DG Khan Cement Report SA

7/28/2019 DG Khan Cement Report SA

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DG Khan FL Smidth, Denmark 1992 - 200 2,200

DG Khan FL Smidth, Denmark 1998 3,300 - 5,500

DG Khan FL Smidth, Denmark 2005 - 1,200 6,700

Khairpur FL Smidth, Denmark 2007 6,700 - 13,400

Today, DGKCC has a production capacity of appox. 14,000 tons per day (4.200 million tons/annum).

VISION STATEMENT

To transform the Company into modern and dynamic cement manufacturing company with qualified

professional and fully equipped to play a meaningful role on sustainable basis in the economy of

Pakistan.

MISSION STATEMENT

To provide quality products to customers and explore new markets to promote/expand sales of the

Company through good governance and foster a sound and dynamic team, so as to achieve optimum

prices of products of the company for sustainable and equitable growth and prosperity of the Company.

INTERNAL ISSUES

Location always matters, in southern Punjab there is not enough cement factories other than DG

Cement. The company produces OPC and SRC but there is also a room of new product in existing market

for producing the White Cement. DGKCC has exceptional strength to maintain high quality control

through online X-ray analyzer and computer controlled systems so that cement dispatches to customers

at Zero defect quality. DGKCC has broken a world record in operational excellence to get a lot of

achievement awards.

The 23.84 MW (four generators of M/s Niigata of Japan) were installed at DG Khan Plant Site in 1995

and increased to 25.5 MW in 2006 to ensure continuous and smooth operations because uninterrupted

power supply is very crucial and lowering dependency on WAPDA power supply. DGKCC installed duel

fuel (Gas and Fuel Oil) power generation plant in September 2007 having total power generation

capacity of 33 MW at Khairpur Site. DGKCC have own power generation 82.34MW with addition to

WAPDA 56.8MW. Keeping in view prevailing power and gas loadshedding in country, DGKCC invest in

Refused Derived Fuel (RDF), a modern technology that uses the municipal waste and other means to low

cost fuel to produce energy industrial and agricultural wastes, cotton sticks, corn cops, rice husk and rice

powder, municipal waste etc. Furthermore, DGKCC is going to start power generation from waste heatrecovery at Khairpur cement plant. The project is expected to generate 8.5MW. Plant & machinery will

be supplied by M/s. FL Smith Denmark.

ORGANIZATIONAL STRUCTURE

Organizational structure is divided into two geographical areas. Key executive are well organized. The

Head Office/registered office are at Lahore.


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FINANCE

The profitability ratios of the company have shown a declining trend since after FY 05. The gross profit

margin increased in FY 06 only to fall in FY 07 and FY 08. The profit margin of the company has

decreased continuously along with return on assets (ROA) and return on equity (ROE). The profit after

taxation had declined by 33% in FY 07 due to lower net retention prices caused by a supply overhang in

the overall industry. Also the problem of rising input costs had begun in FY 07. This rise in cost of

production and raw material had continued into FY 08. However in FY 09, the boost in export sales lead

to an increase in the PAT and the profit margin was 2. 91%. The operating expenses had also increased

due to higher selling and distribution expenses but the increased sales revenue contributed to an

increase in PAT. The cement sector posted a reasonable growth of 9.4% as the total sales volume

increased by 2.94 million tons to reach 34.22 million tons by June 2010 from 31.28 million tons.

Although DGKC s volumetric sales grew by 28%, the sales revenue fell by 10% from FY 09 to FY 10 as Rs

16,275 million in FY 10 from Rs 18,038 million. This was mainly due to lower selling prices internationallyplus the tough competition within the cement manufacturers leading to price wars.

However, despite the decrease in sales revenue, the sales volume of the company increased locally by

45% from FY 09 to FY 10 due to increased private sector spending and higher support prices for

agricultural products by the government whereas the export sales decreased by 20% mainly due to a fall

in exports to India. Hence an overall increase of 28% in FY 10. The total cement and clinker sales of

DGKC had increased in FY 10 as higher production enabled it to largely tap the local market. Cement

sales rose by 28% but clinker sales fell by 60%.The cement sales in the company witnessed a growth of

15% in FY10 whereas DGKC witnessed a growth of 27% of sales volume. It also comprised of a 17%

market share in local sales. DGKC has a gross margin and profit margin which is almost similar compared

to the industry average of 15.15% and 1.4% respectively. However, its current ratio is 1.19:1 whereasthe industry average is of 0. 71:1. this means that DGKC is in a good position to meet its short-term debt.

The current liabilities decreased mainly as the provision of taxation reduced as profits fell and also

export sales fell. Current assets increased mainly due to increase in short-term investments.

