Khan Cement

An Introduction to D.G

ACKNOWLEDGEMENT
I wish to thank Al-Mighty Allah, who enabled me to successfully research and pen this project, Special thanks to Mr.Shahid Nawaz, project in charge for his continual support and guidance enabling us to be on the right track. Extra special thanks to Mr.Hafiz Behzad Ali and Mudassar who rendered his support throughout this project for proof reading, formatting and information gathering. Lastly, I would like to appreciate the patience of our parents and family members for bearing up with me throughout this activity both time and money wise.

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EXECUTIVE SUMMARY
For the preparation of report on ANALYSIS OF CEMENT SECTOR IN PAKISTAN We collected the annual reports of D.G cement; the cement sectors on whom I have worked. I also collected some data from the Internet. DGKC was established in 1978 under the management control of the State Cement Corporation of Pakistan (SCCP) and commenced production in April 1986. The company is a unit of the Nishat Group and is the largest cement manufacturing unit in Pakistan. The company is listed on all the three stock exchanges of Pakistan. The company manufactures two types of cement: Ordinary Portland Cement (OPC) and Sulphate Resistant Cement (SRC). The Ordinary Portland Cement is marketed under the DG brand and Elephant brand. SRC is marketed as the DG brand Sulphate Resistant Cement. DGKC is one of the market leaders in cement industry, with a market share of 10.5%, second only to Lucky Cement. It is one of the most cost efficient companies in the industry. On going global financial crunch and aggravating economic down turn due to political melt down and unrest in law and order situation in most parts of the country badly hit the development and construction activities across the board. Various economic indictors like, core inflation, lending rates, funds availability, shortage of power and water, rising trade deficit has reduced the purchasing power of the masses. Going forward, reduction of annual development expenditures both by federal as well as provincial governments have badly affected the cement off take in the country during the period under report. Cement sales in the country during July-March 2009 witnessed a decline of 15%. Similarly the cement sales during the 3rd quarter i.e. Jan-March 2009 plunged by 15% as well compared with same period last year. However, exports of cement & clinker from the country during the first nine months increased by 54% compared with the same period last year.

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This project contain all the necessary data related to the company like its balance sheet, loss and profit account, cash flow chat, data related to equity change

D.G. Khan Cement Company Limited Key Data

Ticker: Country: Exchanges: Major Industry: Sub Industry: 2008 Sales: Employees: Currency: Market Cap: Fiscal Yr Ends: Shares Outstanding: Share Type: Closely Held Shares:

DGKC PAKISTAN KARACHI Construction Cement Producers 12,715,096,000 665 Pakistan Rupees 6,769,548,892 June 253,541,157 Ordinary 88,699,811

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INTRODUCTION CEMENT INDUSTRY

CEMENT:
Cement is a fine, soft, powdery-type substance. It is made from a mixture of elements that are found in natural materials such as limestone, clay, sand and/or shale.

CEMENT SECTOR IN PAKISTAN

Over view:
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 neighbouring 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, 2008. The industry achieved an overall growth of 32% with domestic demand of cement increased by 24.95% whereas the exports increased by 111.86%. Name of New/ Year of New Capacity company Expansion Commission Created(Tons) Northern Region Askari cement Expansion 1964 945,000 Askari cement New 1996 630,000 Bestway New 1988 1,039,500 cement D.G Khan Expansion 1988 1,039,500 cement Fauji cement New 1997 945,000 Lucky cement New 1996 1,260,000 Maple Leaf Expansion 1998 1,039,500 cement Pioneer New 1994 630,000 cement

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Sub-Total Southern Region Essa cement Total

An Introduction to D.G
7,528,500

Expansion

1988

315,000 7,843,500

CONDUCT
Cement industries in Pakistan are operating at a maximum capacity due to a boom in industrial and commercial construction within Pakistan. Consumer faces a rough decision with regard to prefer which brand over which because of the similar pricing of cement industry.

