a comprehensive review of bangladesh cement industry

95101 102

118125

142

172

187

2011 2012 2013 2014 2015 2016 2017 2018

Per Capita Cement Consumption (KG)

Challenges:

• Mounting Overcapacity

• Intense Competition among Industry

Players

• Price Volatility of Imported Raw Materials

• Foreign Exchange Risk

Growth Drivers:

• Massive Infrastructure Investment

• Growth of Real Estate Sector

• Rising Inward Remittance

• Increasing Personal Income

• Huge Home Loan Interest Rate Cut for

Govt. Employees

• Growing Urban Population

Bangladesh Cement Industry:Resilient; Better Days Await

August, 2019

15 16 16 1

9 20 2

3 27

31

22 2

5 27

33 33

39

45

51

2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6 2 0 1 7 2 0 1 8

Sales Vol (Mn MT)

Expert’s View: Interview with Mr. Masud Khan

Masud Khan, FCA, FCMA

Chief Executive Officer,

Crown Cement Group

“Cement industry in Bangladesh has come a long way over

the years. Once a cement importing nation, Bangladesh is

now exporting cement to its neighboring countries. The

outlook for the industry is very robust; we are expecting

double digit industry growth mainly driven by government

demand. But, Profitability still remains a worry for all. The

scenario shall change in the coming days.”

(Details on page 21)

EBL Securities Limited

This page is intentionally left blank

EBL Securities Research

Bangladesh Cement Industry Review

This research report is a property of EBL Securities Ltd. l August, 2019

N.B.: Disclaimer of EBL Securities Ltd, author(s) certification and rating definition have been provided at the end of the report.

Table of Contents

Executive Summary

Recent Developments in the Industry ………………………………………………………………………………………………………… 1

Overview of Bangladesh Cement Industry ………………………………………………………………………………………………….. 2

Cost Structure ……………………………………………………………………………………………………………………………………………. 8

Demand Drivers …………………………………………………………………………………………………………………………………………. 11

Export Scenario ………………………………………………………………………………………………………………………………………….. 14

Industry Concerns ………………………………………………………………………………………………………………………………………. 15

Industry Outlook ………………………………………………………………………………………………………………………………………… 16

Capital Market Performance ……………………………………………………………………………………………………………………… 17

Financial Highlights of Listed Companies ……………………………………………………………………………………………………. 18

Expert’s View: Interview with Mr. Masud Khan, CEO of Crown Cement Group …………………………………………… 21



This research report is a property of EBL Securities Ltd. l August, 2019


Executive Summary

Bangladesh cement industry, one of the fastest growing cement markets in the world, grew at

approximately 11.5% CAGR over the last seven years as demand doubled from 14.6 million MT per

year to around 31.3 million MT per year. Per capita cement consumption in Bangladesh almost

doubled from 95 KG in 2011 to 187 KG in 2018. Despite huge growth of the industry in last two

decades, Bangladesh is still one of the lowest consumers of cement in the world.

Approximately 81% of the total market share is held by top ten manufacturers. By the end of 2018,

local manufacturers had grabbed 86% of the market, a reversal in scenario from 15 years earlier.

Once a cement importer, Bangladesh is now a cement exporting nation. Bangladesh exported

cement worth US$12.59 million during FY17-18, compared to US$10.79 million earned in the year

before representing 16.68% growth in export earnings YoY with India being the main destination for

cement exports.

On the back of massive infrastructure investment by the government, rising remittance income,

growing urban population and impressive GDP growth, cement demand is expected to grow at even

higher than the historical rate.

Although self-sufficient in cement production, Bangladesh needs to import almost all of the raw

materials used in cement manufacturing. Moreover, increased raw materials price and intense price

war have squeezed the profit margin for cement manufacturers. Recent changes in tax laws, higher

fuel & transportation cost and cost of fund have added more sufferings for the industry players.

Hence, although the outlook for cement demand growth is very robust; profitability still remains a

concern for all.



Page 1 of 23

This research report is a property of EBL Securities Ltd. l August, 2019 N.B.: Disclaimer of EBL Securities Ltd, author(s) certification and rating definition have been provided at the end of the report.

Recent Developments in the Cement Industry

Analyst:

Asif Islam

Research Analyst,

EBL Securities Limited

[email protected]

Gas Price Hike

Government increased gas price (per cubic meter) for -

- Industries: BDT 7.76 to BDT 10.7 (38% increase) - Power: BDT 3.16 to BDT 4.45 (41% increase) - Captive Power: BDT 9.62 to BDT 13.85 (44% increase)

Changes to Tax laws

- 5% AIT (Advance Income Tax) paid on imported raw materials will be considered minimum tax from FY 2019-20.

- Additional 5% advance tax (AT) has been levied on import of raw materials and other ingredients

Probable Impact

Minimal for grinders

Manufacturers with gas based captive power plants are likely to face higher impact

Integrated plants use gas as a raw material. Hence, expected impact for Lafarge Holcim Bangladesh Limited was supposed to be higher. But, LHBL have got long term fixed price gas supply agreement with Jalalabad Gas Transmission and Distribution System Limited which is valid until end of 2025. So, the impact is expected to be minimal for them as well.

As per the estimation of BCMA, production cost for cement manufacturers may go up by 11 taka per bag on average.

Probable Impact

Major negative impact on cement manufacturers.

Companies will have to pay tax on raw materials import even if they don’t make any profit.

Manufacturers will have to increase cement price by approximately BDT 42 for such adjustment.

Remittance Hits All Time High

Remittance inflow grew by 9.47% to hit record $16.4 billion in fiscal year (FY) 2018-19. In 2017-18 fiscal year remittance was $14.98 billion.

Probable Impact

Cement consumption by Individual Home Builders’ (IHB) may increase following such surge in remittance. IHBs consume approximately 30% of the total cement produced in Bangladesh.

Expatriates to receive 2% incentive on remittance

The government is going to provide 2% incentive on money remitted by expatriate Bangladeshis from FY 2019-20 onwards

Probable Impact

Declared cash incentive would encourage expatriates to send more remittance to Bangladesh. Hence, individual home builders’ spending power is expected to increase.

According to Cement manufacturers association (BCMA),

Cement production cost may go up as high as BDT 53 per

bag following gas price hike and changes to tax laws.

However, industry players could not increase price by that

much due to intense competition.



Page 2 of 23 This research report is a property of EBL Securities Ltd. l August, 2019


BANGLADESH CEMENT INDUSTRY: RESILIENT; BETTER DAYS AWAIT Despite getting battered by skyrocketing raw materials price, escalating interest rate, price

hike of complementary goods, overcapacity and weakening domestic currency,

Bangladesh cement industry posted 15.49% growth in 2018. Annual cement consumption

stood at about 31.3 million MT in 20181. Bangladesh exported cement worth US$12.59

million during FY17-18, compared to US$10.79 million earned in the year before according

to Export Promotion Bureau. This

represent a growth of 16.68% in

export earnings YoY with India being

the main destination for cement

exports.

Bangladesh is one of the fastest growing cement markets in the world and the industry grew at approximately 11.5% CAGR over the last seven years as demand doubled from 14.6 million MT per year to around 31.3 million MT per year.

But until the first half of 1990s, approximately 95% of the country's cement demand were

met through import. After getting positive nod from the Government, several

multinational manufacturers and local entrepreneurs rushed into the industry in late 90’s.

Since 1994, more than 120 companies registered as cement manufacturer, out of which

75 came into operation. In the following years, dependency on import diminished

significantly and local companies started flourishing. Later in 2003, Bangladesh started

exporting cement for the very first time. Presently, cement is reportedly being exported to

India, Myanmar, Nepal, Maldives and Sri Lanka. At present, largest global players like

LafargeHolcim Ltd. and HeidelbergCement Ltd. along with 30 other local and Multinational

manufacturers are operating in Bangladesh cement industry. Seven cement manufacturing

companies are currently listed on stock exchanges.

Demand is forecasted to remain strong in most Asian markets; Global demand may slow down as

consumption in China is expected to fall in the coming years

Cement production reached an

estimated 2.4 billion metric tons in

China in 2018, compared to 4.1

billion metric tons of cement

produced worldwide. Chinese

economy, representing more than

50% of world cement demand, has

slowed down and the country’s

cement market has become

stagnant. The World Cement

Association (WCA) expects Chinese

demand to grow by only 0.5% in

2019. However, WCA forecasts solid cement demand growth for Asian markets. It expects

1 Annual Report 2018, LafargeHolcim Bangladesh Limited

15 16 16 19 20 23 27 31

7.4%

3.0%

16.4%

7.6%

14.3%

22.5%

15.5%

0%

5%

10%

15%

20%

25%

10

15

20

25

30

35

2011 2012 2013 2014 2015 2016 2017 2018

Industry Demand

Sales Vol (Mn MT) Growth %

Source: Annual Reports of listed companies, BCMA, Newspapers &

EBLSL Research

Source: European Cement Association (CEMBUREAU)

Annual consumption of cement was around 31.3 million MT in 2018

Cement markets will remain attractive, with high single-digit or double-digit growth in India, Vietnam, Indonesia, the Philippines, and Bangladesh according to World Cement Association

The industry grew at approximately 11.5% CAGR over the last seven years

Asia82%

Europe6%

Africa5%

America7% Oceania

0%

World Cement Production, 2017





that cement markets will remain attractive, with high single-digit or double-digit growth in

India, Vietnam, Indonesia, the Philippines, and Bangladesh.

