Final Report of AFS

7/30/2019 Final Report of AFS

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Financial Analysis of Cement Industry of Pakistan

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In the name of ALLAH, The Most Merciful, the Most Kind


Lucky Cement & D.G. Khan Cement

Submitted to:

Ms. Farhia Bashir

Submitted by:

Mahmood Khan MB-10-74

Ayesha Sehar MB-10-55

Shahid Abbas MB-10-59

Atiya Batool MB-10-39

Azam Jan MB-10-78

MBA (Morning)

6th Semester (2010-2013)

INSTITUTE OF MANAGEMENT SCIENCES

BAHAUDDIN ZAKARIYA UNIVERSITY

MULTAN PAKISTAN


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DEDICATIONS

Dedication is a devotion to whom we love ,who are

benefactors , who prays for us and who made us capable

of doing all these under this head , there are two

Personalities which are our Parents , our Teachers. So we

have devoted our report to our beloved PARENTS AND

beloved TEACHERS.


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Preface

As the world is growing rapidly, the businesses are also moving to become the

huge one. And by that result, more and more people want to become a master

in these businesses. The main purpose in the finance field is to know how the

financial analysis is done. We all know that finance is the blood of any business

and without it no business can run. Financial analysis of a company is very

difficult and the most important task and by doing this we are able to know the

whole financial position and financial structure of the company.

Simply by looking at how much cash a company has does not provide enough

information. The financial statements need to be analyzed to measure a

companys performance and to compare it with other firms in the same

industry. The resulting information is intended to be useful to owners, potential

investors, creditors, analysts, and others as the analysis evaluates the past

performance, future potential and financial position of the firm.

This report is an analysis of financial statements of Lucky Cement Company &

D.G. Khan Cement Company This report has been prepared with an objective to

develop analytical skills required to interpret the information (explicit as well as

implicit) provided by the financial statements and to measure the companys

performance during the past few years. The financial statements are analyzed

using traditional evaluation techniques such as horizontal analysis, vertical

analysis and trend analysis. Ratios are an important tool in analyzing the

financial statements & the companys profitability, solvency & liquidity. Sincere

attempts have been made to make this report error free but if any errors and

omissions are found then I apologize for that.


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Acknowledgement

In the name of Allah, the most beneficent and merciful who

gave us strength and knowledge to complete this report. This

report is a part of our course Analysis of Financial Statement.

This has proved to be a great experience. We would like to

express our gratitude to our Finance teacher MS FARHIA BASHIR,

who gave us this opportunity to fulfill this report. We would also

like to thank our colleagues who participated in a focus group

session. They gave us many helpful comments which helped us a

lot in preparing our report.


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Sr. No List of Content Page No.

1 Dedications 2

2 Preface 3

3 Acknowledgement 4

4 Pakistan Cement Sector Overview 6-12

5 Lucky Cement Company Limited 13-16

6 Horizontal and Vertical Analysis of Lucky Cement 17-20

7 D. G. Khan Cement Company Limited 21-24

8 Horizontal and Vertical Analysis of D. G. Khan Cement 24-29

9 Ratio's Analysis and Interpretation 30-48

10 Short term and Long term Credit Rating 49

11 Recommendation 50

12 Sources 51


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PAKISTAN CEMENT SECTOR OVEREVIEW

Cement is one of major industries of Pakistan. Pakistan is rich in cement raw material. Currently

many cement plants are operating in private sector. Pakistan Cement Industry has huge potential for

export of cement to neighboring countries like India, U.A.E, Afghanistan, Iraq& Russian States. There

has been a robust growth of cement demand seen both in domestic and exports market during the

financial year ended June 30, 2007. The industry achieved an overall growth of 32% with domestic

demand of cement increased by 24.95% whereas the exports increased by 111.86%. The overall

growth achieved by many cement factories for the year under review was 111.29% consisting of

domestic and export markets at 71.02% and 335.12% respectively. Pakistan ranked 5th cement

exporter in World.

Business Outlook

After 2007 & 2008 financial meltdown, the world is now witnessing a new series of alarming

situations, from Middle East unrest to USA economic weakening, from natural disasters, to violence

in South Asia. Europe is also in a vicious cycle of high debt and low growth. Changing global scenarios

are impacting our domestic environment as well. Trade and not trade related exposure to various

geographical areas have innumerable mark on our country. Our revised GDP growth remained at

3.7% from originally planned 4.2% in 2012. Despite minor growth in Construction sector (6.4%),

Pakistan's overall manufacturing sector operated below production capacity. Energy is considered tobe the lifeline of economic development. Severe shortfall in Power generation, diminishing supply of

natural gas and increase in prices of fuel were also major contributor towards the low GDP growth

during the year. The situation further deteriorated by heavy rainfall in August 2011, in Sindh and

adjoining areas of northern Balochistan caused severe damage to crops, infrastructure and human

settlements. Overall impact of this natural disaster is estimated around PKR 324 billion there was a

decrease in Foreign Direct investments by 68% due to political instability. Moreover poor Law and

order situation in Karachi and Balochistan also shackled the confidence of investors.

Global Cement Industry

Globally cement industry grow dynamically with most of the actions taking place in emerging

economies. Despite the ongoing financial crisis the global economy is facing, the need for housing

and continued government investments in infrastructure development by emerging economies is

offsetting downturn in mature markets. Though, at present, demand is growing, but at a decelerated

pace. However, this phase is momentary and long-term projections indicate healthy demand

growth, as world economy is stabilizing and constructionactivities are also picking up across global

markets into the next decade. Due to prospective increase in cement demand Asian cement industry

is investing heavily in Indonesia, Myanmar, Thailand, Laos and Cambodia

Domestic Cement Industry


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The problems that beset Pakistan's cement industry last year seem to be continuing in 2012.

Increased competition from the Middle East has badly affected the country's export market.

Pakistan's cement industry's rated capacity is 44 million tons per annum and industry's average

operations during FY12 was about 73% as compared to 74% last year. Inflationary pressures were

immense in the country. Out of the 73% utilization 74% was sold in domestic market while 26% was

exported. India, Afghanistan, Sri Lanka, Iraq and African continent countries are among the major

importer of Pakistan cement.

Important information about Industry

Pakistan cement factories continue to make significant progress in cement exports. Now Pakistan is

ranked 5th in the worlds cement exports after a huge increase of 47 percent in exports during last

fiscal year.

According to the Global cement report, China maintained first position with 26 million tonnes in

exports, while Japan got second position by exporting 12.6 million tonnes of cement. Third largestcement exporter in world is Thailand with around 12 million tonnes, followed by Turkey which

exported 11.6 million tonnes of cement. Pakistan now at 5th position has left Germany behind by

exporting 11 million tonnes of cement during last fiscal year. Germany now stands at 6th position

with 9 million tonnes exports.

Cement market experts told that Pakistan secured 5th position because of high demand of cement in

nearby countries and by capturing new markets such as African countries, Qatar & Iraq. Pakistan

could achieve the mark of 13 to 14 million tonnes exports by the end of the fiscal year keeping in

view Indian market which has once again started importing cement from Pakistan. The export of

cement from Pakistan to India showed a sharp decline after Mumbai attacks.

According to the All Pakistan Cement Manufacturers Association (APCMA), local dispatches were

19.3 million tonnes (down 14 percent YoY) however exports showed an encouraging increase of 47

percent (YoY to 11.3 million tonnes) during the last fiscal year.

According to experts, important factors contributing towards growth of cement sector are Record

Public Sector Development Programmed allocation (Rs 621 billion) in the budget FY10, reduction in

excise duty by Rs 10 per bag and declining interest rate scenario.

Local demand of cement in Pakistan will remain on high side due to the reconstruction activities of

devastated homes, shops and schools in Swat and Malakand after Military operation. OverallPakistan cement industry dispatches are likely to grow 7 percent in July 2009. The growth in cement

dispatches is solely attributable to rising export volumes as domestic demand remained depressed

on every comparable time period.

Overall cement plants of Pakistan operated at 80 percent capacity utilization as compared with 81

percent utilization in the same month of last year. Although Lucky Cement has claimed 100%

utilization during last year. Cement exports of Pakistan continue to show healthy and positive

growth trend and recorded 45 percent growth on Y-o-Y basis. However, on M-o-M basis, cement

exports represented a decline of 3 percent.


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Weight of sea based cement exports during the month was recorded at 68 percent in overall cement

exports as compared to 63 percent in July 2008. It is important to note that cement exports to India

during the month were recorded at 63,000 tonnes, which is lower when compared with the initial

monthly average of 100,000 tonnes.

The cement industry of Pakistan entered the export markets a few years back, and has establishedits reputation as a good quality product. The latest information is that India will import more cement

from Pakistan. So far 130,000 tonnes cement has been exported to the neighboring country.

The last few years have been a golden period for cement manufacturers, when the government

increased spending on infrastructure development. High commercial activity and rising demand for

housing on account of higher per capita income has kept cement off take growth in double digits.

During the financial year-07, cement sales registered a growth of 31 percent to 17.53 million tonnes

as against 13.5 million tonnes sold last year. The cement sales during July-February-08 showed an

increase, both in domestic and regional markets to 18.17 million tonnes. The domestic salesregistered an increase of 7.2 percent to 14.4 million tonnes in the current period as compared to

13.5 million tonnes last year whereas exports stood at 3.7 million tonnes as against 1.8 million

tonnes in the corresponding period last year, showing an increase of 110 percent.

