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Detailed ReportPakistan Research

Please refer to the last page for Analyst Certification and other important disclosures

The cement industry in Pakistan has experienced several alternating phases of prici

arrangements and wars in the last decade. Even though the current pricing arrangement h

remained strong to date, recent events compel highlighting the risks involved.

Why the current arrangement has held strong: Increase in industry capacity was the princip

trigger for igniting price wars in the past. These pricing-cycle experiences have provid

valuable lessons to cement manufacturers: (1) Decreasing price does not necessarily imply

increased market share (2) Even if market share is successfully enhanced, reduction in marg

is most likely to offset the benefit from higher production (3) Overall, it is extremely risky t

break out of collusive agreements in hopes of higher earnings.

Recent events have raised concerns: We had recently raised concerns regarding t

sustainability of the pricing arrangement among cement manufacturers after the resignatio

of LUCK from APCMA. In addition to this, DGKC’s announcement regarding plans to expan

production capacity in the south made the situation even worse.

But the situation has been salvaged for now: Short term concerns regarding the sustainabil

of the pricing arrangement were recently alleviated after LUCK decided to rejoin APCM

Cement players made several important decisions in order to bring LUCK back on boa

including formalizing protocol for expansion decisions and deferring current expansions un

Mar-14. These initiatives, in our opinion, shall be sufficient to hold the pricing arrangement f

now.

We flag higher risk of a price war in future: Even though we believe that the current priciarrangement shall remain intact for now, DGKC and CHCC’s announcement to expan

production capacity hints that several industry players are eyeing expansions given th

favorable demand expectations going forward. This, in our opinion, is a serious long ter

threat to the pricing regime as other major players will also follow in the footsteps of DGK

and announce capacity expansions if DGKC decides to go through with its plan post Mar-14.

Incorporating price war scenario in our estimates: We expect that there is a high likelihood

DGKC going through with its expansion plans post Mar-14 and believe that several other lar

cement players will also follow suit. Despite this belief, we expect that the current prici

arrangement will hold until new capacities come online in FY18. However, after thes

capacities come online, it is more likely that cement players will disagree over utilization leve

leading to a price war. Nevertheless, we do not expect the price war to last very long abelieve that prices shall start picking up again within 12-18 months as they have in the past.

Downgrade to market weight: We have revised our price targets for Elixir’s cement univer

downwards after incorporating for a possible price war in FY18. We maintain our BUY call o

LUCK, DGKC, KOHC and CHCC. However, we downgrade our investment case on FECTC, AC

and FCCL from BUY to HOLD. We also downgrade our investment case on LPCL and MLCF

SELL.

Construction & Materials

Cements: Retracing history for finer stock selection

PPrice Target: PKR290/Share

Closing Price: PKR230.5/Share

DGKC PAPrice Target: PKR100/Share


KOHC PAPrice Target: PKR150/Share


CHCC PAPrice Target: PKR65/Share


ACPL PAPrice Target: PKR135/Share


FECTC PAPrice Target: PKR40/Share


FCCL PAPrice Target: PKR11.5/Share


MLCF PAPrice Target: PKR21/Share


LPCL PAPrice Target: PKR6.2/Share


Syed Nasir RizviAC

[email protected]

(+92-21) 3569 4679

Sohaib Bin ShahidAC

[email protected]

September 30, 20

mailto:[email protected]






Detailed Report Cement

Overview

The cement industry in Pakistan has experienced several alternating phases of prici

arrangements and wars in the past decade. Pricing agreements broke down in the past owing

disagreements among manufacturers relating to fair utilization levels for each company, wi

large players trying to gain a higher than allocated market share by disregarding quo

restrictions. The phase of price determination prevalent in the market is a decisive factor

shaping the earnings outlook of the industry and is therefore critical to any analysis concernifuture earnings of cement manufacturers. Even though the current pricing arrangement h

remained strong to date, recent events compel highlighting the risks involved.

0

50

100

150

200

250

J u n - 0 5

S e p - 0 5

D e c - 0 5

M a r - 0 6

J u n - 0 6

S e p - 0 6

D e c - 0 6

M a r - 0 7

J u n - 0 7

S e p - 0 7

D e c - 0 7

M a r - 0 8

J u n - 0 8

S e p - 0 8

D e c - 0 8

M a r - 0 9

J u n - 0 9

S e p - 0 9

D e c - 0 9

M a r - 1 0

J u n - 1 0

S e p - 1 0

D e c - 1 0

M a r - 1 1

J u n - 1 1

S e p - 1 1

D e c - 1 1

M a r - 1 2

J u n - 1 2

S e p - 1 2

D e c - 1 2

M a r - 1 3

J u n - 1 3

USD 57

(USD)

USD 193

USD 60USD 77

Coal Price Trend (USD/ton)

Source: Bloomberg

150

200

250

300

350

400

450

500

J u l - 0 5

O c t - 0 5

J a n - 0 6

A p r - 0 6

J u l - 0 6

O c t - 0 6

J a n - 0 7

A p r - 0 7

J u l - 0 7

O c t - 0 7

J a n - 0 8

A p r - 0 8

J u l - 0 8

O c t - 0 8

J a n - 0 9

A p r - 0 9

J u l - 0 9

O c t - 0 9

J a n - 1 0

A p r - 1 0

J u l - 1 0

O c t - 1 0

J a n - 1 1

A p r - 1 1

J u l - 1 1

O c t - 1 1

J a n - 1 2

A p r - 1 2

J u l - 1 2

O c t - 1 2

J a n - 1 3

A p r - 1 3

J u l - 1 3

Price War

Price War

Weak

Arrangement

(PKR)

Strong

Arrangement

PKR323

PKR201

PKR501

PKR265

PKR382

Strong

Arrangement

Cement Price Trend (PKR/bag)

Source: PBS, Elixir Research

2 Elixir Securities September 30, 2013



Detailed Report Cemen

Pricing over time

Cement prices in Pakistan over time exhibit a predominant pricing cycle with arrangements a

wars alternating every 12-18 months. The only exception to this cycle is in fact the curre

pricing regime with the pricing arrangement remaining intact for the past 37 months.

Pricing Over Time Beginning Ending Highest Lowest Average

Jul-05 to Apr-06 267 323 323 267 287

May-06 to Nov-07 323 235 301 201 240

Dec-07 to Jul-08 235 380 382 235 273

Aug-08 to May-09 380 350 380 345 364

Jun-09 to June-10 350 302 350 265 290

Jul-10 to Present 302 501 504 302 415

Source: PBS, Elixir Research

Strong arrangement: Jul-05 to Apr-06 (10 months): Prices opened at PKR267/bag in Jul-0

increasing sharply to peak in Apr-06 at PKR323/bag. Dispatches increased during this time peri

(FY06), with stable costs of production allowing high profits for the industry.

Price war: May-06 to Nov-07 (19 months): Prices followed a negative trend after Apr-0

bottoming out at PKR201/bag in Jan-07. Following this downtrend, prices immediately jumped

Feb-07, sustaining around PKR235-240 levels for the next 9 months. This period was marked

minimal profits with most manufacturers reporting losses between 2QFY07 and 2QFY08.

Weak arrangement - Increasing coal prices: Dec-07 to Jul-08 (8 months): Following Nov-0

prices increased sharply by PKR145/bag to reach PKR380/bag in Jul-08. However, this w

primarily due to a large uptick in international coal prices. Coal prices surged 1.4x fro

USD81/ton in Nov-07 to USD193/ton in Jul-08. Industry posted higher aggregate losses betwe

3Q-4QFY08 since cement price increments did not offset the surge in coal cost.

Weak arrangement - Decreasing coal prices: Aug-08 to May-09 (10 months): Coal pricplummeted after Jul-08 from USD193/ton to USD60/ton by Mar-09. Even though costs reduce

substantially, cement manufacturers did not pass all the benefit to consumers. Aggregate profi

improved during this period, with only a handful of small manufacturers posting losses in FY09.

Price war: Jun-09 to Jun-10 (12months): Following Jun-09, cement prices witnessed anoth

round of sharp reductions. Prices bottomed at PKR265/bag in Dec-09 and continued to hov

between PKR270-285 between Jan-10 and Jun-10. Aggregate industry losses were close

PKR6bn in this period (FY10).

Strong arrangement: Jul-10 to Present (37 months): Cement prices have followed a consiste

upward trend following Jun-10. Market prices increased by PKR96/bag, PKR40/bag an

PKR45/bag in FY11, FY12 and FY13. Cement prices have jumped by PKR11/bag during FY14

date.

Cement manufacturers have not gained much from price wars

Increase in industry capacity was the principal trigger for igniting price wars amon

manufacturers in the past as larger players disregarded quota restrictions post-expansion

Industry statistics verify that the past price wars were accompanied with or preceded b

significant expansions in capacity. During FY07 LUCK, ACPL, MLCF, PIOC and CHCC expanded the

production capacities. The total expansions that came online during FY07 amounted to 46%

aggregate industry capacity (9.7mn tons). Similarly, during FY08-09, LUCK, MLCF, KOHC a





GWLC expanded production capacity. The total expansions between FY08-09 amounted to 38

of aggregate capacity (11.8mn tons).

LUCK & BWCL gained market shares; LUCK clocked in EBITDA gains through price war

During the initial price war (May-06 to Nov-07) only LUCK and BWCL managed to notab

augment their average market shares. However, of these two, only LUCK managed to increase

EBITDA relative to the previous collusive period. In fact, LUCK was the only company to increa

its earnings during the price war. The primary cause for this improvement was that LUCK w

operating at less than 50% capacity utilization when the pricing arrangement was intact. Th

coupled with a 25% increase in capacity, allowed for aggressive growth. Furthermore, low

price cuts in the south, coupled with LUCK's higher dependence on exports, also cushione

LUCK's earnings.

Last price war did not have any winner in terms of profitability

The second price war (Jun-09 to Jun-10) did not produce any winner. Only KOHC and BW

managed to notably increase their average market share post-expansion. Prior to this perio

KOHC was operating at less than 30% utilization. However, EBITDA for each individu

manufacturer declined significantly as compared to the last collusive period. The industry post

large aggregate losses during this period.