Meanwhile Business Wire, a Berkshire Hathaway Company, opines that the global cement

market is expected to reach over US$ 725 billion by 2025, expanding at a CAGR of 7.3%

from 2017 to 2025. Factors such as increasing urbanization and industrialization are

currently fueling the growth of the global cement market.

Per Capita cement consumption is increasing but still way below the world average; indicating huge

scope for growth

Per capita cement consumption in Bangladesh almost doubled from 95 KG in 2011 to 187

KG in 2018. Despite huge growth of the industry in last two decades, Bangladesh is still one

of the lowest consumers of cement in the world.2 Ongoing construction projects are

contributing towards the growing demand of cement but delayed implementation of

projects are curtailing the full potential and speed of the consumption growth of cement.

Industry getting concentrated; Top 10 producers meet approximately 81% of total demand

Approximately 81% of the total market share is held by top ten

manufacturers. Among the top 10 cement market players in

Bangladesh, 8 are local and 2 are multinational.3 Multinational cement

companies are facing intense competition from local companies which

are gaining more business through lower pricing, superior products

offerings, extensive branding and better relationship marketing.

By the end of 2018, local manufacturers had grabbed 86% of the

market, a reversal in scenario from 15 years earlier, when the

multinational companies ruled the industry, according to data from

the Bangladesh Cement Manufacturers Association4. After failing to

penetrate the market, two of the global cement group, UAE based

Emirates Cement and Mexico-based cement manufacturer Cemex

divested their Bangladesh operations by 2016.

2 https://www.thedailystar.net/business/cement-consumption-grow-steadily-1581961 3 https://www.dhakatribune.com/business/2018/11/11/local-cement-companies-thriving-over-multinationals 4 https://www.thedailystar.net/business/news/local-cement-makers-edge-out-global-giants-1705267

1700

1250

800

500

312

270

187

563

China

South Korea

Malaysia

Thiland

India

Mayanmar

Bangladesh

World Average

Per Capita Cement Consumption (KG) in 2018

Source: World Bank Database, Annual Reports of listed companies & EBLSL Research Source: thedailystar.net, World Bank, International Cement Review &

EBLSL Research

Source: Annual Reports of listed companies (2017-18), Newspapers & EBLSL Research

Heidelberg Cement,

5.14% LafargeHolcim, 8.31%

Crown Cement,

7.03%

Confidence Cement,

1.82%Aramit

Cement, 0.99%

Meghna Cement,

2.91%

Premier Cement,

5.36%Others, 71.74%

Market Share of Listed Companies

95101 102

118125

142

172

187

2011 2012 2013 2014 2015 2016 2017 2018

Per Capita Cement Consumption (KG)

Per capita cement consumption in

Bangladesh almost doubled from

95 KG in 2011 to 187 KG in 2018

Global cement market is expected to reach over US$ 725 billion by 2025

https://www.thedailystar.net/business/cement-consumption-grow-steadily-1581961

https://www.dhakatribune.com/business/2018/11/11/local-cement-companies-thriving-over-multinationals

https://www.thedailystar.net/business/news/local-cement-makers-edge-out-global-giants-1705267





Industry players are expanding capacities aggressively speculating future growth In recent years, cement producers have significantly increased production capacity

anticipating huge demand in the industry given soaring income level, outstanding

economic growth, and the number

of mega-projects being undertaken.

Though over-capacity exists in the

industry, market demand is almost

equal to the effective capacity

during peak season. Total cement

production capacity is expected to

reach about 65 million tons by

2019.5 However, due to

interruption in power supply and

other constraints, effective capacity

is expected to be lower.

Major Cement Companies, Installed Capacity & Expansion Plan

Major Cement Companies

Promoter Brand

Installed Capacity (Million

MT/Year)

Post-Expansion Capacity*

(Million MT/Year)

Expected Year of

Completion Up to May, 2019

Bashundhara Cement Bashundhara Group

Bashundhara Cement 5.05 5.65 2020

Meghna Cement King Brand Cement 0.90 2.90 2019

Seven Rings Cement Shun Shing Group International Ltd.

Seven Rings Cement 3.50 8.50 N/A

Premier Cement Premier Cement Mills Limited Premier Cement 3.00 8.00 2019

Shah Cement Abul Khair Group Shah Cement 6.05 - -

Crown Cement M. I. Cement Factory Ltd. Crown Cement 3.30 5.80 2021

Aman Cement Aman Group Amancem 3.76 - -

Unique Cement (Fresh) Meghna Group Fresh Cement 3.60 -

LafargeHolcim Bangladesh Ltd.

LafargeHolcim and Cementos Molins

Supercrete (PLC); Holcim Strong Structure (PCC); Holcim Red (OPC); Holcim Grey; PLASTERCRETE

Cement: 3.4 - -

Clinker: 1.4 - -

HeidelbergCement Bangladesh Limited

HC Netherlands Holding B.V (39.8%), HC Asia Holding GmbH, Germany (20.86%)

Scan Cement & Ruby Cement

2.38 2.85 Sept, 2019

Akij Cement Akij Group Akij Cement 1.20 - -

Confidence Cement Confidence Group Confidence Cement 1.05 - -

Royal Cement Kabir Steel Group & BSA Group Royal Cement 1.00 - -

Aramit Cement Aramit Group Camel Brand Cement 0.61 - -

Anwar Cement Anwar Group Anwar Cement 0.60 - -

Tiger Cement Madina Cement Industries Ltd. Tiger Cement 0.36 - -

Source: Annual Reports of Listed Companies (2017-18), Company Websites & EBLSL Research

PLC=Portland Limestone Cement; PCC= Portland Composite Cement; OPC=Ordinary Portland cement;

*Ranked Based on Post-expansion capacity

5 Annual Report (2017-2018), M. I. Cement Factory Ltd.

2225

27

33 33

39

4551

0%

5%

10%

15%

20%

25%

0

10

20

30

40

50

60

2011 2012 2013 2014 2015 2016 2017 2018

Effective Capacity (Million MT) and Growth

Capacity Growth %

Source: Annual Reports of listed companies & EBLSL Research

Source: EBLSL Research and Annual Reports

Total cement production capacity

is expected to reach about 65

million tons by 2019





Cement industry witnessed price hike due to increased cost of raw materials, transportation and

fuel & power Price of all major raw materials such as clinker, slag, fly ash, gypsum and limestone went

up significantly in last two years. 90% of the clinker, the main raw material for cement, is

imported from Vietnam. In late 2017, Chinese government started to discourage clinker

production from integrated plants having wet kilns to reduce environmental damage.

Later, Chinese manufacturers started importing clinker from its nearest source – Vietnam.

Following the sudden increased demand, Clinker price rose by almost $10 per ton. So,

cement manufacturers had to increase cement price in the beginning of 2018. Now, clinker

is being imported at around $47 - $50 per ton.

Additionally, Govt has recently decided to increase gas price from BDT 7.76 to BDT 10.7

(37.89%) for manufacturing industries, from BDT 3.16 to BDT 4.45 (40.82%) for power

generation companies and from BDT 9.62 to BDT 13.85 (43.97%) for captive power

companies. According to industry experts, impact of such move is going to be minimal for

grinders. However, manufacturers with gas based captive power plants are likely to face

higher impact. As per the estimation of BCMA (Bangladesh Cement Manufacturers’

Association), production cost for cement manufacturers may go up by 11 taka per bag on

average as a result of such gas price adjustment.

Moreover, until the current fiscal year, cement manufactures paid 5 percent advance

income tax (AIT) to import raw materials and the tax was adjustable. The AIT to be paid by

the cement makers to import raw materials will be treated as the minimum tax from the

fiscal year of 2019-20, according to the proposal of the National Board of Revenue (NBR).

According to industry insiders, the bid to consider 5 percent AIT as the minimum tax will

put increased burden on them. They already pay source tax against the supply of cement

locally. In addition, manufacturers will have to pay 5 percent advance tax (AT) while

importing raw materials and other required ingredients. This will increase the operational

cost and thus the prices of cement, according to the BCMA.