The cement sector is contributing Rs 30 billion to the national exchequer in the form of taxes. This

sector has invested about Rs 100 billion in capacity expansion over the last four years. There are four

foreign companies, three armed forces companies and 16 private companies listed in the stock

exchanges. The industry is divided into two broad regions, the northern region and the southern

region. The northern region has over 87 percent share in total cement dispatches while the units

based in the southern region contributes 13 percent to the annual cement sales.

The cement demand grew 19 percent and 13 percent during FY05 and FY06 respectively. During the

first nine months of FY07-08, production increased by 30 percent as compared to last year. The

demand for cement was forecasted to grow by 26 percent during FY07 and 17 percent in FY08. The

per capita consumption of cement has risen from 117 kg in FY06 to 131 kg in FY07.

The main factors behind increase in demand of cement were: 60 percent higher Public Sector

Development Projects (PSDP) allocation, seven percent GDP growth, increasing number of real

estate development projects for commercial and residential use, developing export market and

expected construction of mega dams. The operating capacity of cement in FY05 and FY06 was 18

million and 21million tonnes, which rose to 37 million tonnes by the end of FY07.

The cement manufacturers added eight million tonnes to the capacity and the total production was

expected to be 45 million tonnes by the end of 2010. It may result in a supply glut of 11 million, nine

million and seven million tonnes in 2008, 2009 and 2010 respectively. Despite an excess supply of 11

million tonnes in 2008, it is estimated that the price would increase in domestic as well in regional

markets that may surely boost the profitability and give relief to the industry on its new investment.

The cement demand would increase in future due to government policies as the Pakistan Peoples

Partys (PPPs) slogan has always been roti, kapraaurmakan (bread, clothing and housing). In this


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regard a statement of the new government confirmed that it would encourage industries and

construct small dams.

As cement capacity is increasing to cater the rising domestic and regional demand, it started facing a

tougher time because of price fall after the first quarter of FY06 due to increase in supply, energy

prices started surging and higher expansion led to mounting finance and depreciation costs. Afterreaching Rs430 per bag at the retail level earlier last year, cement prices fell sharply during 2007.

Average cement prices were Rs 220 per bag as on April 27, 2008, as compared to Rs 315 per bag in

2006.

Yearly Average Input Rate, Inflation & US $ Exchange Rate

However, the cost and exports may be affected due to weakness of the US dollar causing coal,

electricity charges and freight prices, comprising 65 to 70 percent of the cost. The PSDP allocation

has been cut by Rs 75 billion and feared further cuts would curtail cement demand. Major capacities

of countries like India and Iran are expected to come online by FY10 and onwards which are likely to

convert these countries from dependent importers to potential exporters.

Moreover, this rising trend is expected to be short-lived due to higher interest rates and inflationary

concerns are likely to make it disadvantageous for investors to enter the construction industry. In

addition to this, to control real estate prices the government is considering imposing a tax on it.

The export may reach to $ 500 million increase during 2008. Data for the first quarter of FY08 shows

that Afghanistan is Pakistans largest cement export market. The prospects for cement exports seem

bright in the medium term due to rising domestic as well as regional cement demand. Pakistan also

achieved improved access to India after the complete removal of the 12.5 percent custom duty on

Portland cement imports in this country from January 2007, showing improved export opportunities

for Pakistan. India is planning to import more cement from Pakistan to stabilize prices in the market

and the government wants a balance in demand and supply of cement in the current fiscal year.

The import of cement from Pakistan has increased manifold during last four months. India has

registered a number of Pakistani cement manufacturers, a requirement to facilitate import of


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cement. Pakistan has already increased the frequency of trains from one to three in a week to carry

cement from Pakistan to Wagah border. Due to boom in the construction industry, India needs

cement in bulk to meet its growing needs. The success of the sector depends on exports, its

profitability from depressed local prices and cost appreciation. The exports for FY08 have already

surpassed the last whole years export of 3.19 million tonnes and are likely to reach to 6.67 million

tonnes in 2008.

The targets for exports for 2009 and 2010 are set to be 9.99 million and 10 million tonnes

respectively. Currently, the export demand is expected to be from new inductee India along with

other countries like Gulf Cooperation Council (GCC) countries, due to rising oil prices-led economic

growth. More countries like South Africa to make the football stadiums for the World Cup and Sri

Lanka are also expected to approach Pakistani companies for cement imports. However, export

depends on factors such as: ability to produce cement at Rs 85 per bag. Export strategy should be

made for at least three years, 2008-10, after which new plant will start production in the region. In

the meantime industry should explore new markets for export or ready to lower prices of cement in

local market.

To break-up cartel the Competition Commission of Pakistan raided the offices of Association of

Cement Manufacturers of Pakistan and confiscated computers and office record. The association

condemned this action and said it is against business norms. They said the commission is blaming

cement manufacturers for making a cartel for the last 10 years but could not able to prove it.

Positive outlook of Cement Sector

Local sales of cement have started rising during this fiscal year on the back of a slight

recovery in construction activities. Butexports continue to decline due to non-tariff barriers

in India and sluggish demand in Afghanistan.

According to the All Pakistan Cement Manufacturers Association (APCMA), cement dispatches

from manufacturing plants to both local and foreign markets totaled 10.474 million tonnes in July-

October 2012, against 10.436 million tonnes in the same period of last year. But domestic sales

have compensated for the decline in exports.

Domestic sales are going up as the construction activity picks up pace, chiefly due to demand of

cement for public sector projects including a few small dams, roads and bridges and also due to

construction and renovation of housing units by individual households and constructioncompanies.

One pointer to increased construction activity is phenomenal rise in profits of cement companies

in the last fiscal year.

Construction sector was also seen in the forefront in the recent rally in stock exchange. Some

cement companies reported over 30 per cent profit for FY12 and the construction sector

accounted for more than 30 per cent of the total gain in trade volumes at KSE during the week


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that ended on November 2. Not only listed cement companies have offered good dividends but

their shares are also becoming pricier day by day.

In FY12, cement sector also witnessed capacity addition of about three million tonnes per year

after the commissioning of a new manufacturing plant of Fauji Cement Company Ltd. This, along

with the reduction in excise duty on cement and initiation of some infrastructure projects in the

public sector had resulted in three per cent rise in overall sales of cement besides pushing up the

profitability of this sector by eight per cent. The trend is continuing in this fiscal year which also

saw further reduction in excise duty on cement. In FY12 and FY13 the government has made a

cumulative cut of Rs300 per tonne on excise duty,

bringing it down to Rs400 per tonne from Rs700 in FY11.

Currently, cement sectors capacity utilization stands around 70 per cent and cement makers

believe it can increase further if construction activity keeps expanding. In mid 90s and in mid-

2000s cement sector had recorded capacity utilization of up to 90 per cent.

Realtors in Karachi say that prices of plots have been on the rise since the beginning of this year

after remaining flat for several years in a row. In posh localities like Defense and Clifton the

price-hike has been higher than in other localities primarily because well-off people are shifting

their residence from violence-hit areas. But in localities like Gulistan-e-Jauhar, Nazimabad and

North Nazimabad, too, construction activity is expanding and new commercial and housing units

are being built, both by professional builders as well as by households.

Big construction activity is now taking place in North Nazimabad and North Karachi where some

new shopping malls are being built and people are either building new houses or renovating the

old ones insists a project manager of Saima Construction Company that is constructing new

projects in these areas.

Besides, with the city government in Karachi more active, construction work has begun on

flyovers and roads. In other cities most notably in Multan and Faisalabad huge construction

projects are underway, both in infrastructure as well as in residential housing.

And in addition to all this, faster release of money meant for public sector development projects

like small dams and bridges have also led to larger off-take of cement and other constructionmaterial besides creating a perception of revival of construction industry.

The Diamer Bhasha dam project has further reinforced this perception as cement industry people

believe that if work on construction of this dam goes on as planned, it will create additional

demand for eight to nine million tonnes over next seven to eight years.

Right now, construction companies, individual households and some NGOs are also busy in

reconstruction of housing units that were damaged during the super floods of 2010.


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Whether its reality or perception or a mix of both, we really see increased activity in construction

industry in near future, says a former chairman of Karachi Stock Exchange. Thats one reason

you see cement stocks performing far better than in the past.

Since activity in construction industry depends largely on overall economic growth, cement sector

growth had remained subdued in the last few years in Pakistan. But with the economy now set to

grow at 4.5 per cent during this fiscal year,

construction industry is also likely to grow faster thereby pushing up domestic demand of

cement.

But things are not so good on exports front. APCMA Chairman Aizaz Mansoor Sheikh complains

that due to non-tariff barriers, Pakistans cement exports to India has plunged 37 per cent year-

on-year to just 158,000 tonnes between July and October this year.

Exports to Afghanistan have also declined by more than nine per cent to 1.634 million tonnesduring this period but, in this case the reasons, are different. Growing political instability in Kabul

ahead of withdrawal of foreign troops from the country has slowed down construction projects

there, says an official of DG Khan Cement.

Cement manufacturers say that exports of cement to foreign markets including South Africa and

East Africa (but excluding India and Afghanistan) have been on the rise during this fiscal year but

higher freight costs act as a dampener.

We need to export large volumes of cement to India through land routes to remain cost

effective, says an official of the southern region of APCMA.

But our government should stress upon the Indian authorities to remove non -tariff barriers like

dilly-delaying in issuance of import certificates to Indian buyers.