Industry

Capacity

(Mn tons

per quarter)

Industry

Production

(Mn tons

per quarter)

Industry

Capacity

Increase

Industry

Capacity

Utilization

Industry

PAT

(PKR mn)

Industry

EBITDA/to

(PKR)

1QFY06 4.03 2.84 0% 71% 2,743 1,6792QFY06 4.03 2.82 0% 70% 2,912 1,828

3QFY06 4.03 2.89 0% 72% 2,601 1,673

4QFY06 4.03 3.38 0% 84% 3,849 1,773

1QFY07 4.94 3.77 23% 76% 1,979 1,221

2QFY07 4.94 3.98 0% 80% 642 546

3QFY07 4.94 4.47 0% 90% 955 624

4QFY07 4.97 4.55 0% 92% 1,238 512

1QFY08 6.18 4.85 24% 78% 827 545

2QFY08 6.18 4.86 0% 79% (142) 541

3QFY08 6.18 5.93 0% 96% 948 482

4QFY08 6.18 6.06 0% 98% (134) 590

1QFY09 7.40 5.54 20% 75% 1,410 1,275

2QFY09 7.40 5.44 0% 73% 2,299 1,248

3QFY09 7.40 6.38 0% 86% 1,467 970

4QFY09 7.40 6.79 0% 92% 2,583 1,295

1QFY10 7.57 6.46 2% 85% 1,520 855

2QFY10 7.57 6.49 0% 86% (1,033) 423

3QFY10 7.57 6.89 0% 91% (1,114) 307

4QFY10 7.57 7.20 0% 95% (669) 305

1QFY11 7.57 5.39 0% 71% (215) 643

2QFY11 7.57 6.03 0% 80% 63 706

3QFY11 7.57 6.19 0% 82% 923 862

4QFY11 7.70 6.49 2% 84% 2,237 1,078

1QFY12 7.75 5.85 1% 75% 2,118 1,186

2QFY12 8.15 6.06 5% 74% 3,515 1,541

3QFY12 8.15 6.51 0% 80% 4,870 1,695

4QFY12 8.15 7.03 0% 86% 8,655 1,984

1QFY13 8.15 6.08 0% 75% 6,683 1,974

2QFY13 8.15 6.46 0% 79% 9,041 2,359

3QFY13 8.15 6.72 0% 82% 9,326 2,330

Source: Elixir Research, Company Accounts

Using data of: ACPL, BWCL, CHCC, DGKC, FCCL, FECTC,GWCL, KOHC, LUCK, MLCF, PIOC





Why the current arrangement has held strong: Lessons from the past

Last decade's pricing-cycle experiences have provided valuable lessons to ceme

manufacturers: (1) Decreasing prices does not necessarily imply an increased market share sin

all manufacturers match the reduction in price when a price war is triggered (2) Even if mark

share is successfully enhanced, reduction in margin is most likely to offset the benefit fro

higher production. (3) Overall, it is extremely risky to break out of collusive agreements in hope

of higher earnings.

Average market share

Strong

CollusionPrice War

Weak

CollusionPrice War

Strong

Collusion

1QFY06-

3QFY06

4QFY06-

2QFY08

3QFY08-

4QFY09

1QFY10-

4QFY10

1QFY11-

3QFY13

ACPL 7.2% 7.1% 7.0% 6.7% 7.3%

BWCL 9.7% 12.6% 13.8% 15.7% 12.8%

CHCC 4.9% 5.3% 4.3% 3.7% 3.9%

DGKC 18.0% 16.4% 17.7% 18.4% 16.1%

FCCL 9.1% 6.7% 4.9% 4.2% 7.4%

FECTC 5.2% 4.3% 3.3% 3.1% 3.0%

GWLC 3.8% 1.0% 1.6% 2.4% 3.5%

KOHC 4.7% 3.1% 2.8% 4.4% 6.6%

LUCK 17.6% 26.7% 24.5% 24.5% 23.5%

MLCF 12.7% 8.9% 13.2% 12.1% 10.9%

PIOC 7.0% 7.9% 6.8% 4.7% 4.9%

Source: Elixir Research, APCMA, Company Accounts

Average EBITDA per quarter (PKR million)

Strong

CollusionPrice War

Weak

CollusionPrice War

Strong

Collusion

1QFY06-

3QFY06

4QFY06-

2QFY08

3QFY08-

4QFY09

1QFY10-

4QFY10

1QFY11-

3QFY13

ACPL 369 412 529 395 527

BWCL 549 328 755 309 1,365

CHCC 250 109 127 17 299

DGKC 975 695 1,078 733 1,465

FCCL 566 334 370 173 844

FECTC 197 44 124 (39) 154

GWLC 57 (114) 36 (162) 246

KOHC 297 120 148 129 690

LUCK 736 983 1,745 1,413 2,503

MLCF 593 237 728 160 987

PIOC 334 160 240 18 392

Source: Elixir Research, APCMA, Company Accounts





Recent events have raised concerns

We had raised concerns regarding the sustainability of the pricing arrangement among ceme

manufacturers after the resignation of LUCK from APCMA on Aug 29, 2013 (Refer to our fla

note titled “Cements: Dark Clouds” dated: August 29, 2013). LUCK’s management highlight

that it had pointed out several issues related to management of the APCMA body. This includ

not keeping LUCK in the loop for critical decisions like price changes and capacity expansion

LUCK had also raised concerns in relation to the pricing arrangement in Afghanistan and passion of the impact of the recent power tariff increase (Refer to our report titled “Cements: Pow

tariff hike may hurt earnings” dated: August 29, 2013). In addition to this, DGKC’s announceme

regarding plans to expand production capacity in the south made the situation even worse. U

till now, LUCK and ACPL were the only major players in the south and we saw this announceme

as a clear threat to LUCK’s market share.

But the situation has been salvaged for now

Short term concerns regarding the sustainability of the pricing arrangement were recent

alleviated after LUCK decided to rejoin APCMA on Sep 16, 2013. An informal meeting was he

between several cement players where the issues raised by LUCK were addressed and

compromise was struck regarding the management of the APCMA body. The body made sever

important decisions in order to bring LUCK on board including: (i) Building consensus on nami

Muhammad Ali Tabba (CEO of Lucky Cement) as the chairman of APCMA (ii) Making it imperati

for companies to take authorization of APCMA before deciding to pursue capacity expansions (

Forming a committee to review demand and supply dynamics before authorizing any expansi

(iv) Deferring current expansion plans (DGKC and CHCC) until Mar-14. These initiatives, in o

opinion, shall be sufficient to hold the pricing arrangement for now. Our discussions wi

industry sources also suggest that cement players have decided to pass on the impact of t

recent power tariff increase by the end of Oct-13.

We flag higher risk of a price war

Even though we believe that the current pricing arrangement shall remain intact for now, t

events surrounding the resignation of LUCK have in fact shed light on serious weaknesses thhad emerged within the APCMA body. APCMA, despite its tampered history, had remaine

strong with things going smoothly and no conflicts emerging for more than three years. Rece

events have however, significantly increased the chances of the body succumbing

disagreements over time and falling into an all-out price war. We have already established th

the last two price wars were primarily triggered by capacity expansions and believe that anoth

expansion-cycle may not be too far away. DGKC and CHCC’s announcement to expa

production capacity hints that several industry players are eyeing expansions given the favorab

demand expectations going forward. This, in our opinion, is a serious threat to the pricing regim

as other major players may also follow in the footsteps of DGKC and announce capaci

expansions if DGKC decides to go through with its plan post Mar-14.

Incorporating price war scenario in our estimates

Owing to the high possibility of an expansion cycle and price war, we have opted to take

conservative stance and incorporated these prospects in our estimates for cement companie

We expect that there is a high likelihood of DGKC going through with its expansion plans po

Mar-14 and believe that several other large cement players will follow suit. Despite this belie

we expect that the current pricing arrangement will hold until new capacities come online

FY18. However, after these capacities come online, it is more likely that cement players w

disagree over fair utilization levels and disregard quota restrictions leading to a price wa





Nevertheless, we do not expect the price war to last very long and believe that prices shall sta

picking up again within 12-18 months as they have in the past.

In order to incorporate these expectations into estimates of our cement universe, we ha

assumed increasing prices through FY14-17 (CAGR: 4%) and taken a sharp PKR100/bag reducti

in price during FY18. We project increasing prices post-FY18 with price rising through FY18-21

a CAGR of 8%. In order to keep the valuation procedure simple, we assume that market shares

cement companies shall remain at current levels throughout our projected horizon. We ha

taken FY21 as the terminal year for our valuation with terminal year EBITDA margins of mo

cement companies close to average of pricing arrangement and price war periods. In addition

this, we have also conservatively assumed that companies would earn 6% return on cas

balances moving forward. We believe that this surplus cash shall be used to undertake efficien

enhancement or expansion projects but have not incorporated this in our estimates to ke

things less subjective.

Downgrade to market weight

As mentioned before, we have opted to take a conservative stance on the sector and ha

revised our price targets for Elixir’s cement universe downwards after incorporating for

possible price war. We maintain our BUY call on LUCK, DGKC, KOHC and CHCC. However, w

downgrade our investment case on FECTC, ACPL and FCCL from BUY to HOLD. We al

downgrade our investment case on LPCL and MLCF to SELL.

Industry Assumptions FY14E FY15E FY16E FY17E FY18E FY19E FY20E FY21

Cement Price (PKR/bag) 515 536 557 579 479 527 569 609

Coal Price (USD/ton) 80 85 90 95 100 100 100 100

PKR/USD 104.4 108.6 112.9 117.4 122.1 127.0 132.1 137.4

Industry Dispatches (mn tons) 34.6 35.9 37.3 38.7 40.4 42.1 44.0 46.0

Local 26.6 28.2 29.8 31.6 33.5 35.5 37.7 39.9

Export 8.0 7.7 7.4 7.1 6.8 6.6 6.3 6.0

Industry Dispatch Growth 3% 4% 4% 4% 4% 4% 4% 5%

Local 6% 6% 6% 6% 6% 6% 6% 6%

Export -4% -4% -4% -4% -4% -4% -4% -4%

Source: Elixir Research






Construction and Materials

9MFY13 - Elixir Cement Universe ComparisonAverage Retention per ton

5,900

6,000

6,100

6,200

6,300

6,400

6,500

6,600

M L C F

A C P L

F E C T C

F C C L

C H C C

L U C K

D G K C

K O H C

L P C L

PKR

Source: Company Accounts, Elixir Research

Average Cost per ton

3,000

3,200

3,400

3,600

3,800

4,000

4,200

4,400

4,600

4,800

L U C K

K O H C

D G K C

C H C C

L P C L

F C C L

M L C F

A C P L

F E C T C

PKR


EBITDA Margin per ton

1,000

1,200

1,400

1,600

1,800

2,000

2,200

2,400

2,600

K O H C

M L C F

F C C L

L U C K

D G K C

C H C C

A C P L

L P C L

F E C T C

PKR


apacity Utilization

60%

65%

70%

75%

80%

85%

90%

95%

100%

L P C L

K O H C

M L C F

F C C L

L U C K

F E C T C

C H C C

D G K C

A C P L

ource: Company Accounts, Elixir Research

Operating Cost per ton

-

100

200

300

400

500

600

700

800

900

K O H C

F C C L

C H C C

M L C F

D G K C

F E C T C

A C P L

L P C L

L U C K

PKR


Finance Cost per ton

-

100

200

300

400

500

600

700

800

A C P L

L U C K

C H C C

K O H C

F E C T C

D G K C

L P C L

F C C L

M L C F

PKR


Debt to Equity

-

0.20

0.40

0.60

0.801.00

1.20

1.40

1.60

A C P L

L U C K

C H C C

D G K C

K O H C

F E C T C

L P C L

F C C L

M L C F

ource: Company Accounts, Elixir Research

FY14 - PER

-

1.00

2.00

3.00

4.005.00

6.00

7.00

8.00

F E C T C

M L C F

C H C C

K O H C

D G K C

L P C L

A C P L

L U C K

F C C L


FY14 - PBV

-

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

D G K C

L P C L

M L C F

F E C T C

F C C L

C H C C

A C P L

K O H C

L U C K


September 30, 20





With production capacity standing at 7.8mn tons per annum, Lucky Cement is the large

cement manufacturer in Pakistan and holds the highest market share (18%) in the countr

We highlight LUCK as one of the safest bets in the sector due to sizeable cost advantage ov

peers.