To combat increased gas price and impact of changes to Tax law, manufacturers may have

to increase cement price by 53 Taka per bag of cement. But, given the existing rivalry and

price war among industry players, it is very unlikely that cement manufacturers would be

able to increase cement price by that much.

Freight costs have also increased sharply due to higher fuel and charter cost. The situation

has been exacerbated by the major devaluation of taka versus the US dollar, sharp rise of

transportation cost due to weight restriction imposed by the government on highways,

and spiraling financing costs due to huge liquidity crisis.

4,9

71

2,7

60

2,0

15

2,7

63

05,1

52

2,5

97

2,0

17

2,8

85

04,9

10

2,4

81

2,1

48

2,6

13

2,1

85

4,2

00

2,3

02

2,1

50

2,1

02

2,0

15

4,2

75

2,2

45

2,0

25

2,2

45

2,0

20

4,6

83

2,5

75

2,1

19

2,7

06

2,4

09

0

100 0

200 0

300 0

400 0

500 0

600 0

Clinker Gypsum Fly ash Slag Lime stone

Import Price (BDT Per MT)

2013 2014 2015 2016 2017 2018

Source: Annual Reports of Premier Cement Mills Limited & EBLSL Research

Impact of gas price hike is going to

be minimal for grinders. However,

manufacturers with gas based

captive power plants are likely to

face higher impact.





According to a survey of The Daily Star in February 2019, local brands' cement were selling

for BDT 395 to BDT 420 per bag. In contrast, each bag of cement of multinational brand

costs BDT 418 to BDT 450.6 As per another report published in The Daily Star on 7th July

2019, retail price of each 50-kg bag of cement has edged up 12 percent, or Tk 50, to Tk

460-470 - a development that will push up construction costs, be it the government’s mega

projects or private buildings.7

Technological shift is taking place

Larger cement manufacturers including Shah Cement, Bashundhara Cement and MI

Cement have started implementing Vertical Roller Mill (VRM), one of the most advanced

technology in cement production. VRM technology ensures high fineness, better Particle

Size Distribution (PSD), faster setting time, and less energy consumption.8 This technology

also enables cement manufacturers to produce Slag cement as well as use higher amount

of slag in PCC (Portland composite cement). Hence, VRM technology is expected to lower

production cost for cement manufacturers.

6 https://www.thedailystar.net/business/news/local-cement-makers-edge-out-global-giants-1705267 7 https://www.thedailystar.net/business/news/cement-price-rises-tk-50-bag-1767622 8 http://bashundharacement.com/vrm-the-latest-Technology

Larger cement manufacturers are

implementing VRM technology

Source: EBLSL Research

470460

485

440

460 463

450

437

455

410

440

400

440435

430

400 400390 390

380

410

395405 405

400390 390

390 390

370

440435

420 420

440430

435430 430

410

450

430 425

385

440

455

410

385

415

430

370

390

410

430

450

470

490

510

Holcim Supercrete Scan Fresh Akij Crown Bashundhara Premier Shah Cement Confidence Cement

Retail Price of Cement in Dhaka (BDT per 50 KG Bag)

Price in 2015 Price in 2016 Price in 2017 Price in 2018 Price in 2019

https://www.thedailystar.net/business/news/local-cement-makers-edge-out-global-giants-1705267

http://bashundharacement.com/vrm-the-latest-Technology





Nearly 60% of the cement is consumed during winter

Winter (November to April) is considered to be the peak season while demand for cement

plummets during the monsoon (June to October). This sharp decline in demand during the

monsoon is due to slowdown in construction activities. According to the industry experts,

60% of the total yearly sales is generated in the first half of the year while the rest is

generated in the second half.

Market demand soars during peak season to match or even cross the effective capacity at

times. Manufacturers give incentive, commission and foreign trip campaign to the

employed executives and dealers/distributors/traders over the year while taking

promotional activities in off peak season. However, seasonality of cement demand is

decreasing, thanks to the growing government demand for cement in ongoing

infrastructural projects.

Mega projects consume the biggest portion of cement produced; Demand is still concentrated in

Dhaka and Chittagong

In broader aspect cement consumers in Bangladesh can be grouped into two large

segments- private and public. Previously individual homebuilders made highest

contribution towards demand for cement but recent mega projects undertaken by the

government have helped public sector to be the biggest consumer of cement. According

to industry insiders, individual home builders (IHB) and commercial real estate developers

consume nearly 30% and 35% of the total cement produced while the public sector

consumes almost 35% of cement manufactured.

In Bangladesh, business operation of most cement manufacturers is geographically

concentrated. Cement consumption also varies regionally. Approximately, three-fourth of

the cement produced is consumed in Dhaka and Chittagong division alone. However, with

growing income level a major change is now apparent in the rural economy of Bangladesh

that resulted into increased consumption of cement in remote areas as well. Especially,

cement demand is growing fast in the northern, western and southern parts of Bangladesh.

Diminishing quality of cement with time and high transportation cost make it harder for

the manufacturers to supply cement to distant areas from the plant location.

Peak Season Dull/off season

November to April/May

June to October (Depends on monsoon)

Public sector consumes nearly 35%

of cement manufactured

Approximately, three-fourth of the

cement produced is consumed in

Dhaka and Chittagong division

alone

60% of the total yearly sales is

generated during the first half of the

year while the rest is generated in

the second half

30%

35%

35%

Cement Consumption (%)

Individual Home Builders

Commercial Developers

Public Sector

Source: Industry experts & EBLSL Research

Seasonality of cement demand is

decreasing, thanks to the growing

government demand for cement in

ongoing infrastructural projects.





Cost Structure

The industry is largely dependent on import to meet raw materials requirement; hence, highly

susceptible to raw materials price hike and foreign exchange movement

Although self-sufficient in cement production, Bangladesh needs to import almost all of

the raw materials used in cement manufacturing. Bangladesh has scarcity of mineral

resources, such as limestone, and hence, is not capable of meeting demand for clinker,

the prime material of cement. Only two companies have clinker production facilities at

their plants: Chhatak Cement Factory Ltd, a government owned company, and Lafarge

Surma Cement Ltd. Lafarge Surma Bangladesh produces 1.3 million tons to 1.4

million tons of clinker a year, accounting for 7-8 percent of the yearly market

demand.9

As a result, major cement manufacturers are importing required raw materials

including clinker, gypsum, fly ash and iron slag from abroad and using grinding

technology to produce cement. Most of the manufacturers import clinker from

Vietnam, China, Hong Kong, India, and Indonesia. Few manufacturers use local

limestone collected from Sylhet. Majority portion of imported fly ash is sourced

from India; slag is imported from China, India, Japan and Singapore while

Gypsum is sourced from China, India, Indonesia and Japan.

As cement is a low margin product, any increase in raw materials cost seriously affects the

profitability of cement manufacturers. Price of all major cement ingredients - Clinker, slag

and gypsum – went up in the international market in 2018. Moreover, from the end of

2017 China started importing clinker from Vietnam, the main source of clinker for

Bangladesh. To add to the woes, BDT/USD exchange rate skyrocketed and crude oil price

reached two-year high in 2018 forcing production and transportation cost to increase

significantly. In order to tackle this situation some manufacturers are moving towards slag

based cement production using latest VRM technology which enables cement

manufacturers to produce Slag cement as well as use higher amount of slag in PCC

9 https://www.thedailystar.net/business/cement-consumption-grow-steadily-1581961

Source: Annual Reports of listed companies (2017-18) & EBLSL Research

Source: EBLSL Research and Annual Reports

Correction in clinker price might

not be as large as expected as

China has been concentrating on

importing from neighboring

countries as opposed to

manufacturing clinker

Clinker, 66.8%Gypsum,

4.3%

Slag, 11.2%

Limestone , 5.9%

Fly Ash, 11.8%

Raw Materials Consumption, Metric Ton (%)

35.82

77.91

93.23

108.09

110.8109.95

55.27

37.2856.82

66.73

50.57

72.21

Dec,2008

Dec,2009

Dec,2010

Dec,2011

Dec,2012

Dec,2013

Dec,2014

Dec,2015

Dec,2016

Dec,2017

Dec,2018

May,2019

Brent Crude Oil USD Per Barrel

USD Per Barrel Average

Source: MacroTrends, businessinsider & EBLSL Research

3500

3800

4100

4400

4700

5000

5300

5600

Dec

Jun

e

Sep

t

Dec

Mar

ch

Jun

e

Sep

t

Dec

Mar

Jun

e

Sep

t

Mar

Jun

e

Sep

t

Dec

Mar

Jun

e

Sep

t

Dec

Mar

Jun

e

Sep

t

Dec

Mar

ch

2012 2013 2014 2015 2016 2017 2018 2019

0

20

40

60

80

100

120

140

Crude oil and clinker price movement

Brent Crude Oil Price per barrel ($) Clinker Per MT (BDT)

Expon. (Clinker Per MT (BDT))

Prime raw materials of cement –

Clinker, Limestone, Gypsum, Slag

and Fly Ash - are mostly imported

https://www.thedailystar.net/business/cement-consumption-grow-steadily-1581961





(Portland composite cement). Transportation cost and Fuel & Power price movement also

has significant impact on cement manufacturers. Higher oil price might also result in

increased Transportation and Fuel & Power cost for the industry. Transportation and Fuel

& Power costs as % of COGS are highest for LafargeHolcim Bangladesh Limited (LHBL) and

lowest for Confidence Cement.

