Cement Sector: Challenges Ahead

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Cement Sector : Challenges Ahead
Neutral
Market Data
Average Daily T/O (PKR-mn)
1,104
Average Daily Turnover (USD-mn)
10
Average Daily T/O (Share-mn)
42
Market Cap (PKR mn)
183,217
Market Cap (USD mn)
1,728
Index Weightage (%)
6.31
P/B 1.11
P/E 6.63
EV/ EBITDA 4.56
Free Float (%) 45%
Source: KSE, Bloomberg
Stock Performance (52 weeks)
(%) 1M 3M 12M
Absolute -7% 3% 65%
Relative to mkt 6% -4% 20%
Tuesday, 01,Oct-2013
Sector Report
Increased cost push sector outlook to Neutral
In the past two years, cement sector gained traction from an improvement in core dynamics
(upward trend in cement prices , downward pressure in intl coal prices and improved domestic
demand) which reciprocate outperformed the benchmark KSE-100 Index by ~70% and 60% in
FY12 and FY13. However, the FY14 came up with solid challenges (increased GST rate to 17%,
tariff rationalization and increased rate on gas supply to captive power plants) which defy
pricing power of producer. Nevertheless, demand side pressure in the first two months amid
(Rains, floods, Ramadan/Eid holidays) also accumulates risk for the 1QFY14 earnings.
Resultantly, our sample companies (LUCK, DGKC, FCCL, MLCF, LPCL, ACPL, KOHC, CHCC, PIOC,
and FECTC) prices have declined by on average 8%YoY in FY14TD. Despite of hefty PSDP
allocation in FY14, we conservatively expect cement demand to stand out at ~33.1mn tons
(24.8mn local, 8.3mn export) in FY14 (down 0.7%YoY) in view of likely cut in PSDP during the
period under review.
In the midst of excess capacity of over 10mn tons DGKC and CHCC announced 3.6mn tons
(DGKC 2.6mn tons and approx. 1mn tons of CHCC) expansion plans which will enhance the
countrys production capacity to over 47mn tons in FY16-17. While expansion announcement
from other manufacturers cannot be ruled out. Consequently, industrys effective utilization is
expected to be below 80% in the next 3-4 years despite massive mega projects ,if implemented.
AsiaPac | Pakistan | Equities
Construction & Materials | Cement
Cost escalation expected in FY14~
As the government is trying to enhance tax collection (in form of increased GST), and by
removing subsides (increasing the electricity tariff and natural gas rates for captive power
plants), cement sector has been facing cost escalation of around Pk40-50/bag. However,
manufacturers have already increased cement prices by PkR30-35/bag FY14TD, whereas we
expect increasing costs will exert pressure on prices in the outgoing financial year
Per Share Impact (PKr/sh) PKR30 PKR20 PKR10
LUCK 6.69 4.46 2.23
DGKC 3.83 2.56 1.28
FCCL 0.92 0.61 0.31
MLCF 2.02 1.35 0.67
LPCL 0.73 0.49 0.24
CHCC 5.99 4.00 2.00
ACPL 7.13 4.75 2.38
FECTC 5.67 3.78 1.89
PIOC 2.73 1.82 0.91
KOHC 6.84 4.56 2.28
Impact of Increase in cement price per 50KG bag
Source: APCMA, Alternate Research Source: APCMA, Alternate Research
Relative Performance
Visit our Bloomberg page ARPL < go >
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Cement KSE100
Senior Analyst
Yawar Uz Zaman
y.zaman@alt-research.com
Analyst
Kumail Chevelwalla
k.chevelwalla@alt-research.com
Table of Contents

1. Increased cost push sector outlook to Neutral
2. Cost escalation- Expected in FY14
3. Discount rate- Taking U-turn
4. FY13 - A year to be remembered
5. Lucky Cement-The industry vanguard
6. D.G. Khan Cement- Exponential earnings growth despite subdued dispatches
7. Fauji Cement Company Limited - Reaping fruits of favorable demand
8. Attock Cement Pakistan Limited - Cementing earnings on better brand image
9. Cherat Cement Company Limited - Expansion on the way
10. Fecto Cement- cheaper than peers
11. Kohat Cement- All well from all corners
12. Lafarge Pakistan Cement Limited - 1HCY13 NPAT up 6%YoY
13. Maple Leaf Cement- From extreme losses to abnormal profits
14. Pioneer Cement Limited - Earnings grew by an immense 155%YoY in FY13
15. FY14 Outlook

