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DG Khan expansion plans could spark scramble for market share

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World Cement,

DG Khan posted a 34% increase in profits for FY13 and a net income of Rs.5.5 billion, rising from Rs.4.11 billion from FY12. Analysts commented in the press that this result fell short of expectations, which were closer to Rs.5.8 billion due to a higher anticipated tax rate in 4Q13. The outlook for Pakistan’s cement sector is relatively strong, though the recent discord within the All Pakistan Cement Manufacturers Association (APCMA) has affected share prices.

DG Khan Cement’s full year revenues were up 9% y/y at Rs.24.91 billion, thanks in part to an increase in cement prices. A decline in coal prices and the new waste heat recovery system, which went into operation this year, also contributed to improved margins. The company reduced its debt by Rs.1 billion this fiscal, cutting finance costs by 40%.

Also of note is the group’s decision to abandon plans to establish a new plant in Mozambique due to the lack of major infrastructure that is required for such a project. Instead, the board has approved plans to set up a greenfield plant at Hub in the Lasbela district of Pakistan on land it already owns. The new plant would have a production capacity of 2.6 million tpa.

Some have speculated that the expansion plans will escalate the rift between APCMA members, potentially sparking a price war. Lucky Cement and Attock Cement both have a significant presence in the south of Pakistan, where the new DG Khan plant is planned, and the new capacity could lead to a scramble for market share.

In a report on the Pakistani cement industry, BMA Capital Management said, ‘While we maintain our projections of a healthy demand growth in the next five years (6 – 8% per annum), we would highlight that every player competing for a greater share of this expanding pie may create fissures within APCMA for the time being’. BMA anticipates an additional 8.9 million t of capacity will be added to the existing 45 million t in Pakistan by the end of FY17, creating a surplus of 12 million t based on the current growth forecast of 7% pa. This is equal to capacity utilisation of 78%, higher than the current 75%. BMA anticipates that the need for a healthy industry and a strong financial situation will encourage APCMA members to resolve their disagreement shortly.

Edited from various sources by


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