Post on 06-Jul-2018
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ANALYSIS OF CEMENT INDUSTRY OFPAKISTAN
Analysis of Pakistan Cement Sector
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EXECUTIVE SUMMARY
This report provides a detail analysis of the cement sector. It covers number of factors that
include performance of cement industry, market share comparison of major market players,
exports, revenue and income generated by cement sector.
The first part of the report focuses on the performance of the cement industry. Pakistan’s cement
industry expanded greatly in terms of production during the last decade, but for the past few
years it is facing an intense competition because of the stagnant domestic demand. ecently,
there has been a gradual increase in the local market cement demand, thus improving the
profitability for the sector. It is also mentioned in the report that there has been a tremendous
increase in the production capacity, export and total production of cement.
In the second and third segment of the report, the market and financial structure of the cement
industry has been discussed. The market structure of Pakistan’s cement industry is oligopolistic
in nature as there are total !" companies but only # of them control above $%& share. The
cement industry’s production facilities are mainly concentrated in north of the country which is
around "'&, whereas south has only !(& of the facilities. In terms of financial structure, the
overall debt burden has reduced and the owners’ e)uity has increased in *+!'. Therefore, it can
be stated that overall performance and financial records were very profitable in *+!' and the
records sustained in $ *+!% as well.
In the last part of the report, the major market players and the competitive environment has been
discussed. - comparison between two leading companies has been made the two main players
that hold a major market share in the cement industry are /ucky and 0 1 2han 3ement. -
comparison for exports and different scenarios of coal prices has also been made.
In the end, the future outlook for the cement industry has been discussed which shows that the
strong profitability in the recent years has tremendously facilitated the cement sector to enrich its
financial position. 4ith this continuous positive performance trend, the growth of cement sector
is expected to improve even further.
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TABLE O CO!TE!TS
"# Performance of Cement In$%stry &'
Introduction 5$
"#"# Ta(les
Production variables 5(
6istorical analysis of cement production capacity 7 despatches !!
8tatement of installed production capacity !'
Production 7 growth of cement !%
"#)# *ra+,s
Production and capacity 5$
Production and capacity utili9ation !!
:et income and revenue !(
3ement retail prices ;s. capacity utili9ation !(
)# Market Str%ct%re "-
)#"# Ta(les0emographics !<
=xports of cement >5
)#)# *ra+,s
=xports >!
=xports ?reakup >!
3ement’s demand in local market >>
3ement utili9ation >'0emand driver >%
arket share >%
.# inancial Str%ct%re )'
.#"# Ta(les
Profit 7 /oss >$
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0ebt 7 =)uity>(
.#)# *ra+,s
0ebt >"
=)uity >"
3apital structure ><
/# Ma0or Players .&
3omparison of two major players'!
3ost factor'>
=xports as a mean against P2 depreciation '#
/ucky 3ement as the market leader '(
/#"# Ta(les
3omparison for different scenarios of coal prices ''
8ensitivity of P2 @A8B parity on /ucky 3ement '$
8ensitivity of P2 @A8B parity on 0123 '$
/#)# *ra+,s
3omparison of /ucky cement 7 0123 '!
Increase in net margin with higher retention prices '%
Increase in gross margin for *+!' '#
'# O%tlook .12# References .-
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PERFORMANCE OF
CEMENT INDUSTRY
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"# I!TRO3UCTIO!
Pakistan’s cement industry is one of the important factors of the country’s economy. 3ement
sector of Pakistan with //#2 mn per annum production, has a part of "#) percent in global cement
production. ega projects initiated by public sector have provided a chance to the cement
producers to make expansions in production of cement. ?esides these expansions there are
various challenges that cement sector of Pakistan is facing, most important challenge to be
seriously dealt is energy cost. easures should be taken to reduce energy cost as it has an impact
on total input cost. :umber of opportunities are yet untapped and need attention to be availed by
the cement producers. These opportunities include export markets, increasing trend in per capita
income or purchasing power parity. - public sector development program that includes
infrastructure, construction of industries and real estate are the core domestic demand drivers.
