cement industry of pakistan ; an insight

INSTITUTE OF BUSINESS AND TECHNOLOGY

Financial Analysis of Top Five Major Players of Pakistan Cement Industry

Submitted By

Mohammad Mustafa(BME/663)

Faisal Bin Hasan(BM/15024)

Course Code : MKT-606

MBA (Banking and Finance)

FACULTY OF MANAGEMENT SCIENCES

SPRING-2011

CONTENTS


Page No

ACKNOWLEDGMENT 04

ABSTRACT 05

CHAPTER 1 INTRODUCTION

1.1 Introduction 07

1.2 Purpose of Study 08

1.3 Research Objectives 09

1.4 Research Methodology 09

CHAPTER 2 LITERATURE REVIEW

2.1 Literature Review 11

CHAPTER 3 CEMENT INDUSTRY OF PAKISTAN

3.1 Growth 22

3.2 Current Scenario 25

3.3 Production 33

3.4 Consumption 36

3.5 Exports 39

3.6 Future prospects 47

CHAPTER 4 GIANTS OF PAKISTAN CEMENT INDUSTRY

4.1 Lucky Cement 53

4.2 Attock Cement 55

4.3 D. G. Khan Cement 57

4.4 Maple Leaf Cement 59

4.5 Lefrage Cement 60

CHAPTER 5 FINANCIAL ANALYSIS OF CEMENT INDUSTRY

Institute of Business and Technology


5.1 Profit and Loss Statement Analysis 62

5.2 Balance Sheet Analysis 64

5.3 Cash Flow Statements 68

5.4 Statement of changes in equity 68

CHAPTER 6 SWOT ANALYSIS OF CEMENT INDUSTRY

6.1 Strength 68

6.2 Weakness 71

6.3 Opportunities 72

6.4 Threats 72

CHAPTER 7 CONCLUSION AND RECOMENDATIONS

7.1 Conclusion 74

7.2 Recommendations 75

REFERENCES 77



ACKNOWLEDGEMENT

First of all we would like to thank Almighty Allah who enabled us potency and courage

to successfully research and pen this project, to achieve our target and complete this

report up to our ultimate level.

We would like to extend our special thanks to DR. NOOR MEMON, who conducted our

Project course and continuously guided and supported us during our project and

enabled us the opportunity of practically performing all that we had studied during the

semester.

We are very thankful to him for his support throughout this project for proof reading,

formulating and information gathering of this report. We are also grateful to him for the

valuable time he has given us for this report in particular and for the over all learning of

finance and research at large.

We would also like to thank the endurance of our parents and family members for

bearing up with us throughout this endeavor both time and money wise.



INSTITUTE OF BUSINESS AND

TECHNOLOGY

ABSTRACT SUBMITTED BY: Mohammad Mustafa

Faisal Bin Hasan

DISCIPLINE: MBA (Banking and Finance)

TITLE OF PROJECT REPORT: Financial Analysis of Top Five Major

Players of Pakistan Cement Industry

MONTH OF SUBMISSION: April 2011

NAME OF PROJECT SUPERVISOR: Dr. Noor Ahmed Memon

Abstract

Cement is one of the major industry of Pakistan’s economy. Pakistan is rich in cement

raw material. Currently many cement plants are operating in private sector. Pakistan

Cement industry has huge potential for export of cement to neighboring countries like

India, United Arab Emirates, Afghanistan, Iraq & Russian States. There has been a

robust growth of cement demand seen both in domestic and export market.

Construction sector exhibited a strong 15.3% growth in FY-10 compared with a

contraction of 11.2% in FY-09. This remarkable performance was driven mainly by a

decline in building material prices, which in turn, was caused by reduction of duty on

cement sales and decline in global prices of coal, iron, and wood. Anecdotal evidence

suggests that most of the construction growth was led by the private sector.



Total growth in construction industry is indeed a welcome development giving the

existing backlog of housing units in the country and the industry’s backward and forward

linkages with other industries. It is estimated that the country has a backlog of around 8

million housing units which is increasing every year due to inadequate spending on

housing sector.

This report is based on introduction and Financial Analysis of Top Five Major Players of

Pakistan Cement Industry, in this report we are considering five major cement

companies i.e. Lucky Cement, Attock Cement, D.G. Khan Cement, Maple Leaf Cement,

Lefrage Cement, which are cement Manufacturing Companies and they export to many

countries of the world.

This report focuses on evaluating the industry’s service process, resources, financial

statements, current market scenario and other aspects. The report helps us to know the

current position of Cement Industry, and its strength, weakness, opportunities and

threats, by their customer analysis, their market strategy, implementation and future

prospects.



1. INTRODUCTION

1.1 Introduction

At the time of independence in 1947, only one or two units were producing grey cement

in the country. During the decade of 1948-58, the number of cement units increased to

six. During the Ayub Khan era the economy started to grow and the construction

activities underwent a boom. To meet the growing demand of cement new units were

set up. During the decade of 1958-68, the number of cement units increased from 6 to

9. During the following period of Zulfiqar Ali Bhutto all the industrial units, including

cement industry, were nationalized, therefore, no new unit was set up during 1971-77.

During the period of General Zia-ul-Haq, 1977-88, denationalization of industrial units

boosted the investments. Housing and construction industries picked up and the

demand for cement increased. Thus, the number of cement units increased from 9 to 23

and finally almost 30. The cement industry in Pakistan has come a long way since

independence when country had less than half a million tones per annum production

capacity. By now it has exceeded 10 million tones per annum as a result of

establishment of new manufacturing facilities and expansion by existing units.

Privatization and effective price control in 1991-92 ushered in a new era in which the

industry has reached a level where surplus production after meeting local demand is

expected yearly. The cement industry is considered a highly important segment of

industrial sector that plays a pivotal role in the socio-economic development. Though

the cement industry in Pakistan has witnessed its lows and highs in recent past, it has

recovered during the last couple of years and is optimistic once again. There are total

number of units are around 30, from which 4 units are in the public sector while the

remaining 25 units are owned by the private sector. Two of the four units in the public

sector had to close down their operations due to stiff competition and heavy cost of

production. The cement plants are located in every province of Pakistan.

The province-wise distribution of cement plants is as under:



Province Unit Capacity in Million Tonnes

1- Punjab 12 19.66

2- Sindh 8 10.105

3- NWFP 6 12.96

4- Baluchistan 3 1.99

--------------------------------------------------------------------------------

Total Units 29 44.715

=============================================

Source: All Pakistan Cement Manufacturing Association of Pakistan (APCMA)

Three additional cement plants with installed capacity of over 2.1 million tonnes are in

the final stage of completion despite the available excess capacity in this sector. The

following table shows installation of new cement factories and expansion of the existing

facilities during the current decade.

The industry is divided into two broad regions, the northern region and the southern

region. The northern region has over 87 percent share in total cement dispatches while

the units based in the southern region contributes 13 percent to the annual cement

sales.

1.2 Purpose of Study

The purpose of a Research Study can be exploratory, descriptive or explanatory. The

major purposes of Exploratory studies are: the identification of problems, the more

precise formulation of problems (including the identification of relevant variables), and

the formulation of new alternative courses of action.

Descriptive Studies often involve the description of the extent of association between

two or more variables.

Explanatory Research is used for Studying relationship between causes & symptoms.

The researcher tries to identify the factors, which together cause a certain phenomena.

Our Research study will be descriptive b/c we will find Financial Analysis of Major



Cement companies in Pakistan involving various different variables and their affects on

the companies’ financial position.

1.3 Research Objectives

The objective of our Study is to know the past and present of Pakistan‘s cement

Industry & to highlight the future prospects of the industry. During this study we will also

be trying to do the financial analysis of top five major cement industry players in

Pakistan.

We will also review the affects of changing prices, inflation & other economic issues

which have impact on the cement industry of Pakistan.

Our aim is to know the reasons why the Cement Industry could not deliver the benefits

that it should have given to the Pakistan Economy; despite some good year’s

production wise.

We will also be reviewing the Government regulations regarding the industry and

whether these regulations are fruitful for the industry or not.

We will also like to give our suggestions on how to increase production and exports of

cement industry.

Pakistan’s cement industry has witnessed many ups & downs since 1947 till now; we

will try to review those highs & lows of Pakistan Cement Industry.

1.4 Research Methodology

The research methodology gives a set of guidelines for how information needed for

research should be gathered & processed.

There are two general approaches of a research; Qualitative & Quantitative. When

conducting a Quantitative research, statistical methods are used to analyze the data

and a large number of respondents are selected. either randomly or judgmentally.

During a Qualitative research one or few objects are studied in depth & the main

purpose is to gain a deeper understanding of the problem studied and to acquire a

profound knowledge of the studied objects.

Since this research tries to gain a deeper understanding of cement industry; a

Qualitative approach is a more suitable choice.



Two valuable sources of Primary data collection are Documentation & Interview.

Documents could be either internal like management reports, meeting notes or external

such as market researches, journal articles, and news.

A face to face Structured Interview would be conducted with some responsible &

related person of each organization.

Secondary Data Collection will be done through:

Newspapers

Internet

Books

All Pakistan Cement Manufacturers Association Reports

Economic Survey of Pakistan

Federal Bureau of Statistics Publications

State Bank of Pakistan Annual Reports



2. LITERATURE REVIEW

The cement industry in Pakistan has come a long way since independence when

country had less than half a million tonnes per annum production capacity. By now it

has exceeded 10 million tonnes per annum as a result of establishment of new

manufacturing facilities and expansion by existing units. Privatization and effective price

control in 1991-92 ushered in a new era in which the industry has reached a level where

surplus production after meeting local demand is expected yearly.

A recurrent concern raised by industry groups against climate policies is the fear of

competitive distortions, industrial relocations and carbon leakage. The recent entry into

force of the Kyoto Protocol is unlikely to reduce these concerns since developed

countries that have ratified the Protocol only account for 35% of world energy-related

CO2 emissions. Unfortunately, although the existing economic literature came up with

fairly consistent quantitative estimates, it has not been ale to bring the debate to an end.

Ex post studies show very little empirical evidence that existing environmental

regulations affect trade flows (cf. e.g. Raspiller and Riedinger, 2004, and reference

therein). However, in some carbon-intensive sectors, the climate agenda may generate

much higher environmental constraints than existing ones, hence the need for modeling

such policies. The problem has thus been analyzed using both top-down and bottom-up

models. One of the key points to assess competitiveness and carbon leakage impacts

of GHG mitigation policies is the representation of international trade. In this regard,

most models are based on the well-known Armington specification (or on similar

functional forms).

This specification assumes that products are differentiated by their place of production.

For example the chemicals produced by different countries are not perfect substitutes.

This imperfect substitution has various grounds: products are not homogenous

throughout the world, consumers have national preferences, trade policies and

specification all these obstacles to perfect substitution are merged in the Armington

substitution elasticity, or a parameter with an equivalent meaning, which is at best



econometrically calibrated. Then, the market shares of the different producing countries

are driven by relative prices and by this parameter.1

The Armington or Armington-trade trade representation is widely used for two reasons.

Firstly, it is convenient to avoid the “bang-bang effect”, i.e. the fact that a small variation

in relative prices can lead to drastic variations in market shares. Secondly, it is able to

account for bilateral trade between two countries, which occurs in reality.

However, this comes at the price of a lack of transparency and of control, since all the

factors justifying the imperfect substitutability are merged. Furthermore, the econometric

estimation of the Armington elasticity is difficult. Although their representation is

probably the best compromise for most sectors, it proves to be rather debatable for

some products. Let us take the cement case.

Cement is a relatively homogenous product throughout the world, whose trade is not

much disrupted by trade policies or national preferences. The imperfect substitutability

among cements from different places of production is then justified by the existence o

very high transportation costs. However, representing these transportation costs by a

constant elasticity of substitution is a very crude assumption, especially if a single

elasticity is chosen for every pair of countries, which is the case in most, if not all,

applied models.

A second limitation of most existing models is that hey generally do not take into

account explicitly production capacity shortages, which may lead to overestimated

leakage rates.

There is thus room for improving the representation of international trade in models

addressing the competitiveness and leakage issues, especially for high transportation

costs products. Since most GHG-intensive materials belong to this category, we

developed a spatial international trade model, GEO, that:

1 www.cesifo.de Venice International University


http://www.cesifo.de/


Drops the imperfect substitution assumption among goods produced in different

places;

Makes explicit the transportation costs, for both road and sea transportation,

utilizing a spatial representation of the world: 47 production countries and about

15,500 consuming areas are identified and geo-referenced, allowing to compute

a realistic transportation costs;

Computes for every country a capacity constraint, which is not fixed but may be

relaxed every year by investing in new capacities. GEO is used to estimate the

construction of new capacities, which occurs when the average cost of the new

plant (including its fixed, variable and transportation costs) does not prevent it to

be more competitive in at least one area than the existing available capacities (if

any) of other producers. (by Damien Demailly and Philippe Quirion)

In 1994 the manufacturing sector consumed 23 EJ of primary energy in the United

States, almost one-quarter of all energy consumed that year (U.S. DOE, EIA 1997).

Within manufacturing, a subset of raw materials transformation industries (cement,

primary metals, pulp and paper, chemicals, petroleum refining) require significantly

more energy to produce than other manufacturing products.