PERFORMANCE
The demand of Pakistani cement is expected to continue to grow at a rate of 20 percent for about four years to come. It may then follow traditional growth of seven percent per year. Announcement of major dams will dramatically increase this demand.

CEMENT MANUFACTURING PROCESS

Raw Material

Crusher

Roller Press

Grinding Mill

Rotary kiln

Clinker

Clinker Storage Storage Silo

Roller Press

Add Gypsum

Cement Mill

Packing Unit

Dispatch

Consumer

ROAD OR RAIL
The following raw material is required in the production process: Lime stone:

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This raw material is company owned and is extracted from the nearby mountains of Iskanderabad. Limestone has highest composition in cement product.75%-80% of cement constitute of limestone.

Clay: Clay is another natural resource. This is also company owned.15%-20% of cement composition comprises of clay. Iron ore: It is the only resource that is bought from contractors. It is added in small quantities and help to strengthen cement. Gypsum: It acts as a retarding agent. It slows down the hardening process. Furnance oil: It is used for power generation.

WORKING METHOD
The following stages are involved in the production of cement: STAGE: 1 There are basically three raw materials that are used for the production of cement. In addition, a small proportion of other additives such silica is also added.1.Limestone 80%2.Clay 20%3.Iron oreLimestone and clay are extracted from same place. Iron ore is bought from a contractor near Kalabagh. So, in first stage raw materials are added. STAGE: 2 The raw materials are feeded into crushers then break into smaller pieces. After that they are stored into separate piles. STAGE: 3 From slacker components mixed and made into ultra fine powder in the grinder. A weighing scale is maintained to check that appropriate composition of material is maintained. STAGE: 4 The mixture is then added into a kiln. There is a rotating machine that heats the mixture up to 1300C where it is converted into compound as a chemical reaction takes place. This compound is cement produced into molten form. As it moves onward an air cooler is present that cools the

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cement and converts into stone clinker. This is an immediate product that is formed. Clinker is then stacked into piles. STAGE: 5 The clinker is then added into grinder. At this stage another element known as gypsum is added. The composition of cement is 95% and gypsum is 5%. Gypsum acts as a retarding agent. It ensures rapid setting but gives cement the cement the time to hardens. In the grinder the cement is crushed into powder form.

INTRODUCTION TO DG KHAN CEMENT

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 and Financial 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.

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Chairman of Nishat Group:

Mian Mohammed 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

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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.

COMPANY INFORMATION:
D.G. Khan Cement Company Limited (DGKCC), a unit of Nishat groups, is the largest cement-manufacturing unit in Pakistan. 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 listed on all the Stock Exchanges of Pakistan. 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 GROUP:

Nishat 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 andmachinery 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.

EXPANSION KHAIRPUR PROJECT:

Furthermore, the Group has also set up a new cement production line of 6,700 TPD clinker near KalarKahar, Distt. Chakwal, the single largest productions line in the country. First of its kind in cement industry of Pakistan, the new plant has two strings of pre-heater towers, the advantage of twin strings lies in the operational flexibility whereby

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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.

POPWER 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.

PRODUCTS:
Ordinary Portland Cement Sulphate Resistant Cement

Ordinary Portland Cement

Exceptional Strength At DGKCC the chemical composition and grinding fineness are closely monitored to ensure that both Pakistani and British standards are surpassed and our customers get cement of exceptional strength. Ideal Setting Time In order to allow sufficient time for application, cement must have a quick initial settings time. However once in place, the final settings should not take too long. At DGKCC ideal initial and final setting times are maintained.

Sulphate Resistant Cement

Low C3A Content Sulphate salts present in these soil combine with moisture and tri-calcium alumnate (C3A) , one of the constituents of cement to form a compound known as Sulpho. Alumnate off Hydrated Calcium. This compound is highly expansive and gradually results in the destruction of concrete. However, if a C3A content is very low , it is rendered inert and there is thus no reaction at all. British and Pakistani standards specify that in a Sulphate Resistant Cement, the C3A content must not exceed 3.5%. D.G Sulphate Resistant Cement has a much lower C3A content, making the cement highly effective against Sulphate attacks.