In FY11, Pakistan had exported a huge quantity of clinker to Bangladesh. But in the last fiscal

year no such thing happened.

However, exporters are optimistic of growth in cement exports to Bangladesh and Sri Lanka. Sri

Lanka has recently shown interest in importing Pakistani cement on a long-term basis.

Bangladesh is going to undertake big infrastructure projects (including World Bank-funded

Padma Bridge in Dhaka), that will create huge demand for

cement in future. If we work on it in advance we can get big export orders, said an exporter with

past experience of exporting clinker to that country.


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LUCKY CEMENT COMPANY LIMITED

Sponsored by well known Yunus Brothers Group one of the largest export houses of

Pakistan, Lucky Cement Limited currently has the capacity of producing 25,000 tons per day

of dry process Cement.

Lucky Cement Limited (LCL) is Pakistans largest producer and leading exporter of quality

cement with the production capacity of 7.75 million tons per annum. The company is listed

on Karachi, Lahore, Islamabad and London Stock Exchanges.

Over the years, the Company has grown substantially and is expanding its business

operations with production facilities at strategic locations in Karachi to cater to the

Southern regions, Pezu and Khyber Pakhtunkhwa to furnish the Northern areas of the

country. Lucky Cement is Pakistans first company to export sizeable quantities of loose

cement being the only cement manufacturer to have its own loading and storage terminal

at Karachi Port.

Lucky Cement is an ISO 9001:2008 and 14001:2004 certified company and also possessesmany other international certifications including Bureau of Indian Standards, Sri Lankan

Standard Institute, Standards Organization of Nigeria, Kenya Bureau of Standards and South

African Bureau of Standards.

Other exclusive attributes that allow Lucky Cement to stand ahead of its competitors is the

transportation fleet of 77 bulkers as well as 2 ship loaders.

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

currently is an omnipotent cement plant of Pakistan, and rated amongst the few best plants in Asia.

With production facilities in Pezu (Production capacity: 13,000 Tons per day) as well as in Karachi(Production capacity: 12,000 tons per day), it has the tendency to become the hub of cement

production in Asia.

Lucky Cement

Lucky Cement Limited, touted as the largest producer and leading exporter of cement in Pakistan

operates under the umbrella of Yunus Brothers (YB) Group. YB Group is an internationally

recognized group having business concerns in varied sectors such as cement, textile and energy. The

group not only caters to the local market but is also one of the chief export houses of Pakistan. The


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company is also very vigorous in social activism, as it operates state-of-the-art, not-for-profit

hospitals, Tabba Heart institute and Aziz-Tabba Kidney Centre. Lucky Cement Limited is an ISO

9001:2008 and 14001:2004 certified company which is listed on all the three stock exchanges of the

country. The company has an annual production capacity of 7.75 million tons. Over the years, the

company has substantially grown its production operations with manufacturing facilities at strategic

locations in Karachi to cater to the south region, Pezu and KPK to supply to the northern areas of the

country. Lucky is the only cement manufacturer to have its own loading and storage terminal at

Karachi Port. Another noteworthy factor that distinguishes Lucky from its competitors is its exclusive

supply chain with specialized loose cement carriers and ship loaders. Performance Snapshot FY12

concluded as the best performing year in the history of the Company. During the year, the Company

achieved various milestones including sales revenue reaching Rs 33.3 billion; up by 28 percent

compared to the previous year owing to an improvement of three percent in sales and 25 percent in

the retention prices. The phenomenal performance that began at the top, cascaded down to the

floor, resulting in the highest ever bottom line figure of Rs 6.78 billion in FY12. This represents a

robust growth of 71 percent over and above last year. During the period under review, the Companywas able to dispatch 5.97 million tons of cement. While domestic sales thrived strikingly by seven

percent, export sales volume registered a downturn of four percent clocking in at 2.25 million tons

as against 2.36 million tons, last year. However, overall sales volume surged by a respectable three

percent compared to the previous accounting cycle.

Production and sales

During FY12, the cost of production surged by 15.9 percent on the back of high fuel and energy cost.

Thanks to relatively stable coal prices, the Company was able to avoid any further escalation in its

operating costs. The gross profit posted a remarkable growth of 38 percent as compared to 33.5

percent growth achieved in the same period last year. Operating expenses soared by seven percentduring the period, but as a percentage of sales revenue, the same dropped, thus buttressing the

operating income by 77 percent. During FY12, the Company was able to trim its financial cost by 51

percent which also played a prominent role in propping up the net profit.


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Future outlook

The 1QFY13 results announced by Lucky Cement are much in line with remarkable performanceexemplified throughout FY12. In 1QFY13, Lucky Cement Limited declared a profit after tax of Rs

2.014 billion, which is 33.79 percent higher than last year's first quarter net profit of Rs 1.506 billion.

Cement industry portrays a dazzling outlook to the fore. Higher PSDP spending has led to a revival in

domestic cement demand in FY12. Moreover, with increased PSDP allocation for FY13 and General

Elections due in February-March CY13, domestic demand is likely to remain robust over the next six

to nine months. Reportedly, in addition to public sector infrastructure projects, a boom in the

privately funded real estate development activities is also imminent in all the major cities. Real

estate giants such as Bahria Town and Habib Construction are developing both commercial and

housing projects in Islamabad, Karachi and Lahore which may further bolster the domestic cement

dispatches. However, unlike domestic demand, the industry exports remained lackluster touting a

decline of 20.5 percent YoY in the month of October. However, the dreary export position is likely

more attributable to logistical hurdles than to lack of demand. Going forward, strong retail prices,

lower input costs and lower cost of borrowing should bode well for the Company, especially if higher

level of funds is allocated for large-scale infrastructure and development projects going forward.


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Lucky Cement Company Ltd.Income Statement (PKR '000) FY07 FY08 FY09E FY10E FY11E FY12ENet Sales 12,521,861 16,957,879 21,956,286 22,361,312 23,768,111 25,508,296Cost of Goods Sold 8,846,708 12,595,158 16,076,375 15,814,650 16,660,347 17,907,943Operating Profit 3,066,113 3,076,367 4,401,090 4,985,850 5,426,445 5,801,192EBITDA 4,578,527 4,056,629 5,650,203 6,382,544 6,940,666 7,392,840Finance Costs 862,847 126,743 703,640 554,278 241,056 516,127Taxation 143,059 (371,141) 773,447 1,052,681 1,231,695 1,255,372Net Income 2,547,292 2,677,670 2,320,341 3,158,042 3,695,085 3,766,115EPS - basic & diluted 9.67 8.28 7.18 9.77 11.43 11.65Balance Sheet (PKR '000)Current Assets 5,402,678 8,407,379 5,835,770 4,954,290 4,486,543 4,826,664Operating Assets 20,116,388 21,050,119 26,003,734 28,302,598 29,732,922 -Total Fixed Assets 20,318,908 25,829,520 28,855,753 30,574,551 31,235,735 31,135,985Current Liabilities 6,352,556 7,686,897 6,664,550 5,512,342 3,324,614 3,871,554Long Term Loans 8,329,012 6,633,333 5,913,281 4,855,750 4,045,937 9,361,840Total Non-Current Liabilities 10,017,655 7,896,754 7,053,385 5,884,869 4,975,169 3,715,253Total Equity 9,353,550 18,655,423 20,975,763 24,133,805 27,424,671 7,597,761Per ShareNo. Of Share 263,375 323,375 323,375 323,375 323,375 323,375Book Value 35.51 57.69 64.87 74.63 84.81 95.20Earnings Per Share (EPS) 9.67 8.28 7.18 9.77 11.43 11.65DPS 1.00 1.02 - - 1.25 1.25Sales Per Share 47.54 52.44 67.90 69.15 73.50 78.88Price per Sales per Share (PSR) 2.01 2.12 0.85 0.84 0.79 0.73Price Earnings Ratio (PER) 9.86 13.45 8.05 5.92 5.06 4.96Price Per Cash Flow (PCF) 85.52 (8.17) 53.75 6.22 5.74 3.64Price to Book Value (PBR) 2.68 1.93 0.89 0.77 0.68 0.61ProfitabilityGross Profit Margin 29.35% 25.73% 26.78% 29.28% 29.90% 29.80%Operating Profit Margins 24.49% 18.14% 20.04% 22.30% 22.83% 22.74%EBITDA Margins 36.56% 23.92% 25.73% 28.54% 29.20% 28.98%EBIT Margins 29.51% 18.15% 20.05% 22.30% 22.84% 22.75%Pre- Tax Margins 21.49% 13.60% 14.09% 18.83% 20.73% 19.69%Net Profit Margins 20.34% 15.79% 10.57% 14.12% 15.55% 14.76%Return On Equity (ROE) 27.23% 14.35% 11.06% 13.09% 13.47% 12.23%Return On Assets (ROA) 9.90% 7.82% 6.69% 8.89% 10.34% 9.81%Return On Common Stockholders' Equity (ROCE) 27.23% 14.35% 11.06% 13.09% 13.47% 12.23%Dividend Payout 10.34% 12.29% 0.00% 0.00% 10.94% 10.73%Retention Rate 89.66% 87.71% 100.00% 100.00% 89.06% 89.27%