This report reflects an in-depth analysis of one of this energy-intensive industries-

cement, the binging agent in concrete and mortar—identifying energy savings and

carbon dioxide emissions reduction potentials. We analyze the cement industry at the

aggregate level (Standard Industrial Classification 324 (3241)), which includes

establishments engaged in manufacturing hydraulic cements, including Portland,

natural, masonry, and pozzolana cements.

The production of cement is an energy-intensive process that results in the emission of

carbon dioxide from both the consumption of fuels (primarily for the kiln) and from the

calcinations of limestone. In this report, we briefly describe the various stages in the

cement production process. We then provide details on energy consumption in the U. S.



cement industry, and estimate the cost-effective potential for energy efficiency

improvement.

Cement is an inorganic, non-metallic substance with hydraulic binding properties, and is

used as a bonding agent in building materials. It is a fine powder, usually gray in color,

that consists of a mixture of the hydraulic cement minerals to which one or more forms

of calcium sulfate have been added (Greer et al., 1992, ASTM specification C-150).

Mixed with water it forms a paste, which hardens due to formation of cement mineral

hydrates. Cement is the binding agent in concrete, which is a combination of cement,

mineral aggregates and water. Concrete is a key building material for a variety of

applications.

The U.S. cement industry is made up of clinker plants, which produce clinker, cement

plants that grind clinker obtained elsewhere, or a combination of the two, an integrated

plant. Clinker is produced through a controlled high-temperature burn in a kiln of a

measured blend of calcareous rocks (usually limestone) and lesser quantities of

siliceous, aluminous, and ferrous materials. The kiln feed blend (also called raw meal or

raw mix) is adjusted depending on the chemical composition of the raw materials and

the type of cement desired. Cement plants grind clinker and add a variety of additives to

produce cement, while integrated plants both manufacture clinker and grind it to make

cement.

Portland and Masonry cements are the chief types produced in the United States. More

than 90% of the cement produced in the U.S. in 1997 was Portland cement, while

Masonry cement accounted for 4.4% of U.S. cement output in 1997 (USGS, 1998).

There were 119 operating cement plants in the U.S. in 1997, spread across 37 states

and in Puerto Rico, owned by 42 companies. Portland cement was produced at 118

plants in 1997, while Masonry cement was produced at 82 plants (81 of which also

produced Portland cement). Clinker was produced at 108 plants (110 including Puerto

Rico) in the U.S. in 1997. Clinker kiln capacity varies between 75 and 1550 kilo tonnes

per year (RTI, 1996). Production rates per plant vary between 0.5 and 3.1 million metric



tons (Mt) per year. Total production of U.S. cement plants in 1997 was slightly over 82.5

Mt (USGS, 1998). Clinker is produced with either the “wet” or “dry” process. These

processes are discussed in detail in section III.

Clinker production, cement production, and materials consumption trends are quite

similar. All three categories experienced gradual growth between 1970 and 1997, with

prominent dips in the late 1970s and early 1980s. Clinker production 2 increased from

67 Mt in 1970 to 74 Mt in 1997, at an average rate of 0.4% per year, hitting a low of 55

Mt in 1982, and its current high in 1997. Within this slow production increase, the

composition of clinker production changed significantly between 1970 and 1997. Clinker

produced with the wet process decreased at an average of – 2.7% per year, falling from

a 60% share of total clinker production in 1970 to a 26% share in 1997. Clinker

produced with the dry process increased at an average of 2.6% per year, increasing

from a 40% share of total clinker production in 1970 to a 72% share in 1997. Cement

production increased at 0.7% per year between 1970 and 1997, rising from 69 Mt in

1970 to 84 Mt in 1997. Portland cement remained the dominant cement type during that

time span, maintaining a share between 94% and 96%. Materials consumption

increased at an average of 0.5% per year between 1970 and 1997, rising from 115 Mt in

1970 to 133 Mt in 1997.

Cement production (0.7% average per year) grew more rapidly than clinker production

(0.4% average per year) between 1970 and 1997, which may be due increased use of

additives and changes in clinker imports. Between 1970 and 1997, the clinker to cement

ratio (expressed as clinker production divided by cement production) decreased from

0.97 to 0.88 t cement/t clinker. The number of clinker plants has decreased from 169 in

1970 to 110 in 1997, while the number of cement plants has fallen from 181 in 1970 to

118 in 1997. Thus, average plant capacity has increased. (by Nathan Martin, Ernst

Worrell, and Lynn Price).

2 http://scholarship.org/uc/item/9bd095q0 Lawrence Barkeley National Laboratory


http://scholarship.org/uc/item/9bd095q0


Chest radiology is the most frequently requested radiological investigation. In spite of

recent technological advances, chest radiology remains the cornerstone of thoracic

imaging and is a valuable diagnostic investigation.1 The chest radiographs together with

occupational history, usually allows the physicians to make a presumptive diagnosis. It

also helps in early diagnosis of different diseases in various occupational workers.2

Occupational diseases are a result of an imbalance between human beings and their

environment. The diseases of the respiratory system are induced by occupational dusts

and are influenced by the type of dust and the duration of exposure.3 Cement mill

workers are exposed to dust at various manufacturing and production processes.

Cement dust is classified into 2 main types, natural cement and artificial (Portland)

cement. Portland cement is a mixture of calcium oxide (62%-66%), silicon oxide (19%-

22%), aluminum trioxide (4%-8%), ferric oxide (2%-5%) and magnesium oxide (1%-

2%).4 The effects of cement dust are due to its irritating properties. Cement dust has

irritating effects on skin, eyes and the respiratory system. It induces atrophic and

hypertrophic changes in nasal and pharyngeal mucosa, chronic exfoliative bronchitis

and slight tissue fibrosis.5 Cement dust also has hazardous effects on the gastro

intestinal tract6 and nervous system.7

Methods. This study was carried out in the Department of Physiology, Faculty of Health

and Medical Sciences, Hamdard University Karachi, Pakistan, between June to August

2000. In this study, 2 groups were formed with 50 volunteers each. In the first group, 50

apparently healthy male cement mill workers aged 20-60 years were selected randomly

from a cement mill located in Karachi, Pakistan. These workers did not use any self-

protective measures and worked 8 hours a day. They were matched in terms of age,

height, weight and socioeconomic status with a second group of 50 healthy male control

subjects selected from the local population of Karachi. These control subjects were

composed primarily of shopkeepers and salesmen. Subjects with known cases of

asthma, diabetes mellitus, cardiopulmonary diseases, malignancy, drug addicts,



cigarette smokers and subjects with gross abnormalities of the vertebral column,

thoracic cage and neuromuscular diseases were excluded from the study.

After complete exposure of the chest3, subjects were advised to stand upright with their

back to the x-ray tube. The chest was pressed against a metal cassette containing the

film and the arm were positioned out of the way. All subjects were advised to suspend

respiration at total lung capacity and an ideal posteroanterior (PA) view chest

radiograph was taken by Trophy Radiology (N-50057, France). The cassette was

immediately transferred to the dark room for development process. When required, for

necessary quality control purpose, the radiograph was repeated. Each radiograph was

clinically read by 2 radiologists and 2 pulmonologists, they interpreted the films

independently of each other and without knowledge of exposure status.

Results. Anthropometric parameters for the total number of cement mill workers and

control group is shown in Table 1. There were no significant differences between the

means in anthropometric parameters of age, height or weight in both groups. The mean

duration of exposure in the cement mill workers was 12.94 + 1.00 years (mean + SEM),

range 2-28 years. The chest radiological findings for total cases of cement mill workers

and similar number of matched controls are presented in Table 2. In cement mill

workers abnormal clinical findings were found on chest radiology as compared to

control subjects. (by Sultan A. Meo)

Cement is considered one of the most important building materials around the world. It

is mainly used for the production of concrete. Concrete is a mixture of inert mineral

aggregates, e.g. sand, gravel, crushed stones, and cement. Cement consumption and

production is closely related to construction activity, and therefore to the general

economic activity. Cement is one of the most produced materials around the world. Due

to the importance of cement as a construction material, and the geographic abundance

of the main raw materials, i.e. limestone, cement is produced in virtually all countries.

3 Saudi Medical Journal 2003; Vol. 24 (3): 287-290



The widespread production is also due to the relative low price and high density of

cement, that limits ground transportation because of the relative high costs. Generally,

the international trade (excluding plants located on the borders) is limited, when

compared to the global production.

Cement production is a highly energy intensive production process. The energy

consumption by the cement industry is estimated at about 2% of the global primary

energy consumption, or almost 5% of the total global industrial energy consumption

[WEC, 1995]. Due to the dominant use of carbon intensive fuels4, e.g. coal, in clinker

making, the cement industry is also a major emitter of CO2 emissions. Besides energy

consumption, the clinker making process also emits CO2 due to the calcining process.

The cement industry contributes 5% of total global carbon dioxide emissions. Therefore

Ecofys Energy and Environment and Berkeley National Laboratory made for the IEA

Greenhouse Gas R&D Programme an assessment to the role of the cement industry in

CO2 production and to carbon dioxide emission reduction options [Hendriks,

forthcoming].

In this article we will first discuss the historical development and global distribution of

cement production, and we give a short description of the production processes. In the

next paragraph an overview is presented of the CO2 emission related to the production

processes, followed by analyze of CO2 emission reduction options. (by C.A. Hendriks,

E Worrell, D. de Jager, K. Blok, P. Riemer).

The basic constituents of PC are lime (CaO), silica (SiO 2), alumina (Al 2 O3) and iron

oxide (Fe 2 O 3 ). In the manufacturing process, they are crushed, ground, proportioned

for the desired composition and then heated up to 1400-1600°C. The inclusion of

gypsum (CaSO 4 .4H 2 O) controls the setting time of the cement.

The resulting product consists of tricalcium silicate (3CaO.SiO 2), dicalcium silicate

(2CaO.SiO 2), tricalcium aluminate (3CaO.Al2 O3), tetracalcium aluminoferrite (4CaO.Al 2

4 www.ieagreeen.org.uk greenhouse gas control technologies conference paper


http://www.ieagreeen.org.uk/


O 3 .Fe 2 O 3 ) and dehydrated calcium sulfate (CaO.SO3 2H2 O). Small differences can

be noticed depending on the manufacturer and the location of the source of mineral

extraction. In chemical assays of PC, the components were present according to the

following average percentages: CaO (58.5%), SiO 2 (17.7%), Al 2 O 3 (4.5%), MgO

(3.3%), SO 3 (3.0%), Fe 2 O 3 (2.9%), K 2 O (0.9%), and Na 2 O (0.2%).

Wucherpfennig and Green report that mineral trioxide aggregate (MTA) and PC have

similar macro, micro features as well as biological behavior. Comparative analysis

shows no significant difference between PC and MTA with regards to their composition.

However, MTA has bismuth oxide added to improve its radiopacity.

Studies have shown that PC has an efficient antimicrobial effect. Estrela et al. observed

that the antimicrobial effect of MTA and PC was similar. The results obtained with MTA

on S. aureus, E. faecalis and B. subtilis were identical to those obtained using PC.

Sipert studied in vitro the antimicrobial effect of PC on several species of

microorganisms: Enterococus faecalis, Micrococus luteus, Escherichia coli,

Staphilococus aureus, Staphilococus epidermidis, Pseudomonas aeruginosa and

Candida albicans. PC presented antimicrobial potential in all cases except on E. coli

that did not show inhibition of activity Mendonηa et al. report that the addition of

metronidazol to PC did not improve the antimicrobial effect of PC.

PC has shown good cell proliferation induction with formation of a monolayer cell,

satisfactory inflammatory response and inhibitory effect of prostaglandin. In vitro studies

with cell cultures have been widely used to evaluate the biocompatibility of those

materials. Saidon et al. compared the cytotoxic effect in vitro and the tissue reaction of

MTA and PC in bone implantation into the mandible of guinea pigs. Results show that

there was no difference in cell reactions in vitro. Bone healing and minimal inflammatory

response adjacent to MTA and PC implants were observed, suggesting that both

materials are well tolerated. Ribeiro et al. evaluated in vitro on mouse lymphoma cells

the genotoxic and cytotoxic effects of MTA and PCs and observed that none of them

were cytotoxic. Those results seem to indicate that MTA and PCs are not genotoxic and



do not induce cellular death. Ribeiro et al. investigated MTA and Portland potential to

induce DNA breakage in Chinese hamster ovary (CHO) cells and reported that those

compounds tested did not show genotoxic effects in all concentrations evaluated. Min et

al. also reported that PC is not cytotoxic and it allows cell adhesion and growth. Braz et

al. evaluated human peripheral lymphocytes treated with PC at concentrations up to

1000 mg/ mL (-1) and did not observed damage to lymphocyte DNA. They concluded that

the exposition to PC could not be able to increase the risk of genetic damage in

lymphocytes.

Portland cement (PC) is a hydraulic binding material5, which once mixed with water

tends to harden. This material is widely used in the building industry and, recently, its

use in dentistry has been largely studied. The main interest in its use in dentistry is

focused on a possible alternative to mineral trioxide aggregate (MTA) because PC is

less expensive and widely available.

Several studies have shown that the composition of PC is similar to MTA, excepting by

the absence of bismuth ions, which confers radiopacity to MTA. Furthermore, PC

exhibits others properties similar to MTA, such as antimicrobial effect, induction of cell

proliferation and inhibitory effect of prostaglandin.