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Low Heat of Hydration Heat of hydration is the heat generated on reaction of cement and water. This is undesirable because it produces a corresponding thermal expansion which deforms the concrete. Upon cooling down, there is a thermal contraction which causes the concrete to crack. D.G Sulphate Resistant Cement has a low heat of hydration making it EXTREMELY SUITABLE for BULK POURING and MASS CONCRETING. High Strength As with any type of cement, strength is the fundamental property of Sulphate Resistant Cement D.G. Sulphate Resistant Cement achieves high strength through finer grinding and better particle distribution. In term of strength,, it not only exceeds by far the standards specified for Sulphate Resistant Cement, but also exceeds those of Ordinary Portland cement Low Alkali Content Certain aggregates contain alkali sensitive ingredients, which under unfavorable conditions , can result in expansion leading to cracking of concrete. The presence of alkali also causes staining and other undesirable effects on concrete. American Standards specify that a cement can be termed low-alkali if its alkali content does not excced 0.6% D.G. Sulphate Resistant Cement has an alkali content below 0.6 and a unique distinction of being a Sulphate Resistance Cement that can also be classified as low - alkali cement.

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... Plant at the DGC site complies with World Bank Environmental Standards Only Cement plant (The DGC Site) in Pakistan which is ISO 14001 Certified for Environmental Management System. ISO 9002-2000 Certified for Quality Management System (The DGC Site). Environmental Certification of New Cement plant at the KHP site is underway.

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DGC Achievements DGCs:

An Introduction to D.G

Sales and Profits have increased by 362% and 505% respectively since 1995. Vertical Integration with Investment in a Paper Sack manufacturing plant at Khairpur Village, District Chakwal having a capacity of 120 million bags annually. Captive Power Generation plant of 82 MW Fuel, Gas and Duel Fuel at both production locations.

FUTURE OUTLOOK
After the resolution of judiciary issue, it is expected the political situation would be improved which is better for the overall economic growth of the country. In addition the clouds of recession and economic down turn have started showing improvements. Few economic indicators have shown some improvements which is good for the industrial as well as agricultural sector of the country. The bench mark lending rates have seen some declining trends in recent period which is good for the economic growth. In recent monetary policy statement announcement for April-June 2009, SBP reduced discount rate by 1.0% and it is expected that SBP would further ease out its monetary tightening stance which will bring down the cost of funds and help improve the profitability of the cement sector. In addition, in the coming budget the Govt. is expected to maintain the level of Public Sector Development Plan to the tune of nearly Rs. 500.0bn which is a positive sign for the cement industry of the country. Exports of cement and clinker from the country are growing, which is evident for the exports made in the last few months. Cement manufacturers are further exploring new export markets. Exports of cement and clinker will further increase if the Govt. of Pakistan builds adequate bulk handling facilities at different ports for economical and speedy transport of cement.

ON GOING PROJECTS
Worlds largest vertical cement grinding mill has started its commercial production at DGK site which will bring substantial savings in energy as well as maintenance cost compared with conventional ball cement grinding. Work on Waste Heat Recovery Project is underway at full swing. Civil works and fabrication of equipment is in progress. Shipments from the plant supplier are reaching and project will be operative as planned

CORPORATE PROFILE Chairman:

Mian Muhammad Mansha

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Board of Directors:
Mrs. Naz Mansha Mian Raza Mansha Mr. Khalid Qadeer Qureshi Mr. Zaka-ud-Din Mr. Muhammad Azam Mr. Inayat Ullah Niazi Ms. Nabiha Shahnawaz Cheema

An Introduction to D.G

Chairperson Chief Executive

Chief Financial Officer

Audit Committee:
Mr. Khalid Qadeer Qureshi Mr. Muhammad Azam Ms. Nabiha Shahnawaz Cheema Member/Chairman Member Member