Construction & Material - Cement
Discount rate Taking U-turn:
The cement sector is one of the most highly leveraged industrial sectors in Pakistan with
outstanding loans of over PkR40bn (FY13). Cement companies have historically attracted a
higher cost of debt as compared to companies in other sectors. That being said, almost all
leveraged companies have been favorably impacted by the State Bank of Pakistans (SBP)
easy monetary stance as the sector saved PkR3.2bn during FY13. However, Discount rate
has taken U-turn after ~34 month of monetary easing, where upside risks to the interest
rate environment exist in FY14, In this regards, we have run a sensitivity analysis on our
sample companies assuming DR hike of 100-300bps in FY14, where our sample companies
would have to bear bottom-line impact of on average 2% in F14. (See table)
Per Share Impact (PkR/sh) 1% 2% 3%
LUCK
0.02 0.04 0.06
DGKC
0.14 0.28 0.43
FCCL
0.04 0.09 0.13
MLCF
0.16 0.32 0.48
LPCL
0.02 0.04 0.06
CHCC
0.04 0.08 0.12
FECTC
0.10 0.20 0.30
KOHC
0.05 0.10 0.15
FY13 - A year to be remembered
Local dispatches up 4.7%YoY in FY13, exports down 2.26%YoY:
As per the data released by APCMA (All Pakistan Cement Manufacturers Association),
cement dispatches during FY13 increased by 2.8% and settled at ~33.4mn tons). Despite
hefty decrease of 2.26% in exports volume, local demand has supported the industry
dynamics at large. In this regards, local dispatches witnessed 4.7%YoY growth to ~25.06mn
tons as compared to 23.9mn tons in last year, while export sales went down to 8.3mn tons
mainly because of 20% and 7%YoY decline in sale to Afghanistan and India.
FY13- Earnings up by 65%YoY:
As low tier cement companies were facing massive loses during the last few years, the
remarkable FY13 came up with improved sector dynamics like 1) upsurge in domestic prices
(up 9%YoY), 2) Improved margins amid lower cost of coal coupled with monetary easing of
300bps in FY13. As a result, sector witnessed 10%YoY increase in topline to PkR142bn
compared to PkR129bn in FY12.
Similarly gross margins have improved by 600bps to 37% in FY13 owing to upsurge in prices
and declined coal prices. Moreover, improved bottom-line was further led by downtrend in
financial cost to PkR5bn (down 43%YoY) amid de-leveraging of PkR7.4bn during the year in
the midst of easy interest rate environment. In the end, bottom line for the sector
experienced an upsurge of 65%YoY to reach NPAT of PkR29.6bn in FY13 from NPAT of
PkR18bn recorded in the corresponding period last year.

Income Statement (PkR mn) FY13 FY12 YoY
Sales-net 142,376 128,988 10%
Cost of sales 89,687 89,172 1%
Gross profit 52,689 39,816 32%
Distribution cost 7,621 7,775 -4%
Admin Exp. 2,417 2,348 3%
Other opp. Exp. 2,517 1,481 58%
Other opp. Income 2,313 1,491 55%
Opp. Profit 42,648 29,694 44%
Finance cost 5,055 8,635 -43%
Profit/Loss after tax 29,514 17,910 65%
Impact of increase in discount rate
FY13 Result Review
3
Lucky Cement-The Industry vanguard
Ever high earning in FY13
Lucky Cement Limited (LUCK) announced its FY13 results recently. In this regard, the
company posted NPAT of PkR9.7bn (EPS: PkR30.04) in FY13 compared to NPAT of PkR6.7bn
(EPS: PkR20.97) in FY12, (up 43%YoY). Top line of the company posted 13%YoY growth to
reach PkR37.8bn compared to revenues of PkR33.2bn in the same period last year. This
growth was despite a meager 1.4%YoY advancement in dispatches which reached 6.1mn
tons in FY13 compared with 5.97mn tons dispatched during the same period last year. On
the back of an improvement in the net retention prices and likely lower cost of coal, gross
margin of the company continued to trend upwards with a growth of 600bpsYoY to settle at
~44% in FY13 (highest in the cement industry).
Similarly, the operating profitability of the company improved encouragingly by ~40%YoY to
PkR12.6bn in the period under review. Additionally, electricity supply to HESCO improved
other income to PkR248mn against only PkR5mn in FY12. On a QoQ basis, topline of the
company declined by ~1%QoQ due to a 0.6%QoQ decline in cement dispatches. LUCK posted
marginally high NPAT of PkR2.73bn (EPS: PkR8.45) in 4QFY13 (up 2%QoQ) compared to NPAT
of PkR2.69bn (EPS: PkR8.32) recorded in 3QFY13. The company has announced cash dividend
of PKR8/share during FY13.
Expanding & Diversifying:
Following the implementation of TDF technology at Karachi plant, company intends to
introduce the same at PEZU. Whilst, vertical grinding mills at Karachi plant has already been
installed and successfully operating since last quarter FY13 and subsequent will be
operational by Sept-14. The equipments for cement grinding facility in Iraq has arrived and
the plant will start its trail production from Nov-13. Meanwhile, LUCK reported financial
close of Congo project in Dec-13.
Outlook:
The Company has started realizing other income from electricity supply to HESCO (20MW)
which has provided the company with an alternate avenue for income. Post-acquisition of ICI
Pakistan, LUCK has several plans in the pipeline including up-gradation of existing cement
grinding plants, expansion in Africa, Iraq and possibly Sri Lanka to unlock the growth
potential of these markets.
Income Statement (PkR mn) FY11 FY12 FY13 FY14E
Sales-net 26,018 33,323 37,810 38,725
Cost of sales 17,306 20,601 21,089 21,293
Gross profit 8,711 12,721 16,721 17,432
Distribution cost 3,236 3,237 3,666 3,754
Admin Exp. 313 474 447 919
Other opp. Exp. 325 438 616 631
Other opp. Income 2 5 248 260
Opp. Profit 5,161 9,010 12,608 12,759
Finance cost 518 253 89 140
Profit/Loss after tax 3,970 6,782 9,714 10,411
EPS@323mn sh 12.20 20.94 30.04 32.19
Sponsor Profile:
Lucky Cement Limited is part of the
Yunus Brothers company. In addition to
its investment in cements, the group holds
investments in textiles (Gadoon Textile
Limited) and chemicals (ICI Pakistan
Limited). Currently, the group holds a
listed PkR66bn of asset base with market
capitalization of over PkR6.7bn.