In dentistry, PC has been used in dental procedures such as pulpotomy, pulp capping,

repair of root perforation and root-end filling. Studies have shown that PC is not

cytotoxic, stimulates the apposition of reparative dentin and permits cellular attachment

and growth.

Despite its good properties reported in the literature, PC has undesirable contaminant

substances to human organism. The arsenic quantity in the PC is one of the major

concerns regarding to its use. The purpose of this article is to review the dental

literature about the PC, its composition, with special attention to arsenic content,

properties, and application in dentistry.

5 : http://www.ijdr.in/text.asp?2010/21/4/591/74233


http://www.ijdr.in/text.asp?2010/21/4/591/74233


A literature review was performed on Bireme, Pubmed, LILACS and Scopus databases

in order to identify studies reporting the composition and properties of PC, its application

in dentistry and the arsenic presence and release. For this search, terms used were

"Portland cement arsenic release" and "Portland cement dentistry". Descriptive studies,

case reports, literature review, in vitro and in vivo studies were included. Exclusion

criterion was papers published before 1997. (by Talita Riberiro Tenorio de Franca,

Rephaela Juvenal da Silva, Michellini Seycias de Queiroz, Carlos Menzes Aguiar).



3. CEMENT INDUSTRY OF PAKISTAN

3.1 Growth

Cement is one of the most important industries of Pakistan. Limestone and gypsum are

the main raw materials for manufacturing of cement and they are present in abundance

in Pakistan along with ample supply of Natural gas. This great potential makes the

country capable of producing cement not only for local use but also for export as well.

Pakistan has been exporting cement to the neighbouring countries like U.A.E,

Afghanistan, India, Iraq and Russia.

There are 29 cement production units in the country. Upto May 2010, the total installed

cement production capacity is 44.715 million tonnes. By the end of June 2011, the

installed cement production capacity is expected to touch the level of 49.579 million

tonnes.

Due to political instability and lack of availability of funds for public sector development

program, cement industry of Pakistan was in the recession phase and registered an

average growth rate of 2.96% for the period from 1990 to 2002. For the period from

2003 to 2007 cement industry of Pakistan had registered an average growth rate of

20%. Another 20-25 % growth is expected till the end of the current year. The boost in

cement sector is because of the rising construction activity in the country, reconstruction

activity in Afghanistan and increasing development expenditure by the government.

The cement demand grew 19 percent and 13 percent during FY05 and FY06

respectively. During the first nine months of FY07-08, production increased by 30

percent as compared to last year. The demand for cement was forecasted to grow by

26 percent during FY07 and 17 percent in FY08. The per capita consumption of cement

has risen from 117 kg in FY06 to 131 kg in FY07. This rising trend continued in the

FY08 to FY10 and it is expected to take the same trend in FY11.

Pakistan is rich in cement raw material. Currently many cement plants are operating in

private sector. The last few years have been a golden period for cement manufacturers,



when the government increased spending on infrastructure development. High

commercial activity and rising demand for housing on account of higher per capita

income has made cement sector to take off growth in double digits.

Pakistan cement industry has a huge potential for export of cement to neighboring

countries like India, U.A.E, Afghanistan, Iraq and Russian states. There has been a

robust growth of cement demand seen both in domestic and exports market during the

fiscal year ended June 30, 2009-10. The industry achieved an overall growth of 32%

with domestic demand of cement increased by 24.95% where as exports increased by

111.86%. The overall growth achieved by cement factories for the year under review

was 111.29% consisting of domestic and exports markets at 71.02% and 335.12%

respectively.

Pakistan cement industry has been successful to capture export markets of various

GCC and African countries, which are new markets for the country other then

conventional export market of Afghanistan and Iraq.

The main factors behind increase in demand of cement were: 60 percent higher Public

Sector Development Projects (PSDP) allocation, seven percent GDP growth, increasing

number of real estate development projects for commercial and residential use,

developing export market and expected construction of mega dams.

As cement capacity is increasing to cater the rising domestic and regional demand, it

started facing a tougher time because of price fall after the first quarter of FY06 due to

increase in supply, energy prices started surging and higher expansion led to mounting

finance and depreciation costs. After reaching Rs 430 per bag at the retail level earlier

last year, cement prices fell sharply during 2007. Average cement prices were Rs 220

per bag as on April 27, 2008, as compared to Rs 315 per bag in 2006.

However, the cost and exports may be affected due to weakness of the US dollar

causing coal, electricity charges and freight prices, comprising 65 to 70 percent of the



cost. The PSDP allocation has been cut by Rs 75 billion and feared further cuts would

curtail cement demand. Major capacities of countries like India and Iran are expected

to come online by FY11 and onwards which are likely to convert these countries from

dependent importers to potential exporters.

Moreover, this rising trend is expected to be short-lived due to higher interest rates and

inflationary concerns are likely to make it disadvantageous for investors to enter the

construction industry. In addition to this, to control real estate prices the government is

considering imposing a tax on it.

The recent wave of flooding in the northern Punjab region of Pakistan and displaced 20

million people and also left the area isolated from other parts of the country. Many

industrial plants and logistics operations were also adversely affected as a result of

massive damage to infrastructure.

Analysts expect that the lack of infrastructure, would lead to a decline in sales and

prices also result in a decrease of RS10 at Rs20 per bag in the next few months. Sales

of cement are influenced by rainfall on an annual basis, but the damage to the road

network has deteriorated and distribution industry, agony and hurt exports.

However, you can expect the industry to see the light at the end of the tunnel, how

could experience exponential growth due to massive reconstruction efforts in the

country, once the flood subsides. Although the extent of the damage can not be

accurately assessed at this time, reconstruction efforts are likely to last longer in

comparison with the aftermath of the earthquake of 2005, due to the nature of the

disaster.

Investors will likely have a significant interest in cement stocks on the back of strong

future demand. Even when the government announced a 50 percent reduction in

development spending, the United Nations, World Bank and other donor agencies

pledging money for reconstruction activities.



Cement industries in Pakistan are currently operating at their maximum capacity due to

the boom in commercial and industrial construction within Pakistan. Consumers face a

tough decision with regards to prefer which brand over which because of the similar

pricing of cement industry. The formation of cartel by the cement manufacturers have

exploited local consumers a lot and this has led to the concentrated degree of oligopoly,

where the firms are acting as a single unit to perform their monopoly. Their combined

market power is simply a diluted version of the dominance that a single firm with a

monopoly market share can exert.

The demand of Pakistani cement is expected to continue to grow at the rate of 20 per

cent for about four years to come. It may then follow traditional growth rate of seven per

cent per year. Announcement of major dams will dramatically increase this demand.

Deregulation after accession of Pakistan to WTO is expected to open the window of

competition from cheaper markets.

There may be no tariff after this deregulation on import of cement allowing its entry into

Pakistan from cheaper market at lower rate. Cement from cheaper markets may also

block Pakistan’s export of cement to its neighboring countries. Global market has

vigorously taken up the advantage of economy of scales and multinational giants now

control more than 40 per cent of world production—(China not included). The recent

acquisition of Chakwal Cement by an Egyptian giant, Orascom may be a beginning of

such an entry in Pakistan by multinationals.

New avenues for export of cement are opening up for the indigenous industry as Sri

Lanka has recently shown interest to import 30,000 tons cement from Pakistan every

month. If the industry is able for avail the opportunity offered, it may secure a significant

share of Sri Lanka market by supplying 360,000 tons of cement annually.

3.2 Current Scenario

Due to political instability and lack of allocation of funds for public sector development

program, cement industry of Pakistan was in the recession phase had registered an



average growth rate of 2.96% for the period from 1990 to 2002. For the period from

2003 to 2007 cement industry of Pakistan had registered an average growth rate of

20%. The boost in cement sector is because of the rising construction activity in the

country, reconstruction activity in Afghanistan and increasing development expenditure

by the government. Presently, the cement industry of Pakistan is heavily burdened due

to levy of Federal Excise Duty @ Rs. 750 per ton and General Sales Tax @ 15% on

duty paid value. In addition to Federal Excise Duty and General Sales Tax, cement

industry is also paying the provincial levies (Royalty and Excise Duty) on acquiring of

raw material for production of cement i.e. lime stone and shall clay.

A comparison of taxation and retail prices with other regional countries revealed that

taxation in Pakistan is highest while cement retail prices are lowest. Housing sector has

been looked upon as stimulator of economic growth since there is a large estimated gap

of 5.38 million housing units against annual addition of 300,000 units in the country,

many tax exemption and incentives are provided to encourage new construction.

Contribution to National Economy By Cement Sector:

Direct and Indirect Taxes Rs. 23.50 Billion

Value of Fixed Assets Deployed Rs. 85.21 Billion

Loans from Financial Institutions Rs. 79.53 Billion

Shareholders Equity Rs. 80.00 Billion

Employment (Direct & Indirect) 150,000 (Approx.)

Source: All Pakistan Cement Manufacturing Association of Pakistan (APCMA)

Demand:

Ever disastrous flood in the history of Pakistan has crushed almost everything that

came in its way. The flood emerged from the northern areas of the country due to

record level of rains and melting of glaciers. Most parts of the Khyber Puktunkhwa



province have been badly affected causing a huge loss of property, standing crops and

infrastructure.

Flood water founds its way and moved through Punjab province and ended up with

devastating damage in Sindh province.

Huge loss caused to agriculture, housing, infrastructure and industrial set ups. Although

correct damage assessment is underway but estimates are that losses would be in

billions of Dollars. This huge and wide spread damage is expected to affect the

economy of the country in years to come. Federal Govt. along with provincial Govt. has

given indications of substantial reduction in annual developmental expenditure. This will

off course hit badly the economic indicators of the country. Although this natural disaster

may turn into a great opportunity to build the infrastructure and residential of the masses

which will provide demand stimulus for the cement industry.

It is anticipated that reconstruction of road networks and infrastructure across the

country will generate a new wave of economic activities for next few years. It is also

expected to generate a lot of new job opportunities and number of industries will get

demand stimulus for next couple of years. Govt.’s announcement to finance every

house that was either affected fully or partially would yield multi layer demand of goods

and services which will bring a new life to economic and business activities.

Contribution to National Income by Cement Sector:

The cement is contributing Rs 30 billion to the national exchequer in the form of tax.

This sector has invested about Rs 100 billion in capacity expansion over the last four

years. There are four foreign companies, three armed force companies and 16 private

companies listed in the stock exchanges. The industry is divided into two broad regions.

The northern region has over 87% share in total cement dispatches while the units base

in the southern region contributes 13% to the annual cement sale. The per capita

consumption of cement has risen from 163 kg in FY09 to 183 kg in FY10 .



The cement industry of Pakistan entered the export markets a few years back, and has

established its reputation as a good quality product. The latest information is that India

will import more cement from Pakistan. So far 130,000 tones cement has been exported

to the neighboring country.

What Is Going on in Related Sector:

Pakistan has one of the highest population growth rates in the world. This has prompted

a sizable demand for housing facilities in the country. According to estimates of

construction industry, there is a huge backlog of about 6.25 million housing units in the

country. Bulk of the current demand of 0.6 million units needed every year is for urban

areas. With greater urbanization the demand for cement is expected to grow at an

average of nearly 7% per annum. .

The construction sector in Pakistan has played an important role in providing jobs and

revival of economy.. There is a lot of scope for importing latest technological

advancements/hi-tech building materials. Construction equipment & plants with the

latest practices adopted in the developed Countries after varied Research &

development are badly needed to be adopted by Pakistan as well. Quality Control &

Materials Testing Laboratories & Equipment are need of the time. There is unlimited

scope for investment in this sector.

Globally, construction and engineering services industry is regarded as one of the

largest fragmented industry accounting for 10-12% of GDP in many countries.

Benefiting from both public and private investments, the construction industry is a prime

source of employment generation offering job opportunities to millions of unskilled,

semi-skilled and skilled work force.

The main factors behind increase in demand of cement were: 60 percent higher Public

Sector Development Projects (PSDP) allocation, seven percent GDP growth, increasing

number of real estate development projects for commercial and residential use,

developing export market and expected construction of mega dams. The operating



capacity of cement in FY05 and FY06 was 18 million and 21million tonnes, which rose

to 37 million tonnes by the end of FY07. This trend continued till the current year.

However, this rising trend is expected to be short-lived due to higher interest rates and

inflationary concerns are likely to make it disadvantageous for investors to enter the

construction industry. In addition to this, to control real estate prices the government is

considering imposing a tax on it.

Tax structure:

Instead of providing any relief in the budget, the sector was further penalized with a 3%

increase in sale tax to 18%. So far, the manufacturers have been able to pass on the

increase to consumers but the situation is unlikely to continue. However, the possibility

of formation of a cartel cannot be ruled out. Since massive investment has been made

in the sector, any reduction in price of cement can reduce profit margin of all the units.

Formation of cartel and fixation of price at a level high enough to cover increasing cost

of inputs and ensure reasonable profit margin may provide short-term relief to the

manufactures. Such a cartel may be against the interest of consumer but can help the

manufacturer to survive with some dignity. Formation and smooth operation of a cartel

is generally difficult but in the case of cement industry it may not so because the only

restriction could be on the level of capacity utilization along with a modest uniform

reduction in the price of cement. However, the units are in the diverse state of financial

health, enjoy different level of competitive advantage, and therefore need different

prescriptions to maintain their profitability.



