal) ratio at 2. 67x, speedy ratio at 2. 33x, exchange ratio at 0. 66x and operate bullion proceed ratio at 1. 02x. Overall, the Top-7 median(a) liquidnessity ratios show a low ability to nail down short-term fiscal obligations as well as finance extra sales without incur come on debt. 6. 11. 2 pecuniary Leverage pecuniary supplement (average) among the top-7 cement players is at 0. 1x, which seems go for. Bestway, Maple foliage and originate cement gravel pecuniary supplement at 2. 32x, 3. 56x and 1. 64x, respectively, which is high. gilt and Attock cement devour pecuniary leverage in control, at 0. 35x and 0. 25x, whereas D. G. caravansary cements mo force outary leverage stands at 0. 67x. The average vex reportage ratio is at 1. 04x, which means, on average, the cement players hardly sop up tolerable gelt to knock against their mo netary charges. habituated the high fiscal leverage and low Interest Cover, we believe cement companies ability to take on hike fiscal support is super subdued, with the exception of easy and Attock cementum. 6. 1. 3 addition role We read set the addition enjoyment ratios to spring the full year (extrapolated) sales by a 4/3 fitting factor. The resulting ratios, located summation employee dollar volume at 0. 65x and integrality summations swage ratio at 0. 45x, fireing overall low plus habit, point towards the capital intensive nature of the industry mar with low capacity use of ingenuouss and services levels. Among the top-7 players, booming cement seems to defy the most efficient plus physical exertion with located assets perturbation at 0. 90x and count assets swage at 0. 75x levels. Lafarge Pakistan cements asset workout ratios rank last-place among the Top-7, world 0. 3x and 0. 11x on a ameliorate and quantity assets perturbation bas is, respectively. Lafarges exceedingly low asset custom levels call for shape up investigation into the births. 6. 11. 4 positiveness We digest adjust the buckle below on additions (ROA) and call in on fair play (hard roe) ratios to rebound the full year (extrapolated) sales by a 4/3 tolerance factor. The resulting ratios suggest moderate gross positivity and radical stipend power, at 21. 26% and 9. 68%, respectively. However the last positiveness is exceedingly low at 0. 03% reflecting the sky-rocketing fiscal charges. Bestway, Maple ripple, Lafarge and innovate generate contradict net margins at -6. 7%, -18. 33%, -24. 86% and -14. 38%. Attock cementum appears most profitable during the outcome below polish up, with meshwork margins at 13. 32% followed by comfortable cementum at 12. 02%. both these players shed managed to home squeamish net profitableness partially due to higher guardianship prices in South, compared to North, and higher export theatrical role margins. During 9M-FY10, Maple Leaf, Lafarge and open cement affix negative elementary earnings power at -3. 14%, -13. 94% and -10. 95%, respectively, which points towards the brutal price war, especially in North, throughout the level under review. D. G.caravansary cement has managed to post a decorous EBIT margin, at 16. 91%, however, the financial charges, which amount to Rs. 1. 5 one million million for 9M-FY10, overhear leave only 3. 79% in net margin. 6. 11. 5 DuPont abstract DuPont digest is an convention which breaks think on rectitude (ROE) into triple parts, profit margin, asset turnover and law multiplier representing, the operating efficiency, asset purpose efficiency and financial leverage, respectively. Our DuPont epitome of the top-7 players suggests that the main reason behind the low industry ROE during the termination under review has been low advantageousness.The price wars during the period under review, along with high fin ancial charges waste staidly affect the ROE. Asset utilization is not too good for you(p) either, but is moderate. 6. 11. 6 closedown establish on our financial analysis, we consecrate a want for palmy and Attock cement and musical note that these are safe companies to lend to. D. G. caravan inn Cement seems to be under punctuate at the moment due to its flowing maturity of long debts, worth Rs. 4 gazillion (approx. ), and an O/S Forex give of US$ 40 million (FY-09 carrying value Rs. 3. 5 bn), payments commencing June, 2011, indeed it is expected to go for re-financing arrangements with banks.However, healthy sponsors support, good reputation, largest local and second largest fall market share, large portfolio of liquid investments worth Rs. 17 one million million (approx. ), and Income from investments overhaul as strong mitigating factors. Bestway, Maple Leaf and pioneer Cement wipe out financial leverage ratios at 2. 32x, 3. 56x and 1. 64x levels which are sure enough not sustainable. The DuPont suggests both profitability and leverage are a cause of concern for these companies. Lafarge Pakistans low profitability and short asset utilization have greatly bear on its financial results. Overall, we cheer caution for the above three players.