LUCK High Low Avg.
Price 265 131 180
Vol (mn) 5.4 0.1 1.1

Industry Positioning
Unrivaled Operational Efficiency: The industry bellwether, LUCK holds a 15% share in total
local dispatches with a 27.3% share in export dispatches. The company holds 17% of the total
industry capacity and has a strong ability to capture both local and export demand due to its
strategic location. On the cost efficiency front, LUCK has successfully implemented WHR
plant as well as the TDF (Tire Derived Fuel) . The local and export share ratio of the company
stands at 62:38.
Source: Company financials, Alternate Research
4
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FY11 FY12 FY13 FY14E
EPS
PKR/Share
Source: Company Accounts Alternate Research
D.G. Khan Cement
Exponential earnings growth despite subdued dispatches
As the companys effective utilization remained over 90% in FY13, growth in cement
dispatches remain on lower side. However, Topline of the company grew by ~9%YoY to reach
PkR24.9bn primarily owing to improvements in domestic prices compared to the past year.
Additionally, sequential decline in international coal prices coupled with cost rationalization
measures via switching to alternate fuels lead to margin expansion. In this regard, DGKCs
gross margin expanded by 470bpsYoY to reach ~37% in FY13.
Similarly, the operating profitability of the company improved encouragingly by ~42%YoY to
PkR7.1bn in the period under review. While 40%YoY decline in financial cost triggered bottom
line. As a result, company posted NPAT of PkR5.5bn (EPS: PkR12.56) in FY13 compared to
NPAT of PkR4.1bn (EPS: PkR9.38) in FY12. On QoQ basis, DGKC recorded NPAT of PkR1.26bn
(EPS:PkR2.88) in 4QFY13 against NPAT of PkR1.32bn (EPS:PkR3.03) in 3QFY13. The company
has announced cash dividend of PKR4.5/share during FY13.
Outlook and Investment Perspective:
Fundamentally, cost rationalization measures (Waste Heat Recovery (WHR) Projects, alternate
fuels - Tire Derived Fuel (TDF) coupled with firm cement prices should provide sustainability in
margins for DGKC going forward. Additionally, income diversification through dividend
(particularly MCB bank) and other group companies provide an edge during industry
downtrends. DGKC has two cement plants located in the northern region and is the main
beneficiary of any new mega dam building projects and exports to India. Moreover, company
has announced expansion in the southern region to gain benefit of low cost exports and
expanding foot prints.

DGKC High Low Avg.
Price 96 49 68
Vol (mn)

19.8 0.5 5.6
Sponsor Profile:
DGKC is part of one of the most diversified
groups in the country i.e. Nishat Group. In
addition to investment in the cement
industry (D.G. Khan Cement), Nishat group is
engaged in financial services (MCB Bank),
textiles (Nishat Mills and Nishat Chunian),
power (Nishat Power, Nishat Chunian Power,
Pakgen and Lalpir plants), insurance
(Adamjee Insurance), as well as some
unlisted companies. As far as the asset size of
the group is concerned, the group holds
PkR1.4trn in its asset base with market
capitalization of over PkR270bn.