Strength of Sector Which Attract Investors:

Availability of Raw Material :

Abundance of natural resources makes it an ideal place to set-up cement plants. And

which can give high turnover to foreign companies in cement industry.

Duty Free Port of Gawadar:

Pakistan was previously relying on its Karachi port for the shipment of its imports and

exports. It was over crowded and expensive. Pakistan has built a new deep sea port at

Gawadar in the strategically important Province of Balochistan bordering with Iran. This

port has been declared duty free, on top of this cheaper labour makes it the cheapest

port in the whole South Asia region.

Pakistan’s Foreign Investment Policy :

The investment policy regime has been liberalized with most economic sectors open for

foreign involvement.

The Government has therefore liberalized its investment policy, promoted a stronger

and faster enabling framework and opened up almost all sectors for foreign investment

while offering tax and other incentives for investment as well as enabling 100%



ownership for foreign investment in many areas. The new Investment Policy provides

equal investment opportunities for both domestic and foreign investors.

The Government has decided to give “priority industry” status for foreign investment into

information technology, oil and gas exploration, mining, leather production, corporate

farming, livestock and dairy, financial business and trade, infrastructure, tourism,

housing and construction sectors. Complete freedom of choice has been provided on

where to locate an activity.

Problems faced by Industry:

Heavy Duties, Bills & Taxes paid by sector:

The Cement industry in Pakistan has to pay Federal Excise duty at Rs.950/ton as

compared with Rs. 750 / ton, 16% sales Tax as compared with 15% and high utilities

bills like electricity, gas etc.

On top of all the issues is the harassment of the industry by different government

departments, industry sources said. They said that Pakistan Standard Control Authority

had filed criminal cases against the cement manufacturers.

The Competitive Commission of Pakistan is also chasing the industry, accusing it of

forming cartel and initiated cases against a number of units, sources said.

The adverse impact of slow exports of cement to India started to emerge in December

2008 as lesser orders have been received by exporters.

In the first quarter of 2009-10, a spokesman for All Pakistan Cement Manufactures

Association (APCMA) remarked that any setback to cement industry may increase the

price to as high as Rs. 1900/- approx per bag.

Price to manufacture one bag of cement has risen to more than five hundred rs per

bag in 2010 from Rs. 450 per bag in 2009. Electricity has risen by 20%.



Ministry of Science and Technology has levied an additional tax factor at 0.1% of ex

factory price which amounts to Rs. 3 per bag.

Affects of the flooding:

The floods did not drastically affect the cement industry in Pakistan, but they have had a

dramatic effect on demand for cement in Pakistan throughout the first two months of

FY10/11. The manufacturing plants in general were not severely damaged, however,

although some were close to the flooded regions. It is expected that cement sales will

begin to recover in the second half of FY2010/11, although sales pressure has

increased during August 2010 and there is price stress in the north. Prices are expected

to hold for now and improve later in the current fiscal year.

As far as recovery is concerned, the cement industry tends to rely on growth in

agriculture income, along with government spending on infrastructure. However in 2011,

there will be no demand from these two important sectors. On the contrary, further

fallout from the flooding will result in large demands on the government finances, while

the majority of farmers in Pakistan will have limited funds due to the extensive

destruction of crops and the resultant decrease in income.

As the floods occurred immediately before the month of Ramadan, the cement

manufacturers within Pakistan had already built up a surplus in imports so as to have

sufficient stocks built up at the ports within the country. Although the floods decimated

the country’s communications, it is expected that rebuilding could begin within a few

months, possibly in November or December.

Latest Situation Mar-Apr 2011:

The latest situation is that the prices of cement have increased once more which is

affecting the construction industry because they cannot buy cement at a expensive rate.

There is a lot of demand for construction after earth quake & recent floods & increasing

population; but due to heavy price of cement; the construction industry cannot make



new homes in abundance b/c they cannot sell them at a higher price due to lowering of

property rates. People nowadays don’t buy property at a high price.

3.3 Production

The cement manufacturers added eight million tonnes to the capacity and the total

production was expected to be 45 million tonnes by the end of 2010. It may result in a

supply glut of 11 million, nine million and seven million tonnes in 2008, 2009 and 2010

respectively.

Despite an excess supply of 11 million tonnes in 2008, it is estimated that the price

would increase in domestic as well in regional markets that may surely boost the

profitability and give relief to the industry on its new investment.

The cement demand would increase in future due to government policies as the

Pakistan People’s Party’s (PPP’s) slogan has always been ‘roti, kapra aur makan’

(bread, clothing and housing). In this regard a statement of the new government

confirmed that it would encourage industries and construct small dams.

The sharp decline in cement prices were due to domestic competition among producers

has dampened the profitability of the industry. To cope with this situation the

manufacturers have strengthen cartel to set minimum cement prices. The example was

marketing arrangement that increased cement prices to the extent of 20 percent despite

coal prices have gone down in the international market. A study of the cement sector

conducted by The News revealed that the sector has been adding capacities since

1995/96 when the total production of cement was 10.173 million tons with the local

demand of 9.43 million tons.

Cement industry is divided into two main regions; the northern and the southern region.

Northern region is producing 35.18 million tonnes and southern region is producing 8.89

million tonnes of cement per year.

The production capacity increased to 30.250 million tons by the end of 2006/07. At that

time the domestic consumption was 21.03 million tons, but cement export had just



started picking up and crossed 3.1 million tons during that year. The cement production

capacity increased to 44.82 million tons by end of 2009/10, the study revealed.

Up to May 2007, the total installed cement production capacity is 36.841 million tones.

By the end of June 2011, the installed cement production capacity will touch to the level

of 49.579 million tones. Due to political instability and lack of allocation of funds for

public sector development program, cement industry of Pakistan which went in the

recession phase had registered an average growth rate of 2.96% for the period from

1990 to 2002. For the period from 2003 to 2007 cement industry of Pakistan had

registered an average growth rate of 20%. The boost in cement sector is because of the

rising construction activity in the country, reconstruction activity in Afghanistan and

increasing development expenditure by the government.

There are four foreign companies, three armed forces companies and 22 private

companies listed in the stock exchanges. The industry is divided into two broad regions,

the northern region and the southern region. The northern region has over 87 percent

share in total cement dispatches while the units based in the southern region

contributes 13 percent to the annual cement sales.

Types of Cement produced in Pakistan:

1- Ordinary Portland Cement (OPC)

2- Sulphate Resisting Cement (SRC)

3- Blast Furnace Slag Cement (BFSC)

4- White Cement

Main Utilities used for Cement Production:

1- Fuel Oil , Natural Gas and Coal

2- Electricity

3- Water

Cement Plants (Pakistan):



Source: www.cement.com.pk

Product type:

Since cement is a specialized product, requiring sophisticated infrastructure and

production location. So, most of the cement industries in Pakistan are located

near/within mountainous regions that are rich in clay, iron and mineral capacity.

Structure of Cement industry in Pakistan is as such that there is not much

substitutability to buyers. Which shows that the Cross elasticity of demand is negligible.

Geographical Area: The other factor i.e. geographic location also doesn’t affects a lot

considering the flexibility of demand. Example can be taken from the fact that if DG

cement in DG KHAN raises its price and MAPLE LEAF CEMENT in DaudKhel will raise

its price to match DG cement’s. This is due to cartel of all of the cement manufacturers

in Pakistan. Thus the customer has no choice at all to switch between two brands of

cement. As the cement market is moving from a virtual 'sellers' market' to an over-

supply situation, it is expected that when prices stagnate and profitability becomes a

function of volume and economies of scale, location advantage and proximity to

markets will become extremely important factors. At present the freight charges are a

massive 20% of the retail prices. The plants located very close to each other and

tapping the same market will have to expand their markets which will increase their

freight expenses. Dandot, Pioneer, Maple Leaf and Garibwal are all located within a

radius of 100 kilometers and are selling bulk of their production in the same areas and

will thus face serious competition from each other. Market Share: The market share if

Cement industry is as such that since large number of manufacturers are in the market


http://www.cement.com.pk/


and are targeting the entire market through the formation of Cartel. So the dominancy of

market share is yet to be analyzed by us. This dominancy can be attributed to two

factors: 1. Brand name 2. Product quality. Since pricing is similar so production capacity

can provide a vague idea with regards to the market share of all the players.

Production FY10:

North Zone

Sr. No.

Name Of Unit Installed Capacity

Clinker Cement

1 Askari Cement Limited - Wah 1,050,000 1,102,500

2 Askari Cement - Nizampur 1,500,000 1,575,000

3 Bestway Cement Limited - Hattar 1,170,000 1,228,500

4 Bestway Cement Limited - Chakwal 3,428,571 3,600,000

5 Bestway-Mustehkum Cement Limited - Hattar 1,035,000 1,086,750

6 Cherat Cement Company Limited-Nowshera 1,000,000 1,050,000

7 Dandot Cement Limited - Jehlum 480,000 504,000

8 Dewan Hattar Cement Limited - Hattar 1,080,000 1,134,000

9 D.G.Khan Cement Limited - D.G.Khan 2,010,000 2,110,500

10 D.G.Khan Cement Limited - Chakwal 2,010,000 2,110,500

11 Fauji Cement Company Limited - Fateh Jang 1,110,000 1,165,500

12 Fecto Cement Limited - Sangjani 780,000 819,000

13 Flying Cement Limited - Lilla 1,140,000 1,197,000

14 GharibWal Cement Limited - Jehlum 2,550,000 2,677,500

15 Kohat Cement Company Limited - Kohat 2,550,000 2,677,500

16 Lucky Cement Limited - Pezu 3,725,714 3,912,000

17 Maple Leaf Cement Factory Limited - Daudkhel 3,510,000 3,912,000

18 Lafarge Pakistan Cement Company Limited - Chakwal

1,950,000 2,047,500

19 Pioneer Cement Limited - Khushab 1,933,571 2,030,250

Sub Total (North Zone) 34,012,857

35,713,500

South Zone

1 A.C. Rohri Cement Limited - Rohri 230,000 241,500

2 Al-Abbas Cement Limited - Nooriabad, Dadu 450,000 472,500



3 Attock Cement Pakistan Limited - Hub Chowki, Lasbela

1,710,000 1,795,500

4 Dadabhoy Cement Industries Limited - Nooriabad, Dadu

504,762 530,000

5 Dewan Cement Limited - Dhabeji 750,000 787,500

6 Javedan Cement Limited 600,000 630,000

7 Lucky Cement Limited, - Indus Highway, Karachi 3,428,571 3,600,000

8 Pakistan Slag Cement Limited - 157,500

9 Thatta Cement Limited - Thatta 300,000 315,000

10 Zeal Pak Cement Limited - Hyderabad 342,857 360,000

Sub Total (South Zone) 8,316,190

8,889,500

Grand Total (North+South) 42,329,047

44,603,000

Fauji Cement 2010-2011 2,160,000 2,268,000

Projected 2010-2011 44,489,047 46,871,000

Current Situation:

The industry is now calling on the government to step in, as profits take a beating. High

energy costs for all, in addition to the cost of transporting imported coal to producers in

the north of the country, has placed a significant financial burden on producers that has

reportedly left many on the verge of collapse. Though the cost of cement production has

risen exponentially, it is difficult to pass that price rise on to consumers in such a

depressed market. In addition, the plan to increase exports has suffered from the high

cost of transportation and the failure to introduce a subsidy that would benefit the

industry. The APCMA is asking the government to get rid of excise duties that add

Rs.52/bag in taxes and to fix a minimum price on exports to Afghanistan, which are

currently priced very low due to the enormous competition between northern producers.

3.4 Consumption

Unfortunately, Pakistan in the recent past was trailing behind all other developing

countries in the region with lowest per capita consumption of cement. The domestic



consumption of the commodity reached 23.5 million tons, an addition of 2.5 million tons

in three years.

Per capita consumption of cement is an indicator of rate with which any country is

developing. Unfortunately per capita consumption of cement in Pakistan is less if we

compare it with other developing countries. It is about 145 kg per person annually;

whereas world average is about 270 kg. This less consumption is due to the negligence

given to the construction sector. However in last few years consumption of cement

showed some rise due to increased commercial activities, infrastructural development

and increasing demand of constructing houses.

Local demand of cement is rising not because of higher local utilization but due to high

exports, and hence less availability of cement is pushing local demand and prices up.

Construction of four large dams will generate demand of 3.7mn tons as construction

activities start. Extent of demand generation will depend on size of dam, type of dam,

and extent of relocation/resettlement activities required. Bhasha dam will generate

maximum demand as it is RCC concrete dam whereas other dams being

Earthfill/Rockfill dams will require less cement for their construction. Resettlement

activities for Kalabagh dam will generate maximum demand as it is located in a highly

populated area.

The resumption of countrywide construction activities after the winter spell has

skyrocketed the local consumption of cement to 63 percent higher than last January.

The construction activity has shot up both in public and private sectors besides the

Northern Areas, and the cement demand has received a sudden jump.

The industry sources are expecting further rise in consumption in the days to come.

However, some circles are also carrying an impression that the cement manufacturers

and the cement dealers have formed a cartel to create an artificial shortage of cement in

the market with the rise in demand.