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PRO3UCTIO! VARIABLES
Ta(le "
+early -verage Input ate, Inflation 7 A8 B =xchange ate
inancial
Year
%rnace
oil
Coal4
R#Bay
Electricit
y
*as
5Rs#6MM
BTU7
3iesel PetrolPa+er
Ba8Inflation
5Rs#6Ton7 5US96Ton75Rs#6:;<
7Cement Ca+ti=e 5Rs#6Litre7 5Rs#6Litre7 5Rs#6Ba87 5
>5!!C>5!>
D'C onthsE$5,'"5 !!$.' ".> #!.> .% "!.% (#.# !555!5 '5
>55(C>55" '!,%%% C %5." C !'.!
>55$C>55( >5,!5( #!.( %.5 C '$." C !5." (
>55#C>55$ >5,'55 %".5 '.( C '%.' C 55%C>55# !',''! #'.( '.$ C >#.% C ".< <
>55'C>55% !!,>"> %>.> '.$ C >!.$ C !5.>
>55>C>55' !5,("( >#.5 '.$ C >5.# C !5." '.
>55!C>55> C !#." C !5.!
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>555C>55! C C C !5.5
!.5 C C C C
Source: APCMA
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i8%re )
F Y 9 1
F Y 9 3
F Y 9 5
F Y 9 7
F Y 9 9
F Y 0 1
F Y 0 3
F Y 0 5
F Y 0 7
F Y 0 9
F Y 1 1
F Y 1 3
05
10
1520253035404550
Cement Ca+acity 5Mln Tons7
The cement production capacity was maximum in *+!5 but in later years it decreased a bit and
stood %%."mln tons in *+!>, *+!' and $ *+!%.
i8%re .
FY04 FY05 FY06 FY07 FY0 FY09 FY10 FY11 FY12 FY13 6FY140
5
10
15
20
25
30
35
40
45
50
=xport D,ln TonsE
,ln Tons
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Source: PACRA
The cement export was recorded to be "mln tons in *+!', it registered a meager decline of >&,
mainly because of the entry of Iranian cement in -fghanistan. In $ *+!% the export again
increased by !mln ton and became
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i8%re /
F Y 9 1
F Y 9 3
F Y 9 5
F Y 9 7
F Y 9 9
F Y 0 1
F Y 0 3
F Y 0 5
F Y 0 7
F Y 0 9
F Y 1 1
F Y 1 3
05
101520253035404550
Total Pro$%ction 5Mln Tons7
Total Production D ln TonsE
ln Tons
Source: PACRA
There was a F'& rise in the cement production during *+!', total cement production stood at
''mln tons. The production of cement is recorded to be !#mln tons during $ *+!%. There is a
direct relation of demand and production.
-bove graph shows that there has been a continuous increase in the production of cement after
*+ >55'. This sector experienced an upsurge in the demand of cement after the year >55'.
Production and supply is directly correlated with demand of cement. Pakistan faced heavy floods
during >55' and >55(. =arth)uake of >55# caused destruction on a mass level. This increase in
demand of cement occurred because of the rehabilitation activities in northern regions of
Pakistan as well in -9ad 2ashmir. ?esides these rehabilitation activities government started
different development projects.
*rom >5!5 to >5!%, almost all of Pakistan was badly affected by the destructing flood. ?adly
affected areas were of Punjab and 2hyber Pakhtun 2huawa D2P2E, 8indh was also effected.
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1overnment started rehabilitation activities in these areas that in result increased the demand of
cement positively effecting cement production. Public 8ector 0evelopment Program DP80PE has
a positive impact on demand of cement and in result of production of cement. There is a political
stability in Pakistan in terms of civil government. 1overnment is focusing more on
developmental programs and developing infrastructure. P80P is one of its example. 1overnment
spending in this regard played a role of catalyst in increasing domestic demand. In *+ >5!>,
government allocated G"& of total funds this figure was increased to G!5!'. In *+
>5!%, cement sector continues to show growing trend because of government policies.
i8%re '?
