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• GDP growth in year 2018 is expected to be around 5.5%. It is
expected to improve to about 5.8%-5.9% by 2022. This will
improve growth of Cement Sector.
• Brownfield expansion project by 20194Q. Between 2020-
Capacity will improve by 2.1 m Tonns. (Capacity of North Players
will improve from 38m Tons (2016) to 56m Tons, Share of MLCF
to improve from 9-10%). This will improve Sales.
• Seeing the past record we expect that Current Liabilities will go up
prior to 2019 Project. (Also Increase in Fixed Assets, …..)
• Power plan of 40 MW operational from August 2017. It will
reduce Cost.
• Exports have fallen but Local demand shooting up, thanks to Real
Estate, Dams, Motorways etc.
• Tax Rate: 31%
• Risk: Environmental Issues, More Strict regulations ….
• Dollar prices going up.
• Coal Prices…
• Oil prices to decrease from 72.5 to 67.5 dollars per barrel uptill
2019 April and then increase gradually…
These are the Components of COGS: (Ignore Rupees Column)
Items Rs. (per bag)
Raw material 124.
Packing material 22.
Fuel 28.
Power 22.
Salaries and Wages 34.
Stores 21.
Mfg. & Selling Overhead 22.
Operating cost 157.
Financial expenses 87.
Total Cash Cost 522.
The exchange rate of Pakistan can be seen having a depreciating trend as currency is
continuously devaluing in the upcoming years, but we should consider for it to be constant in the
upcoming years. Currently, it is 115.55 per dollar.
CARTEL:
In Pakistan, there is a cartel between a few cement firms namely DG cement, Lucky
cement, Maple leaf etc. These are the major competitors and the barriers of entry for new
emerging firms are much higher, so it’s highly unlikely for any new companies in the market. We
are considering no new competitors in the project.
COAL PRICES:
The coal prices in Pakistan are expected to increase in the future but at current they are
decreasing at rate of -2.33%. No matter they increase in future, this increased amount will not
affect their costs as all the costs will be shifted to the customer.
TAX RATES:
The tax rate of cement industry is seen to be fluctuating so we can’t deduce any trend
regarding it. So, the tax rate assumed in the project is tax rate of Pakistan which is 31%.
EXPORTS:
The exports of cement industry are expected to decrease in upcoming future but it won’t
have much effect as there will a greater sale of cement in local market due to construction of
many projects in Pakistan.
RISKS:
The risks involved in this market are:
i. delay in commencement of expansion project and/or coal power plant
ii. sharp surge in input cost (coal/gas/FO prices)
iii. local demand growth failing to sustain going forward
iv. greater than expected PKR/USD devaluation.
In Pakistan, there is a cartel between a few cement firms namely DG cement, Lucky
cement, Maple leaf etc. These are the major competitors and the barriers of entry for new
emerging firms are much higher, so it’s highly unlikely for any new companies in the market. We
are considering no new competitors in the project.
COAL PRICES:
The coal prices in Pakistan are expected to increase in the future but at current they are
decreasing at rate of -2.33%. No matter they increase in future, this increased amount will not
affect their costs as all the costs will be shifted to the customer.
TAX RATES:
The tax rate of cement industry is seen to be fluctuating so we can’t deduce any trend
regarding it. So, the tax rate assumed in the project is tax rate of Pakistan which is 31%.
EXPORTS:
The exports of cement industry are expected to decrease in upcoming future but it won’t
have much effect as there will a greater sale of cement in local market due to construction of
many projects in Pakistan.
RISKS:
The risks involved in this market are:
i. delay in commencement of expansion project and/or coal power plant
ii. sharp surge in input cost (coal/gas/FO prices)
iii. local demand growth failing to sustain going forward
iv. greater than expected PKR/USD devaluation.
GDP:
The growth of Pakistan’s GDP is 4.71% and we are not considering the growth of GDP
into consideration as we are accounting average for other years.
EXPANSION PROJECT:
The expansion project of Maple leaf cement will air in 2019 and it will increase share
price of maple leaf to Rs 25/share.
INFLATION RATE:
The inflation rate of Pakistan is 3.8% which is fluctuating between 4% and 3% since the
last few years. We are considering an average inflation rate in this project.
ENVIRONMRNTAL ISSUES:
Supreme court filed a case on cement companies from expansion due to drying of Shiri raj temple pond. But it is a relief for Maple leaf as the case filed by EIA is set aside by Lahore high court and they have allowed maple leaf to expand.
POWER PLANT:
Power plant will reduce electricity costs and provide tax benefit. But, this tax benefit is not included in our project as we are considering the tax rate of Pakistan which is 31%
CPEC:
CPEC will also play a major role in it as there would be construction projects and roads etc.
Also, Housing schemes like Apna Ghar will increase demand for cement, so the company should increase supply to meet this demand. But, we are considering the average to get annual revenues.
Unemployment RATE:
The unemployment rate in Pakistan is 5.9% but the use of it is outside the scope of our project.
AMNA
Assumptions:
⁃ Expansion project of Maple Leaf will start in 2019, will increase share price
⁃ CPEC
⁃ Anticipated surge in local cement demand, lower coal prices and rising cement prices, earnings of Maple Leaf are expected to rise
⁃ Gross margins are likely to improve as well
⁃ Export demand seems dismal
⁃ For Northern cement industry dependence on exports is much lower compared to the South
⁃ The focus of the govt on spending on projects such as Diamer-Bhasha dam, extension of Tarbela IV project, development of low cost housing schemes and other infrastructure projects will probably increase the demand for cement
⁃ Also major rehabilitation of Mangla, Tarbela and Warsak power stations