Asset Turnover 48.68% 49.53% 63.29% 62.93% 66.53% 66.47%LiquidityCurrent Ratio 0.85 1.09 0.88 0.90 1.35 1.87Acid Test Ratio 0.27 0.13 -0.36 -0.59 -0.91 -0.22Quick Ratio 0.74 1.00 0.74 0.74 0.95 1.50Days' R/B 29.65 54.83 54.83 54.83 31.03 31.03Days' Inventories 27.90 20.56 20.52 20.60 29.22 29.21Days' Payables 45.09 76.40 61.27 59.41 25.61 25.63Operating Cycle 12.46 -1.01 14.08 16.02 34.64 34.60SolvencyDebt to Total Assets 63.64% 45.51% 39.54% 32.08% 23.23% 19.77%Total Debt to Equity 175.02% 83.53% 65.40% 47.23% 30.26% 24.64%Long Term Debt to Equity 89.05% 35.56% 28.19% 20.12% 14.75% 9.34%Net Debt to Equity 123.69% 54.74% 58.15% 45.30% 35.33% 22.16%Interest Coverage Ratio 4.28 24.28 6.26 9.00 22.52 11.24

Asset to Equity 275.02% 183.53% 165.40% 147.23% 130.26% 124.64%Net Debt 11,569,403 10,211,699 12,197,543 10,931,927 9,690,141 6,821,224Market Value of Equity 25,112,806 36,023,972 18,681,372 18,681,372 18,681,372 18,681,372Enterprise Value (EV) 36,682,209 46,235,671 30,878,915 29,613,300 28,371,513 25,502,596EV/ EBITDA 8 11 5 5 4 3EV/ Ton of Sales 7,906 8,321 5,511 5,477 5,145 4,472EV/Ton in $ 130 136 90 90 84 73EV/ Share 139 143 95 92 88 79EV/ Ton of Capacity 5,850 7,135 4,283 3,544 3,159 2,840EV/Ton in $ 96 117 70 58 52 47Gross Price per Ton (Ex-Fact) 3,583 3,747 4,756 4,923 5,108 5,295Gross Price per Bag (Ex-Fact) 179 187 238 246 255 265Net price per ton 2,699 3,052 3,919 4,136 4,310 4,473Net price per bag 135 153 196 207 216 224CGS per ton 2,091 2,433 3,079 3,168 3,279 3,403CGM per ton 2,109 2,429 3,070 3,169 3,282 3,404CGS per Bag 105 122 154 158 164 170CGM per Bag 105 121 153 158 164 170

orking Capital (949,878) 720,482 (828,780) (558,052) 1,161,929 3,363,660Change in Working Capital (653,337) 1,670,360 (1,549,261) 270,727 1,719,981 2,201,731Capital Expenditure 4,635,798 1,912,700 6,201,410 3,694,212 2,943,173 1,938,303


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Horizontal & Vertical analysis of Lucky Cement

Table 1: Horizontal Analysis of three year Balance sheets

ASSETS 2009 2010 2011 2012

NON-CURRENT ASSETS

Property, plant and equipment 100 102.9575968 104.0302167 101.7707198

Intangible Assets 100 0 0 0

Long term advance 100 100 100 100

Long term deposits 100 100 145.9770115 145.9770115

100 102.9617723 104.0314144 101.7756158

CURRENT ASSETS

Stores and spares 100 117.4917318 185.0650247 158.1750694

Stock-in-trade 100 50.87823247 104.3397671 106.6709399

Trade debts considered good 100 61.49585559 49.00074808 82.9071342

Loans and advances 100 97.28039237 66.28090672 136.1080495Trade deposits and short term prepayments 100 500.0204897 396.1581805 695.5639791

Other receivables 100 311.9019088 369.4182377 178.3547957

Tax refunds due from the government 100 100 100 100

Taxation-net 100 82.19940651 23.58764101 71.55857835

Sales tax refundable 100 293.6581844 0 0

Cash and bank balances 100 31.80172168 33.47679086 80.49082491

100 87.4461023 120.1900701 121.5922311

Total Assets 100 99.7861085 107.3386811 105.831574

EQUITY AND LIABILITIES

SHARE CAPITAL AND RESERVES

Share capital 100 100 100 100

Reserves 100 109.2113925 122.583709 150.003307

100 107.9303252 119.4428971 143.0491358

NON CURRENT LIABILITIES

Long term finance 100 38.57209302 15.30925581 9.137162791

Long term deposits 100 111.7807548 130.4907482 184.5185211

Deferred liabilities 100 136.0494901 166.9999531 1406.248055

Deferred taxation 100 105.7058215 111.7894609 0

100 59.1326432 45.35530658 61.98858866

CURRENT LIABILITIES

Trade and other payables 100 113.6688584 151.032922 124.9592882

Accrued mark-up 100 66.62924574 36.6130919 5.706977003Short term borrowings 100 101.2794401 101.8473188 0

Current portion of long term finance 100 0 0 0

100 105.9680428 117.564211 39.83352307

CONTINGENCIES AND COMMITMENTS

100 99.7861085 107.3386811 105.831574


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Table 2: Horizontal analysis of three years Profit and Loss account

Explanation:

Horizontal analysis of three year balance sheets is an analysis of percentage financial statements

where all balance sheet or profit & loss account figures for a base year (2009) equal 100 percent and

subsequent financial statement items are expressed as percentages of their values in the base year.

Table 1 and table 2 reveal the horizontal analysis of the balance sheet and profit and loss account. So

the above Horizontal analysis of three year balance sheets and Profit & Loss account indicates the

percentage increase or decrease in each item with respect to base year items, see above table 1 for

example there is 100% - 103%= 3% increase in the property, plant and equipment in 2010 and then

there is 4% increase in 2011 and 1.7% increase in 2012. In Profit & Loss account there is 7% decrease

in Net sales in 2010 and 1.2% decrease in 2011 and 26% increase in 2012. You can see all the relative

percentage increase or decrease in the each of the financial statements items.

2009 2010 2011 2012

Gross Sales 100 93.97660718 102.7559988 126.5505506

Less: Sales tax andexcise duty 100 96.74873927 126.9442988 125.5726578

Rebates and

Commission

100 146.9637875 94.37589351 145.7303334

100 99.11611207 125.4088715 -

126.5229852

Net Sales 100 93.08172028 98.81169693 126.5553502

Cost of sales 100 100.0653424 104.7657571 124.7114771

Gross profit 100 81.32346019 88.78690069 129.6598624

Distribution costs 100 141.4035209 133.3048718 133.3170637Administrative expenses 100 182.7475653 188.8613682 285.7336563

100 144.0484961 136.8590852 143.0678783

Operating profit 100 58.78176813 71.51104961 124.8413819

Finance costs 100 46.01433663 41.85934836 20.47210484Other operating income 100 8.178886261 10.69017416 22.37798323

Other charges 100 31.17458659 39.3676159 53.02657552

100 40.4341698 41.20496429 33.64095522Profit before taxation 100 66.0133927 83.45605883 160.7876259

Taxation

-Current 100 124.85135 165.9872148 21.19698362

-Prior Year 100 0 0 0

-Deferred 100 20.11003786 21.44164847 288.0474479

100 48.24808942 60.31868268 265.5794105

Profit after taxation 100 68.25679439 86.37784564 147.5545241


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Table 3: Vertical Analysis of three year Balance sheets

ASSETS 2010 2011 2012

NON-CURRENT ASSETS

Property, plant and

equipment

81.90565166 76.93585915 76.33665927

Intangible Assets 0 0 0Long term advance 0.144538364 0.134368345 0.136281833Long term deposits 0.005677333 0.007704468 0.007814184

82.06363812 77.08202079 76.48448149CURRENT ASSETS

Stores and spares 10.46270548 15.32056834 13.28096279Stock-in-trade 1.589165029 3.029707336 3.14150631Trade debts considered

good2.034194823 1.506826462 2.585791067

Loans and advances 0.276466524 0.175113453 0.364716894Trade deposits and short

term prepayments 0.127399345 0.093834351 0.167098022

Other receivables 0.482390559 0.531144795 0.260088044Tax refunds due from the

government1.406443666 1.307483368 1.32610274

Taxation-net 0.378882995 0.101072911 0.310994685Sales tax refundable 0.307852385 0 0Cash and bank balances 0.870861068 0.852228187 2.078257959

17.93636188 22.91797921 23.51551851Total Assets 100 100 100EQUITY AND LIABILITIES

SHARE CAPITAL AND

RESERVESShare capital 8.440953809 7.847030765 7.958777336Reserves 57.06614398 59.54662786 73.90371119

65.50709779 67.39365863 81.86248852NON CURRENT LIABILITIES

Long term finance 4.329390332 1.597428576 0.966984986Long term deposits 0.083416331 0.09052689 0.129831132Deferred liabilities 0.833241887 0.950833241 8.120652776Deferred taxation 4.079457181 4.010681426 0

9.325505732 6.649470133 9.217468893CURRENT LIABILITIES

Trade and other payables 7.943880493 9.812432002 8.234070429Accrued mark-up 0.405896658 0.207348461 0.032780195Short term borrowings 16.35884125 15.29307007Current portion of long term

finance0.458778075 0.644020708 0.653191961

25.16739648 25.95687124 8.920042585CONTINGENCIES AND

COMMITMENTS

100 100 100


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Table 4: Vertical analysis of three years Profit and Loss account

Explanation:

Vertical analysis of three year balance sheets is an analysis of percentage financial statements where

all balance sheet items are divided by total assets and all profit & loss account items are divided by

total revenue. Table 3 and table 4 reveal the vertical analysis of the financial statements. So the

above Vertical analysis of three year balance sheets and Profit & Loss account indicates the

percentage of each item with respect to total assets or total revenue. For example in table 1 for the

year 2010, 2011 and 2012 the property, plant and equipment is 82%, 77%, 76% respectively of the

total assets.