The industry 3
rd
largest player, DGKC holds a 12% share in total local dispatches and in
exports also. The company holds 9% of the total industry capacity and has a strong ability
to capture both local and export demand due to its strategic location The local and export
share ratio of the company stands at ~74:26.
Sales-net 18,577 22,950 24,916 25,350
Cost of sales 14,192 15,443 15,590 15,861
Gross profit 4,385 7,507 9,326 9,488
Admin Exp. 211 268 406 413
Other opp. Exp. 157 501 545 554
Other opp. Income 1,134 1,188 1,466 1,540
Opp. Profit 1,703 5,036 7,169 7,294
Finance cost 2,079 1,671 995 1,012
Profit/Loss after tax 171 4,108 5,502 5,450
EPS@438mn sh 0.39 9.38 12.56 12.44
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Fauji Cement Company Limited
Reaping fruits of favorable demand
Through its timely expansion of 7,560tpd of cement plant in FY11, FCCL enjoyed favorable
demand scenario during FY13. Likewise other players in the industry, FCCL witnessed
vigorous advancement of 39%YoY growth in revenue to PkR5.9bn parallel to same period last
year. GMs improved by massive 520bps to 32% owing to better realized price of cement and
upsurge in dispatches. Grouped benefits of strong topline and reduced financial cost, FCCL
posted NPAT of PkR2.1bn (EPS:PkR1.42) in FY13 compared with NPAT of PkR553mn
(EPS:PkR0.29) in the same period last year. Similarly, on a QoQ basis, FCCL posted NPAT of
PkR527mn (EPS:PkR 0.24) in 4QFY13, down 19%QoQ. The company has announced cash
dividend of PKR1.25/share during FY13.

FCCL is expanding its presence in Pakistans neighboring regions/countries such as Sri Lanka,
India, South Africa, the Middle East & Africa. Additionally, increased demand expected from
the local front amid an election year via enhanced development activities in the country
coupled with firm prices are expected to drive bottom-line growth.

With the addition of 2.16mn tons per annum, FCCL has a ~7% share in total industry capacity,
6% in industry exports and 8% in the domestic dispatches. Capitalizing on its premier
location, FCCLs utilization levels remained top notch at 73% in FY13. The local and export
share ratio of the company stands at 80:20.
FCCL High Low Avg.
Price 17 6 10
Vol (mn) 113.7 0.7 16.6
Sponsor Profile:
FCCL is part of one of the leading groups of
the country i.e., the Fauji Foundation with
diversified investments in fertilizers (Fauji
Fertilizer Company and Fauji Fertilizer bin
Qasim) and other sectors. In this regard, Fauji
foundation also has stakes in the Mari Gas
Company and is expected to stake a stake in
Askari Bank Limited (AKBL). The group holds
PkR149.3bn of asset base with market
capitalization of over PkR207.7bn.

Sales-net 4,743 11,523 15,968 16,943
Cost of sales 3,920 8,455 10,887 11,889
Gross profit 823 3,068 5,080 5,054
Distribution cost 74 102 144 153
Admin Exp. 148 129 205 218
Other opp. Exp. 37 72 229 243
Opp. Profit 601 2,838 4,732 4,684
Finance cost 104 1,825 1,512 1,277
Profit/Loss after tax 426 553 2,097 2285
EPS@1331mn sh 0.32 0.42 1.42 1.55
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Attock Cement Pakistan Limited
Cementing earnings on better brand image
Attock Cement Limited (ACPL) posted ~49%YoY growth in earnings to reached NPAT of
PkR2.1bn (EPS: PkR21.45) in FY13 compared to NPAT of PkR1.4bn (EPS: PkR14.43) in FY12. On
an unconsolidated basis, top line of the company posted ~8%YoY growth to reach PkR11.5bn
compared to revenues of PkR10.5bn recorded in the same period last year. The uptick in
profitability was a direct result of record expansion in gross margin which posted a growth of
390bpsYoY to settle at 31% in FY13. The hefty margin improvement was likely aided by better
efficiency metrics, PkR depreciation against the US$, lower transportation cost and low cost
coal inventory.

Similarly, operating profitability of the company improved by ~31%YoY to reach PkR2.69bn in
the review period compared with PkR2.02bn recorded in the same period last year.
Consequently, net margin enhanced by ~520bpsQoQ to ~21% in 4QFY13. ACPL posted
unconsolidated NPAT of PkR657mn (EPS:PkRR6.6) compared to NPAT of PkR521mn
(EPS:PkR5.23) in 3QFY13. The company has announced cash dividend of PKR13/share during
FY13

With no long term debt on the companys account, ACPL has the financial strength to take on
expansion activities in the future, in our view. The company holds a strong brand image not
only in the domestic market but also on the export front. Meanwhile, utilization level at par
indicates that the company is reaping the benefits of relatively higher local demand
compared to its competitors.

ACPL has a total clinker production capacity of 1.79mn MT. Due to its strategic location in the
South, the company benefits from lower transportation costs related to importing coal and
exporting cement. The company shares 4% in the total capacity while it shares 6% and 5% in
domestic and export sales, respectively. Up till FY13 the companys capacity utilization was
~103% compared to the average industry utilization of 75%. The local and export share ratio
in company sales stands at 74:26.
ACPL High Low Avg.
Price 156 79 105
Vol (mn) 1.01 0.00 0.1
Sponsor Profile:
In addition to the investment in the
cement industry (Attock Cement
Limited), Attock group has diversified
itself in the energy sector through
exposure in oil exploration and
production (Pakistan Oil Limited),
refining (National Refinery Limited), oil
marketing (Attock Petroleum Limited,)
real estate, and other sectors. Currently,
the group holds an asset base of
PkR94.9bn with listed market
capitalization of PkR168.47bn.