Cement Capacity, Export and Total Production of Graph
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F Y 9 1
F Y 9 3
F Y 9 5
F Y 9 7
F Y 9 9
F Y 0 1
F Y 0 3
F Y 0 5
F Y 0 7
F Y 0 9
F Y 1 1
F Y 1 3
05
10152025303540
4550
010203040506070
0
90100
Pakista C!"! t#P$%&'(ti% ) Ca*a(it+ Uti,i-ati%
Ce!e"# Ca$a%' (M)" T*"+, E-$*.# (M)" T*"+, T*#a) P.*/ %#&*" (M)" T*"+, Ca$a%' U#&)& a#&*" ( ,C'%)&%a) I!$a%#
Mln tons P!$(! ta.!
Source: PACRA
Ta(le )
a8eC,an8
e
Local3es+atc,e
s
> a8eC,an8
e
E +orts
> a8eC,an8e
Total3es+atc,e
s
> a8eC,an8e
Ca+acityUtili atio
n 5Mn#
Tonnes75Mn#
Tonnes75Mn#
Tonnes7
5Mn#Tonnes7
5Total7 > a8e
! #.(.>$& -D#D)
!
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!.''& 4 5.55& .''& 11#"1
!55!C>55>
"2#"&" '.$#& D#-.. C!.5!& "&1 !55.55&
!#.>!& 1"2
>55'C>55%
"1#)1D #."(& ")#'/' !%.>#&
"#""- !'(.5>&
!'.$$' !'.'"&
.#))- !!%.%$&
>%.>$> '5.((& 1D#).
>55(C>55"
.1#2- >'.#%& ))#'11 (.''& 1#1"1 !'%."$& -"/
>55"C>55<
/)#)- !>.>>& ).)' C555!5
/'#./ (.>%& ).#'21 !#.& 1/#-D
>5!'C>5!%
//#2/ 5.55& )2#"' %.'%& -#"/ C>."%& '%.>" >.#%& 12#1D
>5!%C>5!#D>Conth
//#2/ 5.55& .#2-" (.'#& "#.. C$.(>& #.5! '.>>& 21#.2
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E
Source: APCMA
Ta(le .
Statement of Installe$ Pro$%ction Ca+acity
As on Se+tem(er )&"/
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Sr# !o# !ame Of Unit O+erationalCa+acity
Cement 5tons7
" -skari 3ement /imited C 4ah !,!5>,#55
) -lC-bbas 3ement /imited C :ooriabad, 0adu ,!!5,#55
"- 2ohat 3ement 3ompany /imited C 2ohat >,$((,#55
"D /afarge Pakistan 3ement 3ompany /imited C3hakwal
>,5%(,#55
)& /ucky 3ement /imited C Pe9u ',("$,555
)" /ucky 3ement /imited C Indus 6ighway, 2arachi ',$55,555
)) aple /eaf 3ement *actory /imited C 0audkhel ','(5,#55
). Pioneer 3ement /imited C 2hushab >,5'5,>#5
)/ Thatta 3ement /imited Thatta %"",>#5
Total // 2/) )'&
Source: APCMA
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Ta(le /
PRO3UCTIO! A!3 *RO;T< O CEME!T
5&&& tons7 5>7
iscal Year Pro$%ction of Cement Percent 8roFt, of Cement!.'5!.(>>55>C>55' !5,"%# 55'C>55% !>,"$> !".$<>55%C>55# !$,'#' >(.!%>55#C>55$ !",#$% !'.#>>55$C>55( >>,('< >>.%<>55(C>55" >$,(#! !(.$%>55"C>55< >",'"5 $.5<>555!5 '!,'#" !5.%<>5!5C>5!! >",(!$ D".%'E>5!!C>5!> >.
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i8%re 2
FY0 FY09 FY10 FY11 FY12 FY13
50
0
50
100
150
200
250
N!t I (%"!
ln tons
In *+!' the net income was the most. It was between '5 to %5 P2 ?ln.
i8%re 1
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FY0 FY09 FY10 FY11 FY12 FY1350
0
50
100
150
200
250
Pakista C!"! t S!(t%$/ R!0! '!
Pa &+#a" Ce!e"# Se%#*. Re e" e
P2 ?ln
In *+!' there was an increase in sales and margins also improved, thus the overall revenue
increased.
i8%re -
Cement Sector: Re$enue and &ncome
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FY0 FY09 FY10 FY11 FY12 FY1350
0
50
100
150
200
250
5800
0800
5800
10800
15800
20800
25800
Pakista C!"! t S!(t%$# R! ! ! a & I (%"!