Scenario Analysis

Increase in raw materials price would have negative impact on grinders the most.

Increase in raw materials cost may put higher negative impact on grinders (e.g. Confidence

Cement Limited, HeidelbergCement Limited, M.I. Cement Limited, and Premier Cement

Limited) the most. On the other hand, fully integrated cement plant, LafargeHolcim

Bangladesh Limited which has its own quarry of limestone would absorb the lowest

magnitude of impact even if the raw materials cost increases.

Integrated plants are least affected by clinker price hike while grinders which consume

larger portion of clinker would suffer the most. Other things held constant, if Clinker price

goes up by 5% for example, Premier cement would lose around 2.78% of its GPM. GPM of

MI Cement, Heidelberg Cement and Confidence cement would shrink approximate by

2.52%, 2.41% and 2.49% respectively.

Potential Impact of Increased Raw Material Cost*

Erosion in GPM if Product Price Not Adjusted (Other things held constant)

Scenario CONFIDCEM HEIDELBCEM LHBL MICEMENT PREMIERCEM

1% 0.70% 0.72% 0.25% 0.75% 0.65%

2% 1.39% 1.44% 0.50% 1.49% 1.30%

3% 2.09% 2.16% 0.76% 2.24% 1.95%

4% 2.78% 2.87% 1.01% 2.99% 2.60%

5% 3.48% 3.59% 1.26% 3.73% 3.24%

6% 4.17% 4.31% 1.51% 4.48% 3.89%

7% 4.87% 5.03% 1.76% 5.22% 4.54%

8% 5.57% 5.75% 2.01% 5.97% 5.19%

9% 6.26% 6.47% 2.27% 6.72% 5.84%

10% 6.96% 7.19% 2.52% 7.46% 6.49%

CONFIDCEM = Confidence Cement Limited HEIDELBCEM = HeidelbergCement Bangladesh Limited LHBL = LafargeHolcim Bangladesh Limited MICEMENT= M.I. Cement Limited PREMIERCEM = Premier Cement Limited GPM = Gross Profit Margin Data Source: Consolidated Financial Statements of Listed Companies, 2017-18

HBL Crown Confidence Premier LHBL

Freight 1.9% 0.2% 0.2% 0.5% 7.9%

Power & Fuel 8.3% 7.1% 2.7% 9.4% 16.6%

0%

5%

10%

15%

20%

25%

30%

% o

f C

OG

S

Power, Fuel and Freight cost as % of COGS

79.75

77.75 77.95

78.5 78.7

82.7

83.9

84.5

Dec, 2012 Dec, 2013 Dec, 2014 Dec, 2015 Dec, 2016 Dec, 2017 Dec, 2018 May, 2019

USD to BDT Exchange Rate

USD to BDT Linear (USD to BDT)

Source: Annual Reports of Listed Companies (2017-18) & EBLSL Research LHBL – LafargeHolcim Bangladesh Limited, HBL – Heidelberg Cement Bangladesh Limited

CON – Confidence Cement Limited, Meghna – Meghna Cement, Premier – Premier Cement

Source: Bangladesh Bank & EBLSL Research

Source: Bangladesh Bank





Impact of power & fuel price hike would be minimal for cement producers

For grinders the Impact of power & fuel price hike would be minimal. But, integrated plants

would be most affected by any rise in power and fuel cost considering their higher level of

gas consumption. But, LafargeHolcim Bangladesh Limited (only integrated plant in

Bangladesh) is almost immune to gas price hike as the company has a long term fixed price

contract with Jalalabad Gas Company as per which LHBL is supplied with 16 million cubic

feet or 435,129 cubic meter natural gas per day approximately at BDT 7.80 per cubic meter.

However, in recent development Jalalabad Gas (Gas Provider for LafargeHolcim) is

contemplating to increase the price of gas supplied to the company from the current

subsidized price [11]. LafargeHolcim has also introduced Geocycle project, a waste

management solution for industrial units. The waste can be converted into alternative fuel

for LafargeHolcim’s plant but the extent of cost reduction by using alternative fuel (from

waste recycling) is seemed to be minimum [12].

Potential Impact of Increased Clinker Price


Scenario CONFIDCEM HEIDELBCEM LHBL* MICEMENT PREMIERCEM

1% 0.50% 0.48% 0.16% 0.50% 0.56%

2.0% 1.00% 0.96% 0.33% 1.01% 1.11%

3.0% 1.50% 1.45% 0.49% 1.51% 1.67%

4.0% 1.99% 1.93% 0.66% 2.01% 2.22%

5.0% 2.49% 2.41% 0.82% 2.52% 2.78%

6.0% 2.99% 2.89% 0.99% 3.02% 3.33%

7.0% 3.49% 3.38% 1.15% 3.52% 3.89%

8.0% 3.99% 3.86% 1.31% 4.03% 4.44%

9.0% 4.49% 4.34% 1.48% 4.53% 5.00%

10.0% 4.99% 4.82% 1.64% 5.03% 5.55%

* LHBL produces clinker using limestone collected from its own quarry. In 2018, LHBL imported small amount of clinker for its Holcim plant.

Potential Impact of Increased Power and Fuel Cost


Scenarios CONFIDCEM HEIDELBCEM LHBL* MICEMENT PREMIERCEM

10% 0.41% 0.53% - 0.62% 0.53%

20% 0.82% 1.06% - 1.24% 1.06%

30% 1.23% 1.59% - 1.85% 1.59%

40% 1.64% 2.12% - 2.47% 2.12%

50% 2.05% 2.65% - 3.09% 2.65%

60% 2.46% 3.17% - 3.71% 3.18%

70% 2.87% 3.70% - 4.33% 3.71%

80% 3.28% 4.23% - 4.94% 4.24%

90% 3.69% 4.76% - 5.56% 4.76%

100% 4.10% 5.29% - 6.18% 5.29%

* LHBL is almost immune to increase in gas price as the company has long term agreement with Jalalabad Gas Company






Demand Drivers

Bangladesh has experienced tremendous growth during the last decade with an average

GDP growth rate of 6.5%. According to a recent forecast by HSBC, Bangladesh would be

the biggest mover in the global GDP rankings in 2030 and its economy would become 26th

largest in the world. Bangladesh is also expected to have the highest real GDP growth rate

of 7.1% per year up to 2030 and size of its economy is forecasted to grow by 2.5 times from

300 Billion to 700 Billion in the meantime. In the process, the economy of Bangladesh is

tipped to be larger than that of Australia, Malaysia, Netherlands and Spain by 2050 at PPP

terms.

To support its incremental

economic activities,

Bangladesh has huge need for

building basic infrastructure

and therefore, robust growth of

demand for cement is expected

in the ensuing years. To tap this

opportunity, most of the large

cement manufacturers have

already undertaken major

capacity expansion plan in last

five years.

Growth of construction and real estate sectors have driven cement demand in Bangladesh

On the back of rapid urbanization, improved living standard and increased purchasing

power, construction sector of Bangladesh is passing a shining period. Construction and real

estate sectors are two major drivers of cement consumption. Growth of construction

sector has been greater than GDP growth rate. Hence, construction sector’s share of GDP

has been growing gradually over the years. Growth of construction sector has mainly been

accelerated by the government development projects that have been undertaken recently.