Sales-net
8,554 10,503 11,508 11,813
Cost of sales
6,823 7,691 7,973 8,253
Gross profit
1,731 2,812 3,535 3,560
Distribution cost
513 571 578 593
Admin Exp.
186 222 263 270
Other opp. Exp.
77 119 230 236
Other opp. Income
104 146 227 233
Opp. Profit
1,059 2,047 2,691 2,694
Finance cost
24 12 15 17
Profit/Loss after tax
712 1,463 2,136 2,141
EPS@99.5mn sh
7.15 14.43 21.45 21.50
7
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Cherat Cement Company Limited
Expansion on the way
Cherat Cement Ltd (CHCC) posted a growth of 180%YoY to reach NPAT of PkR1.2bn (EPS:
PkR12.81) during FY13 compared with NPAT of PkR437mn (EPS: PkR4.57) posted during the
same time last year. Earnings growth was mainly driven by 1) topline growth, 2) cost
efficiencies, 3) margin growth and 4) a lower interest cost profile. In this regard, topline of
the company grew by 15% to reach PkR6.2bn during FY13. The increase in net sales was on
account of both higher sales price of cement and better sales volume compared with last
year. As a result, gross margin for the company clocked in at 35% in FY13. On QoQ basis,
CHCC posted NPAT of PkR302mn (EPS: PkR3.16) compared to a NPAT of PkR315mn (EPS:
PkR3.3) posted in FY12. The company has announced cash dividend of PK3.5/share during
FY13.
Outlook
We expect CHCC to be a major beneficiary of mega development projects such as the
Diamer-Bhasha Dam as it is located close to the proposed dams site and can potentially
boost volume for the company. However, the current interest rate reversal poses long term
risk to the companys expansion plans. Furthermore, due to its healthy share in export sales,
the companys top line is favorably benefited by PkR depreciation against the US$

CHCC High Low Avg.
Price 81 37 54
Vol (mn) 3.5 0.0 0.5
Company Profile:
CHCC is located in the northern part of
the country and enjoys leading exports to
Afghanistan due to its strategic location.
The company is one of the leading
producers and suppliers of cement in KP
and Punjab enjoys strong brand value
amongst its customers.
It has a total production capacity of 1.15mn tons. The company shares 2.5% in the total
capacity while it shares 4% in industry exports and 2.5% in domestic dispatches. Owing to
its relatively low capacity coupled with its strategic location, the companys utilization levels
remain top notch at 91% in FY13. The local and export share ratio of the company stands at
64:36.
Sales-net 4,244 5,457 6,294 6,635
Cost of sales 3,677 4,305 4,108 4,418
Gross profit 567 1,152 2,187 2,218
Admin Exp. 107 113 121 127
Other opp. Exp. 11 34 230 243
Opp. Profit 335 895 1,906 1,922
Finance cost 286 311 109 199
Profit/Loss after tax 69 437 1,224 1,197
EPS@96mn sh 0.72 4.57 12.81 12.52
PKR/Share
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Fecto Cement
Still cheaper than peers
The sponsors have diversified interests in cements, sugar, tractor as well as paper sack &
hardboard manufacturing units. Located at Sangjani (near Islamabad), FECTC has a rated
capacity to produce 780,000 tons of clinker p.a.
FY13 Result Review:
BoD of FECTC cement announced FY13 results on 26th-Sept-13, FECTC posted topline growth
of 6%YoY to reach PkR4.5bn in FY13 compared to the same period last year. Higher net sales
are primarily expected to emanate from higher local prices of cement coupled with favorable
demand growth as compared to last year. Following the industry trend, the company
enhanced it gross margin to 27% (up 510bps YoY). Consequently, The company posted NPAT
of PkR583mn (EPS:PkR11.63) during FY13 compared to NPAT of only PkR347mn
(EPS:PkR6.91) posted during the same period last year. On a QoQ basis, the company posted
NPAT of PkR75mn (EPS:PkR1.49) in 4QFY13 compared to NPAT of PkR184mn (EPS:PkR3.67)
posted in 3QFY13. The company has announced cash dividend of PKR1.5/share during FY13
At current price level, the cement sector is trading at an average forward PER multiple of
6.63x. In our sample, FECTC stands out with significant upside potential compared to its
current price. In this regard, FECTC is trading at PER of only 3.7x .

FECTC High Low Avg.
Price 64 24 39
Vol (mn) 1.8 0.0 0.2
Company Profile:
The sponsors have diversified interests in
cements, sugar, tractor as well as
papersack & hardboard manufacturing
units. Located at Sangjani (near
Islamabad), FECTC has a rated capacity to
produce 780,000 tons of clinker p.a.