This analysis helps us to analyze trends in the financial statement percentages over time and you can

see the underlying improvement or deterioration in financial condition and performance.

2010 2011 2012

Net Sales 100 100 100Cost of sales -67.44490437 -66.51825641 -61.82381082Gross profit 32.55509563 33.48174359 38.17618918Distribution costs -14.0074095 -12.43940669 -9.713309627Administrative expenses -1.237286553 -1.204530686 -1.422865937Finance costs -2.322366507 -1.990151328 -0.759948185Other operating income 0.00776048 0.0095551 0.015617059Other charges -1.051638895 -1.251010905 -1.315659208Profit before taxation 13.94403225 16.60619908 24.98002328Taxation -1.142679691 -1.345712479 -4.626181652

Profit after taxation 12.80135256 15.2604866 20.35384163


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D.G.KHAN CEMENT COMPANY LIMITED

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.

Vision Statement

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

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

Pakistan.

NISHAT GROUP

Nishat Group is one of the leading and most diversified business groups in South East Asia. With

assets over PRs.300 billion, it ranks amongst the top five business houses of Pakistan. The group has

strong presence in three most important business sectors of the region namely Textiles, Cement andFinancial Services. In addition, the Group has also interest in Insurance, Power Generation, Paper

products and Aviation. It also has the distinction of being one of the largest players in each sector.

The Group is considered at par with multinationals operating locally in terms of its quality of

products & services and management skills.

Mian Mohammad Mansha, the chairman of Nishat Group continues the spirit of entrepreneurship and

has led the Group successfully to make it the premier business group of the region. The group has

become a multidimensional corporation and has played an important role in the industrial

development of the country. In recognition of his unparallel contribution, the Government of

Pakistan has also conferred him with Sitara-e-Imtiaz, one of the most prestigious civil awards of the

country.

D.G. Khan Cement Company

D.G. Khan Cement Company Limited (DGKCC), a unit of Nishat group, is the largest cement-

manufacturing unit in Pakistan with a production capacity of 5,500 tons clinker per day. It has a

countrywide distribution network and its products are preferred on projects of national repute both

locally and internationally due to the unparallel and consistent quality. It is list on all the Stock

Exchanges of Pakistan.


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DGKCC was established under the management control of State Cement Corporation of Pakistan

Limited (SCCP) in 1978. DGKCC started its commercial production in April 1986 with 2000 tons per

day (TPD) clinker based on dry process technology. Plant & Machinery was supplied by UBE

Industries of Japan.

Acquisition of DGKCC by Nishat GroupNishat Group acquired DGKCC in 1992 under the privatization initiative of the government. Starting

from the privatization, the focus of the management has been on increasing capacity as well as

utilization level of the plant. The company undertook the optimization by raising the capacity

immediately after the privatization by 200tpd to 2200tpd in 1993.

Capacity Addition

To meet the increasing demand and to capitalize on its geographic location, the management

further expanded the capacity by adding another production line with a capacity of 3,300 tons per

day in year 1998. Design of the new plant is based on latest dry process technology, energy efficient

and environmental protection from particulate pollution according to the international standards.

The plant and machinery was supplied by M/s F.L. Smidth of Denmark. As a result, DGKCC emerged

as the largest cement production plant in Pakistan with annual production capacity of 1,650,000 M

tons of clinker (1,732,000 M.Tons Cement) constituting about 10% share of the total cement

production capacity of the country. The optimization plan is still underway to increase the total

capacity of the two units to 6700 TPD by mid of 2005 from 5500 TPD at present.

Expansion -Khairpur Project

Furthermore, the Group is also setting up a new cement production line of 6,700 TPD clinker near

Kalar Kahar, Distt. Chakwal, the single largest production line in the country. First of its kind in

cement industry of Pakistan, the new plant will have two strings of pre-heater towers, the advantage

of twin strings lies in the operational flexibility whereby production may be adjusted according to

market conditions. The project will be equipped with two vertical cement grinding mills. The cement

grinding mills are first vertical Mills in Pakistan. The new plant would not only increase the capacity

but would also provide proximity to the untapped market of Northern Punjab and NWFP besides

making it more convenient to export to Afghanistan from northern borders.

Power Generation

For continuous and smooth operations of the plant uninterrupted power supply is very crucial. The

company has its own power generation plant along with WAPDA supply. The installed generation

capacity is 23.84 MW.

Environmental Management

DG Khan Cement Co. Ltd., production processes are environment friendly and comply with the

World Banks environmental standards. It has been certified for Environment Management System

ISO 14001 by Quality Assurance Services, Australia. The company was also certified for ISO-9002

(Quality Management System) in 1998. By achieving this landmark, DG Khan Cement became the

first and only cement factory in Pakistan certified for both ISO 9002 & ISO 14001...


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Future prospects

Cement sector has been the out performer in the stock market in CY12 up till now, surpassing the

market by 68 percent.The future of cement sector also appears lucrative. Increased retention prices,

stable coal prices, better PSDP allocation and continuous enhancements in infrastructure projects

owing to the forthcoming elections, will keep the domestic demand robust in the coming year, said

Inayatullah Niazi. The total size of the PSDP for the year 2012-13 is Rs 360 billion, including Rs 100

billion foreign aid, and Rs 27 billion special programmes. Out of the total allocation, Rs 51.6 billion

has been released in the 1QFY13 for 344 infrastructure development projects, while the remaining

amount will be released till 2QCY13, according to a planned mechanism. As far as the export market

is concerned, the dispatches dropped by 2.68 percent in 1QFY13 mainly because of NTBs from India.

However, APCMA has asked the GoP to negotiate with the Indian government over the issue of

stringent NTBs imposed by India which caused a decline in Pakistan's exports to India by 15.7

percent in the first quarter of FY13 despite rising demand.


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D.G. Khan Cement Company Ltd.Income Statement (PKR '000) FY07 FY08 FY09E FY10E FY11E FY12ENet Sales 6,419,625 12,445,996 16,273,654 16,146,858 16,314,296 17,489,953Cost of Goods Sold 4,387,640 10,530,723 13,014,758 12,301,243 12,855,072 13,662,325Operating Profit 1,862,694 1,242,150 1,995,174 2,978,400 2,580,139 2,884,487EBITDA 2,836,319 3,452,531 4,088,400 4,884,480 4,465,809 4,919,010Net Income 1,622,471 (53,230) 148,849 1,465,278 1,717,084 2,093,675

Balance Sheet (PKR '000)Current Assets 19,214,954 19,202,591 18,577,761 14,289,759 13,127,763 13,894,139Operating Assets 22,117,551 22,977,894 22,868,718 22,590,475 22,257,146 21,748,520Long Term Loans 8,686,447 8,411,051 5,568,224 2,228,462 903,649 -Total Equity 33,923,185 30,080,257 30,229,106 31,440,842 32,904,386 34,744,520Per ShareNo. Of Share 253,541 253,541 253,541 253,541 253,541 253,541Book Value 133.80 118.64 119.23 124.01 129.78 137.04Earnings Per Share (EPS) 6.40 (0.21) 0.59 5.78 6.77 8.26DPS 1.36 1.50 - 1.00 1.00 1.00Sales Per Share 25.32 49.09 64.19 63.69 64.35 68.98Price per Sales per Share (PSR) 3.17 1.64 0.61 0.62 0.61 0.57Price Earnings Ratio (PER) 12.56 (382.81) 66.91 6.80 5.80 4.76Price Per Cash Flow (PCF) (4.46) (26.73) 2.08 3.31 3.89 3.24Price to Book Value (PBR) 0.60 0.68 0.33 0.32 0.30 0.29ProfitabilityGross Profit Margin 31.65% 15.39% 20.03% 23.82% 21.20% 21.88%Operating Profit Margins 29.02% 9.98% 12.26% 18.45% 15.82% 16.49%EBITDA Margins 44.18% 27.74% 25.12% 30.25% 27.37% 28.12%EBIT Margins 36.48% 16.79% 17.53% 23.95% 21.45% 21.93%Pre- Tax Margins 26.80% -2.02% 1.35% 13.35% 15.48% 17.60%Net Profit Margins 25.27% -0.43% 0.91% 9.07% 10.53% 11.97%Return On Equity (ROE) 4.78% -0.18% 0.49% 4.66% 5.22% 6.03%Return On Assets (ROA) 3.14% -0.10% 0.30% 3.23% 3.86% 4.61%Return On Common Stockholders' Equity (ROCE) 4.78% -0.18% 0.49% 4.66% 5.22% 6.03%Dividend Payout 21.31% -714.47% 0.00% 17.30% 14.77% 12.11%Retention Rate 78.69% 814.47% 100.00% 82.70% 85.23% 87.89%

Asset Turnover 12.41% 23.94% 33.00% 35.62% 36.68% 38.51%LiquidityCurrent Ratio 2.60 1.59 1.54 1.40 1.43 1.51