The company is reasonably leveraged with a Debt to Asset ratio of 44% compared to the industry

average of 50%. This can be owed to its repayment of long-term loans The Return on Assets of 0. 5% is

marginally lower than the industry average of 1% mainly due to a reduced in sales revenue. Owing to

Mian Raza Mansha(Chief Executive

Officer)

Aftab Ahmed Khan(Director Finance)

Dr. Arif Bashir(Director

Operations)

Farid Noor Ali Fazal(Director

Marketing)

Inayat Ullah Niazi(Chief Financial

Officer)

Mohammad Aslam(Chief Information

Officer

) Khalid MahmoodChohan (Company

Secretary)

DG Khan Plant

DG (Works) GM (Admin & HR)

Khairpur Plant

GM (Admin & HR)

DG (Works)


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such factors, its Earning per Share is also Rs 0. 72 as compared to an average of Rs 2 which results in

lower investor confidence.

Production during FY 09, the demand for DG Khan Cement and clinker had fallen from FY 08 by 8% and

7% respectively due to the economic recession plus low developmental expenditure by the government.

However due to increased spending in the private sector and higher agricultural support prices provided

by the government to the rural sector the overall capacity utilization of the cement plants increased to

76% in FY 10 from 74% in FY 09. This led to an increase of 27% in DG Khan Cement s production from FY

09 to FY 10 as 4,908,593 m. tons.


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SOCIAL RESPONSIBILITY

Severely Decisions and policies are designed to customer satisfaction and long term relations with

customers and certainly educational scholarships are awarded to students as part of social

responsibility.

COMPETITORS

LUCKY CEMENT LIMITED

Lucky cement has been sponsored by the Yunus Brothers Group (YB Group) which is one of the largest

business groups of Pakistan based in Karachi and has grown up rapidly over the last 50 years.

Lucky Cement Ltd currently has the capacity of producing 25,000 tons per day of dry process technology.

Lucky Cement Ltd came into existence in 1996 with a daily production of 4,200 tons per day and now

rated amongst the few best plants in Asia. Lucky cement limited has outperformed its competition by

recording a 42.2% rise in its half year for 2010-11 the companys gross profit increased by 32.3% during

the half year as its net sales revenue improved by 13.9% to US $179.3m. To enhance the quality of

cement and for capturing new export markets lucky cement plans to replace its existing cement grinding

from Chinese suppliers located at Karachi plant with vertical mills from European suppliers.This

replacement will reduce the cost of production due to more energy efficient operations. Luckys local

sales increase by a profit after tax of US$ 21.0 M for the quarter ending 30 September 2011 ,33.8 higher

than the same quarter of 2010 when it made a net profit of US$ 15.7 m.

BESTWAY CEMENT LIMITED

Bestway Cement Limited is part of the Bestway Group of the United Kingdom and the company is a

major manufacturer and seller of cement. Bestways cement production capacity is set to more than

quadruple to over 6.0 million tonnes per annum, making Bestway the second largest cement producer in

the country.

Bestway has been a major exporter to Afghanistan and began exporting to India, Africa and Middle East

recently.The company commenced work on its first cement plant at Hattar, Haripur in NWFP.

Conversion to natural gas and then to coal has significantly reduced the energy cost component, which

at times constituted about 65% of the total production cost. Prior to the commissioning of Chakwal-I

and Mustehkam Cement, Bestway enjoyed more than 8% of the market share of the domestic market.

Successful introduction of its brand in Afghanistan and more recently in India, Africa and Middle East has

made Bestway one of the largest exporters of cement in Pakistan. Bestway Group took the strategic

decision of expanding its operations through the setting up of a 1.8 million tonnes per annum cement

plant near Village Tatral of District Chakwal, Punjab Province, Pakistan. This is the Groups second

Greenfield development project at a cost of US$ 140 million.

Bestway views itself as an important strategic component in the development of the South Asian and

Middle Eastern regions. The Company has been one of the largest exporters of cement from Pakistan

for more than a decade.Mustehkam Cement

Bestway decided to bid for 85.29% of equity of Mustehkam Cement Limited a 0.6 million tonnes per

annum capacity plant. Bestway Cement Chakwal-II


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In May 2006 the Group announced plans for the establishment of a second 1.8 million tonnes per

annum capacity plant adjacent to our existing operations in Chakwal at a cost of US$180.0 million. This

would be Bestways third Greenfield cement plant in Pakistan. This would be an identical plant to the

existing Line-1, having 1.8 million tonnes capacity. Bestway Cement is driven by high standards of

efficiency and quality. Bestways laboratories are equipped with state-of-the-art X-ray Fluorescent

Analyzer and Diffractometer technology. Bestway Group was a pioneer in introducing this technology in

Pakistan for the first time.

