CEMENT SECTOR AN OVERVIEW

Transcription

1 CEMENT SECTOR AN OVERVIEW September 2015

2 Domestic Cement Industry Abstract Nature & Structure Dynamics Performance Capital Structure Upcoming Expansions Conclusion & Sector Outlook

3 ABSTRACT Pakistan s cement sector, comprising 18 players, has an operational capacity of 46mln tons. The sector operates with two regions North, having 81% share while South having 19% share of total operational capacity. Both regions have distinguished supply-demand dynamics, impacting sales volume. Local-Export mix (FY15: 80:20, FY14: 76:24) remained skewed towards domestic market. Further analysis reveals that local dispatches, on account of various on-going developmental activities and higher utilization of PSDP, witnessed growth (8%) which compensated the decline (~12%) in exports a factor of plunging demand from Afghanistan. Hence, the overall cement dispatches registered an uptick of 3% YoY during FY15. Cement players continued to hold prices, though slight rationalization has been witnessed to pass the impact of decline in fuel and power costs. Key challenges will be (i) availability of cheaper Iranian cement post elimination of sanctions, (ii) rise in political instability with Afghanistan, (iii) delay in materialization of CPEC, and (iv) entry of Chinese manufacturers in local market. Nevertheless, strong local demand fundamentals are likely to keep the outlook on Cement Sector Positive.

4 Industry Nature & Structure Nature of Product Commodity No substitutes 8 players dominating the industry with 70% capacity share Oligopoly Production arrangement among players Barriers to entry exists

5 Sr.# Company Rated players: 4 Rated Capacity: 27% CEMENT INDUSTRY STRUCTURE Cement (tons) Market Share (Cement) Status Plant Location Regions 1 Bestway Cement Limited 5,915,250 13% Listed Chakwal, Hattar North 2 PakCem Limited 2,485,445 5% Listed Chakwal North 3 Lucky Cement Limited 7,386,000 16% Listed Pezu and Karachi North/South 4 D.G.Khan Cement Limited 4,221,000 DG Khan and Listed 9% Chakwal North 5 Fauji Cement Company Limited 3,433,500 7% Listed Fateh Jang North 6 Maple Leaf Cement Factory Limited 3,370,500 7% Listed Daudkhel North 7 Dewan Cement Limited 2,898,000 6% Listed Hattar North/South 8 Kohat Cement Company Limited 2,677,500 6% Listed Kohat North 9 Gharibwal Cement Limited 2,110,500 5% Listed Jehlum North 10 Pioneer Cement Limited 2,030,250 4% Listed Khushab North 11 Cherat Cement Company Limited 1,102,500 2% Listed Nowshera North 12 Askari Cement 2,677,500 6% Un-Listed Nizampur North 13 Attock Cement Pakistan 1,795,500 4% Listed Hub, Lasbela South 14 Flying Cement Limited 1,197,000 3% Listed Lilla North 15 Power Cement Limited 945,000 2% Listed Nooriabad, Dadu South 16 Fecto Cement Limited 819,000 2% Listed Sangjani North 17 Dandot Cement Limited 504,000 1% Listed Jehlum North 18 Thatta Cement Limited 488,250 1% Listed Thatta South Total 46,056, % Geographical Capcacity Division North 81% South 19%

6 Cement Industry Production and Consumption Trend Capacity Increase: FY17: Commissioning of Cherat Cement Plant FY19: Commissioning of Attock Cement and DG Khan Cement Plants

7 Cement Industry Local Export Mix

8 Cement Industry Demand Drivers Government inclination towards infrastructure spending CPEC Infrastructure projects US$ ~12bln Energy projects US$ ~34bln

9 Industry Dynamics Supply Surplus Supply Dynamics changing Excess capacity cushion squeezing Demand *Projected

10 Industry Lifecycle Sales in PKR or Volumes Time With expected rise in demand Growth would intensify Expansions announced

11 Cement Industry Performance Retrun KSE-100 Cement FY15 16% 35% 1HFY15 8% 25%

12 Cement Industry Performance

13 Cement Industry Pricing

14 Cement Industry Efficiency

15 Bargaining power of Suppliers Bargaining power of Customers Coal Exporting Countries Low Power Suppliers High Government Medium Private Price takers Low Threat of Substitute Products No substitute available Low Threat of New Entrants / Expansion Heavy CAPEX requirements Low Expansion Existing players Medium Intensity of Competetive Rivalry Price and Production arrangement Low

16 Cement Industry Financial Structure

17 Cement Industry Upcoming Expansions Cherat Cement: Plant Capacity: 1.3mln tons p.a. Plant Technology: Chinese Estimated Cost: US$ 100mln Plant Location: Nowshera (North) Expected CoD: 2QFY17 [Jan.17] Attock Cement: Plant Capacity: 1.2mln tons p.a. Plant Technology: Chinese Estimated Cost: US$ 120mln Plant Location: Lasbela (South) Expected CoD: 3QFY19 DG Khan Cement: Plant Capacity: 2.5mln tons p.a. Plant Technology: Danish (FLSmidth) Estimated Cost: US$ 300mln Plant Location: HUB (South) Expected CoD: FY19

18 Key Challenges Threat of Iranian Cement to our North Exports Quantum of growth due to delay in CPEC and Govt. Conclusion Strong Local Demand Fundamentals Price Arrangement Expected to Continue Sector Outlook Positive

19 Analysts Saira Rizwan Assistant Manager - Ratings saira.rizwan@pacra.com Umer Farooq Financial Analyst umer.farooq@pacra.com Miqdad Haider Financial Analyst miqdad.haider@pacra.com Contact Number: DISCLAIMER PACRA has used due care in preparation of this document. Our information has been obtained from sources we consider to be reliable but its accuracy or completeness is not guaranteed. The information in this document may be copied or otherwise reproduced, in whole or in part, provided the source is duly acknowledged. The presentation should not be relied upon as professional advice.