Leading operational efficiencies: LUCK remained the lowest cost producer in our sample of

large companies (98% of industry capacity) during 9MFY13. Despite having a larger share

low margin exports in its sales mix, LUCK managed to outperform industry peers on th

EBITDA margin front as well. EBITDA margin for LUCK clocked in at PKR116/bag in 9MFY1

13% higher than industry average of 103/bag.

WHR and RDF/TDF in place to hedge margins: Lucky Cement’s 25MW Waste Heat Recove

(WHR) projects are expected to make up around 23% of its total electricity requirement

FY14. In addition to this, TDF/RDF project at Karachi site which was completed during 3QFY1

helped LUCK replace 20% of its coal requirement. Combined, these projects are expected

contribute savings of PKR8/bag in FY14, yielding an EPS impact of PKR1.83/share. Th

company is also planning to set a TDF plant at Pezu as well as 5MW WHR plants at both site

These projects will further help LUCK maintain cost leadership in the industry.

Expanding footprint: LUCK led a consortium of other group companies to acquire ICI Pakist

Ltd in 2012. LUCK also has a strong portfolio of international projects lined up including

cement plant in Congo and a joint venture for a 0.9m tons grinding facility in Ira

Furthermore, LUCK started supplying surplus electricity to HESCO during FY13. The companyalso in process of negotiation with PESCO to provide surplus electricity from its Pezu plant.

Valuation: LUCK currently trades at FY14 PER of 6.5x and offers a total return of 31% to o

Jun-14 PT of PKR290/share. We believe that the Congo project, electricity supply to PESCO a

investment in Yunus Energy Limited and other efficiency projects will add further upside to o

investment case.

LUCK Financial Highlights

FY12A FY13E FY14E FY15E FY16E FY17E FY18E FY19E FY20E

EPS 21.0 30.0 35.9 39.3 41.3 43.3 26.9 33.5 39.6

DPS (PKR) 6.0 8.0 11.0 12.0 12.0 13.0 8.0 10.0 11.0

BV/share 102.9 124.9 152.9 176.2 204.5 233.6 251.4 273.7 301.0

PER (x) 11.0 7.7 6.4 5.9 5.6 5.3 8.6 6.9 5.8

Dividend Yield 3% 3% 5% 5% 5% 6% 3% 4% 5%

PBR (x) 2.2 1.8 1.5 1.3 1.1 1.0 0.9 0.8 0.8

EV/EBITDA 6.9 5.3 4.1 3.4 2.8 2.2 3.2 2.1 1.2

ROA 17% 23% 25% 24% 22% 20% 11% 13% 14%

ROE 22% 26% 26% 24% 22% 20% 11% 13% 14%

EBITDA Growth 59% 31% 20% 7% 5% 5% -43% 25% 18%

PAT Growth 71% 43% 20% 10% 5% 5% -38% 24% 18%



LUCK: Safest bet in the sector

LUCK PA BUYPrice Target: PKR290/Share


Key Data

12m Price Range (PKR) 264.8 – 126.6

Market Cap (PKR mn) 74,534.7

Outstanding Shares (mn) 323.4

Avg. Daily Volume mn (6m) 0.9

Yr – Relative Performance

ource: Elixir Research

Sensitivity of PT to FY21 PricesFY 21 (PKR/bag) Price Target

560 270

585 280

609 290

635 300

660 310


60

110

160

210

260

S e p - 1

2

v -

J a n - 1

3 -

y -

J l - -

(%) LUCK KSE-100 INDEX

September 30, 20



Company Update LUCK

Financials & Assumptions

Income Statement

PKRmn FY10A FY11A FY12A FY13A FY14E FY15E FY16E FY17E FY18E FY19E FY20E

Net Sales 24,509 26,018 33,323 37,810 42,116 45,170 48,540 52,260 46,901 52,805 58,799 6

Operating costs 20,266 20,856 24,312 25,652 27,373 29,432 32,061 34,999 38,334 41,576 45,197 4

EBITDA 5,654 6,732 10,733 14,030 16,869 18,026 18,941 19,911 11,403 14,269 16,863

EBIT 4,243 5,161 9,010 12,158 14,743 15,738 16,479 17,261 8,567 11,229 13,602

Finance Cost 569 518 253 89 2 0 0 0 0 0 0

Net Profit – Reported 3,137 3,970 6,782 9,714 11,535 12,417 13,007 13,621 8,313 10,430 12,388

EPS – Reported (PKR) 9.7 12.3 21.0 30.0 35.7 38.4 40.2 42.1 25.7 32.3 38.3

DPS (PKR) 4.0 4.0 6.0 8.0 11.0 12.0 12.0 13.0 8.0 10.0 11.0


Balance Sheet

PKRmn FY10A FY11A FY12A FY13E FY14E FY15E FY16E FY17E FY18E FY19E FY20E F

Shareholders’ Funds 25,096 27,773 33,262 40,389 49,448 56,977 66,119 75,551 81,291 88,500 97,343 10

Long Term Loans 1,659 658 393 94 0 0 0 0 0 0 0

Current Liabilities 9,642 10,697 3,624 4,304 4,574 4,805 5,164 5,559 4,989 5,617 6,255

Capital & Liabilities 38,310 41,210 40,631 48,374 57,860 65,889 75,677 85,812 91,311 99,501 109,358 12

Net Fixed Assets 31,381 31,707 31,018 31,036 33,095 32,614 32,093 31,534 30,574 29,646 28,737 2

Current Assets 6,871 9,444 9,555 11,074 16,846 24,723 34,432 44,542 50,438 59,030 69,314 8

Total Assets 38,310 41,210 40,631 48,374 57,860 65,889 75,677 85,812 91,311 99,501 109,358 12


Basic Assumptions FY14E FY15E FY16E FY17E FY18E FY19E FY20E FY2

Volume (mn tons) 6.05 6.21 6.38 6.58 6.79 7.02 7.27 7.

Local (mn tons) 3.98 4.22 4.48 4.75 5.03 5.33 5.65 5.

Export (mn tons) 2.07 1.99 1.91 1.83 1.76 1.69 1.62 1.

Volume Growth (YoY) 2% 3% 3% 3% 3% 3% 4% 4Local (YoY) 6% 6% 6% 6% 6% 6% 6% 6

Export (YoY) -4% -4% -4% -4% -4% -4% -4% -4

Capacity Utilization 78% 80% 82% 85% 88% 91% 94% 97

EBITDA/ton - Local 3,610 3,725 4,148 4,221 2,393 2,873 3,085 3,4

EBITDA/ton - Exports 1,315 1,269 1,520 1,411 1,271 1,182 913 79

EBITDA/ton - Average 2,787 2,903 2,967 3,028 1,680 2,033 2,319 2,5

Tax Rate 24% 26% 28% 30% 30% 30% 30% 30





Company Update LUCK

Cash Flow Statement


Net Income 3,137 3,970 6,782 9,714 11,535 12,417 13,007 13,621 8,313 10,430 12,388 1

Depreciation 1,411 1,571 1,723 1,872 2,126 2,288 2,462 2,650 2,836 3,040 3,262 3

Capex (2,315) (1,896) (1,034) (1,891) (4,185) (1,807) (1,942) (2,090) (1,876) (2,112) (2,352) (2

Working Capital Changes 559 (1,625) (387) (510) (667) (473) (522) (577) 831 (915) (929)

FCFF 3,334 2,523 8,519 3,273 7,405 12,061 12,692 13,326 9,869 10,269 12,263 1

Net Debt Repayments (2,386) (876) (6,568) (282) (282) (94) 0 0 0 0 0

FCFE 578 1,311 1,787 2,933 7,122 11,968 12,692 13,326 9,869 10,269 12,263 1

Dividends 1,294 1,294 1,940 2,587 3,557 3,881 3,881 4,204 2,587 3,234 3,557 4

Equity Issued 0 0 0 0 0 0 0 0 0 0 0

Net Cash Flows (715) 18 (154) 346 4,646 7,080 8,828 9,138 7,296 7,049 8,717 1







DG Khan Cement Co Ltd (DGKC) is the second largest cement producer in Pakistan in term

of market share and the third largest in terms of installed capacity. In addition to its ceme

operations, DGKC also owns a sizeable investment portfolio including holdings in texti

banking, power and insurance.

Higher utilization and margin expansion to support bottom-line: DGKC has enjoyed hi

utilization levels, approximately 26pp higher than industry average over the last five yea

High capacity utilization has helped DGKC sustain strong margins relative to peers, with COG

coming in at PKR196/bag during 9MFY13, below industry average of PKR201/bag. In additio

to this, EBITDA clocked in at PKR110/bag, 8% higher than industry average of PKR103/bag.

WHR and alternate fuels to sustain margins: DGKC completed its Tyre Derived Fuel (TDF)

Refuse Derived Fuel (RDF) projects at its DG Khan and Khairpur which have replaced ~20%

its coal requirement using waste tires and other alternate fuels. DGKC is expected to ful

39% of its power requirement through Waste Heat Recovery (WHR) projects in FY14. The

projects shall contribute savings of PKR23/bag in FY14 with an EPS impact of PKR2.7.

Diversification to reap rewards during price war: DGKC also owns a sizeable and diversifi

investment portfolio including holdings in textile, banking, power and insurance with mark

value per share of PKR66/share. In fact, DGKC derives around 25% of its income from the

investments. This shall provide the company with a major cushion during price war.

Expansion plan has weakened sentiments: DGKC recently announced its plan to expand in t

Southern region in the form of a 2.6mn ton plant at Hub. However, the expansion has bee

put on hold till Mar-14. Nevertheless, we do not expect expansions to affect cement pric

before they actually come online in FY18.

Cheap multiples and valuation offers strong upside: The company trades at an FY14 PER

4.7x and offers total return of 42% to our Jun-14 target price of PKR100/share. DGKC is one

our top cement picks due to the hedge available from portfolio income and low productio

costs. DGKC is trading at a steep discount to its closest peer’s (LUCK) FY14 PER of 6.5x. BUY!