ASKARI CEMENT LIMITED

Askari Cement Ltd is under the management control of Army Welfare Trust (AWT). Askari Cement is

being premium brand in the domestic market.Askary Cement made a great market place. The plant

installed in 1994 is the latest 3000 tons per day single production line designed by FL Smidth of Denmark

and M/s Holder Bank Consultants of Switzerland-two renowned names of the Cement world. The

capacity of the plant has been enhanced by another 500 tons per day, by which the capacity comes to

3500 tons per day w.e.fjan 2006. Total Capacity of the plant has been enhanced by another 1000 tons

per day, by which the capacity comes to 5000 tons per day w.e.f. February 2006. Askari cement is

exported to South Africa, Sri Lanka, Sudan, Afghanistan, Tajikistan and other Central Asian. And also

Askari Cementis being used by most of the mega prestigious projects like:-

Ghazi Brotha Hydro Power Project Projects of Frontier Works Organization Housing Schemes of GHQ Pakistan Housing Authority Schemes Pakistan Railways Al-Ghurair Giga Pakistan (Pvt) Ltd.

Tarbela Dam Mangla Dam Raising NLC Benazir Bhutto International Airport Bahria Town PAF Kamra Sat Para Dam American Embassy Kabul Bagram Air Base Karakoram Highway Provincial Assembly - KPK Warsak Dam Moterway - M 1 Air Weapon Complex National Defence College New GHQ Islamabad


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ATTOCK CEMENT

Attock is located in the South Zone with a manufacturing plant in Tehsil Hub, Balochistan. The

operational capacity of Attock Cement is 1.7 million tons of Clinker and 1.7 million tons of Cement,

leading it to be a mid-sized operation in the country. The company is a member of the Pharaon Group of

companies, an international group invested in the manufacturing and power generation industries in

Pakistan.

Like any other company in the cement industry of Pakistan, Attock Cement also shined out in FY12 in

terms of profitability. The company's net turnover went up by about 24 percent in FY12 on a year-on-

year basis, helped mainly by better domestic prices of cement, while local sales volumes also improved.

Overall, gross profit improved by a whopping 70 percent during FY12 on a year-on-year basis.

Attock Cement has rewarded its shareholders with dividends in all the recent years, including FY09,

FY10, FY11 and FY12. Healthy growth in profitability and margins in FY12 have elicited positive

comments from research analysts about the company.

EXTERNAL THREATS

A global recession going these days is a big threat to cement industry as it affects export market.

Instability always remains threat to Pakistan and there is not as much growth and now the war like

situation in a country is really a big issue and ultimately affect cement industry. Mismanagement of

economic resources and poor law and order situation in Karachi, Balochistan and KPK smashed down

the economys potential during last four years.

IMF Package in future can cause to decrease GDP and economic development in Pakistan. This is also

cause to stop development of infrastructure. Unanticipated increase in interest rates or less than

expected demand growth might create severe crises for the sector couple of years forward.

The sharp decline in cement prices has been witnessed due to domestic competition amongcompanies

has dampened the profitability of the company. This increase in competition among

the players has further decreased the prices of cement in the local market. So the companydecrease the

prices of products in order to get high market as compared to its competitor.

Presently, the company is heavily burdened due to levy of Federal Excise Duty @ Rs. 750 per ton and

General Sales Tax @ 15% on duty paid value. In addition to Federal Excise Duty and General Sales Tax,

company is also paying the provincial levies (Royalty and Excise Duty) on acquiring of raw material for

production of cement i.e. lime stone, shale and clay.

Taxation and retail prices with other regional countries revealed that taxation in Pakistan is highest

while cement retail prices are lowest. Cement ranked biggest export of Pakistan. Industry of Pakistan

has been imposed indirect and direct tax of 30 million easts and Afghanistan Iran Middle East are biggest

exporter of Pakistani cement however India imposed ban on Pakistani cement exports. Deficiency of

electricity and oil in Pakistan has hurtled industry. Two major giants of cement industry of Pakistan

LUCKY cement and Dera Ghazi khan has made their plan for overcoming electricity shortages and waste

heat recovery waste it has helped them for costs cutting and has reduced dependence on Wapda.

Cheap availability of labor has made easy to cut costs more than 5000 employees are working in DG

Cement industry and 6000 in Lucky Cement Industry. Increase in the international prices of coal and oil

is a major threat. As Pakistan coal contains high percentage of sulphur due to which the company is not


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able to use the local coal as a source of energy. So the company has to import the coal from different

countries like South Africa, china and Indonesia at high prices. Rising cost of coal, fuels and packing

materials also badly hit the production costs. This has restricted the profit margin.

Documents

DG Khan Cement Report SA