Construction Sector of Bangladesh 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18

Size of Construction Sector (BDT billion) 447 483 522 567 615 670 737

Share of GDP at Constant Prices 6.49% 6.62% 6.74% 6.87% 6.97% 7.06% 7.22%

Growth Rate of Construction Sector 8.42% 8.04% 8.08% 8.60% 8.56% 8.77% 10.11%

On the other hand, growth of real estate sector has been lower than GDP growth rate and

consequently real estate sector’s share of GDP has been declining over the years. Real

estate sector in Bangladesh has been growing steadily mainly owing to growing housing

demand, expanding middle class and spiraling per-capita income and the trend is expected

to continue in the future. Real estate developers contribute 15,000 housing units (appx.)

per year. Most of the families living in real estate apartments are headed by businessmen

(51%) and service holders (40%). Majority of the apartments are being sold in Dhaka and

Chittagong.10

10 http://ibtbd.net/present-condition-and-future-prospects-of-real-estate-in-bangladesh/

Real Estate Sector of Bangladesh 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18

Size of real estate (BDT billion) 476 495 516 539 563 590 618

Share of GDP at Constant Prices 6.91% 6.78% 6.67% 6.53% 6.37% 6.22% 6.06%

Growth Rate of Real Estate Sector 3.92% 4.04% 4.25% 4.40% 4.47% 4.80% 4.80%

6.4%

6.0%

5.0%

5.6%

6.5% 6.5%

6.0% 6.1%

6.6%

7.1%7.3%

7.9%

8.3%

4.5 0%

5.0 0%

5.5 0%

6.0 0%

6.5 0%

7.0 0%

7.5 0%

8.0 0%

8.5 0%

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

2012

-13

2013

-14

2014

-15

2015

-16

2016

-17

2017

-18

2018

-19*

GDP Growth Rate (%)

Source: Bangladesh Bank & * Government’s expectation

Source: Bangladesh Bank *As per Government’s expectation



To support its incremental

economic activities, Bangladesh

has huge need for building basic

infrastructure and therefore,

robust growth of cement

demand is expected in the

ensuing years.

Growth of construction sector

has been greater than GDP

growth rate

http://ibtbd.net/present-condition-and-future-prospects-of-real-estate-in-bangladesh/





Housing demand is on the rise as urban population & personal income have been increasing

consistently over the years Rapid urbanization in

Bangladesh has stimulated

growth of building materials

sector and has generated

considerable demand for

cement and other

construction materials.

Urban population has grown

at a tremendous speed over

the years. By the end of 2019

urban population in

Bangladesh is expected to be

37.2% of total population and the portion is expected to get bigger in following years. The

country experienced faster urbanization than South Asia as a whole between 2000 and

2010, according to a 2015 World Bank report.

Improved transportation system will fuel housing demand on the outskirts of major cities

Dhaka is now growing with an unprecedented rate accommodating more than 600,000

people per year. It means that every year more than 120,000 household units are required

to house the added population in Dhaka. In this situation, supply of housing in the city is

only around 25,000 units, According to structure plan (draft) of RAJUK by the year 2030

housing demand in DMDP area is expected to be 1,260,000 units per annum.11 To improve

the deteriorating traffic condition of Dhaka city, 5 MRT and 3 BRT routes are being planned

within DMDP area. According to the structure plan, transit-oriented development is

proposed along BRT/MRT stations which may create a vast scope of urban development in

the corridor areas when implemented.12

Growing remittance income might drive demand for cement in rural areas

Individual homebuilders’ ability to

spend on construction is directly

linked with the flow of inward

remittance. As almost 30% of the

cement is consumed by Individual

homebuilders, any disruption in

inflow of remittance may seriously

harm the prospect of this industry.

Inward remittance has increased by

9.42% in fiscal year 2018-19 13 which

will ultimately enhance the

homebuilders’ ability to spend on

construction. Moreover,

government has recently declared 2% incentive on money remitted by expatriate

Bangladeshis from the FY2019-20 onwards.

11 DMDP: Dhaka Metropolitan Development Plan; RAJUK: Rajdhani Unnayan Kartripakkha; MRT: Mass Rapid Transit; BRT: Bus Rapid Transit 12 http://ibtbd.net/present-condition-and-future-prospects-of-real-estate-in-bangladesh/ 13

https://www.dhakatribune.com/business/economy/2019/07/03/remittance-hits-record-16-4b-in-fy19

20.0%

21.9%23.7%

26.8%

30.3%

34.1%34.9%

35.7%36.5% 37.2%

Urban Population (%)

1990 1995 2000 2005 2010 2015 2016 2017 2018 2019

7.91

9.69

10.9911.65

12.84

14.46 14.23

15.32 14.93

12.77

14.98

16.40

-20%

-10%

0%

10%

20%

30%

40%

5

7

9

11

13

15

17

Total Inward Remittance in USD Billion

Remittance (USD Billion ) Growth

Source: worldometers.info

Source: World Bank



Housing demand is expected to

grow on the outskirts of major

cities with improved

transportation system

Bangladesh experienced faster

urbanization than South Asia as

a whole between 2000 and

2010

Growing Remittance income

might drive demand for cement in

rural areas

http://ibtbd.net/present-condition-and-future-prospects-of-real-estate-in-bangladesh/





Lowered Interest rate for housing loan for govt. employees may have a longer-lasting impact on

construction sector

Home loan interest rate is another important determinant of Housing demand.

Government has incentivized the real estate sector by reducing the home loan interest

rate for Government employees (Govt. employees will get home loan at only 5% interest

rate) while the minimum loan amount has been increased to 30 Lac taka.14 According to

REHAB (Real Estate and Housing Association of Bangladesh), during the last six months of

2018 business of REHAB members grew by about 25% mainly fueled by lowered interest

rate for government employees. This trend is expected to persist in the future.

Mega projects are expected to be the major driver of cement industry

To support its huge economic growth, Bangladesh has undertaken some large

infrastructure projects. In the recent budget (2019-20) government has allocated BDT

2,027 billion for annual development project (ADP) which is 17.18% higher than the

original ADP of last fiscal year. Budget allocation to transportation and communication has

undergone a massive growth over the years and hence, government development

projects’ contribution towards demand for cement has turned out to be the highest in the

recent year overtaking individual homebuilders’ contribution. Government allocation for

infrastructure development is set to grow even more in coming years as Bangladesh aims

to attain developed country status by 2041.15

Projects Project Cost (BDT Crore) Tentative Completion

Padma Multipurpose Bridge 30,193 December, 2019

Payra Deep Sea Port 3,350 June, 2020

Rampal Power Plant 16,000 June, 2020

Metro Rail 21,985 December, 2021

Padma Rail Link Project 34,988 June, 2024

Matarbari Coal Power Plant 35,984 June, 2023

Rooppur Nuclear Plant 113,092 December, 2025 Source: Newspapers & EBLSL Research

14 https://www.thedailystar.net/country/government-enacts-low-interest-housing-loan-its-staff-1613842 15 https://www.dhakatribune.com/business/2018/11/11/bangladesh-won-t-become-developed-by-2041-sans-9-growth

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

0

100

200

300

400

500

600

700

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

2012

-13

2013

-14

2014

-15

2015

-16

2016

-17

BD

T, B

ILLI

ON

Housing Loan

BHBFC DBH NHFSCBs PCBs FCBsMicro Credit NBFI Growth

0%

5%

10%

15%

20%

25%

30%

35%

0%

5%

10%

15%

20%

25%

30%

35%

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

2012

-13

2013

-14

2014

-15

2015

-16

2016

-17

Interest Rate & Home loan growth

Growth Interest Rate

Source: Bangladesh Bank & EBLSL Research

Home loan interest rate for

Government employees has been

lowered to only 5% while the

minimum loan amount has been

increased to 30 Lac taka

In FY 2019-20, government

allocated BDT 2,027 billion for

annual development project

(ADP) which is 17.18% higher

than the original ADP of last fiscal

year

https://www.thedailystar.net/country/government-enacts-low-interest-housing-loan-its-staff-1613842

https://www.dhakatribune.com/business/2018/11/11/bangladesh-won-t-become-developed-by-2041-sans-9-growth





Government has also undertaken Delta Plan 2100, a long term strategy to prevent flood,

soil erosion and water supply. Nearly 80% of the plan will be implemented within 2030 at

cost of US$ 37.5 Billion.16 The government is now implementing an ambitious scheme to

build a network of 100 special economic zones around the country; 11 of them have been

completed while 79 are under construction.

Government approved some 79 economic zones including 56 public and 23 private

economic zones till June 2018 and aims to establish 100 economic zones on 30,000

hectares of land by 2030. The incentive package, which includes tax and duty benefits, is

the main reason behind the growing interest of entrepreneurs to set up private economic

zones according to BEZA.

Export Scenario

Bangladesh started exporting cement in 2003. Presently, cement is reportedly being

exported to India, Myanmar, Nepal, Maldives and Sri Lanka. Bangladesh exported cement

worth US$ 12.59 million during FY17-18, compared to US$ 10.79 million earned in the year

before. This represent a growth of over 16.68% in export earning YoY with India being the

main destination for cement exports. Government has set export target of US$ 14.00

million for FY 2018-19 based on expected growth rate of 11.2%. With transit facility, India

is now being able to shift cement at lower costs to the “Seven Sister States” of north-

eastern India through Bangladesh. Hence, cement export to India might decline in coming

days. Myanmar has appeared to be a good prospect for cement export from Bangladesh.

Annual report of Crown Cement (a brand of M.I. Cement) claims that the company

accounts for nearly 50% of the total export volume of cement.17 Other major cement

exporters are Shah Cement, Bashundhara cement and Fresh cement.