Company Secretary:
Mr. Khalid Mahmood Chohan

Bankers:
Allied Bank Limited Askari Bank Limited Bank Alfalah Limited Faysal Bank Limited Habib Bank Limited HSBC Limited MCB Bank Limited Meezan Bank Limited National Bank of Pakistan NIB Bank Limited Standard Chartered Bank (Pakistan) Limited The Bank of Punjab The Royal Bank of Scotland (Formerly ABN AMRO Bank (Pakistan) Limited) United Bank Limited

Auditors:
KPMG Taseer Hadi & Co., Chartered Accountants

Legal Advisor:
Mr. Shahid Hamid, Bar-at-Law LOCATION OF DGKC:

Registered Office:

Nishat House, 53-A, Lawrence Road,

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Lahore-Pakistan UAN: 92-42-111-11- 33 - 33 92-42-6367812 Fax: 92-42-6367414 Email: info@dgcement.com Web site: www.dgcement.com

An Introduction to D.G

REGIONAL OFFICES
DG Khan Cement Company supplies cement throughout Pakistan especially in the provinces of Punjab, Sindh and Balochistan. Lahore Regional Sales Office Multan Regional Sales Office Rawalpindi Regional Sales Office DG Khan Regional Sales Office Karachi Regional Sales Office These regional sales offices operate in assigned areas and have network of dealers in each area to achieve maximum sales in their territories.

FACTORY SITES:
DERA GHAZI KHAN Khofli Sattai, Distt.Dera Ghazi Khan, Pakistan. KHAIRPUR DISTT CHAKWAL 12-KM, Choa Saiden Shah-Kallar Kahar Road,Khairpur, Tehsil Kallar Kahar,Distt. Chakwal, Pakistan.

FINANCIAL REPORTS 3rd QUARTER 2009

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SWOT ANALYSIS
Strengths:
Availability of Raw Material. Imported Machinery and plants in company, which provide better quality to over all process. Availability of foreign investment and loans has also played an important role in softening the demand for bank credit. The moderation in fixed investment demand in cement, construction and textile is more of a reflection of the fact that these industries had already expanded their capacities in recent years and floatation of debt instruments (e.g., chemical, cement, real estate and ship yard) in the domestic market cement, real estate and ship yard) in the domestic market DG Khan Cement industry in Pakistan is currently operating at their maximum capacity due to the boom in commercial and industrial construction within Pakistan.
DG Khan Cement industry is one the largest exporter in Asia,

major markets are of Afghanistan and Iraq will be after peace. Its increased GDP by exports, providing cements in Large Dams Project and earthquake rehabilitations projects.
Laboratory testing facilities meeting all American and European

standards and Vertical cement grinding mills. Today, we find a relatively better scenario as compare to past. Most of the cement plants, that used to operate on furnace oil, have now been converted into coal system, which has substantially reduced cost of production. The most modern selection of production equipment possible in every major department of the plant.

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Weaknesses:

Since cement is a specialized product, requiring sophisticated infrastructure and production location. So, most of the cement industries in Pakistan are located near/within mountainous regions that are rich in clay, iron and mineral capacity. Structure of Cement industry in Pakistan is as such that there is not much substitutability to buyers. Which shows that the Cross elasticity of demand is negligible. The customer has no choice at all to switch between two brands of cement due to cartel of all of the cement manufacturers in Pakistan. The freight charges are a massive 20% of the retail prices. The plants located very close to each other and tapping the same market will have to expand their markets which will increase their freight expenses. Consumers face a tough decision with regards to prefer which brand over which because of the similar pricing of cement industry. The formation of cartel by the cement manufacturers have exploited local consumers a lot and this has led to the concentrated degree of oligopoly, where the firms are acting as a single unit to perform their monopoly. Their combined market power is simply a diluted version of the dominance that a single firm with a monopoly market share can exert.

