Analysis of Pakistan Cement Sector

8/18/2019 Analysis of Pakistan Cement Sector

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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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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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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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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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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.!


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(.>& (.>& !%.%&


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


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.$& !.>&


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.%&



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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

Analysis of Pakistan Cement Sector

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