16 https://www.dhakatribune.com/business/2019/03/07/government-to-spend-37-5bn-on-delta-plan-by-2031 17 Annual Report (2017-18), M.I. Cement Factory Limited

Export earnings has grown by

16.68% YOY to US$ 12.59 m in FY

17-18 from US$ 10.79 m in FY

2016-17

https://www.dhakatribune.com/business/2019/03/07/government-to-spend-37-5bn-on-delta-plan-by-2031





Industry Concerns

Although a booming sector with great potential, cement industry has some risk factors as

well. Currently, the industry is experiencing overcapacity of cement production. Average

capacity utilization rate of cement industry as a whole has been around 60% over last five

years. Moreover, almost all the major industry players are making huge capacity

expansion. Roughly, 30% capacity is likely to be added to the current capacity by the end

of 2019. If the demand does not go up in line with the capacity enhancement, huge surplus

capacity of cement production will remain unused in coming years. This can lead to a fall

in cement prices, and the industry could face a downturn, leading to reduced profitability.

Secondly, almost all raw materials of cement are imported, if the supplies are cut-off due

to adverse political situation or other disturbance, the industry may face serious downturn.

Besides, given the high contribution of raw materials in the cost structure, any upward

movement in the price of clinker and other raw materials will eventually affect the

profitability and performance of the cement manufacturer. As nearly all the raw materials

for cement production are being imported, any further devaluation of Bangladeshi Taka

against foreign currencies will also seriously harm the overall profitability of cement

makers.

Again, as approximately 30% of overall cement is consumed by individual homebuilders

and majority of customers of real estate industry are middle class people, home loan

interest rate acts as a major determinant of demand for cement among residential home

owners. Any escalation in interest rate will limit overall growth of the industry.

Export from Bangladesh has been limited to India and few other neighboring countries.

Unless cement export is diversified, serious downturn in export earnings may ensue if one

of the countries stop importing cement from Bangladesh. As construction sector is highly

sensitive to political turmoil, overall dynamic of cement industry may get affected due to

political instability.

73%

77%

90%

68%

72%71%70%

76%

67%

76%

61%

76%

HBL LHBL MI Cement ConfindenceCement

Aramit Cement Meghna Cement

Capacity Utilization

2016-17 2017-18

67%

63%

59%

57%

61%59%

61% 61%

2011 2012 2013 2014 2015 2016 2017 2018

Capacity Utilization - Industry

Capacity Utilization - Industry

Source: Annual reports of listed companies & EBLSL Research; For LHBL – Only Cement production capacity and utilization data has been considered.

Overcapacity, higher cost of

borrowing, Raw materials price

hike, slow remittance inflow may

inhibit industry growth





Industry Outlook

According to industry specialists, outlook of cement industry for next five years remains

promising with an expected double digit growth in demand mainly driven by mega projects

and residential sector. Industrial construction and increased activity in economic zones are

also accelerating the growth. At the same time, major infrastructural projects are also in

the pipeline to support economic growth of Bangladesh. Thanks to rapid urbanization,

industrialization, large-scale infrastructural and Governmental development projects as

well as construction of various commercial and residential buildings, demand for cement

has markedly increased over the years and such growth is expected to continue in future.

Although potential of the country’s cement industry is very strong, concern remains as

profit margin of cement manufacturers have shrunk due to increased raw materials & fuel

price and greater competition among industry players.

Although potential of the country’s

cement industry is very strong,

concern remains as profit margin of

cement manufacturers have shrunk

due to increased raw materials &

fuel price and greater competition

among industry players.





Capital Market Performance As on 19 August, 2019

Particulars LHBL* MI Cement Confidence

Cement Premier Cement

Meghna Cement

HBL* Aramit Cement

Current Price (BDT) 40.4 62.1 150.2 65.1 91.9 229.9 17.6

52 Week Price Range (BDT) 36.0-55.1 52.2- 87.0 128.1-243.4 58.0-84.7 77.0-129.0 192.1-385.0 16.1-28.0

Number of Shares Outstanding (Million)

1,161.3 148.5 64.8 105.5 24.8 56.5 33.9

Market Cap (Million) 46,916.5 9,221.9 9,731.6 6,864.8 2,274.5 12,990.3 596.3

Market Weight 1.2% 0.2% 0.3% 0.2% 0.1% 0.3% 0.0%

Authorized Capital (Million) 14,000.0 5,000.0 1,000.0 5,000.0 5,000.0 1,000.0 500.0

Paid up Capital (Million) 11,613.0 1,485.0 647.9 1,054.5 247.5 565.0 338.8

EPS (BDT) 0.96 2.1 5.8 4.2 3.6 14.3 (4.6)

P/E 42.1 29.2 26.0 15.5 25.4 16.0 -

NAV Per Share (BDT) 13.4 48.0 63.3 40.6 38.3 82.7 6.0

Last Dividend 10% C 15% C 15%C, 20%B 10% C 10% B 75% C N/A

Dividend Yield 2.3% 1.9% 1.0% 1.3% N/A 3.1% N/A

Payout Ratio 104.2% 70.4% 21.7% 23.9% 0.0% 52.3% 0.0%

Category A A A A A A Z

Shareholding pattern (%)

March, 2019 June, 2018

Sponsors Govt. Institute Foreign Public Sponsors Govt. Institute Foreign Public

HeidelbergCement Bangladesh Ltd

60.67 0.00 26.03 1.31 11.99 60.67 0.00 26.66 1.49 11.18

LafargeHolcim Bangladesh Limited

64.68 0.00 15.38 0.96 18.98 64.68 0.00 15.73 1.14 18.45

MI Cement Ltd. 67.08 0.00 17.39 0.30 15.23 67.08 0.00 17.16 0.31 15.45

Confidence Cement Ltd. 29.88 0.00 27.28 0.00 42.84 25.5 0.00 23.54 0.00 50.96

Aramit Cement Ltd. 47.14 0.00 17.13 0.00 35.73 47.14 0.00 15.55 0.00 37.31

Meghna Cement Ltd. 49.77 0.00 32.69 0.00 17.54 49.81 0.00 11.37 0.00 38.82

Premier Cement Ltd. 55.13 0.00 17.20 0.01 27.66 55.13 0.00 17.07 0.01 27.79

Source: DSE

Source: DSE and EBLSL Research

* LHBL – LafargeHolcim Bangladesh Limited, HBL – HeidelbergCement Bangladesh Limited

Source: DSE and EBLSL Research

LHBL – Lafarge Holcim Bangladesh Limited, HBL – Heidelberg Cement Bangladesh Limited





Dividend History

Year LHBL MI

Cement Confidence


Meghna Cement

HBL Aramit Cement

2011 N/A 15% C, 35% B 20% C, 20% B N/A 25% C 45% C 10% B

2012 N/A 35% C, 10% B 20% C N/A 25% C 50% C 10% C

2013 N/A 40% C 27.5% C 40% C 15% C 380% C 10% C

2014 10% C 30% C 25% C 30% C 15% C 380% C 10% C

2015 10% C 25% C N/A 20% C N/A 300% C N/A

2016 10% C 20% C 37.5% C 15% C 15% C 300% C 12% C

2017 10% C 20% C 15% C, 20% B 20% C 20% C 150% C N/A

2018 10% C 15% C 15% C, 20% B 10% C 10% B 75% C N/A

Financial Highlights of Listed Companies Based on Annual Reports (2017-18, Consolidated)

Particulars (BDT Million)

LHBL* MI

Cement Confidence


Meghna Cement

HBL* Aramit Cement

Revenue 16,631.53 12,559.31 3,916.78 10,049.87 5,533.35 11,151.29 1,723.28

Gross Profit 4,099.95 1,643.42 328.64 1,516.88 568.93 1,931.51 272.60

Operating Income 4,276.59 1,790.82 336.83 1,529.72 701.90 1,949.68 276.92

Profit Before Tax 1,882.74 410.23 410.61 578.46 108.60 1,177.34 (132.28)

Net Income 1,114.65 315.61 374.24 442.18 81.45 809.76 (154.61)

Total Assets 26,888.23 19,713.91 8,200.82 13,468.00 6,881.42 8,641.42 4,100.33

Current Assets 7,149.19 11,304.32 3,183.25 6,658.34 5,148.85 4,654.11 3,024.62

Fixed Assets 19,739.04 8,409.59 5,017.57 6,809.65 1,732.57 3,987.31 1,075.72

Total Liability 11,309.91 12,589.56 4,097.48 9,190.75 6,018.99 3,969.55 3,897.12

Current Liability 6,977.70 9,829.56 3,733.96 8,557.80 4,566.49 3,250.49 3,144.66

Long Term Liability 4,332.21 2,760.00 363.51 632.95 1,452.50 719.06 752.46

Equity 15,578.32 7,124.36 4,103.34 4,277.24 862.43 4,671.87 203.22

Total Debt 2,977.00 10,718.00 3,070.00 7,052.00 4,388.00 135.00 2,986.00

Retained Earnings 3,666.29 2,047.15 1,995.83 2,282.94 439.83 3,477.57 (246.29)