DGKC Financial Highlights

FY12A FY13A FY14E FY15E FY16E FY17E FY18E FY19E FY20E

EPS 9.4 12.6 15.5 16.1 16.7 17.6 8.6 10.8 12.5

DPS (PKR) 1.5 3.0 2.8 3.0 3.0 3.3 1.8 2.0 2.5

BV/share 75.2 86.2 99.3 112.6 126.4 141.0 146.3 155.4 165.9

PER (x) 7.7 5.8 4.7 4.5 4.3 4.1 8.4 6.7 5.8

Dividend Yield 2% 4% 4% 4% 4% 4% 2% 3% 3%

PBR (x) 1.0 0.8 0.7 0.6 0.6 0.5 0.5 0.5 0.4

EV/EBITDA 6.9 4.6 3.4 2.7 2.1 1.4 3.0 1.4 0.3

ROA 8% 11% 13% 12% 12% 12% 5% 7% 7%

ROE 13% 16% 17% 15% 14% 13% 6% 7% 8%

EBITDA Growth 108% 34% 15% 2% 1% 0% -62% 30% 15%

PAT Growth 1318% 34% 23% 4% 4% 5% -51% 25% 16%



DGKC: Portfolio income shields bottom-line

DGKC PA BUYPrice Target: PKR100/Share


Key Data



Outstanding Shares (mn) 438





560 85

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September 30, 20



Company Update DGK

Financials and Assumptions

Income Statement


Net Sales 16,275 18,577 22,950 24,916 27,660 29,187 30,817 32,551 28,072 31,106 33,959 3

Operating costs 14,737 16,874 17,914 17,747 19,203 20,603 22,161 23,897 25,829 27,717 29,823 3

EBITDA 2,931 3,133 6,502 8,736 10,040 10,193 10,288 10,312 3,925 5,095 5,867

EBIT 1,539 1,703 5,036 7,169 8,456 8,584 8,655 8,655 2,243 3,388 4,136 4

Finance Cost 1,903 2,052 1,671 995 917 685 448 0 0 0 0

Net Profit – Reported 233 171 4,108 5,501 6,784 7,053 7,335 7,708 3,784 4,717 5,483

EPS – Reported (PKR) 0.5 0.4 9.4 12.6 15.5 16.1 16.7 17.6 8.6 10.8 12.5

DPS (PKR) - - 1.5 3.0 3.0 3.0 3.0 3.3 1.8 2.0 2.5


Balance Sheet



Long Term Loans 5,090 4,881 4,629 3,235 1,794 586 0 0 0 0 0

Current Liabilities 13,786 12,657 11,206 9,442 8,673 7,605 6,174 4,761 4,029 3,542 3,832 4


Net Fixed Assets 25,773 25,985 27,186 27,387 26,428 25,444 24,435 23,401 22,342 21,257 20,147 1

Current Assets 16,417 18,295 18,440 19,998 24,458 28,997 34,055 40,063 42,709 47,305 53,291 5

Total Assets 47,046 49,673 50,685 52,371 55,871 59,426 63,475 68,449 70,036 73,547 78,424 8



Volume (mn tons) 4.01 4.04 4.07 4.11 4.15 4.20 4.24 4.

Local (mn tons) 2.98 3.07 3.17 3.26 3.36 3.46 3.55 3.

Export (mn tons) 1.03 0.96 0.90 0.85 0.79 0.74 0.69 0.

Volume Growth (YoY) 1% 1% 1% 1% 1% 1% 1% 1

Local (YoY) 3% 3% 3% 3% 3% 3% 3% 3

Export (YoY) -6% -6% -6% -6% -6% -6% -7% -7


EBITDA/ton - Local 3,143 3,136 3,112 3,069 1,121 1,455 1,662 1,7

EBITDA/ton - Exports 886 827 752 659 546 471 373 24

EBITDA/ton - Average 2,505 2,524 2,526 2,509 946 1,214 1,383 1,4

Tax Rate 25% 27% 29% 31% 33% 33% 33% 33





Company Update DGK

Cash Flow Statement


Net Income 233 171 4,108 5,846 6,902 7,141 7,394 7,737 3,564 4,503 5,243

Depreciation 1,393 1,430 1,466 1,567 1,584 1,608 1,633 1,657 1,682 1,706 1,731

Capex (1,070) (1,643) (2,667) (1,768) (625) (625) (624) (623) (622) (622) (621)

Working Capital Changes (129) (653) (542) (24) (414) (366) (401) (462) (460) (450) (498)

FCFF 1,729 932 3,393 6,417 8,043 8,205 8,293 8,310 4,163 5,138 5,854

Net Debt Repayments (1,394) (1,240) (2,046) (3,117) (2,396) (2,449) (2,210) (1,609) (1,000) (747) 0

FCFE (901) (1,642) 261 2,578 5,051 5,310 5,792 6,700 3,163 4,390 5,854

Dividends (22) 0 0 (657) (1,075) (1,242) (1,285) (1,331) (1,470) (677) (856)

Equity Issued 5,390 3,527 (1,395) 0 (0) 0 0 (0) 0 (0) 0

Net Cash Flows (13) (63) 261 1,810 3,864 3,954 4,392 5,254 1,576 3,595 4,879







Kohat Cement Company Limited (KOHC) remains the most efficient player in the ceme

industry with 9MFY13 EBITDA margin of PKR125/bag, significantly higher than indust

average of PKR103/bag. With surplus capacity and buoyant outlook on local demand, KOH

is an ideal bet on the volume growth theme and one of our top picks in the cement sector.

Volume growth has outpaced peers: Owing to low utilization levels, KOHC’s dispatch grow

has outpaced industry in the recent past, averaging at 25% between FY08-FY13 relative

average industry growth of 2%. Despite gaining a larger share of the market, KOHC still hol

significant surplus capacity. KOHC’s capacity utilization clocked in at a mere 62% during FY1

Due to its surplus capacity, we expect KOHC to be a primary beneficiary amid increased loc

demand.

WHR to enhance value: KOHC recently announced investment in a 9MW Waste He

Recovery (WHR) project. This shall allow KOHC to fulfill ~20% of its electricity requireme

post FY15. The project shall come online by mid FY15 and is expected to cost PKR2bn. Th

project will contribute savings of PKR7/bag and PKR15/bag in FY15 and FY16, yielding an E

impact of PKR1.4 and PKR3.4 during the same periods. Since it currently relies on t

expensive national grid, WHR project will be a major asset for KOHC as it will help ke

margins intact and act as a hedge against any further hike in power costs.

Deleveraged during good times: KOHC has followed an aggressive debt repayment strate

with net debt standing at PKR1.2bn at the end of 3QFY13 against PKR2.8bn at the end of FY1

This shall increase the company’s cash flows and will allow further investment in coefficiency projects.

Valuation: After incorporating the recently announced WHR project, our Jun-14 price targ

for KOHC stands at PKR150/share, which offers an upside potential of 61% along with

dividend yield of 5%. KOHC is one of our top picks in the sector owing to margin leadersh

and has the highest potential upside in our cement space.

KOHC Financial Highlights


EPS 12.9 20.5 20.9 23.1 26.3 27.4 8.7 13.3 17.1

DPS (PKR) 3.0 5.0 5.0 11.0 12.5 13.0 4.0 6.5 8.0

BV/share 29.2 46.6 62.5 77.4 92.2 107.0 105.4 114.0 124.1

PER (x) 7.2 4.5 4.5 4.0 3.5 3.4 10.7 7.0 5.4

Dividend Yield 3% 5% 5% 12% 13% 14% 4% 7% 9%

PBR (x) 3.2 2.0 1.5 1.2 1.0 0.9 0.9 0.8 0.8

EV/EBITDA 4.8 2.7 2.7 2.2 1.7 1.4 3.8 2.4 1.6

ROA 18% 27% 24% 24% 25% 23% 7% 10% 12%

ROE 57% 54% 38% 33% 31% 28% 8% 12% 14%

EBITDA Growth 169% 49% 1% 9% 10% 3% -64% 42% 24%

PAT Growth 2506% 59% 2% 11% 14% 4% -68% 53% 29%



KOHC: Robust potential substantiates value

KOHC PA BUYPrice Target: PKR150/Share


Key Data








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September 30, 20



Company Update KOH


Income Statement


Net Sales 3,692 6,085 9,316 11,297 13,210 14,492 15,905 17,463 15,330 17,780 20,269 2

Operating costs 3,434 5,248 6,577 7,072 8,935 9,881 10,763 12,129 13,681 15,238 16,995 1

EBITDA 514 1,148 3,088 4,612 4,654 5,092 5,607 5,783 2,084 2,964 3,683

EBIT 258 837 2,739 4,216 4,275 4,611 5,143 5,334 1,648 2,542 3,274

Finance Cost 659 715 626 249 166 76 0 0 0 0 0

Net Profit – Reported (328) 64 1,661 2,633 2,693 2,977 3,388 3,529 1,122 1,713 2,203

EPS – Reported (PKR) (2.5) 0.5 12.9 20.4 20.9 23.1 26.3 27.4 8.7 13.3 17.1

DPS (PKR) 0.0 0.0 3.0 5.0 5.0 11.0 12.5 13.0 4.0 6.5 8.0


Balance Sheet



Long Term Loans 3,049 3,537 1,163 300 0 0 0 0 0 0 0



Net Fixed Assets 7,229 7,141 6,868 6,631 8,401 8,120 7,856 7,606 7,371 7,150 6,941

Current Assets 1,407 1,954 2,318 3,765 3,776 4,725 6,653 8,630 8,517 10,086 11,881 1

Total Assets 8,673 9,124 9,213 10,422 12,180 12,847 14,511 16,238 15,890 17,237 18,823 2



Volume (mn tons) 1.92 2.01 2.11 2.21 2.32 2.44 2.57 2.

Local (mn tons) 1.62 1.72 1.82 1.93 2.05 2.17 2.30 2.Export (mn tons) 0.30 0.30 0.29 0.28 0.28 0.27 0.27 0.