Ne# I"%*!e (PKR )", Re e" e (PKR )", Ne# Ma.g&"
Pk$ ,
Source: PACRA
The graph above is a combined graph of net income, net margin, revenue and shows an increasein all the three factors.
i8%re D
Cement Retail Prices and Cement Capacity 'tili(ation
405750
20
40
60
0
100
120
0
100
200
300
400
500
600C!"! t R!tai, P$i(!s s Ca*a(it+ Uti,i-ati%
Ca$a%' U#&)& a#&*" ( , Sea+*"a) I!$a%# Re#a&) P.&%e+ (PKR:;ag,
P!$(! ta.! P R a.
Source: PACRA
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Ma$k!t
St$'(t'$!
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POPULATIO! 3EMO*RAP5>.%@kmArban Population '(&Projected growth !.$5&
ate of urbani9ation >&6ousing ?acklog ".# mn units-nnual increase in housing backlog '55k
oom density $.(Per capita 10P DA8BE !,>(510P D*+!>E A8Bbn >'%
Source: S P, Credit Suisse estimates
Ta(le 2
Excellent demo"raphics as + - of the population is %elo# the a"e of .+
Cate8ory Po+%lation 5mn7 > of total5C!% $'." '#.>&!#C>% '"." >!.%&>#C'% >"." !#.
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Source: APCMA
44444444444444444ment44
444444444444G
E +ortBreak%+
ancalars
Af8,anistan
Via Lan$
In$iaVia Sea @
Lan$
Ot,erCo%ntries
Via Sea
TotalE +orts
>a8eIncr6
53ecr7
!ort,Hone
So%t,Hone
%antity in Metric Tons
&"4&&)
!5$,$>5 C C !5$,$>5 !55.55& !5$,5$5 #$5
&)4&&.
%'5,'>> C %!,#55 %(!,">> '%>.#'& %>",$5> !,(>5
&.4&&/
!,!!",> !,!5$,!>((,(!$,$>5
!',$5#,5!'
&-4&&D
',!%",'5$
$'%,%## ,('"%
""4&")
%,(!#,!5< $5#,%#' C ",#$(,"'5 C& $,>$$,'>( >,'5!,#5'
")4
&".
%,%5%,$'' %">,>!% C ",'(%,!5' C>.>$& $,!5#,"!# >,>$",>
""".4&"/
',$##,>5! $((,'5# C ",!'$,#>" C'.'(& #,%!",>!% >,(!",'!%
"/4&"'
.4
"'#,%#( !",5$5,%
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i8%re "&
F Y 0 4
F Y 0 6
F Y 0
F Y 1 0
F Y 1 2
6 M F
Y 1 4
0
10
20
30
40
0
10
20
30
40
Pakistan Cement E +orts
E-$*.# *"e (M)" T*"+, E-$*.# *"e (M)" T*"+, T*#a) E-$*.#+ (M)" T*"+, T*#a) P.*/ %#&*" (M)" T*"+,S=a.e *< E-$*.#+ &" T*#a) P.*/ %#&*" ( ,
M T% s P!$(! ta.!
Source: PACRA
i8%re ""
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0
2
4
6
10
12
0
25
50
75
100
Pakistan Cement E +orts Break%+
T*#a) E-$*.#+ (M)" T*"+,A%mln tons in *+!'.
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i8%re ".
F Y 1 9
9 1
F Y 1 9
9 3
F Y 1 9
9 5
F Y 1 9
9 7
F Y 1 9
9 9
F Y 2 0
0 1
F Y 2 0
0 3
F Y 2 0
0 5
F Y 2 0
0 7
F Y 2 0
0 9
F Y 2 0
1 1
F Y 2 0
1 30
5
10
15
20
25
30
C!"! t Uti,i-ati%
U#&)& a#&*" D*!e+#&% De!a"/ U#&)& a#&*" E-$*.# De!a"/
Atili9ation 3apcity D illion TonnesE
Source: APCMA
The Atili9ationC0omestic demand increased in the years >5!' and >5!% but in the same year
there was a decrease in Atili9ationC=xport demand.
i8%re "/
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FY05 FY06 FY07 FY0 FY09 FY10 FY11 FY12 FY130
75
150
225
300
375
450
525
0
5
10
15
20
25
30
35
Pakista C!"! t S!(t%$#D!"a & D$i !$
Fe/e.a) P ;)&% Se%#*. I"
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Source: /Pakistan 0%ser$er 1e#s2
Fi a (ia,
st$'(t'$!