FECTC shares 1.8% in the total industry capacity and has 1.8% and 2.6% share in the local
and export sales respectively. Up until FY13, the companys capacity utilization was 86%
while the local and export share ratio in company sales stands at 68:32.
Income Statement (PkR mn) FY11 FY12
FY13
FY14E
Sales-net 3,304 4,343 4,588 4,677
Cost of sales 2,698 3,377 3,334 3,387
Gross profit 606 966 1,255 1,290
Admin Exp. 128 127 143 154
Other opp. Exp. 7 22 52 54
Opp. Profit 242 502 881 886
Finance cost 150 206 143 132
Profit/Loss after tax 66 347 583 751
EPS@50mn sh 1.31 6.91 11.63 11.98
9
90%
95%
100%
105%
110%
0.70
0.72
0.74
0.76
0.78
0.80
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PKR/Share
Kohat Cement Limited
All well from all corners
KOHC recently announced its FY13 result where it recorded a topline growth of 21%YoY to
reach PkR11.2bn during FY13, reflecting a sizable increase of PkR1.9bnYoY over last year. This
upsurge in net sales was due to higher local prices coupled with improved local sales volume
during the period under review. Moreover, the company secured gross margin of 38% (up
800ppsYoY) in FY13 compared to 31% posted in the same period last year.

Despite an increase in distribution and administrative expenses, the company managed to
post a NPAT of PkR2.6bn (EPS: PkR20.45) during FY13 compared to NPAT of PkR1.61bn
(EPS:PkR12.9) last year. On a QoQ basis, KOHC recorded NPAT of PkR722mn (EPS: PkR5.61)
compared to NPAT of PkR732mn (EPS:PkR5.61) posted in FY13. The company has announced
cash dividend of PKR5/share during FY13
We see firm prices playing a bigger role in the profitability of the company going forward,
coupled with an improved outlook in dispatches growth emanating from KOHCs ability to
capture growing demand in the Northern region. . While we do not foresee significant
improvements in the export scenario for the company and flag favorable domestic
dispatches as an important growth element in FY`14

KOHC High Low Avg.
Price 124 58 80
Vol (mn) 3.8 0.01 0.40
Company Profile:
KOHC engages in the production, sale,
and export of cement and offers both
White and Grey cement. The cement
plant is located about 60km from
Peshawar. KOHC has an installed clinker
capacity of 2.8mn tons of grey cement
and 148.5k tons of white cement

KOHC has total capacity of 2.68mn tons. The companys plants have been working with an
average capacity utilization of 68% which is quiet low as compare to the industry average of
75%. The company has ~6% market share in domestic sales and only 3.7% in exports . The
company's local and export ratio is 83:17 respectively.
Sales-net 6,085 9,316 11,297 11,671
Cost of sales 5,158 6,464 6,936 7,316
Gross profit 927 2,852 4,361 4,354
Admin Exp. 49 67 86 89
Other opp. Exp. 16 108 234 241
Opp. Profit 837 2,739 4,216 4,000
Finance cost 715 626 249 257
Profit/Loss after tax 64 1,661 2,633 2,621
EPS@129mn sh 0.49 12.90 20.45 20.35
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Lafarge Pakistan Cement Limited
1HCY13 NPAT up 6%YoY
In 1HCY13, LPCL posted top line growth of 6%YoY to reach PkR5.06bn compared to a top line
of PkR4.7bn recorded in the same period last year. The increase in net sales is expected to be
primarily driven by higher sales prices of cement compared to last year. Similarly, gross
margin of the company enhanced by 390ppsYoY to 35% in the period under review.
However, the company has not been able to cash the same quantum of benefit from a lower
domestic interest rate environment compared to its peer group as PkR depreciation against
the US$ continues to inflate foreign currency debt servicing for LPCL. Despite the fact,
company recorded decline of 57%YoY in financial charges to reach PkR257mn. Resultantly,
LPCL posted NPAT of PkR865mn (EPS: PkR0.66) during1HCY13 compared to NPAT of
PkR164mn (EPS: PkR0.13) during last year.
Despite some temporary hoopla on the political front, relations between Pakistan and India
should improve as Pakistan is considering awarding the MFN (Most Favored Nation) status to
India and has also taken a step forward to improve its trade relations in the region, in our
view. Cement exports to India through the Wagha border can act as a volume trigger for LPCL
where the company's capacity utilization would also move towards peak levels.

LPCL High Low Avg.
Price 11 5 7
Vol (mn) 51.93 0.4 5.6
Company Profile:
LPCL engages in the production, sale, and
export of cement under the PAKCEM
brand name in Pakistan. It offers ordinary
Portland cement and Sulphate Resistant
cement with the packaging options of 50
kg bags, 1.5 tons, 2 tons jumbo bags and
bulk carriers. The company was formerly
known as Pakistan Cement Company
Limited and changed its name to Lafarge
Pakistan Cement Limited (LPCL) in
February 2009. LPCL is a subsidiary of
Pakistan Cement Holding Limited where
the ultimate parent of the company is
Lafarge S.A., France. The major stake
holders of the company are Pakistan
Cement Holding Company which holds
51.55% share in the company followed
by Camden Holding PTE Limited with a
21.67% stake.