Acid Test Ratio 0.04 0.05 0.04 0.05 0.07 0.08Quick Ratio

2.56

1.56

1.49

1.34

1.35

1.44

Days' R/B 13.04 22.94 12.84 13.96 15.70 16.36Days' Inventories 24.55 15.45 17.71 19.44 19.20 17.96Days' Payables 58.41 40.19 37.78 36.09 37.34 37.03Operating Cycle -20.82 -1.79 -7.22 -2.69 -2.44 -2.70SolvencyDebt to Total Assets 28.35% 35.96% 31.49% 23.00% 18.06% 15.46%Total Debt to Equity 52.53% 72.85% 63.14% 44.19% 35.16% 30.72%Long Term Debt to Equity 25.61% 27.96% 18.42% 7.09% 2.75% 0.00%Net Debt to Equity 42.91% 61.40% 50.68% 32.55% 23.70% 19.35%Interest Coverage Ratio 500.71% 119.41% 113.38% 240.14% 409.19% 626.99%

Asset to Equity 152.53% 172.85% 163.14% 144.19% 135.16% 130.72%Net Debt 14,556,668 18,469,307 15,318,694 10,233,113 7,797,928 6,721,937Market Value of Equity 20,377,103 20,377,103 9,959,097 9,959,097 9,959,097 9,959,097Enterprise Value (EV) 34,933,771 38,846,410 25,277,791 20,192,210 17,757,025 16,681,034EV/ EBITDA 12 11 6 4 4 3EV/ Ton of Sales 13,961 9,175 5,896 4,958 4,464 4,100EV/Ton in $ 229 150 97 81 73 67EV/ Share 138 153 100 80 70 66EV/ Ton of Capacity 15,629 9,663 6,288 5,023 4,417 4,150EV/Ton in $ 256 158 103 82 72 68Gross Price per Ton (Ex-Fact) 3,756 4,116 5,231 5,429 5,645 5,919Gross Price per Bag (Ex-Fact) 188 206 262 271 282 296Net price per ton 2,565 2,940 3,796 3,965 4,102 4,299Net price per bag 128 147 190 198 205 215CGS per ton 1,946 2,806 3,321 3,268 3,472 3,622CGM per ton 1,974 2,813 3,313 3,268 3,474 3,624CGS per Bag 97 140 166 163 174 181CGM per Bag 99 141 166 163 174 181Working Capital 11,824,725 7,147,873 6,530,425 4,092,718 3,931,627 4,698,842Change in Working Capital 7,930,266 (4,676,852) (617,448) (2,437,707) (161,092) 767,215Capital Expenditure 15,090,033 2,223,380 1,126,027 739,784 633,206 574,593


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Horizontal & Vertical analysis of D.G cement

Table 5: Horizontal Analysis of three year Balance sheets

2009 2010 2011 2012

Issued, subscribed and paid up capital 100 120.0000066 144.000021 143.9999882Reserves 100 127.3501341 143.4231738 135.4078162Accumulated profit / (loss) 100 149.085371 185.0977823 1050.460264

100 126.7743554 144.4528469 157.4239229

NON-CURRENT LIABILITIES

Long term finances 100 116.3093369 111.5347532 105.7873728Liabilities against assets subject to finance lease

Long term deposits 100 109.9952552 96.1065546 92.66589846

Retirement and other benefits 100 132.3153825 177.0662156 235.4506372

Deferred taxation 100 101.6914821 118.4735317 115.5727482

100 112.9122249 113.8827264 109.6958525

CURRENT LIABILITIES

Trade and other payables 100 117.0214293 114.5340737 146.9182539

Accrued markup 100 65.14540066 53.5024409 30.63925893

Short term borrowing - secured 100 105.7017448 95.84727479 74.25055204

Current portion of non - current

liabilities

100 44.90573143 42.01491118 45.45733344

Provision for taxation 100 100 100 100

100 87.06260812 79.93277338 70.76782598

CONTINGENCIES AND COMMITMENTS

100 110.1186664 116.2675897 118.6366813

ASSETS

NON-CURRENT ASSETS

Property, plant and equipment 100 103.9493846 101.0916547 111.6649846

Intangible Assets 100 0 0 0

Assets subject to finance lease

Capital work in progress 100 26.60540919 78.49467035 0

Investments 100 148.0507535 165.7810162 153.3469734

Long term loans, advances and deposits 100 95.05031748 79.80052714 72.08697736

100 104.0532828 106.5994271 109.5441792

CURRENT ASSETS

Stores, spares and loose tools 100 102.7883292 120.6804774 140.920678

Stock-in-trade 100 115.2294418 95.81090332 106.0909988Trade debts 100 59.13795854 89.36388788 61.86596001

Investments 100 137.952943 155.7461962 142.8987507Advances, deposits, prepayments and other

receivables100 119.7182028 125.1584627 162.5380465

Cash and bank balances 100 94.64817382 68.75025631 175.7043495

100 123.555058 137.6850674 138.7789225

Total Assets 100 110.1186664 116.2675897 118.6366813


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Page | 26

Table 6: Horizontal analysis of three years Profit and Loss account

2009 2010 2011 2012

Sales - net 100 90.22710625 102.9880406 127.2291113

Cost of sales 100 109.8029477 114.8378237 124.9593539

Gross profit 100 47.63184165 77.20382835 132.1674622

Administrativeexpenses

100 121.5604997 149.0017765 188.7213434

Selling and

distribution

expenses

100 53.134329 132.0105027 117.7067053

Other operating

expenses

100 23.74995916 -4.770221674 62.93051238

Other operating

income

100 118.377899 143.6967708 154.2499581

Impairment on

investment

100 0 46.17034338 0

Profit fromoperations

100 66.83389206 78.41169665 169.1638651

Finance cost 100 73.00455271 78.71819604 64.10416374

Share of loss of

associated

company

100 0 0 0

Profit / (loss)

before tax

100 46.13244948 77.38344703 521.6200283

Taxation 100 49.88918466 171.1892058 -22.14396842

Profit / (loss) for

the year

100 44.3360776 32.52800234 781.6336588

Explanation:

Horizontal analysis of three year balance sheets is an analysis of percentage financial statements

where all balance sheet or profit & loss account figures for a base year (2009) equal 100 percent and

subsequent financial statement items are expressed as percentages of their values in the base year.

Table 1 and table 2 reveal the horizontal analysis of the balance sheet and profit and loss account. So

the above Horizontal analysis of three year balance sheets and Profit & Loss account indicates the

percentage increase or decrease in each item with respect to base year items, see above table 5 for

example there is 100% - 104%= 4% increase in the property, plant and equipment in 2010 and then

there is 1% increase in 2011 and 12% increase in 2012. In Profit & Loss account there is 10%

decrease in Net sales in 2010 and 3% increase in 2011 and 27% increase in 2012. You can see all the

relative percentage increase or decrease in the each of the financial statements items.


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Page | 27

Table 7: Vertical Analysis of three year Balance sheets

2010 2011 2012

Issued, subscribed and

paid up capital7.760467761 8.820058362 8.643925984

Reserves 47.10380637 50.24330497 46.48815222Accumulated profit /

(loss)1.504377318 1.768989422 9.838827107

56.36865145 60.83235275 64.97090531NON-CURRENT LIABILITIES 0

Long term finances 10.81814043 9.825406332 9.133007629

Liabilities against

assets subject to

finance lease

Long term deposits 0.172465089 0.142719241 0.134861858

Retirement and other

benefits

0.221121679 0.280258611 0.365226945

Deferred taxation 3.116011266 3.438254748 3.287091825

14.32773847 13.68663893 12.92018826

CURRENT LIABILITIES

Trade and other

payables

3.570436306 3.30973234 4.160768988

Accrued markup 0.736353108 0.572767326 0.321456769

Short term borrowing -

secured

20.37502283 17.49838595 13.28487856

Current portion of non

- current liabilities

4.547211335 4.029480775 4.27257086

Provision for taxation 0.074586507 0.070641928 0.069231258

29.30361008 25.48100831 22.10890643

CONTINGENCIES AND

COMMITMENTS

100 100 100

ASSETS

NON-CURRENT ASSETS

Property, plant and

equipment

53.79262609 49.54711861 53.63642064

Intangible Assets 0 0 0.145620424

Assets subject to

finance lease

0 0

Capital work inprogress

0.989775059 2.765725076 0

Investments 9.983670678 10.58806737 9.598354533

Long term loans,

advances and deposits

0.337280226 0.268191706 0.237430265

65.10335205 63.16910276 63.61782586

CURRENT ASSETS

Stores, spares and

loose tools

6.414443825 7.132708783 8.16266319

Stock-in-trade 2.203960065 1.735631293 1.883478881

Trade debts 0.646067088 0.924646262 0.627342918

Investments 22.83076602 24.41233023 21.9512825


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Page | 28

Advances, deposits,

prepayments and

other receivables

2.310844719 2.288089819 2.91210858

Cash and bank

balances

0.490566231 0.337490853 0.845298069

34.89664795 36.83089724 36.38217414Total Assets 100 100 100


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Page | 29

Table 8: Vertical analysis of three years Profit and Loss account

2010 2011 2012

Sales - net 100 100 100

Cost of sales -83.3775659 -76.3959613 -67.2906184

Gross profit 16.62243414 23.60403867 32.70938162

Administrative expenses -1.05949155 -1.13774962 -1.16647806

Selling and distribution expenses -6.10996234 -13.2990939 -9.59875865

Other operating expenses -1.16135723 0.204358052 -2.18230156

Other operating income 5.601549435 5.957098589 5.176224876

Impairment on investment 0 -0.63968743 0

Profit from operations 13.89317246 14.28024829 24.93806823

Finance cost -11.6910514 -11.044066 -7.28015121

Share of loss of associated

company

2.202121072 0 0

Profit / (loss) before tax 2.202121072 3.236182335 17.65791702

Taxation -0.77037341 -2.315909 0.242493928Profit / (loss) for the year 1.43174766 0.920273337 17.90041095

Explanation:

Vertical analysis of three year balance sheets is an analysis of percentage financial statements where

all balance sheet items are divided by total assets and all profit & loss account items are divided by

total revenue. Table 7 and table 8 reveal the vertical analysis of the financial statements. So the

above Vertical analysis of three year balance sheets and Profit & Loss account indicates the

percentage of each item with respect to total assets or total revenue. For example in table 7 for the

year 2010, 2011 and 2012 the property, plant and equipment is 54%, 50%, 54% respectively of the

total assets. This analysis helps us to analyze trends in the financial statement percentages over time

and you can see the underlying improvement or deterioration in financial condition and

performance.