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Ta(le -
I!A!CIAL 3ATA? PRO IT A!3 LOSS
The table below shows the profit and loss in cement industry till the year >5!!. -s it can be seen
there was a major loss of !'.$ billion P2 in the time period of >555!5.
inancial Year Profit 5Loss75Rs#4 Billions7
>5!5C>5!! #. D%.55(C>55" '.'5 DE>55$C>55( #.#( D'.(!E
>55#C>55$ !(.(% D5.%!E
>55%C>55# !5.!" D5.'55'C>55% $.!( D5.55>C>55' 5."5 D!.
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Source: APCMA
Ta(le D
I!A!CIAL 3ATA? 3EBT A!3 E UITY
The table below shows a reduction in debt burden and increase in capital structure of the cementindustry.
inancial Year 3e(t EJ%ity5Rs#4 Billions7
>5!5C>5!! !>#.' !!%.>
>555!5 !>$.% 55(C>55" !!5.#" !555'C>55% '#."! ''.'$
>55>C>55' %'.%" >%."'
>55!C>55> %5.!> >!.$%
>555C>55! %5.#> !5.
!< >%.%'
!
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Source: APCMA
CAPITAL STRUCTURE O CEME!T I!3USTRYi8%re "2
FY03 FY04 FY05 FY06 FY07 FY0 FY09 FY10 FY11 FY12 FY130
204060
0100120140160
1 0200
3e(t 5P:R Bln7
Source: PACRA
The burden of debt DP2 ?lnE tremendously reduced in *+!> and *+!'.
i8%re "1
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FY03 FY04 FY05 FY06 FY07 FY0 FY09 FY10 FY11 FY12 FY130
204060
0100120140160
1 0200
EJ%ity
Source: PACRA
-s seen through the graph the overall capital structure improved in *+!' dramatically.
i8%re "-
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FY03 FY04 FY05 FY06 FY07 FY0 FY09 FY10 FY11 FY12 FY130
20
40
60
0
100
120
140
160
1 0
200
0
7
14
21
2
35
42
49
56
63
70
Pakistan Cement sector4 Ca+ital Str%ct%re
De;# (PKR )", E ' (PKR )",De;# : (De;# E ', ( ,
Pkr ?ln Percentage
Source: PACRA
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MA OR P AYERS
COMPARISO! O T;O MA OR MAR:ET PLAYERS
/ucky and 0 1 2han 3ement hold a major market share in the cement industry. Therefore, the
cement industry depends greatly on these two market leaders. -s these two market leaders have
superior market export profile and the capability to identify new markets, especially in the case
of /ucky cement which has an exclusive competitive advantage of making a way into both the
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:orthern and 8outhern regions of Pakistan. oreover /ucky plans to establish a 5.< million tons
grinding plant in Ira). =xpected to be operational in the fiscal year >5!%, the plant would
enhance /ucky’s export profile.
i8%re "D
FY09 FY10 FY11 FY12 FY13 FY14E FY150
185
3
485
6
785
60
6
76
4
92
100
ix of local and exports would ensure /uckyJs utili9ation to remain higher in industr
L*%a) (L S, M" #*"+ E-$*.#+ (L S, M" #*"+U#&)& a#&*" I"/ +#.'
M T% sP!$(! ta.!
Source: Company data, Credit Suisse estimates
i8%re )&
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FY09 FY10 FY11 FY12 FY13 FY14E FY15E0
1
2
3
4
5
6
60
72
4
96
10
120
3*:CKs 8oo$ t%rno=er for its ca+acity %tili ation
L*%a) (L S, M" #*""e+ E-$*.#+ (L S, M" #*""e+
U#&)& a#&*" I"/ +#.'