Source: Annual Reports of listed companies (2017-18)

LHBL – LafargeHolcim Bangladesh Limited, HBL – HeidelbergCement Bangladesh Limited

Source: DSE; C – Cash Bonus, B – Stock Bonus, LHBL – LafargeHolcim Bangladesh Limited, HBL – HeidelbergCement Bangladesh Limited

Source: DSE; C – Cash Bonus, B – Stock Bonus, LHBL – Lafarge Holcim Bangladesh Limited, HBL – Heidelberg Cement Bangladesh Limited





Comparative Financial Ratios Based on Annual Reports (2017-18, Consolidated)

Financial Ratios & Other Data (000) LHBL MI

Cement Confidence


Meghna Cement

HBL Aramit Cement

Liquidity Ratios

Current Ratio 1.02 1.15 0.85 0.78 1.13 1.43 0.96

Quick Ratio 0.42 0.76 0.38 0.40 0.49 0.79 0.71

Cash Ratio 0.06 0.44 0.01 0.01 0.19 0.54 0.02

Operating Efficiency Ratios

Inventory Turnover Ratio 5.27 10.37 4.74 17.23 6.69 5.03 7.38

Inventory Conversion Period(Days) 69.26 35.20 76.93 21.18 54.52 72.63 49.48

Receivable Turnover Ratio 8.81 5.24 3.83 4.18 4.02 13.65 1.00

Average Collection Period (Days) 41.43 69.61 95.24 87.33 90.86 26.74 365.74

Operating Cycle (Days) 110.70 104.81 172.17 108.51 145.38 99.37 415.22

A/C Payable Turnover Ratio 2.90 25.25 7.51 12.91 6.69 3.17 1.82

Payables Payment Period (Days) 125.72 14.46 48.63 28.28 54.56 115.30 200.26

Cash Conversion Cycle (Days) (15.03) 90.35 123.54 80.23 90.82 (15.92) 214.96

Total Asset Turnover 0.62 0.64 0.48 0.75 0.80 1.29 0.42

Fixed Asset Turnover 0.84 1.49 0.78 1.48 3.19 2.80 1.60

Operating Profitability Ratios

Gross Profit Margin (GPM) 24.65% 13.09% 8.39% 15.09% 10.28% 17.32% 15.82%

Operating Profit Margin (OPM) 13.89% 7.97% 0.95% 9.99% 6.35% 9.33% 9.01%

Pre Tax Profit Margin 11.32% 3.27% 10.48% 5.76% 1.96% 10.56% -7.68%

Net Profit Margin (NPM) 6.70% 2.51% 9.55% 4.40% 1.47% 7.26% -8.97%

Leverage Ratios

Total Debt to Equity 19.11% 150.44% 85.18% 164.87% 508.78% 2.95% 1469.38%

Debt to Total Assets 11.07% 54.37% 42.62% 52.36% 63.76% 1.60% 72.82%

Coverage Ratios

Times Interest Earned (TIE) 5.33 1.51 4.48 2.45 1.41 - 0.54

Valuation Ratios

P/NAV Ratio 2.77 1.26 2.21 1.62 2.12 2.70 2.78

NAVPS 13.41 47.98 63.33 40.56 38.33 82.68 6.00

EPS (Diluted) 0.96 2.13 5.78 4.19 3.62 14.33 (4.56)

Dividend per Share 1.00 1.50 1.50 1.00 - 7.50 -

Dividend Payout Ratio 104.19% 70.58% 21.64% 23.85% 0.00% 52.33% 0.00%

Retention Rate -4.19% 29.42% 78.36% 76.15% 100.00% 47.67% 100.00%

Trailing P/E 38.76 28.51 24.24 15.64 22.49 15.57 N/A

EV/Sales 2.75 1.23 3.20 1.38 0.96 0.99 2.02

Source: Annual Reports of listed companies (2017-18)

LHBL – LafargeHolcim Bangladesh Limited, HBL – HeidelbergCement Bangladesh Limited, CON – Confidence Cement Limited, Meghna – Meghna Cement, Premier – Premier Cement





Common Size Income Statement

Based on Annual Reports (2017-18, Consolidated)

Particulars LHBL MI

Cement Confidence


Meghna Cement

HBL Aramit Cement

Revenue 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

Cost of Goods Sold 75.35% 86.91% 91.61% 84.91% 89.72% 82.68% 84.18%

GROSS PROFIT 24.65% 13.09% 8.39% 15.09% 10.28% 17.32% 15.82%

Other Operating Income 1.06% 1.17% 0.21% 0.13% 2.40% 0.16% 0.25%

Administrative Expenses 8.75% 2.45% 2.75% 1.07% 3.44% 4.46% 2.58%

Selling and Distribution Expenses 3.08% 3.83% 4.91% 4.17% 2.89% 3.70% 4.48%

OPERATING PROFIT 13.89% 7.97% 0.95% 9.99% 6.35% 9.33% 9.01%

Financial Expenses 2.62% 6.36% 3.01% 3.96% 4.80% 0.00% 16.69%

Financial Income 0.04% 1.56% 0.20% 0.00% 0.51% 1.71% 0.00%

Other Non-Operating Income 0.00% 0.00% 1.16% 0.00% 0.00% 0.00% 0.00%

Other Non-Operating Expenses / loss on disposal of PP&E 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

Share on profit (loss) on associate (net of tax) 0.00% 0.25% 11.19% 0.00% 0.00% 0.00% 0.00%

PROFIT BEFORE WPPF 11.32% 3.43% 10.48% 6.03% 2.06% 11.04% -7.68%

Allocation for WPPF 0.00% 0.16% 0.00% 0.27% 0.10% 0.48% 0.00%

PROFIT BEFORE TAX 11.32% 3.27% 10.48% 5.76% 1.96% 10.56% -7.68%

Income Tax Expense 4.62% 0.75% 0.93% 1.36% 0.49% 3.30% 1.30%

Current Tax 4.62% 0.01% 0.61% 1.02% 0.66% 3.53% 0.60%

Prior Year 0.00% 0.00% 0.00% 0.00% 0.00% 0.12% 0.69%

Deferred Tax income/(expense) 0.00% 0.74% 0.32% 0.34% -0.17% -0.35% 0.00%

NET INCOME 6.70% 2.51% 9.55% 4.40% 1.47% 7.26% -8.97%

Source: Based on latest Annual Reports of listed companies (2017-18)

LHBL – LafargeHolcim Bangladesh Limited, HBL – HeidelbergCement Bangladesh Limited





Expert’s View: Interview with Mr. Masud Khan, CEO of Crown Cement Group EBL Securities Limited Research Team had the opportunity to talk to Mr. Masud Khan, CEO of Crown Cement Group & Chairman of GSK Bangladesh. He shared his thoughts on the present condition and future prospect of cement industry in Bangladesh. We take the pleasure to share an excerpt of the interview.

Masud Khan, FCA, FCMA Chief Executive Officer, Crown Cement Group

Vastly experienced in business management Mr. Masud Khan is currently working as CEO of Crown Cement Group. Prior to that, he was the advisor to CEO of LafargeHolcim BD Ltd. Mr. Khan also served as Chief Financial Officer of LafargeHolcim Bangladesh Ltd. He is also serving as Chairman of GlaxoSmithKline Bangladesh and independent director of Marico Bangladesh Ltd., Berger Paints Bangladesh Ltd. and Viyellatex Group. He has more than 38 years of professional experience in different key positions in several multinational companies including British American Tobacco Bangladesh, Monrovia Tobacco Corporation, Liberia and PricewaterhouseCoopers (PwC), Kolkata. He became a chartered accountant from The Institute of Chartered Accountants of India after serving as an article assistant of PricewaterhouseCoopers (PwC), Kolkata, and cost accountant from The Institute of Cost and Works Accountants of India. He is also a guest faculty of The Institute of Chartered Accountants of Bangladesh (ICAB).

