Cement Sector

Future Outlook

ByMujtaba Haider QadriCement Sector

Global Economic ScenarioWorld Gross Product growth in 2014 was 2.16% it is expected to grow 3%.Economic situation is weak in Europe with recession in some areasUSA economy may expand at about 2.8-3%.Africa is expected to retain its momentum in growth of more than 4.5%. South Asia is expected to pick up growth between 4-5.5% with India to lead it. Reduced oil prices has lowered inflation pressure in the region with risks associated with global feebleness and regional political issues. Iraq, Palestine, Syria, Yemen and Ukraine conflicts had and will give hard time in growth.

Global Economic ScenarioSanctions lifted from Iran will decline the oil prices but threat for the cement sector since Iran is able to produce on lower cost of production.Reduction in Oil price will enhance profitability of the Cement sector.Anti dumping tax imposed in South Africa will have an adverse impact of cement sector.Slowed down growth of china may impact regional market negatively.

Pakistan Economic ScenarioPakistan is witnessing high development.CPEC is in progress and other escalated development in the country leads to higher demand of steel & cement.Reduced Oil price have resulted into the lower Petrol & Electricity prices consequently increasing profitability of cement sector.Lower interest rate may reduce the cost of debt of the companies.Regional tensions may have an adverse impact on the market.

Lucky Cement

Introduction7.75 Million tons Production capacity.

Market leader of Cement sector with 19.2% Market share

1st company to install waste heat recovery plant therefore low cost producer

Performance (2014-15)Company maintained 19.2% of its market share.

Over all growth was 2.7% with sales volume at 6.79 Millions tons.

EPS was PKR38.44 which is YoY 9.6% higher.

The capacity utilization has reached to 92% which is 3% higher than previous year.

7.9% sales increased previous year

Per ton cost of Sales was reduced by 1.9%

Major NewsAcquired ICI Pakistan to diversify the business.

5MW WHR is initiated in Pzeru and Karachi.

Tariff petition with NEPRA & PESCO was signed.

NEPRA has signed the agreement with LUCKY.

Investment was made in associated company in 50 MW wind farm.

Annual DPS & EPSYearDividends per shareEarning Per Share20104.009.7020114.0012.2820126.0020.9720138.0030.1520149.0035.0820159.0038.44

Lucky Cement (Future Outlook)Future of Lucky cement seems to be very bright.

Overall Cement sector is expected to witness boom amid CPEC implementation.

Massive civil work in country is being carried out in real estate as well as developments of Project.

High local demand is expected

Exports are expected to decline due to cheaper rates by Iranian company.

South Africa imposed tax on cement imports.

Negative impact of decline in exports is expected to set off by the high local demand

Fauji Cement (FCCL)

Performance (2014-15)Industry dispatches were 35.40 Miliion tons28.20 MT were local dispatches and 7.20 MT were export dispatches.Increase in local dispatches were 7.80% however; 11% were decline in exports.Capacity utilization of FCCL was 75% as compare to 72% previous year.Gross profit was 38% as compare to 35% last year.PAT was 4116 Millions as compare to 2626 Millions last year.

Performance (2014-15)Cost of Production was reduced by 3% Company successfully service the debt of 3.1 Billions from its cash flowsTax was reduced 3% from 33% to 30% due to reduction in deferred tax.Waste Heat Recovery plant is installed and inaugurated in may 2015 which will reduce cost of production.

DPS & EPSYearDividends Per shareEarning Per Share201512.9120140.751.8020131.251.42201200.29201100.34201000.30

Future OutlookHigher local demand of cement in the country.Company capacity utilization and profit increased by 3%Cost of Production is reduced by 3% with the help of WHR installed in 2015Tax was reduced by 3% by curtailing deferred tax.Company successfully service the debt of 3.1 billion from its cash flowTherefore investing in FCCL would be beneficial and profitable.

DG Khan Cement

Performance (2014-15)During FY15 clinker & cement production declined by 2% & 3.4% respectively.Plant operated at 87% as compare to 89% previously.Plant operated for 750 days as compared to 815 days due to maintenance and reduced exports.Cement production declined by 3% with 8% growth in local salesIn local market company has 11% market share & 9% in exports.Cost of sales increase by 3.6% due to Gas & Electricity prices jumped by 14%

DPS & EPSYearsDividend per ShareEarning Per Share2015517.4020143.513.622013312.5620121.59.38201100.45201000.72

Future OutlookDespite the fact that the company operated less operating days and DG Khan cement has not planned any cost reduction strategy but company has higher EPS & DPSIn future profitability of the company is expected to rise because of increasing demand in the local market.The price of this stock is expected to rise.

Maple Leaf Cement (MLCF)

DPS & EPSYearDividend Per ShareEarning Per Share2010-(7.08)2011-(3.72)2012-0.842013-6.112014-5.3620152.006.55

Future Outlook

Financial projections of the company is very good, growth is expected locally as well as internationally as new potential markets are explored. Company has escalated marketing strategy to acquire greater profit and sales. Since energy crises is intensifying day by day so company has made an energy team which is striving to get the best possible alternative sources. Work is being done actively on coal fired power plant and it is expected to be in operation in the year 2017.

Future Outlook

Company is expecting a growth in the profitability because of the increase in the demand of the cement due to the massive civil work carried out in the country.

Electricity and oil prices have declined which would reduce the cost of production making higher profitability.