But according to the All Pakistan Cement Manufacturers Association (APCMA), local

dispatches during January 2007 rose to 1,853,487 metric tonnes against 1,141,443 of

January 06, registering a phenomenal growth of 63 percent.

Cement Consumption Per Capita:

Per capita cement consumption is one of the denominators of the development of any country.

Per Capita Consumption at 70 kgs. in Pakistan is one of the lowest in the world. According to a

study conducted by Q-Consult, 42 countries of the world having similar per capita income as that

of Pakistan have DOUBLE per capita cement consumption than that of Pakistan. This is

indicative of the fact that in Pakistan resource allocation of the Government is not development

oriented. This problem needs to be addressed by the Planning Division in Islamabad.

Earthquake rehabilitation to boost demand:

After the earthquake of October 8th, 2009, the demand for cement rose manifold due

to the rehabilitation and developmental programs. The conditions that constitute this

growth due to earthquake are as follows: Earthquake losses were estimated at USD

5.2bn Reconstruction work boosted construction material demand Some portion of

development expenditures was allocated to this project Reconstruction work is expected

to generate cement demand of 4mn tons over next 3-4 Cement manufacturers in

northern zone will be the main beneficiaries of this demand growth.

3.5 Exports

The cement industry of Pakistan entered the export markets a few years back, and has

established its reputation as a good quality product. The latest information is that India

will import more cement from Pakistan. So far 130,000 tonnes cement has been

exported to the bordering country.

The last few years have been a golden period for cement manufacturers, when the

government increased spending on infrastructure development. High commercial



activity and rising demand for housing on account of higher per capita income has kept

cement off take growth in double digits.

During the financial year-07, cement sales registered a growth of 31 percent to 17.53

million tonnes as against 13.5 million tonnes sold last year. The cement sales during

July-February-08 showed an increase, both in domestic and regional markets to 18.17

million tonnes. The domestic sales registered an increase of 7.2 percent to 14.4 million

tonnes in the current period as compared to 13.5 million tonnes last year whereas

exports stood at 3.7 million tonnes as against 1.8 million tonnes in the corresponding

period last year; showing an increase of 110 percent.

The prospects for cement exports seem bright in the medium term due to rising

domestic as well as regional cement demand. Pakistan also achieved improved access

to India after the complete removal of the 12.5 percent custom duty on Portland cement

imports in this country. Showing improved export opportunities for Pakistan. India is

planning to import more cement from Pakistan to stabilize prices in the market and the

government wants a balance in demand and supply of cement in the current fiscal

year.

The targets for exports for 2009 and 2010 were set at 9.99 million and 10 million tonnes

respectively. Currently, the export demand is expected to be from new inductee India

along with other countries like Gulf Cooperation Council (GCC) countries, due to rising

oil prices-led economic growth. More countries like South Africa which imported cement

from Pakistan for football stadiums for the World Cup and Sri Lanka also approached

Pakistani companies for cement imports. However, export depends on factors such as:

ability to produce cement at Rs 85 per bag.

Export strategy should be made for at least three years , after which new plant will start

production in the region. In the meantime industry should explore new markets for

export or ready to lower prices of cement in local market. The latest information is that

India will import more cement from Pakistan. So far 130,000 tones cement has been



exported to the neighboring country. The government is considering allowing further

concessions and additional incentives for cement export, with a view to increase overall

export volume. These measures will immensely help in promoting and protecting high

investments made in cement sector in recent years. In the wake of its huge surplus

production as a result of massive capacity expansion undertaken it rather seems.

Imperative for Pakistani cement industry, on one hand, to sustain existing export

markets and, on the other, explore new markets.

Rank of Pakistan in Cement Export:

Pakistan has already joined the world club of cement exporters, with 48th ranking

among a total of 116 exporting countries, having attained recently an export figure of

USD 33.24 million. Some of the big players from Pakistan who can possibly play a

major role in the export of cement to India are Lucky Cement, the largest cement

producer in the country, DG Khan Cement Co, Maple Leaf Cement, Attock Cement,

among others.

Export Trend :

Growth in cement export remained slow down during FY05 owing to the fact that

surplus domestic demand has surpassed supply as most of the local cement

manufacturers were operating at 100% capacity and still were not able to meet present

demand. Presently some of the cement companies are exporting cement to

Afghanistan, Iraq and UAE only to maintain their presence in these markets. After

completion of major expansion plans in Pakistan, there would be a surplus to export in

these markets however , Iran would also be able to approach vigorously these markets

as its most of the cement plant will start to come online. At that juncture there would be

extreme competition between both countries to capture these markets, especially the

war-ravaged countries (Iraq and Afghanistan). Iran would get benefit in terms of price as

cement prices in Iran is among the cheapest in the world as the price of cement in Iran

remained between $20-$25 per ton. On the other hand it is expected that being the US

ally, Pakistan would get most of the favor in order to keep its market share in these

markets given the fact that all the construction activities in Iraq and Afghanistan would



be taken by US. Despite the fact that cement constitutes as one of the basic necessities

for shelter, the policy makers have subjected the cement sector to the highest taxation

in the region. The levy of General Sales Tax (GST) on cement is Rs660 per ton in

Pakistan as compared to Rs320 in India. In the light of this tax regime, it is said that

Pakistan has one of the highest tax rates on cement in the Asian region. The impact of

such tax and duty structure has resulted in almost 40 per cent increase in the cement

price per 50 kg bag when compared to India suppressing demand for Pakistan cement.

Pakistan cement factories continue to make significant progress in cement exports.

Now Pakistan is ranked 5th in the world’s cement exports after a huge increase of 47

percent in exports during last fiscal year. According to the Global cement report, China

maintained first position with 26 million tonnes in exports, while Japan got second

position by exporting 12.6 million tonnes of cement to different countries..

We are leading exporter of Ordinary Portland Cement (Grade 42.5 N/R), Sulphate

Resistant Cement (SRC) and Slag Cement from Pakistan. In recent years, tremendous

growth is seen in export of cement from Pakistan. Our competitive prices, experience in

shipment handling & flexible payment terms have made us premium choice for cement

importers around the world. We have ability to handle export shipments of any volume.

Our popular export destinations are India, South Asia, Gulf region, Afghanistan, South

Africa and many African countries.

Export FY10:

Export of Cement and Clinker |------------------Cement-----------------| |---Clinker---|

FinancialYears

Afghanistan

Via Land

IndiaVia Sea &

Land

Other CountriesVia Sea

Other CountriesVia Sea

TotalExports

%ageIncr/(Decr)

|-------------------------------Quantity in Metric Tons-------------------------------|

2001-2002 106,620 - - - 106,620 100.00%

2002-2003 430,332 - - 41,500 471,822 342.53%



2003-2004 1,118,293 - - - 1,118,293 137.02%

2004-2005

1,407,900 - 157,270

- 1,565,170 39.96%

2005-2006

1,413,994 - 91,165

- 1,505,159 -3.83%

2006-2007

1,725,526 - 1,096,995 390,973 3,213,494 113.50%

2007-2008

2,777,826 786,672 3,045,995 1,106,127 7,716,620 140.13%

2008-2009

3,148,306 634,455 6,061,035 908,690

10,752,486 39.34%

2009-2010

4,013,671 722,967 5,637,163 283,436 10,657,235 -0.89%

2010-2011

9 Months3,277,159 382,271 2,905,338 159,289 6,724,057 -14.46%

Competition in export markets:

With regards to the competition in export markets, we have observed following

behaviors of cement industry in Pakistan. Cement exports started in FY02 to

Afghanistan that is still a major market Iraqi market can become a potential target after

peace is restored India and Iran are the major competitors for Pakistan in the Middle

Eastern region Upcoming capacity expansions in Iran and other GCC countries will

create tough competition for Pakistan. Export prices are presently touching USD 75/ton

in the exports market, however they are likely to come down as new capacities comes

online However, the cost and exports may be affected due to weakness of the US dollar

causing coal, electricity charges and freight prices, comprising 65 to 70 percent of the

cost. The PSDP allocation has been cut by Rs. 75 billion and feared further cuts would

curtail cement demand. Major capacities of countries like India and Iran are expected to

come online by FY11 and onwards which are likely to convert these countries from

dependent importers to potential exporters.

The export reached to $ 500 million increase during 2008. Data for the first quarter of

FY08 show that Afghanistan was Pakistan’s largest cement export market. The



prospects for cement exports seem bright in the medium term due to rising domestic as

well as regional cement demand. Pakistan also achieved improved access to India after

the complete removal of the 12.5 percent custom duty on Portland cement imports in

this country from January 2007, showing improved export opportunities for Pakistan.

India is planning to import more cement from Pakistan to stabilize prices in the market

and the government wants a balance in demand and supply of cement in the current

year.

In June 2010, sales of cement in Pakistan were counted at 2.09 million t. By July 2010,

however, a reduction of 16% in cement sales was recorded, with the figure standing at

just 1.75 million t, according to data acquired by the APMCA. This does not go against

previous trends, as cement sales typically decrease during the monsoon season in

Pakistan, which occurs in July. This trend is further supported by the sales figures of

July 2009, where sales decreased by 12%. In 2010, however, the decrease in cement

sales has been more dramatic and can be explained by the increased rainfall and

resultant floods that affected the region at the end of July.

Export figures also showed a decline, with a monthly reduction of 15% and a reduction

of 31% y/y. There are two principal reasons for this decline. As far as the monthly

figures are concerned, this was a result of the lack of an inland freight subsidy. The

reduction in yearly figures was as a result of higher overall prices in the sector.

There was no recovery in August 2010, however, as a direct result of the flooding, and

also due to the slowdown in the construction industry that usually occurs during the

month of Ramadan. The sales recovered during the beginning of the 2011/12

financial year; this is due to the fact that extensive rebuilding will be necessary in

regions that have suffered severe damage during the recent floods.

Prior to 2011, however, further decreases in cement dispatches occurred . In August

2010 for example, cement dispatches reduced by between 20 – 30%. As a knock-on

effect of this decline, the sale price of cement during September and October is

expected to see a reduction of about Rs.10 – 20 per bag. Prices should return to their



original figures once rebuilding starts during the coming months, while the cement sales

figures should be restored by the latter half of 2011.

Dispatch figures are expected to gradually recover, with some slight improvements,

although dispatches will remain low in comparison to previous years’ figures.

Export Outlook:

There was sluggishness in the growth of cement exports in Pakistan during the first

nine months of FY09/10, which can be explained by examining the slowdown in

construction in the GCC. However, there was significant growth in the cement export

figures to other African nations, and so many Pakistani cement manufacturing

companies are actively targeting this market. However, this has encouraged local

cement manufacturers in Africa to try to hamper sales of Pakistani cement in their

countries.

A decline in prices internationally has also contributed to the export slowdown, as has

an increase in inland charges, which has discouraged cement manufacturers in

northern Pakistan from exporting their commodities. An inland freight subsidy has been

supplied by the Pakistani government, but its effects have not yet been seen.

The export of cement from Pakistan increased 52% in initial nine months of 2009 to

reach 7.9 million tonnes. According to All Pakistan Cement Manufacturers Association

(APCMA), local cement dispatches in first nine months fell by 17 percent to stand at

13.9 million tonnes, though of pace of growth has slowed down in recent months.

The consumption of cement in local market depends a lot on climatic conditions

therefore, on monthly basis local dispatches went up to 1.7 million tonnes as winter

season has worn off and local projects have gradually started to gain momentum.

Export has also increased by 10 percent on monthly basis to 1,032,000 in March. Based

on estimates, exports have crossed the 1 million mark first time ever.



On the export front, depreciation of rupee has rendered Pakistani cement as a highly

attractive option. The north has primarily contributed to the impressive increase in

exports.

The exports primarily increased due the demand coming from Afghanistan that

accounts for 28 percent of the exports (36 percent in FY08). “This is because the

increasing exports have primarily been directed towards the cement thirsty UAE, the

elaborate construction projects of which have yet to take a hit from the ominous

economic slowdown,” an analyst said.

Demand from Middle East and African countries continued to drive exports, though

there is a risk that global economic slump may affect future export orders. As a result,

share of exports in total sales rised to 36 percent in the first nine months of FY09 as

against 24 percent in the corresponding period of last year.

Exports are expected to register a slow down in growth, as the global economic hold up

deepens further reducing demand for housing and construction activities. The demand

and supply gap in the international market is expected to narrow down further as other

countries gear up with more capacity, thus reducing export demand, analysts said.

“Pressure is being exerted on local demand, primarily due to macro-economic

slowdown, high interest rates, sky-high cement prices . The local prices are currently

hovering around an average retail price of Rs 355 per 50 kg bag (Rs 7,100 per tonnes)

and a retention price of Rs 255 per 50 kg bag (Rs 5,109 per tonnes).

Studies have shown that cement demand is highly correlated with the growth rate of

GDP. Recently, the ministry of finance has further revised the GDP growth target

downward to 3.4 percent from 3.5 percent, which will further erode cement demand.

Pakistan cement factories continue to make significant progress in cement exports. Now

Pakistan is ranked 5th in the world’s cement exports after a huge increase of 47 percent

in exports during last fiscal year. According to the Global cement report, China



maintained first position with 26 million tonnes in exports, while Japan got second

position by exporting 12.6 million tonnes of cement.

