SECTOR OVERVIEW: Pakistans cement industry has shown tremendous progress since Independence.

In 1947, there were only four operational cement units in West Pakistan with the total production capacity of approximately half a million tons per annum. Demand during the same period was estimated at over a million tons. The industry experienced gradual growth as five plants were set up in the 1950s with a total capacity of 2.8 million tons with four more set up in the 1960s. These were the Ayub years when the construction industry went through a boom as demand grew because of an expanding economy and by 1969 the cement industry of Pakistan had 14 operational cement plants with an annual rated capacity of 3.3 million tons. Following this expansionary phase of the cement industry, the Economic Reforms Order of 1972 brought about nationalization of the private sector plants and resulted in a relatively stunted growth of the industry in the subsequent years. Nationalization merged state owned plants to form the State Cement Corporation of Pakistan (SCCP) and this State Cement era lasted from 1972 to 1992. During these three decades, production increased from 3.5 million tons to a mere 8.4 million tons by 1992 and Pakistans cement requirements were largel y being met through exports which had started in 1977 and continued till 1995. Government policy moved towards denationalization in 1977-1988 and emphasis was placed on housing and construction. To meet demand in the 1980s, the government allowed 7 more units to be set up by the private sector housing a total capacity of 2.54 million tons and 4 plants were set up by the SCCP in the public sector. By the end of this period 24 cement plants operated in Pakistan. However, there were enormous price differentials between private and public sector as the SCCP fixed cement prices on the lower side for the public sector companies. Through to 1995, local capacity was unable to fulfill local demand particularly in the north and Pakistan continued to import cement in huge quantities to satisfy need and some plants closed down in between. Prices in the 1990s were, therefore, high as a result of import costs and shortage of local cement. With projections for accelerated growth in demand in the world and local economy, five more plants were set up to gratify cement requirements locally. However, the local demand did not grow as expected during 1995 to 2000 and the cement sector experienced poor growth rates of 8% per annum. Therefore in post-industry expansion of the nineties, cement manufacturers had to go through a problematic period of capacity utilization. Pakistan began exporting in the years 2001-2002 to utilize excess capacity. Reduced deficits and focus on infrastructure building (by attracting foreign investors during the Musharraf years) pumped cement demand growth to approximately 20% in the mid-2000s. Existing players increased capacity foreseeing further boom in economy in these middle years with total production capacity resting at 44.7 million tons of cement as of the fiscal year 2009-2010. INDUSTRY ANALYSIS: Market Structure Although the cement comprises a relatively large number of manufacturing units (24) with a perfect competition, the competitive nature of the cement industry is in actuality oligopolistic in terms of market structure. This is because of the following reasons: The industry is dominated by a few major players.

This factor is by far the most important one in determining the cement sectors market structure. Out of the 24 companies in the cement sector, four of them hold majority market share and are therefore able to drive industry prices. The chart below shows major industry players:

Interdependence & Collusion

Another factor that provides evidence to the oligopolistic nature of the cement industry in Pakistan is the interdependence and proof of cartelization between the major players in determining cost structures, raw material sourcing and most importantly in price setting. Additionally, the smaller-players are known to indulge in price-wars off and on as they cut prices and try to sell at discounts before end of each quarter. The major players in the industry on the other hand have been known to collude in the past operating as a cartel for over a decade under the umbrella of All Pakistan Cement Manufacturers Association (APCMA). The sector has been accused of cartelization thrice in the past and was under probe of the Monopoly Control Authority. Product homogeneity. Through-out the industry, the products are homogenous with non-existent levels of product differentiation as the major product for most manufacturers is Ordinary Portland Cement (90%94%). Additionally, the other major types of cement product by plants in Pakistan also include Sulphate Resisting Cement (SRC), Blast Furnace Slag Cement (BFSC), and White Cement. This implies that competition is based on proximity to raw materials and markets and tends to limit small-scale manufacturers as far as price-setting is concerned. Latent barriers to entry. At the outset, the cement industry does not face any major barriers to entry. However, manufacturers cost structures have increasingly placed greater pressure on small manufacturers to bring in cost-efficiencies or else be forced out of the market. Cost structures are maintained such that they protect the interests of the manufacturers as opposed to that of consumers.