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Opportunities:

An Introduction to D.G

The local cement industry faces high upfront fuel costs. In order to facilitate their conversion to coal, which is widely available in the country, the government has given incentives for imported plant and equipment for coal firing units. The demand of Pakistani cement is expected to continue to grow at the rate of 20 per cent for about four years to come. It may then follow traditional growth rate of seven per cent per year. Announcement of major dams will dramatically increase this demand. Deregulation after accession of Pakistan to WTO is expected to open the window of competition from cheaper markets. There may be no tariff after this deregulation on import of cement allowing its entry into Pakistan from cheaper market at lower rate. Cement from cheaper markets may also block Pakistans export of cement to its neighboring countries. Global market has vigorously taken up the advantage of economy of scales and multinational giants now control more than 40 per cent of world production (China not included). The recent acquisition of Chakwal Cement by an Egyptian giant, Orascom may be a beginning of such an entry in Pakistan by multinationals. New avenues for export of cement are opening up for the indigenous industry as Sri Lanka has recently shown interest to import 30,000 tons cement from Pakistan every month. If the industry is able for avail the opportunity offered, it may secure a significant share of Sri Lanka market by supplying 360,000 tons of cement annually.

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Threads:

An Introduction to D.G

Unanticipated increase in interest rates or less than expected demand growth might create severe crises for the sector couple of years forward Lack of demand or depressed demand in future will prove to be lethal for the sector that has just started to recover from the miseries of 90s. Lack of demand forced cement units to operate at very low capacity utilization in nineties. There was a fierce competition among cement manufacturers. A price war was witnessed which ended up with no conqueror. Similar apprehensions exist for the future when there will be plenty of excess capacity. Any hurdle in the growth of cement demand may force the sector into the price war. Yet, we expect cement manufacturers to act prudent and learn lesson from the history. Any mistake, similar to the one made in the last decade, will again coerce the sector into the era where all are losers with no winner. Main component of the cost is fuel. Pakistan's cement industry has converted their plants to coal considering it to be the cheapest fuel, but its price in international markets has gone up by more than 300 per cent in the last one year, which directly relate increasing the cost of production. The demand of cement falls heavily during rainy weather in the country, which directly affects the running cost of a unit. It is only the rising levels of cement exports, which are sustaining the industry. Instead of appreciating the marketing skills of cement entrepreneurs to explore new markets for cement, the industry is being pressurized constantly without realizing that any reduction in cement exports from Pakistan will not only deprive the country of foreign exchange ($2 billion this year), but will also result in losses to the industry. The burden of increased input costs has to be borne by the consumers. It is only the government, which can provide relief to the consumers by cutting down or abolishing the central excise duty.

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CONCLUSION:
On going global financial crunch and aggravating economic down turn due to political melt down and unrest in law and order situation in most parts of the country badly hit the development and construction activities across the board. Various economic indictors like, core inflation, lending rates, funds availability, shortage of power and water, rising trade deficit has reduced the purchasing power of the masses. Going forward, reduction of annual development expenditures both by federal as well as provincial governments have badly affected the cement off take in the country during the period under report. Cement sales in the country during July-March 2009 witnessed a decline of 15%. Similarly the cement sales during the 3rd quarter i.e. Jan-March 2009 plunged by 15% as well compared with same period last year. However, exports of cement & clinker from the country during the first nine months increased by 54% compared with the same period last year.

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Khan Cement RECOMMENDATION:

An Introduction to D.G

As demand for cement grows, we expect the company to further benefit from its size and position. As for increasing demand of cement the company should need to established new plants with better technology in order to increase the production as well as reduce the cost of production. The chairman of the company is basically from the textile sector. So he has a least concern with cement industry. Therefore it is recommended that he should do a careful thought to this growing sector There should be a plenty of choices for the customer to buy any of the product. So D.G.Khan Cement should develop more than 2 options of cement. Plant should be at that place where there they should pay a less freight for the raw material as well as freight out.

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