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Page | 30

Ratio AnalysisD.G. Khan Cement

Company Limited

Lucky Cement

Company Limited

Ratios 2010 2011 2012 2010 2011 2012

Short Term Debt Paying Ability Ratios

Current Ratio=CA/CL 1.15 1.38 1.56 0.71 0.88 2.63

Quick Ratio=(CA-Inventory)/CL 0.83 1.01 1.09 0.23 0.175 0.79

Cash Ratio=(Cash+MS)/CL 0.74 0.90 0.94 0.03 0.032 0.23

Average Age of

Inventory=(AvgIventory/CGS)*365

34.85 38.84 34.95 19.93 19.58 22.36

Average Collection Period=(Avg Account

Receivable/Sales)*365

12.03 10.43 8.70 15.23 9.82 9.15

Long Term Debt Paying Ability Ratios

Times Interest Earned=EBIT/I+{P.S.D/(1-t)} 1.25 1.31 3.42 7.45 9.96 35.58

Fixed Charge

Coverage=EBIT+I+OL/I+OL+P.S.D*(1-t)+PP*(1-t)

1.28 1.41 2.31 5.92 6.14 11.40

Debt Ratio=TL/TA 0.44 0.40 0.35 0.34 0.32 0.18

Debt to Equity Ratio=TL/SHE 0.81 0.67 0.56 0.52 0.48 0.22

Profitability Ratios

Net Profit Margin=(NPAT/Net Sales)*100 1.83 1.01 17.90 12.80 15.26 20.35

Total Asset Turnover=(Net Sales/Avg TA)*100 36.75 39.00 124.8

4

63.90 65.43 81.43

Return on Assets=(NPAT/Avg TA)*100 (Dupont

Analysis)

0.67 0.39 22.34 8.18 9.98 16.57


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Page | 31

Operating Income Margin=(OI/Net Sales)*100 14.92 14.62 24.93 17.31 19.83 27.04

Gross Profit Margin=GP/Net Sales*100 17.93 23.92 32.70 32.55 33.48 38.17

Return on Investment=NPAT+I(1-

t)/Avg(L.T.L+Equity)

0.05 0.04 0.13 0.12 0.14 0.20

Return on Equity=NPAT/Avg. Total Equity 0.0130 0.0069 0.13 0.12 0.15 0.22

Return on Common Equity=NPAT-D to PSH/Avg

Common Equity

0.0928 0.049 0.93 0.97 1.22 2.09

Price/Earnings Ratio=MP per share/EPS 6.4 5.77 5.5

Dividend Per Share=Total Dividend/O.S.C.S 7.68 2.34 0 0.4 0.39 0.39

Explanation;

Short-Term Liquidity Ratios

Current Ratio; Ability to pay current liabilities from current assets

Quick Ratio; Ability to pay current liabilities from liquid assets

Cash Ratio; Ability to pay liabilities from most liquid assets

Average Age of Inventory; Tells how much days require to convert inventory into cash

Average Collection Period; How much days required to collect account receivables from

sales

Long-Term Ratios

Times Interest Earned; Tells ability to meet its interest obligations, high ratio is good

Fixed Charge Coverage; Tells firms ability to cover its fixed charges

Debt Ratio; Tells percentage of assets financed by creditors, lower this ratio is better

Debt/Equity Ratio;

Profitability Ratios

Net Profit Margin; Tells profit or return on sales, high ratio is good

Total Assets Turnover; Tells activity of the assets & the ability of the firm to generate sales

through use of the assets


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Page | 32

Return on Assets; (DuPont Analysis) Tells ability to utilize its assets to create profits

Operating Income Margin;

Gross Profit Margin;

Return on Investment; Measure the income earned on the invested capital

Return on Equity; calculate the return on both common stock & preferred stock

Return on Common Equity; Measure return to the common stockholders

Earnings per Share; The amount of income earned on a share of common stock during an

accounting period

Price/Earnings Ratio; Express the relationship between the market price of a share of

common stock and that stocks current earnings per share

Dividend per Share;

Short term Debt Paying Ability ratio's

1.Current Ratios

Table 1

D.G. Khan Cement Lucky Cement

Formula 2010 2011 2012 2010 2011 2012

Current Ratio=CA/CL 1.15 1.38 1.56 0.71 0.88 2.63


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Page | 33

Figure 1

Interpretation:

The current ratio is the ratio of total current assets and total current liabilities. The

current ratio of a firm measures its short-term solvency, i.e. its ability to meet short-

term obligations. As a measure of short term/current financial liquidity, it indicates

the rupees of current assets available for each rupee of current liability / obligation.

The higher the current ratio, the large the amount of rupees available per rupee of

current liability, the more the firms ability to meet current obligations and the

greater the safety of funds of short term creditors. D.G. Khan Cement current ratio

as shown above is more than one for first three years which is satisfactory. This

ratio was 1.15 in 2010 and increase to 1.38 in 2011 and 1.56 in 2012 which shows

Companys ability to meet short-term obligations has increased. On the other hand

Lucky Cement company current ratio as shown above is less than one in the first

two years but in 2012 this was increased from 0.88 to 2.63 which shows company's

ability to meet short-term obligation has increased.

2.Quick Ratio

Table 2

0

0.5

1

1.5

2

2.5

3

2010 2011 2012

LuckyCement

D.G.Khan

Cement


Formula 2010 2011 2012 2010 2011 2012

Quick Ratio=CA(Inventory

+Prepaid Expenses)/CL

0.83 1.01 1.09 0.23 0.175 0.79


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Page | 34

Figure 2

Interpretation:

The term current asset refers to the assets which can be converted into cash

immediately. Thus, the quick ratio = current assets(inventory + prepaid

expense)/current liabilities. This ratio is used to check that how much inventory is

unsold and includes in current assets. Because current assets may include inventory

in large amount which would increase the current assets. From the above

computation it is observed that the value of quick ratio of D.G. Khan Cement is 0.83

in year 2010 while it has increased in the next two years by 1.01 and 1.09 in years

2011 and 2012 respectively. On the other hand it is observed that the value of quickratio of Lucky Cement is 0.23 in year 2010 while it has increased in the next two

years by 0.175 and 0.79 in years 2011 and 2012 respectively.

3.Cash Ratio

Table 3


Ratios 2010 2011 2012 2010 2011 2012Cash Ratio=(Cash+MS)/CL 0.74 0.90 0.94 0.03 0.032 0.23

0

0.2

0.4

0.60.8

1

1.2

2010 2011 2012

LuckyCement

D.G Khan

Cement


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Page | 35

Figure 3

Interpretation:

This ratio is used to measure the ability of the firm to pay liabilities from most

liquid assets. . From the above computation it is observed that the value of cash ratio

of D.G. Khan Cement is 0.74 in year 2010 while it has increased in the next two

years by 0.90 and 0.94 in years 2011 and 2012 respectively. On the other hand it is

observed that the value of cash ratio of Lucky Cement is 0.03 in year 2010 while it

has increased in the next two years by 0.032 and 0.23 in years 2011 and 2012

respectively.

4.Average age of Inventory

Table 4


Formula 2010 2011 2012 2010 2011 2012

Average Age of

Inventory=(AvgIventory/CGS

)*365

34.85 38.84 34.95 19.93 19.58 22.36

0

0.2

0.4

0.6

0.8

1

2010 2011 2012

Lucky

CementD.G.Khan

Cement


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Page | 36

Figure 4

Interpretation:

This ratio shows us that for how many days the inventory remains with the company

after its conversion from raw material and work in process to finished goods. The

lower the days the higher the performance is for the firm. So, from the above graph

it can be observed that in 2010 D.G. Khan Cement inventory turnover in days is

34.85 than it increase in 2011 to 38.84 and in 2012 it has again decrease to 34.95.

On the other hand it can be observed that in 2010 Lucky Cement inventory turnover

in days is 19.93 than it decrease in 2011 to 19.58 and in 2012 it has again increase

up to 22.36.

5.Average collection period

Table 5


Formula 2010 2011 2012 2010 2011 2012

Average Collection

Period=(Avg Account

Receivable/Sales)*365

12.03 10.43 8.70 15.23 9.82 9.15

0

10

20

30

40

50

2010 2011 2012

LuckyCement

D.G.Khan

Cement


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Page | 37

Figure 5

Interpretation:

This ratio indicates that in how many days receivables are collected. The smaller

the answer is the better it is for the firm. So, from the above computation it is

observed that the average collection period is more in first two years which is not

good for the firm but it has shown decreasing trend in the next year in 2012. This

shows that collection management is efficient.