The company's plant is located in Kalar Kahar, district Chakwal in the heart of the Punjab
province, which is quite rich in limestone reserves (main raw material for clinker). The plant
is near the M2 Motorway that gives it an edge in reaching all sides of the country as well as
in facilitating regional exports. The company has a total production capacity of 2.4mn tons
(5.4% of the industry capacity with local and export shares of 4.5% and 5% respectively).
Income Statement (PkR mn) CY11 CY12 CY13E CY14E
Sales-net
7,804 9,624 10,137 9,960
Cost of sales
6,149 6,489 6,588 6,608
Gross profit
1,656 3,135 3,548 3,352
Distribution cost
246 226 292 328
Admin Exp.
488 628 860 774
Other opp. Exp.
4 87 138 158
Other opp. Income
56 12 88 15
Opp. Profit
921 2,282 2,396 2,250
Finance cost
1,064 1,053 515 453
Profit/Loss after tax
(118) 1,488 1,729 1,588
EPS@1313mn sh
(0.09) 1.13 1.32 1.21
11
(0.50)
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1.50
CY11 CY12 CY13E CY14E
EPS
PKR/Share
Maple Leaf Cement - From extreme losses to abnormal profits
Earnings up by massive 550%YoY
MLCFs earnings momentum continued in FY13. In this regard, the company record NPAT of
PkR3.2bn (EPS: PkR6.11) in FY13 as compared to a NPAT of PkR496mn (EPS: PkR0.94)
recorded in the same period last year. Profitability of the company improves significantly as
gross margins expanded by 860pptsYoY to 35% during FY13. The key reason behind this
notable margin growth was healthy prices. Improvement in bottom-line is realized on
account of the controlled administrative and distribution costs and declining financial costs
which will decline by 27%YoY to reach PkR1705mn in FY13 as compared to the same period
last year. The overall jump in the core earnings of the company trickled down to the bottom-
line resulting in a massive 550%YoY growth during the period. On a QoQ basis, MLCF posted
a NPAT of PkR1035mn (EPS: PkR1.96) in 4QFY13, compared to PkR840mn (EPS: PkR1.59)
recorded in the previous quarter.
Outlook and Recommendation
MLCF is one of the highly leveraged companies in cement universe, where the upside risk to
companys valuation would remain high cost of borrowing as compared to other peers.
Similarly, owing to high DFL and DOL, MLCF would advantage of the increasing local demand
due to its favorable strategic location. The capacity utilization for the company would be
around 75% during FY13.

MLCF High Low Avg.
Price 33 8 19
Vol (mn) 44 1 10
Sponsor Profile:
MLCF is also equipped with a capacity of
100tpd white cement and has captured
almost 80% of the white cement market.
In addition to the Kohinoor Groups
investment in the cement industry
(MLCF), the Kohinoor group is also
engaged in textiles (Kohinoor Textiles).
The current listed asset size of the group
is ~PkR38.5bn with market capitalization
of over PkR8.86bn.

MLCF has a capacity of 11,235 tpd, while the total capacity of the company stands at ~3.37mn
tons. MLCF has a 9% share in the total installed capacity in the north region, whereas the
Company holds 8% share in the countrys total capacity The company has 7% share in local
dispatches and 3% share in exports.
Sales-net 13,073 15,461 17,357 17,443
Cost of sales 10,898 11,447 11,312 11,498
Gross profit 2,175 4,015 6,045 5,945
Distribution cost 1,647 846 798 786
Admin Exp. 231 258 254 253
Other opp. Exp. 162 150 167 141
Opp. Profit 298 2,910 4,993 4,906
Finance cost 2,166 2,351 1,705 1,629
Profit/Loss after tax (1,769) 496 3,225 2,949
EPS@528mn sh (3.36) 0.94 6.12 5.60
12
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PKR/Share
Pioneer Cement Limited
Earnings grew by an immense 155%YoY in 1FY13
During FY13 PIOC posted topline growth of 17%YoY to reached PkR7.5bn in FY13 compared
to a topline of PkR6.48bn recorded during FY12. Despite subdued growth in its topline, the
gross margin of the company is expected to clock in at 32% (up 732pptsYoY). Meanwhile,
Distribution and administrative expenses swelled by 14% and 1% respectively during the
review period .Therefore, PIOC witnessed 155% YoY upsurge in bottom line recorded NPAT
of PkR1535mn (EPS: PkR6.76) during FY13 compared to NPAT of PkR601mn (EPS: PkR2.65)
during the same period last year.
On a QoQ basis, the topline of the company swelled by 1%QoQ owing to a better local
demand and improved retention, whilst, PIOC posted NPAT of PkR470mn (EPS: PkR2.07) in
4QFY13 compared to NPAT of PkR417mn (EPS: PkR1.84) posted in 3QFY13. The company has
announced cash dividend of PKR3/share during FY13
Outlook and Recommendation
In line with its peer group, firm prices aided by relatively higher public sector spending
should drive PIOCs revenue growth this year. Moreover, the depreciating PkR against the
US$ with range bound coal prices should serve as another positive driver for the companys
margin profile