According to figures provided by the All Pakistan Cement Manufacturers Association,

the first seven months of this fiscal have seen both domestic and export sales suffering,

with the former down 9.63% and the latter declining by 17.03%

Total sales for the July 2010 – January 2011 period reached just 17.2 million t, down

12.01% y/y. In the July 2009 – January 2010 period, domestic sales had increased

14.7%, contributing to an overall sales growth of 9.3% as exports fell.

Pakistan has a massive installed capacity of over 41 million t, divided unevenly between

the north (which has by far the greater part at >30 million t capacity) and south of the

country. A further 2.68 million t will be added this fiscal, as Fauji Cement’s new plant

becomes operational. Domestic demand in Pakistan is comparatively low, with the

majority of capacity intended for export, on which the industry is highly reliant. However,

capacity utilization has been falling since its peak of 90% in 2004/05. In 2009/10

capacity utilization stood at 76.53% and that figure has decreased to 71.55% in the first

seven months of 2009/10.

Companies exporting cement from the land-locked north of the country via sea have

suffered the loss of many export orders due to the debilitating transportation charges

from their plants to the ports.

At one time, the rate of growth of export sales was phenomenal, registering a 140%

increase in 2007/08 and a 39% increase the following fiscal, at which point export sales

stood at 10.75 million t. The 2009/10 fiscal saw a small decline to 10.65 million t.

Exports in the first seven months of this fiscal have reached 5.19 million t, a 17.03%

decline y/y.

3.6 Future Prospects

The cement demand would increase in future due to Government policies as the

Pakistan People’s Party’s (PPP’s) slogan has always been ‘roti, kapra aur makan’



(bread, clothing and housing). In this regard a statement of the PPP Government

confirmed that it would encourage industries and construct small dams. Pakistan's

economy, PACRA said grew impressively during last five years with an average GDP

growth rate of around 7%. Cement industry has a positive correlation with the GDP

growth rate. The major domestic demand drivers are public sector development

programs (infrastructure), real estate and industrial construction.

But on other hand there are many factors, which can create problems in Pakistan

cement industry. According to the experts of Pakistan Credit Rating Agency (PACRA)

the cement sector is currently facing severe challenges which originate from a wide

range of socio-economic risks including contracting economic activities, and high input

costs. These negative developments, along with the prevailing credit crunch and rising

interest rates, have further constrained the industry's prospects.

The encouraging economic environment not only energised the local demand but also

provided momentum for capacity expansion. Resultantly, the industry added significant

capacity recently, while several new production lines are scheduled to commence

operations shortly. During this period, the cement manufacturers also established export

operations by catering to the growing demand of regional economies. This, while

stabilizing the local cement prices, had a positive impact on capacity utilization and

margins. Although the local demand reduced significantly in the first quarter of FY 09

(around 15% decline), strong growth in exports has provided support to the industry in

the form of largely sustained capacity utilization and price stability. However, given the

global export demand is expected to come down.

This would negatively impact the margins and put pressure on local prices that could

lead to a price war among producers. The looming supply overhang scenario in the

sector could potentially worsen the situation. Profitability of the sector has come under

pressure due to high energy cost (comprising around 50% of total raw material costs)

and increasing financial expenses.



Keeping these developments in view, the outlook on the sector is negative which

implies that PACRA perceives downward pressure on the ratings within the industry,

especially for high leveraged entities. PACRA, as part of its on going inspection, is

monitoring all developments very closely, and may take a client specific rating action

wherever it is deemed feasable. However, the cost and exports may be affected due to

weakness of the US dollar causing coal, electricity charges and freight prices,

comprising 65 to 70 percent of the cost. The PSDP allocation has been cut by Rs 75

billion and feared further cuts would curtail cement demand.

Future Course of action for Cement Industry and Government:

Related governmental regulations:

The policy of the Government is to keep a balance between rapid economic

development, on the one hand, and social justice and consumer’s protection, on the

other. There is a traditional conflict between these two aims. It is, therefore, necessary

to regulate trade, commerce or industry in the interest of free competition therein. The

Ordinance was promulgated to provide for measures against un-due concentration of

economic power, growth of un-reasonable monopoly power and un-reasonably

restrictive trade practices.

Thus cement industry too is monitored and answerable to rules and regulations

developed by the monopoly control authority of Pakistan. The government is

considering allowing further concessions and additional incentives for cement export,

with a view to increase overall export volume. These measures will immensely help in

promoting and protecting high investments made in cement sector in recent years. In

the wake of its huge surplus production as a result of massive capacity expansion

undertaken it rather seems imperative for Pakistani cement industry, on one hand, to

sustain existing export markets and, on the other, explore new markets.

1. Govt. Should improve law & order to support export

2. Ban likely to be placed on cement import

3. No changes in cement import and export policy.



4. Crisis: Country faces energy crisis, Rising prices hurting industry.

5. Short-term measures:

Duty drawback

Port charges

6. Medium term measures:

Abolishing of / reduction in central excise duty

7. Long term measures:

Infrastructure at port.Pakistan could save about $70 million on the import

of furnace oil per annum. This would result in a low price per bag of

cement and would ultimately encourage domestic demand for cement.A

comparative study regarding taxes on cement indicates that as against

Pakistan where the taxes on cement are 37 per cent, it is nil in Iran, 7 per

cent in Thailand, 10 per cent in Egypt, 10 per cent in Philippines, 10 per

cent in Indonesia and 18 per cent in India.

Cement manufacturing in Pakistan was never as optimistic as it has become in the

preceding couple of years. Though an oligopoly, there exists enormous competition

between members of the lobby. Critical success factors of the industry have commonly

become utilization of idle production capacity, additions to which have started sending

hostile signals to market participants. Cement manufacturers have undertaken counter

offensive strategies by introducing capacity enhancements of their own to capture extra

market share and achieve economies of scale from production activities.

The cement industry tends to rely on growth in agriculture income, along with

government spending on infrastructure. However in 2011, there will be no demand from

these two important sectors. On the contrary, further fallout from the flooding will result

in large demands on the government finances, while the majority of farmers in Pakistan

will have limited funds due to the extensive destruction of crops and the resultant

decrease in income.



As the floods occurred immediately before the month of Ramadan, the cement

manufacturers within Pakistan had already built up a surplus in imports so as to have

sufficient stocks built up at the ports within the country. Although the floods decimated

the country’s communications, the rebuilding which began in December 2009 helped to

settle the issue to an extent.

Right now, the future prospects of the Pakistan cement industry are good. A manifold

increase in cement exports to African nations and the Middle East should occur.

Additionally, there is massive reconstruction taking place in both Iraq and Afghanistan,

which should rely extensively on cement imports from Pakistan.

It is possible that the cement industry in Pakistan may undergo widespread growth in

2014, as a result of projected regional and local demand. In the last ten years, cement

demand has risen to 33.2 million tonnes, an increase of 235%. Production, however,

has increased to 44.8 million t, leaving a surplus of 11.6 million tonnes.

While extensive damage has been caused by the last flooding, there is a definite need

for planned and directed investment in infrastructure, transport and construction within

Pakistan, especially if the nation is to achieve its ambition of a gross GDP growth of 6%

within the coming five years. It is essential for the future development of industry in

Pakistan that trade corridors, highways and dams be provided.

The overall future of Pakistan Cement is bright b/c after Earth Quake & flooding there is

a huge demand for constructing new houses. The population is increasing rapidly

creating more demand for houses & cement. Moreover people are moving from villages

to cities in search for jobs & better conditions creating more demand for housing. The

government should decrease duties on the sector so that its price becomes low & it is

consumed locally more beneficially. There is also a need to find better export avenues

other than the ones they already have. Power shortage also affects all industries

including cement sector. There is a need to develop more cheap electricity projects to

fulfill the demand of electricity by the industrial sector.



4. GIANTS OF PAKISTAN CEMENT INDUSTRY

4.1 Lucky Cement

Sponsored by well known “Yunus Brothers Group” – one of the largest export houses of

Pakistan, Lucky Cement Limited currently has the capacity of producing 25,000 tons per

day of dry process Cement.

Lucky Cement Limited is Pakistan’s largest cement manufacturing company with the

production capacity of 7.75 million tons per annum. Lucky Cement Limited is also

Pakistan’s first and largest exporter of loose cement and is the only cement

manufacturer to have loading and storage terminal at Karachi Port. Other exclusive

attributes that allow Lucky Cement to stand ahead of its competitors is the

transportation fleet of 77 bulkers as well as 2 ship loaders.

Lucky Cement came into existence in 1996 with a daily production capacity of 4,200

tons per day, currently is an omnipotent cement plant of Pakistan, and rated amongst

the few best plants in Asia.

With production facilities in Pezu (Production capacity: 13,000 Tons per day) as well as

in Karachi (Production capacity: 12,000 tons per day), it has the tendency to become

the hub of cement production in Asia.

We envision being the leader of the cement industry by identifying and capitalizing on

new market opportunities, meeting expectations of the stakeholders, contributing

towards industrial progress and sustainable future, while being responsible corporate

citizens.

Our mission is to expand our business network by forming strategic alliances in the

global market.

We endeavor to equip our business with the latest technology to produce quality cement

while conserving energy & recuding co2 emission to reinforce eco-friendly business

practices; thus meeting international standards.



We employ the latest production techniques and the finest quality of raw materials to

ensure optimum efficiency at all stages of production.

The efficiency and the effectiveness of our production method(s) help us compete in the

market and meet the growing demands of our customers.

YB Group has diversified interests in the fields of textile, cement and energy sectors.

The Group was established in 1962 and today has a strong and sound standing position

in Pakistan and around the globe. It owns the largest cement manufacturing facility and

the largest yarn manufacturing unit in the country. It has to its credit the honor of being

Pakistan's largest exporter. YB Group is driven by the needs of its customers,

shareholders, local communities and society at large.

The Pakistan Cement Industry concluded the financial year ended June 30, 2010 with a

decent growth of 9.4% and achieved highest ever total sales volume of 34.22 million

tons against the last year's sales volume of 31.28 million tons. The industry witnessed a

handsome growth of 14.6% in local sales volume and achieved the highest ever local

sales of 23.53 million tons in the history of the Country in spite of depressed public

sector development project spending by the Government. The recovery in local sales

was mainly achieved on the back of private sector, coupled with recovery of rural

economy because of better agriculture support prices. On contrary, the industry

witnessed a breakeven in export sales and exported 10.69 million tons of cement and

clinker as compared to 10.75 million tons exported last year.

By the grace of Almighty Allah, your Company managed the highest ever total sales

volume of 6.63 million tons during this financial year and witnessed an overall

handsome growth of 12.3% over the last year total sales volume of 5.90 million tons.

Out of the total sales, the local sales volume witnessed a robust growth of 26.3% with

3.12 million tons over last year's volume of 2.47 million tons whereas the export sales



volume witnessed a meager growth of 2.2% with sales volume of 3.51 million tons over

last year's volume of 3.43 million tons.

Your Company is in continuous process of improving operational and cost efficiencies

and has made huge investment in recent years. Alhamdullilah, during this financial year,

your Company has achieved another milestone by successful operation of the Waste

Heat Recovery Project of Karachi Plant which has replaced almost 23% power

generation related fuel cost of the Company. With the increase in prices of oil and gas,

the benefit of cheap electricity generation from Waste Heat Recovery Project without

any fuel consumption will enhance the cost competitive strength of your Company.

4.2 Attock Cement

Attock Cement Pakistan Limited (ACPL) is a public limited company, listed on the

Karachi Stock Exchange since June 2002. Main business of the company is

manufacturing and sales of cement. ACPL is part of the Pharaon Group, which in

addition to investment in cement industry has diversified stakes in Pakistan mainly in

the oil and gas sector, power and real estate sector.

ACPL is a member of Pharaon Group of Companies operating in Pakistan. ACPL's

project was conceived in 1981. The project is a Pak-Saudi venture and has involved an

initial capital outlay of around Rs.1.5 billion with a foreign exchange component of

around US$ 45 million. ACPL's manufacturing plant is located in Tehsil Hub, District

Lasbela, Balauchistan, at a distance of about 45 kilometers north west of Karachi. ACPL

has attained ISO 9001:2000 and ISO 14000 certifications from Lloyds Register Quality

Assurance (LRQA) in 2002 and 2006. ACPL is making substantial contribution to the

country's economy and deposited over Rs.2,646 million (US$ 31.5 million) in the form of

Excise Duty , Sales Tax, Royalty and Income Tax during the year 2008-2009.

The Plant's original capacity was 2000 TPD of Clinker and it was the first plant in the

country to be based on the latest SUSPENSION, PRE-HEATER/PRE-CALCINATION,



dry process technology which results in substantial savings in fuel and energy costs

besides balanced plant operations.

With continuous growth in cement demand both in local and regional markets, the

company put up another line of 3,300 TPD of clinker in 2006-2007 at a total investment

of US $ 61 million. With this additional line the total clinker capacity of the company has

reached 1,710,000 MT of clinker per annum.

“The cement manufactured and being marketed under the “FALCON” brand is of the

highest standard and truly the market leader.”.

To be the leading organization, continuously providing high quality cement, excelling in

every aspects of it's business and to remain the market leader in the cement industry.

To be a premier and reputable cement manufacturing company dedicated to become

industry leader by producing quality products, providing excellent services, enhancing

customer satisfaction and maximizing shareholder's value through professionalism and

dedicated team work.