Long term Debt Paying Ability ratio's

6.Time Interest Earned Ratio

Table 6


Formula 2010 2011 2012 2010 2011 2012

Times Interest

Earned=EBIT/I+{P.S.D/(1-t)}

1.25 1.31 3.42 7.45 9.96 35.58

0

5

10

15

20

2010 2011 2012

LuckyCement

D.G Khan

Cement


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39/51


Page | 39

Figure 7

8.Debt Ratio

Table 8


Formula 2010 2011 2012 2010 2011 2012

Debt Ratio=TL/TA 0.44 0.40 0.35 0.34 0.32 0.18

Figure 8

Interpretation:

0

2

4

6

8

10

12

2010 2011 2012

LuckyCement

D.G Khan

Cement

0

0.1

0.2

0.3

0.4

0.5

2010 2011 2012

Lucky

Cement

D.G Khan

Cement


40/51


Page | 40

Debit ratio is calculated to check the total asset financed by the firm creditors. It

helps to determine how well creditors are protected in case of insolvency. This ratio

shows relation between total assets and total liabilities. From the above computation

hence it is observed that This ratio has shown a decreasing trend in year 2010,2011

and 2012.

9.Debt to Equity Ratio

Table 9


Formula 2010 2011 2012 2010 2011 2012

Debt to Equity

Ratio=TL/SHE

0.81 0.67 0.56 0.52 0.48 0.22

Figure 9

Interpretation:

The debt equity ratio indicates the relationship between the long-term funds

provided by creditors and those provided by the firms owners. The standard debt

equity ratio is 60:40. From the above graph hence it is observed that the value of

debt equity ratio shows a decreasing trend in years 2010,2011,2012.

0

0.2

0.4

0.6

0.8

1

2010 2011 2012

Lucky

Cement

D.G Khan

Cement


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Page | 41

Profitability ratio's

10. Net Profit Margin

Table 10


Formula 2010 2011 2012 2010 2011 2012

Net Profit

Margin=(NPAT/NetSales)*100

1.83 1.01 17.90 12.80 15.26 20.35

Figure 10

Interpretation

This ratio indicates the firms profitability after taking account of all interest expenses and

income taxes etc. of the firm. The ratio tends to increase when net profit rises and

decreased when net profit decrease or sales increase at higher rate than net profit.

The range of ratio has shown a increasing trend in last three years.

The reason for increase is that the net profit was increase in that year.

0

5

10

15

20

25

2010 2011 2012

LuckyCement

D.G Khan

Cement


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Page | 42

11. Total Asset Turnover

Table 11


Formula 2010 2011 2012 2010 2011 2012

Total Asset Turnover=(Net

Sales/Avg TA)*100

36.75 39.00 124.84 63.90 65.43 81.43

Figure 21

12. Return on AssetsTable 12


Formula 2010 2011 2012 2010 2011 2012

Return on Assets=(NPAT/Avg

TA)*100 (DuPont Analysis)

0.67 0.39 22.34 8.18 9.98 16.57

0

20

40

60

80

100

120

140

2010 2011 2012

LuckyCement

D.G Khan

Cement


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Page | 43

Figure 12

13. Operating Income Margin

Table 13D.G. Khan Cement Lucky Cement

Formula 2010 2011 2012 2010 2011 2012

Operating Income

Margin=(OI/Net Sales)*100

14.92 14.62 24.93 17.31 19.83 27.04

Figure 13

Interpretation:

This ratio indicates the firms profitability after taking account of all its operating expenses.

The ratio tends to increase whenever operating expenses fall and operating income rise and

fall when operating profit decrease or sales increases.

0

5

10

15

20

25

2010 2011 2012

LuckyCement

D.G Khan

Cement

0

5

10

15

20

25

30

2010 2011 2012

Lucky

Cement

D.G Khan

Cement


44/51


Page | 44

The D.G. Khan Cement operating profit ratio is showing a mix trend. It is increasing till

year 2010, than there is a decline in the year 2011. After that, ratio is depicting an

increasing trend in 2012.

The reason for decline in the year 2010 is a rapid increase in the administrative and sellingexpenses. On the other hand the Lucky Cement operating profit ratio is showing a

increasing trend in years 2010,2011,2012.

14. Gross Profit MarginTable 14


Formula 2010 2011 2012 2010 2011 2012

Gross Profit Margin=GP/Net

Sales*100

17.93 23.92 32.70 32.55 33.48 38.17

Figure 14

Interpretation:

This ratio indicates the efficiency of operations and firm pricing policies. It reflects the

firms efficiency with which a firm produces its products.

The ratio tends to rise whenever cost of goods sold decreases and gross profit rise and vice

versa or when sales increases.

0

1020

30

40

50

2010 2011 2012

Lucky

Cement

D.G KhanCement


45/51


Page | 45

The gross profit ratio of the company is increasing from 2010 to 2012. This shows that the

companys sales are increasing and also company is reducing its cost of sales which

ultimately increases the gross profit of the company.

Return on Investment

Table 15D.G. Khan Cement Lucky Cement

Formula 2010 2011 2012 2010 2011 2012

Return on

Investment=NPAT+I(1-

t)/Avg(L.T.L+Equity)

0.05 0.04 0.13 0.12 0.14 0.20

Figure 15

15. Return on EquityTable 16


Formula 2010 2011 2012 2010 2011 2012

Return on

Equity=NPAT/Avg. Total

Equity

0.0130 0.0069 0.13 0.12 0.15 0.22

0

0.05

0.1

0.15

0.2

0.25

2010 2011 2012

Lucky

Cement

D.G Khan

Cement


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Page | 46

Figure 16

16. Return on Common Equity

Table 17D.G. Khan Cement Lucky CementFormula 2010 2011 2012 2010 2011 2012Return on Common

Equity=NPAT-D to PSH/Avg

Common Equity

0.0928 0.049 0.93 0.97 1.22 2.09

Figure 17

17. Price/Earnings RatioTable 18


Formula 2010 2011 2012 2010 2011 2012

Price/Earnings Ratio=MP per

share/EPS

6.80 5.80 4.76 5.92 5.06 4.96

0

0.05

0.1

0.15

0.2

0.25

2010 2011 2012

Lucky Cement

D.G Khan

Cement

0

1

2

3

2010 2011 2012

Lucky

Cement

D.G

Khan

Cement


47/51


Page | 47

Figure 18

18. Dividend Per ShareTable 19


Formula 2010 2011 2012 2010 2011 2012

Dividend Per Share=Total

Dividend/O.S.C.S

1.00 1.00 1.00 - 1.25 1.25

Figure 19

19. Earnings Per Share

0

2

4

6

8

2010 2011 2012

Lucky

Cement

D.G Khan

Cement

0

0.5

1

1.5

2010 2011 2012

Lucky

Cement

D.G Khan

Cement


48/51


Page | 48

Table 20


Formula 2010 2011 2012 2010 2011 2012

EPS=Earnings available forcommon share holder/No of

common share outstanding

5.78 6.77 8.26 9.77 11.43 11.65

Figure 20

Interpretation:

The ratio tends to increase when earning available to common stock holders

increase and falls when paid up capital increase or earning decreases. It has

increased in 2012 as compared to 2011 but decreased in 2010 which is not good for

the company.

0

2

4

6

8

10

12

14

2010 2011 2012

Lucky

Cement

D.G Khan

Cement


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Page | 49

Credit Rating

Lucky Cement Company Limited

Short term Rating

Long term Rating

D.G. Khan Cement Company Limited

Short term Rating

Long term Rating

B

BBB

BBB

A3


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Page | 50

Recommendations

We would like to conclude this report by ranking overall sector as Neutral. We remain neutral onthe sector because on hand expansion is the need of hour. Due to expected growth in demand,

current capacity appears inadequate. On the other hand, expansion plans set up by the various

players of cement sector to grab demand expansion might cause sector to overflow. Along with risk

of being oversupplied, unanticipated increase in interest rates or less than expected demand growth

might create severe crises for the sector couple of years forward. Weighing risks and rewards, we

remain NEUTRAL on the sector.

To break-up cement manufacturers cartel the Competition Commission of Pakistan raided offices of

Association of Cement Manufacturers of Pakistan and confiscated official record. The association

condemned this action and said it is against business norms. They accused Commission for blamingcement manufacturers for making a cartel for the last 10 years but could not able to prove it. The

capital structure of cement companies may change, as most of the expansions during last two to

three years have been debt financed and companies are expected to retire these debts rapidly

during next three to five years. Moreover, the slowdown in economy may occur due to political

uncertainty, which might result in reducing cement demand in future.

However, in case of construction of hydro-powered dams, there will be a sudden jump in the local

sales of those companies located near these dams.

Consolidation is needed for industry stability because of following observations.

1. Cartels are unstable by their nature.

2. Industry needs one or two dominant players for long-term sustainability in prices and

profits

3. Top four players command 35% of market share in the industry that will be increased to

46% in FY12

4. World norm is that top four players have more than 60% market share

5. Consolidation process will be needed to increase market share of larger players rather

than going for capacity expansions

6. We may see acquisitions in the industry as the industry goes through

overcapacity cycle.


51/51


Source:

All Pakistan Cement Manufacturing Association of Pakistan (APCMA)

Annual reports of last 5 year

Karachi Stock Exchange of Pakistan (Website)

Documents

Final Report of AFS