Local (YoY) 7% 6% 6% 6% 6% 6% 6% 6

Export (YoY) -3% -2% -2% -2% -2% -2% -2% -2


EBITDA/ton - Local 2,676 2,773 2,890 2,834 883 1,245 1,495 1,6

EBITDA/ton - Exports 1,672 1,763 1,876 1,821 1,754 1,760 1,759 1,7

EBITDA/ton - Average 2,420 2,528 2,656 2,611 896 1,214 1,435 1,6

Tax Rate 31% 31% 31% 31% 31% 31% 31% 31





Company Update KOH

Cash Flow Statement


Net Income (328) 64 1,661 2,633 2,693 2,977 3,388 3,529 1,122 1,713 2,203

Depreciation 256 311 348 386 379 481 465 449 435 422 409

Capex 548 222 76 149 2,149 200 200 200 200 200 200

Working Capital Changes 412 (258) (117) (780) (283) (200) (225) (235) 432 (389) (390)

FCFF 365 481 3,064 2,980 414 2,721 3,039 3,154 1,400 1,545 2,022

Net Debt Repayments 176 (184) (2,459) (1,716) (199) (1,000) 0 0 0 0 0

FCFE (24) (65) 94 1,091 100 1,669 3,039 3,154 1,400 1,545 2,022

Dividends 0 0 0 386 644 1,069 1,474 1,629 1,326 612 895

Equity Issued 0 0 0 0 0 0 0 0 0 0 0

Net Cash Flows (6) 13 88 704 (544) 600 1,564 1,526 74 934 1,128







CHCC is a small cement player with capacity of 1.1mn tons per annum. It is one of the mo

efficient players in the industry with EBITDA margin clocking in at PKR105/bag durin

9MFY13, 2% higher than industry average of PKR103/bag. Operational efficiencies couple

with strategic location make CHCC an ideal value play in our cement universe.

Operational efficiencies to drive growth: EBITDA margin for CHCC clocked in at PKR105/b

during 9MFY13, 2% higher than industry average of PKR103/bag. Its new RDF project h

recently come online during 1QFY14 and shall result in cost savings of PKR7/bag in FY14.

addition to this, CHCC’s existing WHR project is also estimated to lead to savings of PKR33/b

during the same period. Combined, these cost efficiency projects are expected to yield an E

impact of PKR6.2 in FY14.

Proximity to Afghanistan to keep exports outlook positive: CHCC’s plant location gives it

strategic advantage of lower transport costs on exports to Afghanistan. We expect over

industry exports to Afghanistan to gradually decline by an average of 2% per annum fro

current levels. However, due to CHCC’s proximity to Afghanistan, we expect it to be the lea

affected player in case of a decline in Afghan demand.

Expansion announced but details remain unclear: The Company announced its intention

expand existing plant capacity recently. Even though expansions have been halted till Mar-1

it remains unclear whether CHCC will actually go ahead with its expansion post Mar-13. Owi

to this uncertainty, we have not incorporated CHCC’s expansion into our estimates. In t

event that CHCC decides to expand, the company will have to take on a large amount of deand its cash position shall be compromised in the near term.

Valuation: Our Jun-14 PT of PKR65/share offers an upside of 28% along with a dividend yie

of 5%. Robust operational efficiencies and strategic location strengthen our investment ca

on CHCC. BUY!

CHCC Financial Highlights


EPS (PKR) 4.6 12.8 13.7 14.8 15.6 16.2 5.1 6.9 8.1

DPS (PKR) 2.0 2.5 2.5 2.5 2.5 6.5 2.0 3.0 3.5

BV/share 28.8 38.6 49.8 62.0 75.2 87.9 87.8 92.4 97.4

PER (x) 11.1 4.0 3.7 3.4 3.3 3.1 10.0 7.3 6.2

Dividend Yield 4% 5% 5% 5% 5% 13% 4% 6% 7%

PBR (x) 1.8 1.3 1.0 0.8 0.7 0.6 0.6 0.5 0.5

EV/EBITDA 5.5 2.6 2.1 1.6 1.0 0.5 1.5 0.7 0.3

ROA 9% 26% 25% 24% 21% 19% 5% 7% 8%

ROE 17% 38% 31% 26% 23% 20% 6% 8% 9%

EBITDA Growth 93% 87% 3% 4% 1% 0% -69% 33% 15%

PAT Growth 536% 180% 7% 8% 6% 3% -69% 37% 17%



CHCC: Buoyant investment case

CHCC PA BUYPrice Target: PKR65/Share


Key Data








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September 30, 20



Company Update CHCC


Income Statement


Net Sales 3,469 4,244 5,457 6,294 7,117 7,668 8,321 9,012 7,953 8,715 9,414 1

Operating costs 3,620 3,909 4,562 4,388 5,152 5,620 6,240 6,928 7,471 7,990 8,543 9

EBITDA 70 597 1,151 2,157 2,225 2,304 2,333 2,331 725 966 1,109

EBIT (151) 335 895 1,906 1,964 2,048 2,081 2,084 481 725 871

Finance Cost 161 286 311 109 74 23 0 0 0 0 0

Net Profit – Reported (14) 69 437 1,224 1,311 1,412 1,492 1,544 486 664 779

EPS – Reported (PKR) (0.1) 0.7 4.6 12.8 13.7 14.8 15.6 16.2 5.1 6.9 8.1

DPS (PKR) 0.0 0.0 2.0 2.5 2.5 2.5 2.5 6.5 2.0 3.0 3.5


Balance Sheet



Long Term Loans 976 1,221 889 250 0 0 0 0 0 0 0

Current Liabilities 1,622 1,800 1,040 1,061 897 538 593 654 701 747 795 Capital & Liabilities 4,857 5,365 4,712 5,031 5,684 6,494 7,798 9,070 9,107 9,592 10,114 1

Net Fixed Assets 3,446 3,388 3,245 3,376 3,316 3,260 3,208 3,161 3,117 3,076 3,039

Current Assets 1,239 1,718 1,289 1,478 2,191 3,057 4,413 5,732 5,813 6,339 6,898

Total Assets 4,857 5,365 4,712 5,031 5,684 6,494 7,798 9,070 9,107 9,592 10,114 1



Volume (mn tons) 1.02 1.05 1.08 1.11 1.12 1.12 1.12 1.

Local (mn tons) 0.67 0.71 0.75 0.80 0.81 0.83 0.84 0.

Export (mn tons) 0.35 0.33 0.32 0.31 0.30 0.29 0.28 0.


Local (YoY) 6% 6% 6% 6% 2% 2% 1% 1

Export (YoY) -3% -3% -3% -3% -3% -3% -3% -3


EBITDA/ton - Local 2,352 2,350 2,251 2,144 151 438 603 69


EBITDA/ton - Average 2,188 2,202 2,163 2,094 649 861 987 1,0

Tax Rate 28% 29% 29% 29% 29% 29% 29% 29





Company Update CHCC

Cash Flow Statement


Net Income (14) 69 437 1,224 1,311 1,412 1,492 1,544 486 664 779

Depreciation 220 261 256 251 261 256 252 248 244 241 237

Capex 422 205 111 382 200 200 200 200 200 200 200

Working Capital Changes 115 (332) 304 (154) (136) (91) (108) (114) 175 (126) (116)

FCFF (412) 46 1,241 1,039 1,282 1,387 1,429 1,471 704 571 694

Net Debt Repayments 421 310 (1,016) (694) (483) (400) 0 0 0 0 0

FCFE 2 (0) (12) 260 745 971 1,429 1,471 704 571 694

Dividends 9 (17) 21 287 239 239 239 330 492 220 301

Equity Issued 0 0 0 0 0 0 0 0 0 0 0

Net Cash Flows (7) 17 (33) (27) 506 732 1,190 1,141 212 351 393







Attock Cement Pakistan Limited (ACPL) is a dominant player in the southern region and se

its cement under the premium ‘Falcon’ brand. However, ACPL is a relatively inefficie

player with COGS of PKR221/bag during 9MFY13, 10% higher than industry average and th

second highest in our cement universe. Since the plant runs at full capacity, earnings grow

will be a function of margins which have remained on the lower side compared to peers.

Higher utilization, lower margins to suppress growth: ACPL has been operating at an avera

capacity utilization of 101% during the past five years. Owing to inefficiencies, ACPL’s EBITD

margin clocked in at PKR83/bag during 9MFY13, 19% lower than industry average

PKR103/bag. ACPL seems to be a major loser in our price war scenario owing to high utilizatio

and lower margins. Earnings growth can only be achieved on the back of efficiency projec

that will help ACPL survive amid lower retention levels.

Investing in cost efficiencies: Various initiatives are currently underway to counter the rece

cost hike. These include investing in a coal-based power plant and replacement of cement m

internals. Coal-based power project is expected to cost ~USD1.4mn per MW and sh

generate electricity at a cost of ~PKR9/Kwh (at current coal prices). On the other han

replacement of cement mill internals is expected to cost PKR750mn and would reduce pow

consumption by 9.0Kwh/ton. While we have factored in the impact of cement mill internals

our estimates, we await further clarity on implementation of the coal project.

Strong cash position to support efficiency investments: ACPL possess a debt-free balan

sheet with cash balances of PKR2.7bn (including short term investments). This shall allow tcompany to undertake efficiency investments without needing external finances.

Valuation: ACPL trades at FY14 PER of 5.5x and offers total return of 10% to our June-14 targ

price of PKR135/share. Owing to low production efficiency and limited surplus capacity, w

downgrade our stance on the company from BUY to HOLD. However, implementation co

based power generation project may improve our investment case.

ACPL Financial Highlights


EPS 13.1 21.5 24.5 26.9 27.5 28.0 7.5 11.7 15.7

DPS (PKR) 7.4 13.0 14.5 16.0 16.5 17.0 4.5 7.0 9.5

BV/share 66.6 79.8 91.3 103.7 115.2 126.8 117.3 124.5 133.2

PER (x) 10.3 6.3 5.5 5.0 4.9 4.8 18.1 11.5 8.6Dividend Yield 5% 10% 11% 12% 12% 13% 3% 5% 7%

PBR (x) 2.0 1.7 1.5 1.3 1.2 1.1 1.2 1.1 1.0

EV/EBITDA 6.0 4.3 2.9 2.4 2.0 1.7 9.0 4.5 2.9

ROA 16% 22% 21% 21% 20% 18% 5% 8% 10%

ROE 21% 29% 29% 28% 25% 23% 6% 10% 12%

EBITDA Growth 68% 39% 9% 11% 3% 3% -78% 81% 35%

PAT Growth 90% 64% 14% 10% 2% 2% -73% 57% 34%



ACPL: Lower efficiency limits upside

ACPL PA HOLDPrice Target: PKR135/Share


Key Data







Sensitivity of PT to FY21 Prices

FY 21 (PKR/bag) Price Target

560 105585 120

609 135

635 150

660 165


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September 30, 20



Company Update ACPL


Income Statement


Net Sales 7,668 8,554 10,504 11,508 13,068 13,810 14,605 15,438 13,223 14,697 16,107 1

Operating costs 6,361 7,523 8,618 8,814 10,096 10,498 11,203 11,955 12,785 13,584 14,466 1

EBITDA 1,578 1,303 2,194 3,050 3,322 3,685 3,789 3,886 855 1,547 2,092

EBIT 1,307 1,031 1,886 2,694 2,973 3,312 3,402 3,483 438 1,113 1,641

Finance Cost 78 24 12 15 12 12 12 12 12 12 12

Net Profit – Reported 1,017 684 1,303 2,136 2,437 2,682 2,742 2,793 744 1,169 1,563

EPS – Reported (PKR) 10.2 6.9 13.1 21.5 24.5 26.9 27.5 28.0 7.5 11.7 15.7

DPS (PKR) 5.0 4.5 7.4 13.0 14.5 16.0 16.5 17.0 4.5 7.0 9.5


Balance Sheet



Long Term Loans 0 0 0 0 0 0 0 0 0 0 0



Net Fixed Assets 4,202 5,332 5,472 5,999 6,063 6,401 6,380 6,363 6,350 6,341 6,336

Current Assets 2,793 2,347 3,358 4,631 5,935 6,943 8,228 9,516 8,275 9,217 10,291 1

Total Assets 7,059 7,743 8,901 10,705 12,074 13,420 14,684 15,955 14,701 15,633 16,703 1



Volume (mn tons) 1.85 1.86 1.87 1.88 1.90 1.92 1.95 1.