PIOC High Low Avg.
Price 38 13 23
Vol (mn) 11 0 1
Company Profile:
PIOCs production facility is situated at
Chenki, District Khushab in Punjab. The
company commenced its operations with
an installed capacity of 2,000 tons
clinkers per day. During 2005 the
capacity was enhanced to 2,350 tons per
day. During April 2006, another
production line with a capacity of 4,300
tons clinkers per day was streamed
online.

The company has a market share of 5% in the overall industrial capacity while it shares 4%
and 3% in local and export sales respectively. Up until FY13, the companys capacity
utilization was ~63% as compared to the average industry utilization of 75% during the
period. The company's local and export ratio is 83:17 respectively.
Sales-net 5,273 6,487 7,568 8,062
Cost of sales 4,531 4,900 5,163 5,581
Gross profit 742 1,587 2,405 2,481
Admin Exp. 52 62 62 66
Other opp. Exp. 16 58 144 154
Opp. Profit 539 1,446 2,253 2,293
Finance cost 471 485 (19) 50
Profit/Loss after tax 23 601 1,535 1,525
EPS@227mn sh 0.10 2.65 6.76 6.72
13
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Cement Sector : Challenges Ahead

Cement dispatches declined 5%YoY in 2MFY14
As per APCMA (All Pakistan Cement Manufacturers Association), cement dispatches during
first 2MFY14 stood at ~4.85mn tons (down 5%YoY), which were realized at ~5.09mn tons in
the corresponding period of last year. Similarly, local dispatches during the period went
down by 6%YoY to ~3.4mn tons against ~3.65mn tons in the same period last year, while
export sales remain sluggish on account of lower demand from Afghanistan. In that regards,
export sales went down by 2%YoY to settle at ~1.42mn tons. The prominent reason behind
sluggish demand was lower public sector spending by government amidst Ramadan/Eid
season along with heavy floods have dampened the demand during the said period.
FY14- Cement sector earnings to increase by meager ~2% in FY14
We anticipate cement dispatches to clock in at 33.1mn tons (local 24.8mn tons and exports
8.3mn tons) in FY14. The key reason behind sluggish dispatches were 1) Cut in the allocated
budget for PSDP 2) more govt focus towards power sector reforms than construction
activities 3) last but not least, mega dam building projects are expected to be linger-on in
FY14. Staying conservative, we anticipate small 0.7%YoY fall in dispatches during the said
period.
Moreover, current increase in cement prices would only off-set swelling cost pressure (on
account of increase in power/gas tariff), while margins could slightly decline by the timing
difference of pass-on the impact. Meanwhile, we assume coal prices to prevail in the range
of US$70-80/ton in the outgoing year. On the flip side, we incorporate 200bps upsurge in DR
for calculating companys financial cost. Consequently, we estimate the sector to record
marginal growth of 3%YoY increase in topline to PkR146bn compared to PkR142bn in FY13.
Similarly gross margin is projected to prevail at current level of 37% in FY14. However,
financial cost would cut by PkR93mn to PKR 4.9bn in FY14 (down 2% YoY). The bottom-line
would experience marginal ~2%YoY growth to reach NPAT of PkR30bn in from NPAT of
PkR29.6bn recorded in the corresponding period last year.

Sales-net 97,675 129,122 142,376 146,221
Cost of sales 75,353 89,172 89,687 92,799
Gross profit 22,322 39,950 52,689 53,422
Admin Exp. 1,914 2,348 2,417 2,925
Other opp. Exp. 813 1,589 2,517 2,565
Other opp. Income 1,846 1,491 2,313 2,445
Opp. Profit 11,696 29,706 42,648 42,480
Finance cost 7,578 8,791 5,055 4,962
Profit/Loss after tax 3,613 17,936 29,514 30,056
Source: APCMA, Alternate Research
Source: Bloomberg, Alternate Research
Source: PBS, SBP, Alternate Research
Cement Sector Projected Income Statement FY14
14
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Local Dispatches Export Dispatches
mn.tons
180
230
280
330
380
430
480
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Local Export
PKR/50 kg bag
86
78
114
103
82
75
60
70
80
90
100
110
120
130
FY09 FY10 FY11 FY12 FY13 FY14E
Coal Prices (R.B) $/ton
Company wise Relative Performance
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DGKC KSE100
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3
3
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LPCL KSE100
-
50
100
150
200
250
300
350
3
0
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2
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PIOC KSE100
-
50
100
150
200
250
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3
0
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1
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0
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FECTC KSE100
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Cement Sector: Challenges Ahead

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