We are committed to produce high quality, FALCON CEMENT which not only

meets but exceeds the international quality standards.

We aim to maintain leadership of our Cement Industry providing premium quality

products and excellent services to our consumers.

We work as a team of dedicated professionals, who achieve excellence through

training, development and continuous technological up-gradation.

We aim to implement and continually improve the effectiveness of our Quality

Management System.

We provide safe and conducive work environment to our staff by ensuring

stringent standards of safety and health.

We make a contribution towards the uplift of our environment and inhabitants of

the surroundings.



The Company continued to strongly support the uplift of the local community, as they

are an integral part of it. Basic education facilities, medical treatment and availability of

clean drinking water to the masses are the few top priorities of the Company. Presently,

we are successfully running a school in Sakran where children of workers and nearby

villages are getting free education. Moreover, with the cooperation of local

administration, we are planning to upgrade the existing school in Hub, having all

required facilities. Sensing the dire need for availability of medical facilities for the

deserving, the Company regularly arranges free medical camps for the locality where

treatment and medication is provided free of cost. During the year three medical camps

were arranged where nearby villagers and Company workers' families were given free

treatment. Additionally, the Company embarked upon and awareness programme on

Hepatitis ‘B' & ‘C' for the local residents of nearby Goths. The Company provides

transport in emergency and financial help to the downtrodden nearby villagers on a

regular basis.

The Company currently operates a Primary level school that imparts education to

children of both plant employees and also those from neighbouring villages.

The Company has also signed a Memorandum of Understanding with The Citizen

Foundation (TCF) a non-profit organization for the construction of TCF primary and

secondary school located near to factory premises, which is close proximity to the

surrounding villages. The total cost of this project would be around Rs. 40 million. This

school would comprise of 2 units primary portion and 2 units secondary portion. The

structure of the primary school building has been completed and the progress of the

project is on track as per the schedule. The school would commence its academic

activities from April 2010. With the completion of this school at-least 1000 children of

this area will get quality education free of cost.

4.3 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 unparallel and

consistent quality. It is list on all the Stock Exchanges of Pakistan.

DGKCC was established under the management control of State Cement Corporation of

Pakistan Limited (SCCP) in 1978. DGKCC started its commercial production in April

1986 with 2000 tons per day (TPD) clinker based on dry process technology. Plant &

Machinery was supplied by UBE Industries of Japan.

Nishat Group acquired DGKCC in 1992 under the privatization initiative of the

government. Starting from the privatization, the focus of the management has been on

increasing capacity as well as utilization level of the plant. The company undertook the

optimization by raising the capacity immediately after the privatization by 200tpd to

2200tpd in 1993.

To meet the increasing demand and to capitalize on its geographic location, the

management further expanded the capacity by adding another production line with a

capacity of 3,300 tons per day in year 1998. Design of the new plant is based on latest

dry process technology, energy efficient and environmental protection from particulate

pollution according to the international standards. The plant and machinery was supplied

by M/s F.L. Smidth of Denmark. As a result, DGKCC emerged as the largest cement

production plant in Pakistan with annual production capacity of 1,650,000 M tons of

clinker (1,732,000 million tonnes Cement) constituting about 10% share of the total

cement production capacity of the country. The optimization plan is still underway to

increase the total capacity of the two units to 6700 TPD by mid of 2005 from 5500 TPD

at present.

Furthermore, the Group is also setting up a new cement production line of 6,700 TPD

clinker near Kalar Kahar, Distt. Chakwal, the single largest production line in the

country. First of its kind in cement industry of Pakistan, the new plant will have two

strings of pre-heater towers, the advantage of twin strings lies in the operational

flexibility whereby production may be adjusted according to market conditions. The

project will be equipped with two vertical cement grinding mills. The cement grinding



mills are first vertical Mills in Pakistan. The new plant would not only increase the

capacity but would also provide proximity to the untapped market of Northern Punjab

and NWFP besides making it more convenient to export to Afghanistan from northern

borders.

For continuous and smooth operations of the plant uninterrupted power supply is very

crucial. The company has its own power generation plant along with WAPDA supply.

The installed generation capacity is 23.84 MW.

DG Khan Cement Co. Ltd., production processes are environment friendly and comply

with the World Bank’s environmental standards. It has been certified for “Environment

Management System” ISO 14001 by Quality Assurance Services, Australia. The

company was also certified for ISO-9002 (Quality Management System) in 1998. By

achieving this landmark, DG Khan Cement became the first and only cement factory in

Pakistan certified for both ISO 9002 & ISO 14001.

4.4 Maple Leaf 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). A second plant of 4000 tpd was

commissioned in 1998 and a 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 market

share.

The plants of 4000 tpd, 6700 tpd and of White Cement are state of the art and have

been supplied by FLSmidth in Denmark. In order to ensure the highest efficiency and

process control the plants comprise of equipment with the latest design and technology.

To maintain the highest quality standards a laboratory has also been set up at site for

the testing of raw materials and cement. All Maple Leaf plants comply with National

Environment Control standards.



In order to remain competitive in the market the management at Maple Leaf

continuously re evaluates its business strategies. With the increase of furnace oil prices

the company adopted coal as a more cost efficient and environmentally friendly fuel for

kiln firing. Today the management believes that the future lies in exploring the

possibilities of alternative and cheaper fuels such as waste firing. This would further

reduce production costs whilst promoting a culture of environmental awareness, health

and safety.

Maple Leaf Cement is committed to run an efficient and profitable business and

therefore aims to employs cutting edge technology to ensure energy efficiency and the

optimum use of natural resources. The visionary and experienced management drives

the company to set goals that position Maple Leaf ahead of the competition and as a

key player in the cement industry.

Maple Leaf has developed a niche market for specialized cement such as SRC

(Sulphate Resistant Cement), Low Alkali Cement and Oil Well Cement. Maple Leaf is

the only local Cement manufacturer producing Oil Well Cement.

4.5 Lafarge Cement

Lafarge Pakistan Cement (LP) is a part of Lafarge, world leader of construction

materials. The state-of-the-art plant commenced Commercial Operations in December

2006 with an annual cement production capacity of 2.5m tons, thus becoming the

largest production line in Pakistan.

The plant is located at Kalar Kahar, District Chakwal in the province of Punjab, an area

rich in lime stone reserves. The quality of lime stone in this area is considered to be the

best in the region. In addition to Ordinary Portland Cement (OPC) the plant can also

produce Sulphate Resistant Cement (SRC) with the packaging options of 50 kg bags,

1.5 tons, 2 tons jumbo bags and bulk carriers. The advanced plant laboratory is the

most sophisticated in the industry and ensures consistent high quality of cement.



LP is proud of its product PAKCEM which is the leader on all quality scales. PAKCEM is

the first cement in Pakistan to comply with European Standards (EN 197) and Indian

Standards (IS 12269) also far exceeding requirements of Pakistani Standard (PS 232).

LP’s aim of being at the forefront in creating foundations for a prosperous tomorrow is

backed by the Company’s philosophy of providing outstanding value to its customers, a

safe and stimulating work environment for its employees, superior returns for its

shareholders and special focus on social responsibility and environmental protection.

Strive to exceed the expectations of our stakeholders through sustainable growth and

high quality performance.

We are committed to providing outstanding value to our customers, a safe and

stimulating work environment for our employees and superior returns for our

shareholders.



5. FINANCIAL ANALYSIS OF CEMENT INDUSTRY TOP PLAYERS

5.1 Profit and Loss Statement Analysis

Profit & Loss Ratios:

Profitability Ratios:

1) Gross profit margin:

Gross profit margin is computed by dividing earnings before interest and taxes by total

operating revenue and thus they express profit as a percentage of operating revenue.

Gross Profit Margin = Gross profit / sales

2008 2009 2010

1- D. G. Khan Cement = 32% 16% 17%

2- Lucky Cement = 26% 37% 33%

3- Attock Cement = 22% 32% 26%

4- Maple Leaf Cement = 17% 32% 22%

5- Lafarge Cement = 13% 12% 12%

2) Net Profit Margin:

Net profit margin is computed by dividing net income by total operating revenue and

thus they express profits as a percentage of operating revenue.

Net Profit Margin = Net income / Sales

2008 2009 2010

1- D. G. Khan Cement = -0.43% 2.91% 1.43%

2- Lucky Cement = 15.79% 17.46% 12.80%

3- Attock Cement = 8.70% 17.54% 13.26%

4- Maple Leaf Cement = -8.65% -6.45% -18.95%

5- Lafarge Cement = -16.70% -15.73% -13.78%



Net Profit Margin Illustrated in Chart:

3) Operating Profit Margin:

Operating Profit Margin = EBIT / SALES

2008 2009 2010

1- D. G. Khan Cement = 12.11% 18.76% 13.89%

2- Lucky Cement = 18.14% 27.41% 17.31%

3- Attock Cement = 16.57% 24.78% 19.12%

4- Maple Leaf Cement = 5.74% 16.28% 3.74%

5- Lafarge Cement = 0.90% -0.29% 0.90%

Interest Coverage Ratio:

One of the most traditional of the coverage ratios is the interest coverage ratio, or times

interest earned. This ratio is simply the ratio of earning before interest and taxes for a

particular reporting period to the amount of interest charges for the period to the amount

of interest charges for the period.



Interest Coverage = Earnings before interest and taxes (EBIT) / Interest expense

2008 2009 2010

1- D. G. Khan Cement = -0.14 0.30 0.19

2- Lucky Cement = 21.13 3.72 4.19

3- Attock Cement = 2.83 12.47 17.88

4- Maple Leaf Cement = -0.37 -0.29 -1.25

5- Lafarge Cement = -0.83 -1.04 -0.94

Earning per Share:

Earning per share is calculated Profit after Tax divided by No. of Ordinary shares, it

shows current rate of per share of the company.

Earning per Share = Profit after taxes / No. of ordinary Shares

2008 2009 2010 1- D. G. Khan Cement = -.021 1.96 0.72

2- Lucky Cement = 9.84 14.21 9.70

3- Attock Cement = 6.03 20.69 11.74

4- Maple Leaf Cement = -1.96 -2.78 -6.94

5- Lafarge Cement = -1.01 -0.97 -0.72

Detailed Profit & Loss Statements of major companies provided in Annexure A

5.2 Balance Sheet Analysis

Balance Sheet Ratios:

Liquidity Ratios:

1) Current ratio:

The most widely used measure of short-term debt paying ability is the current ratio. This

ratio is computed by dividing total current assets by total current liabilities. The higher

the current ratio, the more liquid company appears to be.



Current Ratio = Current assets / current liabilities

2008 2009 2010 1- D. G. Khan Cement = 1.59 0.84 1.19

2- Lucky Cement = 1.06 1.30 0.71

3- Attock Cement = 1.51 2.43 2.62

4- Maple Leaf Cement = 0.81 0.52 0.54

5- Lafarge Cement = 0.73 0.31 0.26

2) Quick Ratio :

Inventory and pre-paid expenses are the least liquid of the current assets. Therefore

same short term creditors prefer the quick ratio to the current ratio as a measure of

short term solvency.

The quick ratio compares only the most liquid current assets – called Quick assets with

current liabilities quick assets are those which can be converted most quickly into cash

the higher the current ratio, the more liquid company appears to be. Quick ratio should

be greater than 1.

Quick Ratio = Current asset – inventory / current liabilities

2008 2009 2010 1- D. G. Khan Cement = 1.56 0.78 1.12

2- Lucky Cement = 0.99 0.73 0.65

3- Attock Cement = 1.09 1.89 2.28


5- Lafarge Cement = 0.55 0.21 0.19

Debt Ratios:

1) Debt to Total Asset Ratio:

It highlights the relative importance of debt financing to the firm by showing the

percentage of the firm’s assets that are supported by debt financing. It is derived by

dividing a firm’s total debt by its total assets



Debt to Total Asset = total debt / total asset

2008 2009 2010 1- D. G. Khan Cement = 0.42 0.51 0.44

2- Lucky Cement = 0.46 0.39 0.34

3- Attock Cement = 0.40 0.31 0.24


5- Lafarge Cement = 0.50 0.50 0.55

2) Debt to Equity :

The debt equity ratio is the value of total debt divided by the book value of equity which

implies how much time total liabilities are greater than the share holder equity.

So this ratio should be small because if the large numbers of shares are outstanding

even than there is no obligation on the company to pay the dividends. But in the case of

debt the interest payment is must therefore debt equity ratio should be a small number

as far as the management is concerned.

Debt to Equity = total debt / equity2008 2009 2010

1- D. G. Khan Cement = 0.73 1.04 0.77

2- Lucky Cement = 0.84 0.65 0.53

3- Attock Cement = 0.66 0.46 0.31


5- Lafarge Cement = 0.99 1.02 1.21

Asset Activity Ratios:

1) Inventory Turnover Ratio:

Measures how many times the inventory has been turned over (sold) during the year;

provides insight into liquidity of inventory and tendency to overstock.