Local (mn tons) 1.42 1.47 1.53 1.59 1.66 1.72 1.78 1.

Export (mn tons) 0.43 0.38 0.34 0.29 0.25 0.21 0.17 0.


Local (YoY) 4% 4% 4% 4% 4% 4% 4% 4

Export (YoY) -10% -11% -12% -13% -15% -17% -20% -24


EBITDA/ton - Local 2,200 2,334 2,325 2,320 423 822 1,110 1,3

EBITDA/ton - Exports 472 639 671 651 624 649 670 68

EBITDA/ton - Average 1,795 1,983 2,027 2,062 450 804 1,073 1,2

Tax Rate 22% 24% 26% 28% 30% 30% 30% 30





Company Update ACPL

Cash Flow Statement


Net Income 1,017 684 1,303 2,136 2,437 2,682 2,742 2,793 744 1,169 1,563

Depreciation 271 272 308 355 350 374 388 402 418 434 450

Capex (329) (1,402) (448) (883) (414) (712) (367) (385) (404) (425) (446)

Working Capital Changes 307 (552) (281) 640 30 (29) (31) (34) (226) (8) (18)

FCFF 1,279 (1,013) 1,252 2,401 2,410 2,322 2,739 2,783 539 1,178 1,557

Net Debt Repayments (623) 0 0 0 0 0 0 0 0 0 0

FCFE 424 (812) 1,221 2,182 2,402 2,315 2,731 2,775 532 1,170 1,550

Dividends 361 498 448 740 1,295 1,444 1,593 1,643 1,693 448 697

Equity Changes 144 0 0 130 0 0 0 0 0 0 0

Net Cash Flows 207 (1,310) 773 1,573 1,108 871 1,138 1,132 (1,161) 722 852







FECTC is among the smallest cement plants in the country with production capacity standi

at 0.82mn tons per annum. The company is a relatively inefficient player with 9MFY

COGS/ton 14% higher than industry average and highest among Elixir’s Cement Univers

Owing to low production efficiency, we believe FECTC is a very risky bet in the event of

reversal in price trend and downgrade our stance on the stock from BUY to HOLD.

High costs to limit margins: FECTC is a relatively inefficient player with 9MFY13 COGS clocki

in at PKR230/bag, 14% higher than industry average of PKR201/bag. In fact, FECTC is the lea

efficient producer among Elixir’s Cement Universe. Owing to high costs of production, FECT

generates the lowest EBITDA margin in our cement space as well. 9MFY13 EBITDA marg

clocked in at PKR70/bag, PKR33/bag lower than industry average of PKR103/bag.

Small size to bound investment in production efficiencies: Even though FECTC holds a 6M

WHR plant and generates ~30% of its power requirement from the project, it has no RDF/TD

project to mitigate potential fuel costs increases. We believe that company’s small size lim

its ability to aggressively invest in production efficiencies after the recent increase in pow

tariff. This places the company at a considerable disadvantage to other players in the indust

with cash-rich balance sheets and significant room to invest in efficiency enhanceme

projects. Owing to this we expect FECTC to face margin attrition even under a price-u

scenario. We expect EBITDA margin for the company to clock in at PKR84/bag, PKR80/bag a

PKR76/bag during FY14, FY15 and FY16.

Valuation: FECTC currently trades at FY14 PER of 2.6x. Weak production efficiencies alimited ability to reduce costs lead us to believe that FECTC shall be a major loser in the eve

of a price war. Our price target of PKR40/share offers total return of 13%. We downgrade o

recommendation on the stock from BUY to HOLD.

FECTC Financial Highlights

FY12A FY13A FY14E FY15E FY16E FY17E FY18E FY19E FY20

EPS 6.9 11.6 15.9 15.0 14.0 13.7 (3.5) (0.7) 0.5

DPS (PKR) 1.0 1.5 6.3 5.8 5.5 5.3 0.0 0.0 0.3

BV/share 27.4 38.1 52.4 61.1 69.4 77.6 68.9 68.1 68.6

PER (x) 5.9 3.5 2.6 2.7 2.9 3.0 (11.8) (55.2) 80.9

Dividend Yield 2% 4% 15% 14% 13% 13% 0% 0% 1%PBR (x) 1.5 1.1 0.8 0.7 0.6 0.5 0.6 0.6 0.6

EV/EBITDA 5.1 2.8 1.7 1.4 1.1 0.8 -9.1 32.0 9.9

ROA 11% 17% 21% 18% 15% 14% -3% -1% 1%

ROE 29% 36% 35% 26% 21% 19% -5% -1% 1%

EBITDA Growth 92% 59% 27% -4% -3% -5% -110% -131% 226

PAT Growth 429% 68% 36% -6% -6% -2% -125% -79% -168



FECTC: A risky bet

FECTC PA HOLDPrice Target: PKR40/Share

Closing Price: PKR41/Share

Key Data








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September 30, 20



Company Update FECT


Income Statement


Net Sales 2,903 3,304 4,343 4,588 5,146 5,491 5,897 6,342 5,549 6,100 6,617

Operating costs 3,125 3,069 3,826 3,707 4,000 4,388 4,827 5,325 5,760 6,162 6,598

EBITDA (157) 323 621 988 1,251 1,206 1,171 1,117 (113) 35 114

EBIT (223) 235 516 881 1,146 1,103 1,070 1,018 (211) (62) 19

Finance Cost 83 150 206 143 119 96 81 73 65 61 61

Net Profit – Reported (208) 66 347 583 795 750 702 688 (174) (37) 25

EPS – Reported (PKR) (4.2) 1.3 6.9 11.6 15.9 15.0 14.0 13.7 (3.5) (0.7) 0.5

DPS (PKR) 0.0 0.0 1.0 1.5 6.3 5.8 5.5 5.3 0.0 0.0 0.3


Balance Sheet


Shareholders’ Funds 964 1,029 1,376 1,909 2,629 3,066 3,480 3,892 3,455 3,417 3,443 3

Long Term Loans 650 450 250 100 0 0 0 0 0 0 0


Capital & Liabilities 3,123 3,108 3,309 3,464 4,067 4,422 4,864 5,314 4,904 4,935 5,036 Net Fixed Assets 2,125 2,163 2,137 2,044 2,009 1,976 1,945 1,915 1,887 1,860 1,835

Current Assets 940 906 1,136 1,385 2,023 2,411 2,884 3,364 2,982 3,040 3,166

Total Assets 3,123 3,108 3,309 3,464 4,067 4,422 4,864 5,314 4,904 4,935 5,036



Volume (mn tons) 0.74 0.75 0.76 0.78 0.78 0.79 0.79 0.

Local (mn tons) 0.49 0.52 0.55 0.59 0.60 0.62 0.64 0.

Export (mn tons) 0.24 0.23 0.21 0.19 0.18 0.17 0.15 0.


Local (YoY) 3% 6% 6% 6% 3% 3% 3% 3

Export (YoY) -2% -7% -7% -7% -8% -8% -9% -9


EBITDA/ton - Local 2,031 1,914 1,776 1,616 (442) (187) (52) 1

EBITDA/ton - Exports 1,028 912 895 869 844 904 965 1,0

EBITDA/ton - Average 1,701 1,613 1,535 1,432 (145) 44 144 18

Tax Rate 20% 25% 30% 30% 30% 30% 30% 30





Company Update FECT

Cash Flow Statement


Net Income (208) 66 347 583 795 750 702 688 (174) (37) 25

Depreciation 66 87 105 107 105 103 101 100 98 97 95

Capex 713 126 79 13 70 70 70 70 70 70 70

Working Capital Changes 264 (24) (96) (215) (99) (30) (37) (38) 222 (74) (63)

FCFF (598) 81 426 580 825 824 752 729 121 (43) 30

Net Debt Repayments 657 30 (168) (297) (150) (150) (50) (50) (50) 0 0

FCFE 0 5 18 164 581 603 646 628 25 (86) (13)

Dividends 46 0 0 50 75 314 288 276 263 0 0

Equity Issued 46 0 0 0 0 0 0 0 0 0 0

Net Cash Flows 0 4 18 114 505 289 358 352 (238) (86) (13)







Fauji Cement Company Limited (FCCL) is one of the most efficient players in the indust

with EBITDA margin of PKR121/bag during 9MFY13, 18% higher than industry average

PKR103/bag. The company maintained a market share of 8% during 9MFY13. However, w

believe that the positives have already been priced in and have a HOLD stance on the stock

Strong reputation allows premium pricing: FCCL, owing to its strong reputation, has remain

relatively immune to cyclical cement price movements and has been able to charge a premiu

during times of weak cement price. During FY07 and FY10, the worst years in terms of ceme

prices, FCCL made EBITDA margins of PKR55/bag and PKR31/bag respectively, 79% and 65

higher than industry average EBITDA.

Volume growth may alter investment case: FCCL shall be a major beneficiary of the expect

increase in cement demand as it has significant surplus capacity since its new plant cam

online in FY12. The company currently operates at a capacity utilization of ~70%. FCCL se

around 80% of dispatches in the local market and buoyant outlook on local demand owing

increased government spending can prove to be a major positive for FCCL.

High debt levels to constrict earnings: Due to its untimely expansion towards the end of t

last expansion cycle, Fauji Cement has a large stock of debt standing at PKR11.5bn as

3QFY13. This will likely suppress earnings and cash flows amid rising interest rates. T

company is also expected to take on further debt following its announcement of PKR2.3b

investment in WHR project.

Valuation: We believe that FCCL is fairly valued at current levels as it trades at FY14 PER

6.7x. Our price target of PKR11.5/share offers total return of 15% at current levels. W

downgrade our investment case on the stock to HOLD. However, with large surplus capaci

any uptick in cement demand shall be major positive for the company.