EBLSL Research: At present per capita consumption of cement in Bangladesh is significantly lower than the world average. However, current industry capacity is almost double the estimated annual demand for cement, meaning overcapacity exists in the industry. Meanwhile most of the major players are increasing their capacity. What would you like to say in this regard? Is the industry oversupplied? Please evaluate the present scenario of cement industry in Bangladesh. Masud Khan: Current effective capacity of the industry is almost 58 million metric ton, which is approximately 80% of installed capacity. On the other hand, annual demand is around 31 million metric ton. So, of course overcapacity exists. But if we look at the broader picture, we would see that the market has grown at double digit rate over the last decade. This year the growth rate is approximately 10.06%. Bangladesh has just building its infrastructure from the scratch. So, I believe, cement demand will continue to rise in the future. To keep the current market share, industry players need to keep on increasing their production capacity. Moreover, there is lead time in such expansion. We may see more and more capacity expansion from industry players in the future. Major consumer segments are 30% Individual Home Builders (IHB), 35% Commercial Developers and 35% Government infrastructures. Government demand is expected to outstrip demand from other consumer groups. EBLSL Research: Power and Gas crisis is a major problem for cement industry players in Bangladesh. Meanwhile, the government has recently increased the price of gas per cubic meter for industries to BDT 10.7 from BDT 7.76 (38% increase), for power BDT 4.45 from BDT 3.16 (41% increase) and for captive power BDT 13.85 from BDT 9.62 (44% increase). What is the probable impact of Gas price hike on the profitability of cement manufacturers? What is your opinion in this regards? Masud Khan: Impact of such move is going to be minimal for grinders. However, manufacturers with gas based captive power plants are likely to face higher impact. Integrated plants on the other hand use gas as a raw material. Hence, expected impact for Lafarge Holcim Bangladesh Limited was supposed to be higher. But, LHBL have got long term fixed price gas supply agreement with Jalalabad Gas Transmission and Distribution System Limited which is valid until end of 2025. So, the impact is expected to be minimal for them as well. As per the estimation of BCMA, production cost for cement manufacturers may go up by 11 taka per bag on average.

“Cement industry in Bangladesh has come a long way over the years. Once a cement importing nation, Bangladesh is now exporting cement to its neighboring countries. The outlook for the industry is very robust; we are expecting double digit industry growth mainly driven by government demand. But, Profitability still remains a worry for all. The scenario shall change in the coming days.”





EBLSL Research: Recently cement manufacturers have decided to increase the prices of cement by BDT 50 per bag. What is the price elasticity of cement? Is it possible to sustain healthy profit margin without hampering volume growth by such price hike? Masud Khan: Yes, cement demand may decrease following such price hike. Demand from Individual Home Builders (IHB) & Commercial Builders is likely to slow down. But, I am not sure whether such move to increase price will sustain. The industry is already oversupplied, and price war exists among competitors. Hence, some companies may offer higher discount to grab more customers. Consequently, gross profit may fall. EBLSL Research: Prices of the major raw-materials of cement has been experiencing an increasing trend since 2016. What is your expectation regarding the future price of major raw-materials? If the raw-material price continue to increase how the profit margins of cement manufacturers may be affected? Is there any possibility for further upside price adjustment amidst increased competition and overcapacity scenario? Masud Khan: All our raw materials are imported. 90% of the clinker, the main raw material for cement, is imported from Vietnam. What happened in late 2017 is that Chinese government started to discourage clinker production from integrated plants having wet kilns to reduce environmental damage. Later, Chinese manufacturers started importing clinker from its nearest source – Vietnam. Following the sudden increased demand, Clinker price rose by almost $10 per ton. So, we had to increase cement price in the beginning of 2018. Now, clinker is being imported at around $47 - $50 per ton. Clinker trades like a commodity, hence its price move cyclically. Predicting clinker price is difficult, clinker price is a factor of many things – including FOB price and freight. We cannot reduce clinker price risk by importing large volume when price is low because of limited storage facilities. Hedging through forward contract is also very challenging for Bangladeshi cement manufacturers. EBLSL Research: Why the margin of cement companies in Bangladesh is so narrow? What was the situation in the past? What do you expect in coming years? Masud Khan: It may take some time to improve GPM, It is difficult to say how long. The good news is seasonality of cement demand is less than the past, thanks to the growing government demand. GDP of Bangladesh has been growing at more than 8% and per capita consumption is very low compared to world average. So we are expecting 10-12% growth per annum. EBLSL Research: How will you evaluate latest fiscal measures from the national budget 2019-20 for the overall cement industry and MI Cement? Is there any positive or negative regulatory Impact? Masud Khan: Changes to Income Tax laws will have a major negative impact on us. Previously, the AIT (Advance Income Tax) was adjustable, but the new AIT is not. Hence companies will have to pay 10-12% advance VAT on raw materials import even if they don’t make any profit. The new VAT law requirement relates to 5% advance tax on imports. This will put additional cash burden on us in terms of financing. We will have to increase cement price by 53 Taka for such adjustment. BCMA has recently decided to increase cement price by 50 Taka per bag. EBLSL Research: The cement industry in Bangladesh is increasingly getting concentrated while being dominated by local players. Why the participation of multinational companies is insignificant in the industry? Masud Khan: Multinationals are interested in profit margin while locals are concerned about market share. To keep and grow market share locals are going for capacity expansion. Local companies are gaining more business through superior products offerings, extensive branding and better relationship marketing. EBLSL Research: What is your expectation regarding the industry and overall construction sector? How do you see the industry in the next five years? What are the growth drivers as well as major concerns for the industry? Do you expect any consolidation/ M&A/ divestment in the Industry? Masud Khan: Possibility of merger & acquisition with older plants is less likely. The main reason is technology. Most of the older plants are using ball mills while most players are moving towards VRM technology. VRM is more flexible in terms of product mixture and produces better quality products. Electricity cost savings from VRM is minimal, the only advantage being we can grind more slag.





EBLSL Research: MI cement is the pioneer as well as largest cement exporter from Bangladesh. Is there any scope to increase cement export or expand export destination in the future?

Masud Khan: Crown cement is a pioneer in cement export. Almost 50% of the total cement export is done by our company. Cement is mostly exported to seven sisters region of north-eastern India. Crown cement has strong presence in those areas. You will be glad to know that Tripura is sometimes called Crown City. Most of the development in Tripura is being done using our cement. We expect 15-20% export growth in coming days. For us, Myanmar is not a very attractive destination for cement export.

EBLSL Research: Do you think that export is beneficial compared to local sales assuming growing local demand driven by government mega projects? What are the major mega projects for which MI cement is currently supplying cement?

Masud Khan: Our participation in mega projects is good. Currently, 56% of our cement is being consumed by individual home builders, the rest is consumed by commercial developers and government infrastructures.

EBLSL Research: How is the bulk cement market evolving in Bangladesh? What share of sales are coming from bulk sales in the industry? What is the scenario for MI cement in bulk cement market?

Masud Khan: Bulk cement market is growing fast thanks to mega projects. Currently, 13% of total cement sale is bulk. Few years back it was less than 1%. As the country moves to further development, bulk cement sale will rise. Bulk cement is beneficial for both the buyer and seller in the sense that it lowers cost and facilitates transportation.

EBLSL Research: According to a newspaper report in April 2016, a limestone mine was found in Naogaon having a deposit of 50-100 billion tons. Is the extraction process economically viable? What could be the potential impact on the cement industry, if the extraction comes to light?

Masud Khan: We need to remember that Bangladesh is a very densely populated country. Hence, I personally don’t think limestone extraction will be economically viable in our country. Even if we suppose that the extraction process is economically viable, there is the issue of energy consumption and transportation cost. River access is very important for limestone mines. We cannot transport limestone using road networks. Road transportation will be very costly. Some manufacturers also thought of importing limestone from India. But, Indian environmental laws has become very strict and they are also considering value addition instead of exporting limestone. So, challenges exist there as well.

EBLSL Research: Cement companies are increasingly concentrating on ready-mix concrete (RMC) solution business? What is your expectation regarding the future potential of this business model? How much of the cement produced by MI Cement is directly sent to its RMC business?

Masud Khan: Ready-mix concrete (RMC) solution business is gaining momentum in Bangladesh. RMC solution has bright future and more and more people will be using it. RMC is more convenient and cost saving for builders. National Development Engineers Ltd. is the major player in the market. Crown cement, Confidence cement, Shah cement and Akij cement are also engaged in RMC solution business.

EBLSL Research: What is the main goal of MI Cement? What are challenges for the industry and MI Cement in the years ahead?

Masud Khan: Our goal is to be in the top three cement players in the next one to two years. We will continue our focus on quality and customer satisfaction. At the same time, we will continue to invest in our people, processes and technology to ensure that we are the best in everything we do. The main challenge for the industry is price war; supply capacity is almost double the industry demand. Increased raw material price is also a major concern us. VAT issue, gas price hike, devaluation of taka, higher borrowing cost, truck load restriction have added more sufferings for the cement manufacturers.

Cement industry in Bangladesh has come a long way over the years. Once a cement importing nation, Bangladesh is now exporting cement to its neighboring countries. The outlook for the industry is very robust; we are expecting double digit industry growth mainly driven by government demand. But, Profitability still remains a worry for all. The scenario shall change in the coming days.

Disclaimer: All views and opinions expressed here are solely of the interviewed persons and neither represent the views of EBL Securities Ltd. nor those of any of its associated institutions.

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