Inventory Turnover Ratio = Cost of Goods Sold / Inventory

2008 2009 2010

1- D. G. Khan Cement = 23.62 13.73 13.09

2- Lucky Cement = 17.76 13.80 27.15

3- Attock Cement = 9.49 9.45 15.59


5- Lafarge Cement = 6.82 9.87 9.64

2) Total Asset Turnover :

The relationship of net sales to total assets is known as the total asset turnover, or

capital turnover ratio. Measures relative efficiency of total assets to generate sales

Total Asset Turnover = Sales/ total asset

2008 2009 2010

1- D. G. Khan Cement = 0.24 0.42 0.35

2- Lucky Cement = 0.61 0.81 0.64

3- Attock Cement = 0.85 1.22 1.09


5- Lafarge Cement = 0.34 0.41 0.35

Total Asset Turnover Illustrated in Chart:

Detailed Balance Sheets of major companies provided in Annexure B5.3 Cash Flow Statement Analysis



With regards to cash flow statements Attock Cement has the best cash flow currently (FY!0) with cash flow of Rs.427109 followed by Lucky Cement Rs.333629 & Maple Leaf Rs.73625.

Detailed Cash Flow Statements of major companies provided in Annexure C.

5.4 Statement of Changes in Equity

When we went through the Statement of Changes in Equity of top companies we found

that D.G Khan Cement has the highest equity currently (FY!0) with over 26.5 m followed

by Lucky Cement 25 m & Lafarge Cement 8.8 m.

Detailed Statements of Changes in Equity of major companies provided in Annexure D.

6. SWOT ANALYSIS OF CEMENT INDUSTRY

6.1 Strengths

1- Availability of Raw Material.

2- Imported Machinery and plants in most of companies, which provide better

quality to over all process.

3- Pakistan already established its position as an exporter of cement and clinker in

the region,.

4- Availability of foreign investment and loans has also played an important role in

softening the demand for bank credit. The moderation in fixed investment

demand in cement, construction and textile is more of a reflection of the fact that

these industries had already expanded their capacities in recent years and

floatation of debt instruments (e.g., chemical, cement, real estate and ship yard)

in the domestic market cement, real estate and ship yard) in the domestic

market.

5- The compressive strength is a very important factor of cement. The Portland



cement achieves its maximum strength in 28 days. The Pakistan standard PSS

232-1883 (R) & British Standard BS 12: 1978 provides for 28 days strength of

5000 Psi and 5950 Psi respectively for mortar cubes.

6- Cement industries in Pakistan are currently operating at their maximum capacity

due to the boom in commercial and industrial construction within Pakistan.

7- Effect of GDP:

Following effects of GDP will govern the growth of cement industry in Pakistan:

Higher GDP growth has positive impact on cement demand

Cement demand growth rate was double the GDP growth rate in last three years

GDP growth is expected to continue to have same positive impact on demand growth.

8- Housing demand to grow:

Following indications have showed a considerable demand of cement in Pakistan:

Housing projects consume roughly 40% of cement demand

Currently 0.3mn houses are built annually against demand of 0.5mn

Low interest rates, post 9/11 remittances’ inflow, and real estate boom have helped housing sector growth.

Easy mortgage availability and announcement of low cost housing schemes will determine housing sector growth in the long-run.

9- Government’s development spending shall continue to rise due to:

Government development expenditures count for one third of total cement consumption.

Increase in development expenditures has helped cement demand to grow at very high rates.

Increase in PSDP- as announced in Medium Term Development Framework 2005-10 - will help cement demand to grow in the country.

Infrastructure development in a region triggers private development projects having even positive impact on cement demand.



10- Pakistan cement industry is one the largest exporter in Asia, major markets are

of Afghanistan and Iraq will be after peace. Its increased GDP by exports,

providing cements in Large Dams Project and earthquake rehabilitations

projects.

11- Laboratory testing facilities meeting all American and European standards and

Vertical cement grinding mills.

12- Cement industry called major Performance Blue Chip in current economic

survey 2007-08 because during the first three quarters of the fiscal year 2007-08,

the combined paid-up capital of ten big companies was Rs. 91 billion, which

constituted 13.17 percent of the total listed capital at KSE in which Fauji

Fertilizer, DG Khan Cement, Lucky Cement played major role.

13- Today, we find a relatively better scenario as compare to past. Most of the

cement plants, that used to operate on furnace oil, have now been converted into

coal system, which has substantially reduced cost of production.

14- The most modern selection of production equipment possible in every major

department of the plant.



6.2 Weaknesses

1- The stage of industrial development, in most of the segments, is still at a very low

level of technology and the existing industrial base is very narrow and consists of

very basic industries such as cement, sugar, textile, cigarette, edible oil, fertilizer,

soda ash, caustic soda, PVC etc.

2- Since cement is a specialized product, requiring sophisticated infrastructure and

production location. So, most of the cement industries in Pakistan are located

near/within mountainous regions that are rich in clay, iron and mineral capacity.

Structure of Cement industry in Pakistan is as such that there is not much

substitutability to buyers. Which shows that the Cross elasticity of demand is

negligible.

3- The customer has no choice at all to switch between two brands of cement due

to cartel of all of the cement manufacturers in Pakistan.

4- The freight charges are a massive 20% of the retail prices. The plants located

very close to each other and tapping the same market will have to expand their

markets which will increase their freight expenses. Dandot, Pioneer, Maple Leaf

and Garibwal are all located within a radius of 100 kilometers and are selling

bulk of their production in the same areas and will thus face serious competition

from each other.

5- Consumers face a tough decision with regards to prefer which brand over which

because of the similar pricing of cement industry. The formation of cartel by the

cement manufacturers have exploited local consumers a lot and this has led to

the concentrated degree of oligopoly, where the firms are acting as a single unit

to perform their monopoly. Their combined market power is simply a diluted

version of the dominance that a single firm with a monopoly market share can

exert.



6.3 OpportunitIies

1- The local cement industry faces high upfront fuel costs. In order to facilitate their

conversion to coal, which is widely available in the country, the government has

given incentives for imported plant and equipment for coal firing units.

2- The demand of Pakistani cement is expected to continue to grow at the rate of 20

per cent for about four years to come. It may then follow traditional growth rate of

seven per cent per year. Announcement of major dams will dramatically increase

this demand.

3- Deregulation after accession of Pakistan to WTO is expected to open the window

of competition from cheaper markets. There may be no tariff after this

deregulation on import of cement allowing its entry into Pakistan from cheaper

market at lower rate. Cement from cheaper markets may also block Pakistan’s

export of cement to its neighboring countries. Global market has vigorously taken

up the advantage of economy of scales and multinational giants now control

more than 40 per cent of world production (China not included). The recent

acquisition of Chakwal Cement by an Egyptian giant, Orascom may be a

beginning of such an entry in Pakistan by multinationals. New avenues for export

of cement are opening up for the indigenous industry as Sri Lanka has recently

shown interest to import 30,000 tons cement from Pakistan every month. If the

industry is able for avail the opportunity offered, it may secure a significant share

of Sri Lanka market by supplying 360,000 tons of cement annually.

6.4 Threats

1- Unanticipated increase in interest rates or less than expected demand growth might create severe crises for the sector couple of years forward.

2- Lack of demand or depressed demand in future will prove to be lethal for the sector that has just started to recover from the miseries of 90s. Lack of demand forced cement units to operate at very low capacity utilization in nineties. There was a fierce competition among cement manufacturers.

3- A price war was witnessed which ended up with no conqueror. Similar



apprehensions exist for the future when there will be plenty of excess capacity. Any hurdle in the growth of cement demand may force the sector into the price war. Yet, we expect cement manufacturers to act prudent and learn lesson from the history. Any mistake, similar to the one made in the last decade, will again coerce the sector into the era where all are losers with no winner.

4- Main component of the cost is fuel. Pakistan's cement industry has converted their plants to coal considering it to be the cheapest fuel, but its price in international markets has gone up by more than 300 per cent in the last one year, which directly relate increasing the cost of production.

5- The demand of cement falls heavily during rainy weather in the country, which directly affects the running cost of a unit. It is only the rising levels of cement exports, which are sustaining the industry.

6- Instead of appreciating the marketing skills of cement entrepreneurs to explore new markets for cement, the industry is being pressurized constantly without realizing that any reduction in cement exports from Pakistan will not only deprive the country of foreign exchange ($2 billion this year), but will also result in losses to the industry.

7- The burden of increased input costs has to be borne by the consumers. It is only the government, which can provide relief to the consumers by cutting down or abolishing the central excise duty.

8- Problems of oversupply situation:

Following problems might arise with the oversupply situation in cement industry:

Lower capacity utilization will reduce benefits of economies of scale. High leverage will also adversely affect profitability of new plants.

New plants will gain market share at the cost of older players, which are not undergoing expansion. Large idle capacity is will create panic in players and this may result in price wars in the coming years.

9- IMF Package in Future can cause to decrease GDP and economical development in Pakistan. Which will also be cause to stop development of infrastructure. So it will have huge effect on cement industry also.



7. CONCLUSION AND RECOMMENDATIONS

7.1 Conclusion

The law and order situation in the country is deteriorating day by day which affects all

the industries including cement industry. The economic crisis which hit the entire world

is another element which is making the cement industry business to decline. Due to the

declining situation of cement industry; there is a direct affect on the economy.

The investors tend to avoid investment in our country due to this critical situation. The

Government of Pakistan should make a concrete strategy and control the law and order

situation so that the investors invest or start some projects in our country. If the situation

is stable in our country the investors who want to do business in our country can play an

important role to raise the country’s economy.

We did Financial Analysis of top five companies of Pakistan cement Industry along with

a brief overview of overall Pakistan Cement Industry. Our Financial analysis included

Profit & Loss Statement analysis, Balance Sheet analysis, Cash Flow Statement

Analysis, Financial Ratio Analysis, and Statement of changes in capital of top five Major

Companies of Pakistan Cement Industry. According to our analysis Attock Cement is

one of the best with regards to Net Profit having a net profit of 13.26% Attock Cement is

also the highest if we see its Earning per Share in the market which is Rs.11.74. Attock

Cement’s Current ratio is also the best right now which is 2.62. The Debt to asset ratio

of Attock Cement is also the best or lowest which is 0.24 which means it relies on debt

financing the least of all the five companies. Attock Cement’s Debt to equity ratio is also

the lowest which is 0.31. Inventory turnover of Lucky Cement is the best with 27.15 %.

Attock Cement has the best Total Asset turnover which is 1.09.

With regards to cash flow statements Attock Cement has the best cash flow currently

(FY10) with cash flow of Rs.427109 followed by Lucky Cement Rs.333629 & Maple

Leaf Rs.73625.



When we went through the Statement of Changes in Equity of top companies we found

that D.G Khan Cement has the highest equity currently (FY10) with over 26.5 m

followed by Lucky Cement 25 m & Lafarge Cement 8.8 m.

For FY 08 Lucky Cement can be termed as the best with regards to major financial ratios b/c its N.P & EPS was the best of the five.

For FY 09 Attock Cement was the best when we see its major financial ratios which indicate that it performed best for the year.

We can conclude by stating that Attock Cement is the best cement company currently

(FY10) with regards to major financial statement analysis followed closely by Lucky

Cement.

7.2 Recommendations

The Cement Industry of Pakistan is one of the industries which is in a better state of

affairs compared to other industries. The demand for cement is high both locally &

abroad. The future prospects for its augmentation are bright & optimistic. We

recommend the following measures to improve the industry further so that it’s

production & export can be increased for bringing foreign exchange in to the Pakistan ‘s

exchequer:

1. Special Rebate should be given to the Cement exporting companies.

2. Import Duties should be very low on the import of machinery & other equipments

required for commencing a Cement Manufacturing Plant so that more

companies enter the Cement Market.

3. The prices of cement currently are very high & the demand for cement is very

high too b/c more & more people are moving from villages to towns creating

more demand for housing projects. The Construction industry wants to buy more

cement but it cannot buy cement at a high price b/c people are not ready or



cannot afford houses at high prices. Also due to population rise there is a

increasing demand for more houses but since the prices of cement are high;

Construction Companies are redundant to make houses at high prices. The

problem with Construction industry is that if they buy cement at a high price; they

would build houses at expensive prices too, considering their own profit

margin also but a major chunk of people cannot afford houses at expensive

prices. Therefore cement prices should be brought down substantially &

immediately.

4. MFI (Most Favored Industry) status should be initiated by the Government &

Cement Industry of Pakistan should be given MFI status in order to boost

production & export b/c our Cement Industry has a great potential to grow in the

future.

5. Pakistan should try to save money on the import of furnace oil; which would

reduce the price of cement per bag & increase its demand locally.

6. The power shortage affects every industry including Cement . Steps should

be taken to make more small dams b/c a large dam like Tarbela takes almost ten

years to complete., Import power stations from China & Iran at cheaper price ,

low dependence on thermal power which is costly & Special Consideration

should be given to Industrial Units with regards to Load Shedding which happens

almost throughout the year.



REFERENCES

There are following references through which we have conducted our research:

Damien Demailly and Philippe Quirion, Venice International University.

Nathan Martin, Ernest Worrell & Lynn Price, Lawrence Barkeley National

Laboratory.

Sultan A. Meo.

C.A Hendriks, E Worrell, D. de Jager, K. Blok, P.Riemer, Greenhouse gas

control technologies conference paper.

Talita Riberiro Tenorio de Franca, Rephaela Juvenal da Silva, Michellini Seycias

de Queiroz, Carlos Menzes Aguiar.

The Daily Dawn

Economic & Business Review

All Pakistan Cement Manufacturers Association Reports

Economic Survey Of Pakistan

State Bank Of Pakistan Annual Reports.