FCCL Financial Highlights


EPS 0.4 1.6 1.8 2.0 2.6 2.8 0.7 1.4 2.0

DPS (PKR) 0.0 1.3 1.3 1.3 1.8 2.0 0.5 1.0 1.3

BV/share 10.4 11.9 12.3 12.8 14.1 15.1 13.8 14.6 15.5

PER (x) 39.0 7.8 6.7 6.2 4.3 4.0 18.2 8.3 5.7

Dividend Yield 0% 11% 11% 11% 16% 18% 5% 9% 11%PBR (x) 1.1 0.9 0.9 0.9 0.8 0.7 0.8 0.8 0.7

EV/EBITDA 7.2 4.0 3.8 3.6 2.7 2.3 5.6 3.8 2.7

ROA 2% 7% 8% 9% 11% 12% 3% 6% 9%

ROE 4% 14% 15% 16% 20% 19% 5% 10% 13%

EBITDA Growth 293% 54% 6% 4% 19% 4% -58% 36% 23%

PAT Growth 30% 279% 15% 8% 34% 7% -77% 110% 44%



FCCL: Positives priced in

FCCL PA HOLDPrice Target: PKR11.5/Share


Key Data



Outstanding Shares (mn) 1,331





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585 10.5

609 11.5

635 13.0

660 14.0


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September 30, 20



Company Update FCCL

Financials & Assumptions

Income Statement


Net Sales 3,808 4,743 11,523 15,968 18,230 19,870 21,681 23,648 20,775 23,909 27,092 3

Operating costs 3,444 4,142 8,685 11,236 13,110 14,533 15,077 16,684 18,511 20,359 22,446 2

EBITDA 691 993 3,908 6,002 6,357 6,585 7,862 8,167 3,415 4,651 5,698

EBIT 364 601 2,838 4,732 5,119 5,337 6,603 6,964 2,264 3,550 4,645

Finance Cost 41 104 1,825 1,512 1,356 1,207 1,129 1,018 849 635 459

Net Profit – Reported 250 426 553 2,097 2,414 2,615 3,510 3,750 872 1,834 2,649

EPS – Reported (PKR) 0.3 0.5 0.3 1.4 1.6 1.8 2.6 2.8 0.6 1.3 1.9

DPS (PKR) 0.0 0.0 0.0 1.3 1.3 1.3 1.8 2.0 0.5 1.0 1.3


Balance Sheet



Long Term Loans 11,909 11,805 10,175 7,794 6,548 5,848 4,348 3,348 2,348 1,348 348



Net Fixed Assets 23,819 26,658 25,898 24,759 24,971 25,172 24,064 23,011 22,010 21,060 20,157 1

Current Assets 2,071 4,792 4,160 5,350 4,155 4,379 6,649 8,301 6,123 6,757 8,229 1

Total Assets 26,780 32,211 30,703 30,669 29,687 30,113 31,273 31,872 28,694 28,377 28,946 3



Volume (mn tons) 2.61 2.72 2.83 2.96 3.09 3.24 3.39 3.

Local (mn tons) 2.12 2.25 2.39 2.53 2.68 2.84 3.01 3.

Export (mn tons) 0.48 0.46 0.44 0.43 0.41 0.39 0.38 0.


Local (YoY) 6% 6% 6% 6% 6% 6% 6% 6

Export (YoY) 0% -4% -4% -4% -4% -4% -4% -4


EBITDA/ton - Local 2,561 2,537 2,878 2,863 956 1,352 1,639 1,8


EBITDA/ton - Average 2,439 2,426 2,776 2,762 1,104 1,437 1,680 1,8

Tax Rate 33% 33% 33% 33% 33% 33% 33% 33





Company Update FCCL

Cash Flow Statement


Net Income 250 426 553 2,097 2,414 2,615 3,510 3,750 872 1,834 2,649

Depreciation 327 392 1,070 1,271 1,238 1,249 1,259 1,203 1,151 1,101 1,053

Capex 5,369 3,231 310 132 1,450 1,450 150 150 150 150 150

Working Capital Changes (144) (2,342) 356 377 (220) (157) (239) (195) 545 (355) (348)

FCFF (6,807) (4,593) 3,140 5,339 2,890 3,065 5,135 5,291 2,987 2,855 3,512

Net Debt Repayments 7,185 4,493 (5,198) (2,437) (1,792) (500) (700) (1,000) (1,600) (1,700) (1,000)

FCFE 346 (191) (3,102) 1,663 (38) 1,516 3,616 3,545 754 666 2,141

Dividends 330 (116) 3,178 0 1,664 1,664 1,664 2,329 2,662 666 1,331

Equity Issued 0 0 6,378 0 0 0 0 0 0 0 0

Net Cash Flows 16 787 (764) 1,663 (1,702) (148) 1,952 1,215 (1,908) 1 810







MLCF has the fifth largest cement plant in the country with production capacity standing

3.4mn tons per annum. Though the company has one of the highest EBITDA margins in t

sector, MLCF is one of the most leveraged companies as well. Even though we expect th

company to become deleveraged by FY18, it might not yield significant benefits since w

expect the industry to enter into a price war by that time.

Strong retention prices support margins...Despite production costs remaining on the high

side; MLCF had the second highest EBITDA margin in our cement space during 9MFY13 owi

to strong retention prices. In fact, MLCF had the highest retention price in the industry wi

9MFY13 retention averaging at PKR325/bag as compared to industry average of PKR311/bag

...but are also a source of risk: MLCF's strong EBITDA is a result of very high share of loc

sales in the volume mix which stands at 79%, as compared to 62% for LUCK, 64% for CHCC an

72% for DGKC. This makes MLCF highly sensitive to changes in domestic cement prices.

Margins highly sensitive to prices: MLCF’s margins have been highly volatile during price wa

During FY07 and FY10, the worst years in terms of price wars, MLCF’s EBITDA margin clock

in at PKR23/bag and PKR10/bag respectively, 27% and 49% lower than industry averag

During FY18, EBITDA margin for MLCF is expected to clock in at 19/bag leading to negligib

profits during the period.

Price war to overshadow benefits of deleveraging: MLCF is one of the most leverag

companies in our cement space with total debt standing at a whopping PKR16bn at the end

3QFY13. We expect strong debt repayments to improve profitability in the near term wi

finance costs expected to decrease by 17% and 31% in FY14 and FY15. Even though th

company shall become deleveraged by FY18, it might not yield significant benefits since w

expect the industry to enter into a price war by that time.

Valuation: MLCF currently trades FY14 PER of 3.3x. Owing to high leverage and volat

margins, our price target of PKR21/share implies that the stock is overvalued at current leve

Thus, we downgrade our stance on the stock from BUY to SELL.

MLCF Financial Highlights

FY12A FY13E FY14E FY15E FY16E FY17E FY18E FY19E FY20E

EPS 0.7 6.1 6.7 7.3 7.6 8.1 0.1 1.5 2.5

DPS (PKR) 0.0 0.0 0.0 1.0 1.0 1.0 0.0 0.5 0.5

BV/share 17.3 22.4 29.1 35.4 41.9 49.1 49.1 50.1 52.1

PER (x) 30.0 3.6 3.3 3.0 2.9 2.7 302.6 15.1 8.8

Dividend Yield 0% 0% 0% 4% 4% 4% 0% 2% 2%

PBR (x) 1.3 1.0 0.8 0.6 0.5 0.5 0.5 0.4 0.4

EV/EBITDA 6.2 4.4 3.6 3.1 2.5 1.9 10.3 5.5 3.8

ROA 1% 10% 11% 12% 12% 13% 0% 2% 4%

ROE 4% 31% 26% 23% 20% 18% 0% 3% 5%

EBITDA Growth 188% 34% 4% -1% -1% -2% -83% 76% 29%

PAT Growth -122% 723% 9% 10% 3% 8% -99% 1905% 71%



MLCF: Highly sensitive to price cycles

MLCF PA SELLPrice Target: PKR21/Share


Key Data








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September 30, 20



Company Update MLC


Income Statement


Net Sales 13,631 13,073 15,461 17,357 19,140 20,726 22,454 24,337 21,535 24,514 27,489

Operating costs 14,197 12,775 12,551 12,364 13,879 15,505 17,277 19,257 21,471 23,656 26,088

EBITDA 483 1,562 4,497 6,045 6,291 6,231 6,167 6,051 1,017 1,793 2,319

EBIT (567) 298 2,910 4,993 5,261 5,221 5,178 5,080 64 858 1,401

Finance Cost 2,059 2,166 2,351 1,705 1,436 1,051 666 281 44 0 0

Net Profit – Reported (2,584) (1,769) 496 3,225 3,521 3,862 3,990 4,294 39 778 1,328

EPS – Reported (PKR) (4.9) (3.4) 0.9 6.1 6.7 7.3 7.6 8.1 0.1 1.5 2.5

DPS (PKR) 0.0 0.0 0.0 0.0 0.0 1.0 1.0 1.0 0.0 0.5 0.5


Balance Sheet



Long Term Loans 15,817 17,963 16,806 14,806 11,306 7,806 4,306 806 0 0 0



Net Fixed Assets 21,035 28,203 26,774 26,223 25,692 25,182 24,693 24,222 23,769 23,334 22,917 2

Current Assets 5,003 5,414 5,886 6,145 7,088 7,781 8,613 9,764 8,835 10,439 12,574 1

Total Assets 26,095 33,690 32,728 32,435 32,848 33,031 33,373 34,054 32,672 33,841 35,559 3



Volume (mn tons) 2.73 2.83 2.93 3.04 3.16 3.28 3.41 3.

Local (mn tons) 2.19 2.30 2.42 2.54 2.67 2.80 2.94 3.

Export (mn tons) 0.53 0.52 0.51 0.50 0.49 0.48 0.47 0.


Local (YoY) 5% 5% 5% 5% 5% 5% 5% 5

Export (YoY) -2% -2% -2% -2% -2% -2% -2% -2


EBITDA/ton - Local 2,416 2,298 2,182 2,053 87 367 536 64


EBITDA/ton - Average 2,308 2,206 2,105 1,990 322 547 680 76

Tax Rate 5% 5% 10% 10% 20% 20% 20% 20





Company Update MLC

Cash Flow Statement

PKRmn FY10A FY11A FY12A FY13E FY14E FY15E FY16E FY17E FY18E FY19E FY20E

Net Income (2,584) (1,769) 496 3,225 3,521 3,862 3,990 4,294 39 778 1,328

Depreciation 1,050 1,264 1,586 1,052 1,030 1,010 990 971 952 935 918

Capex (773) (1,770) (512) (500) (500) (500) (500) (500) (500) (500) (500)

Working Capital Changes 750 (4,251) (469) (1,679) (269) (239) (260) (284) 422 (449) (448)

FCFF 636 (6,839) 2,909 3,243 4,750 4,847 4,685 4,701 888 822 1,356

Net Debt Repayments 677 2,146 (1,156) (2,000) (3,500) (3,500) (3,500) (3,500) (806) 0 0

FCFE (26) (6,101) 225 135 318 665 753 1,019 54 822 1,356

Dividends 0 0 0 0 0 (528) (528) (528) 0 (264) (264)

Equity Issued (1,000) 1,768 199 (541) 0 (0) (0) (0) 0 (0) (0)

Net Cash Flows (26) 215 175 (406) 318 137 226 491 54 559 1,092







LPCL is a mid-sized cement plant with annual production capacity of 2.04mn tons. Th

company has been marred with poor performance in the past, and incurred losses betwee

CY06-11. Owing to high operating and financial leverage, the company is a relative

inefficient player with EBITDA margins among the lowest in our cement space. Aft

incorporating for a possible price war in FY18, we have downgraded our investment case o

LPCL from HOLD to SELL.