M T% !s P!$(! ta.!
Source: Company data, Credit Suisse estimates
COST ACTOR
0ue to the decrease in coal prices by !( & and the successful installation of alternative fuel
supply measures such as 4aste 6eat ecovery D46 E and Tyre@ ubber 0erived *uel DT0*E,
have also helped to cut down the production costs of cement.
IMPROVEME!T I! PRO IT MAR*I!S 3UE TO 3ECLI!E I! COST O
COAL
3oal which is one of the main factors considered in making cement constituting to %5& of the
total production cost. The recent decline trend in the international coal prices gives an edge to the
cement manufactures to gradual increase in cement prices Dretention prices up >#& in *+!>E. -s
a result, industry average =?IT0-@ton has risen to A8B!# DP s!'#
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Ta(le "&
Sensiti=ity of L%cky Cement s Y".E earnin8s to coal +ricesScenario " Scenario ) Base case Scenario . Scenario /
3oal price A8B@ton !># !!# !5# & %#.5& %$.(&=?IT0- margin '>."& '%.$& '$.'& '".!& ',"!( ',5## ',> ',#'5 ',($"=arnings impact C!%.%& C(.>& (.>& !%.%&
Source: Company data, Credit Suisse estimates
i8%re )"
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FY09 FY10 FY11 FY12E FY13E FY14E FY15E0
1000
2000
3000
40005000
6000
7000
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i8%re ).
FY09 FY10 FY11 FY12 FY13 FY14E FY15E10
15
20
25
30
35
40
45
I ($!as! i .$%ss "a$.i 8%$ t9! FY13
L % 'G+ D KC A e.age
Percenta8e
Source: Company data, Credit Suisse estimates
EXPORTS AS A MEA! A*AI!ST P:R 3EPRECIATIO!
The weakening external account situation and its negative impact on the upee raises concerns
on the possible negative impact on cement, as coal and furnace oil costs D#& of total production
costE are considered in A8 dollars. 4hile P2 depreciation inflates the cost profile of cement
majors, dollar based exports D>!& of totalE provide more than a perfect hedge. It is estimated that
for #& upee depreciation, there is an increase in average production cost by approximately >&,
but it also improves revenues by !&. Provided /ucky has a higher )uantum of exports >.' mntons versus !.' mn tons for 0123, every #& P2 depreciation improves /ucky’s earnings by
5.$&. I n contrast , the net impact on 0123’s earnings from a #& P2 depreciation is a small
C5.>& change.
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Ta(le ")
Sensiti=ity of P:R6US9 +arity on L%cky Cement
All fi8s in P:R mn 4"&> 4'> Base case '> "&>P2 @A8B "$.'& #5 ",'55 ",'%< ",%5!& change C!.>& C5.$& 5.5& 5.$& !.>&
Source: Company data, Credit Suisse estimates
Ta(le ".
Sensiti=ity of P:R6US9 +arity on 3*:C
All fi8s in P:R mn 4"&> 4'> Base case '> "&>P2 @A8B "$.'& #,$$# #,$! $,#(%3oal cost #,%'5 #,(!$ $,5!< $,'!" $,$'%
:et profit ','5' ',>& 5.5& C5.>& C5.%&
Source: Company data, Credit Suisse estimates
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LUC:Y AS T
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RE ERE!CES
DA818 inerals InformationM ineral 3ommodity 8ummaries, >5!'E
D3ement C -n Lverview 8ector 8tudyMThe Pakistan 3redit ating -gency, >5!%E
D=xport -nalysis -ll Pakistan 3ement anufacturer -ssociation, >5!%E
DInstalled 3apacity -ll Pakistan 3ement anufacture -ssociation, >5!%E
D*inancial 0ataM 0ebt and =)uity -ll Pakistan 3ement anufcturer -ssocition,
>5!%E
D*inancial 0ataM Profit and /oss -ll Pakistan 3ement anufacturer -ssociation,
>5!%EDPakistan ?ureau of 8tatistics, >5!'E
D inistery for Planning, 0evelopment 7 eforms, >5!'E
D8tate ?ank of PakistanM 8tatistics of the ?anking 8ystem Kuaterly =dition, >5!%E