Low retention prices and high costs have restricted margins: On the back of low retentio

prices and high operating costs, LPCL has one of the lowest EBITDA margins in our ceme

space. LPCL posted an EBITDA of PKR81/bag during 9MFY13, significantly lower than indust

average of PKR103/bag. Retention prices during the same period clocked in at PKR305/ba

lower than industry average of PKR311/bag.

Complete reliance on the national grid to cause margin attrition: With no WHR or capti

power plant, LPCL is one of the few companies in our cement space that is completely relia

on the national grid to fulfill its power requirement. Owing to this, we believe that t

company has been a key loser under the recent ~60% increase in power tariff. Even though w

expect prices to increase by PKR20/bag by the end of Oct-13 to pass on the cost hike, LPCL w

face margin attrition during 2HCY13 with costs increasing by PKR25/bag.

Deleveraging to offer some relief: Owing to strong expected debt repayments, we expe

finance costs for the company to clock in at PKR515mn and PKR463mn during CY13 and CY1

down 51% and 10% YoY. This shall offer some relief to profitability after the recent cost hiand allow LPCL to post consistent earnings growth through FY16.

Valuation: LPCL is currently trading at FY14 PER of 5.2x. With high operating and financ

leverage, we believe that the company is a risky play in the event of a price war. Our pri

target of PKR6.2/share offers negative total return of 10% and we downgrade our stance o

the stock from HOLD to SELL.

LPCL Financial Highlights

CY12A CY13E CY14E CY15E CY16E CY17E CY18E CY19E CY20

EPS 1.1 1.1 1.4 1.5 1.7 0.9 0.2 0.6 1.1

DPS (PKR) 0.3 0.3 0.4 0.6 0.8 0.5 0.0 0.3 0.5

BV/share 7.8 8.6 9.7 10.8 11.9 12.0 11.7 12.3 13.

PER (x) 6.5 6.6 5.2 4.9 4.3 7.9 36.8 11.3 6.9Dividend Yield 4% 4% 5% 8% 11% 7% 0% 4% 7%

PBR (x) 0.9 0.9 0.8 0.7 0.6 0.6 0.6 0.6 0.6

EV/EBITDA 5.2 5.0 3.8 3.1 2.6 4.1 10.8 5.2 3.1

ROA 8% 8% 10% 10% 11% 6% 1% 4% 6%

ROE 16% 14% 15% 15% 15% 8% 2% 5% 8%

EBITDA Growth 89% -5% 16% 1% 1% -41% -62% 77% 33%

PAT Growth -1357% -2% 27% 7% 12% -45% -78% 227% 62%



LPCL: Inefficiencies to mar performance

LPCL PA SELLPrice Target: PKR6.2/Share


Key Data



Outstanding Shares (mn) 1,312.6




Sensitivity of PT to FY21 PricesCY 20 (PKR/bag) Price Target

535 4.8

560 5.5

587 6.2

610 6.8

635 7.5


60

110

160

210

260

S e p - 1

2

v -

J

- - y -

J l - -

(%) LPCL KSE-100 INDEX

September 30, 20



Company Update LPCL


Income Statement

PKRmn CY09A CY10A CY11A CY12A CY13E CY14E CY15E CY16E CY17E CY18E CY19E C

Net Sales 8,130 6,881 7,804 9,624 10,224 12,218 13,171 14,209 13,955 13,945 15,666 1

Operating costs 1,044 901 734 853 1,152 1,232 1,319 1,411 1,510 1,616 1,729

EBITDA 634 610 1,543 2,910 2,776 3,214 3,258 3,299 1,952 743 1,318

EBIT (23) (45) 921 2,282 2,136 2,592 2,652 2,710 1,377 181 769

Finance Cost 1,231 981 1,064 1,053 515 463 275 89 0 0 0

Net Profit – Reported (1,279) (949) (118) 1,488 1,454 1,848 1,973 2,213 1,211 261 852

EPS – Reported (PKR) (1.0) (0.7) (0.1) 1.1 1.1 1.4 1.5 1.7 0.9 0.2 0.6

DPS (PKR) 0.0 0.0 0.0 0.3 0.3 0.4 0.6 0.8 0.5 0.0 0.3


Balance Sheet



Long Term Loans 6,706 7,577 7,411 6,059 4,262 2,862 1,362 0 0 0 0



Net Fixed Assets 16,688 16,292 15,793 15,316 14,876 14,464 14,079 13,721 13,389 13,083 12,802 1

Current Assets 2,145 2,359 2,526 2,931 2,760 3,524 4,142 4,875 5,291 5,199 6,849 8

Total Assets 19,704 19,504 19,217 19,528 18,917 19,269 19,502 19,877 19,962 19,563 20,932 2


Basic Assumptions CY13E CY14E CY15E CY16E CY17E CY18E CY19E CY2

Volume (mn tons) 1.71 1.77 1.82 1.88 1.95 2.02 2.09 2.

Local (mn tons) 1.25 1.31 1.38 1.45 1.52 1.60 1.68 1.

Export (mn tons) 0.46 0.45 0.44 0.44 0.43 0.42 0.41 0.


Local (YoY) 7% 7% 7% 7% 7% 7% 7% 7

Export (YoY) -4% -4% -4% -4% -4% -4% -4% -4


EBITDA/ton - Local 2,317 2,050 2,020 1,988 1,042 268 610 84

EBITDA/ton - Exports 1,656 1,147 1,056 960 859 751 718 68

EBITDA/ton - Average 1,619 1,818 1,785 1,751 1,002 369 631 81

Tax Rate 6% 10% 15% 15% 15% 15% 15% 15





Company Update LPCL

Cash Flow Statement


Net Income (1,279) (949) (118) 1,488 1,454 1,848 1,973 2,213 1,211 261 852

Depreciation 658 655 622 628 640 622 605 590 575 561 549

Capex 94 259 123 (151) (200) (210) (221) (232) (243) (255) (268)

Working Capital Changes 3,436 (661) (109) 350 (31) (220) 38 42 (10) (0) 69

FCFF 2,442 220 1,116 2,442 2,198 2,341 2,574 2,670 1,533 567 1,202

Net Debt Repayments (1,448) 871 (166) (1,352) (1,797) (1,400) (1,500) (1,362) 0 0 0

FCFE 194 454 258 405 67 640 895 1,250 1,533 567 1,202

Dividends 0 0 0 0 (394) (394) (525) (788) (1,050) (656) 0

Equity Issued 0 0 0 0 0 0 0 0 0 0 0

Net Cash Flows 194 454 258 405 (327) 246 370 463 483 (90) 1,202





Analyst Certification The research analyst(s) denoted AC on the cover of this report, primarily involved in the preparation of this report, certifies that (1) the views

expressed in this report accurately reflect his/her personal views about all of the subject companies/securities and (2) no part of his/hercompensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report. Disclaimer The report has been prepared by Elixir Securities Pakistan (Pvt.) Ltd and is for information purpose only. The information and opinions containedherein have been compiled or arrived at based upon information obtained from sources, believed to be reliable and in good faith. Suchinformation has not been independently verified and no guaranty, representation or warranty, expressed or implied is made as to its accuracy,completeness or correctness. All such information and opinions are subject to change without notice. Descriptions of any company or companies

or their securities mentioned herein are not intended to be complete and this document is not, and should not be construed as, an offer, orsolicitation of an offer, to buy or sell any securities or other financial instruments. Research Dissemination Policy Elixir Securities Pakistan (Pvt.) Ltd. endeavors to make all reasonable efforts to disseminate research to all eligible clients in a timely manner

through either physical or electronic distribution such as mail, fax and/or email. Nevertheless, not all clients may receive the material at the same

time. Company Specific Disclosures Elixir Securities Pakistan (Pvt.) Ltd. may, to the extent permissible by applicable law or regulation, use the above material, conclusions, research oranalysis in which they are based before the material is disseminated to their customers. Elixir Securities Pakistan (Pvt.) Ltd., their respectivedirectors, officers, representatives, employees and/or related persons may have a long or short position in any of the securities or other financialinstruments mentioned or issuers described herein at any time and may make a purchase and/or sale, or offer to make a purchase and/or sale of any such securities or other financial instruments from time to time in the open market or otherwise. Elixir Securities Pakistan (Pvt.) Ltd. may

make markets in securities or other financial instruments described in this publication, in securities of issuers described herein or in securitiesunderlying or related to such securities. Elixir Securities Pakistan (Pvt.) Ltd. may have recently underwritten the securities of an issuer mentioned

herein. Other Important Disclosures Foreign currency denominated securities is subject to exchange rate fluctuations which could have an adverse effect on their value or price, or theincome derived from them. In addition, investors in securities such as ADRs, the values of which are influenced by foreign currencies effectivelyassume

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© Copyright 2013, Elixir Securities Pakistan (Pvt.) Ltd. All rights reserved. This report or any portion hereof may not be reproduced, distributed,published or sent to a third party without prior consent of Elixir Securities Pakistan (Pvt.) Ltd.





Chief Executive Officer

Junaid Iqbal(92-21) 3569 4617 [email protected]

Pakistan Research Team Institutional Equities Retail Equities

Azfer Naseem, CFA

Head of Research(92-21) 3569 [email protected] Sateesh Balani

(92-21) 3569 [email protected]

Faisal Bilwani

Head of Equities - FII (92-21) 3569 3919 [email protected]

M. Sibtain Mustafa

Head of Equities - LII(92-21) 3569 [email protected]

Muhammad Ali Taufiq

Head of Equity Strategy Retail(92-21) 3569 [email protected]

Sikandar Rahim


Ujala Adnan(92-21) [email protected]

Jawwad Aboobakar(92-21) 3565 3182 [email protected]

Kamran Kaludi(92-21) 3569 [email protected]

Mubashir Anis Silat(92-21) 3569 [email protected]

Muhammad Raza Rawjani(92-21) 3569 [email protected]

Adil Abid(92-21) 3569 [email protected]

Syed Nasir Rizvi(92-21) 3569 [email protected]

HNW & Family Offices

Harris Ahmed Batla(92-21) 3569 [email protected]

Khurram Malik(92-21) 3569 [email protected]

Ibad-ur-Rehman(92-21) 3569 [email protected]

Lahore Office Tahir Maqbool(92-42) 3577 [email protected]

Islamabad OfficeAsim Ghafoor Qureshi


Syed Tahseen(92-21) 3569 4622

[email protected]

Faisalabad Office Syed Baqar Hassan


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