Moreover, government policies are also in favor of the cement sector with extensive lobbying being done by the APCMA to maintain such policies. Growth Trends & Expansion Cycles The cement industry has grown phenomenally since inception. It is one of the most established and advanced sector of the Pakistani economy today having been ranked the 5th largest cement exporter in the world. It plays a key role in development of physical infrastructure with its dependent on energy factors such as coal, gas and fuel and generates revenue boosting economic activities in downstream industries like construction as well as employing well over 150,000 people. Historically there has been a strong correlation between domestic consumption, Pakistan production capacity and growth in real GDP. Demand has been seen to grow as the economy moves its trajectory upward. Capacity expansion plans have also been put in place where optimistic future projections have been made as in the 1990s where the industry went through two such capacity expansion cycles. However, with reference to capacity expansion it has been observed that expansion is aimed at catering to domestic markets as opposed to export markets since the greatest capacity expansions have taken place in the Northern region away from the sea

routes of the South.

The graph above illustrates capacity expansion cycles through the last two decades showing how expansions have taken place immediately following a positive outlook on industry growth. Capacity growth along with utilization and growth in total dispatches can be observed below: Factors Affecting Growth A great number of factors affect the growth of the cement industry in Pakistan which are both internal to the industry as well as external. There are 2 main factors that affect demand for cement and are as follows: Economic Growth Growth in the GDP of the country contributes enormously to demand for cement. This is determined through the growth trends discussed earlier which clearly illustrates increasing demand as the economic variables improve. This is because economic growth is directly related to the growth of the housing and construction industry which consumes roughly 40% of cement demand as well as an indicator of attracting foreign investors which fuels growth in turn. Government Development Expenditures

Another source of demand for the cement industry is government expenditures which account for a little less than one third of cement consumption. Higher expenditure allocated to development projects in essence fuel demand for cement. These development projects are typically centered round dam building, reconstruction activities in terrorism affected areas like Waziristan and the Swat Valley as well as rehabilitation activities that focus on earthquake and flood affected areas in Pakistan.

In addition to the factors mentioned above, the cement industry is also affected by the global economy as well as Pakistan has forayed in to exports. Factors that affect the supply side of the cement industry are: Production factor costs This is true for any industry. As energy costs surge, factor costs for the cement industry goes up which consumes a considerable amount of energy resources. The cement industry is increasingly seeking out cheaper alternatives to coal so as to reduce production costs. Financial Costs In the recent past, it has been observed that the cement sectors profitability is severely affected by financial costs. Falling interest rates help strengthen the bottom line for the manufacturers who can then focus on cost-cutting initiatives to have a competitive edge in the domestic and international markets. Capacity Utilization Historically, capacity utilization has been a long-standing issue of concern amongst suppliers. This is because excess capacity limits manufacturers ability to benefit from economies of scale the benefits of which cannot be transferred to the consumer. Consequently, suppliers become uncompetitive and consumers have to pay a high price for inefficient production. FUTURE OUTLOOK In the future therefore, it is expected that the cement industry will follow trends of economic growth within the country. This means that as GDP rises, the demand for cement will also rise. Additionally, the cement demand will grow in direct proportion to the development expenditure allocation by the government of Pakistan. However, in order to be competitive the cement industry requires controlled or regulated costs for the factors of production as well as lower
3

discount rates so as to reduce debt-equity ratios for the industry which have gone up to as much as 114%. Additionally, because of the oligopolistic structure of the market and cement manufacturers past evidence of collusion, control measures need to be put in place to enable increased competition which will not only bring further efficiencies in production but also seek to establish a relatively level playing field for smaller players. PRODUCTION PROCESS OF CEMENT: Cement is a material with adhesive and cohesive properties that makes it capable of bonding mineral fragment into a compact and rigid mass. The word cement seems to have been derived from the middle age English cyment, and Latin caementum. The latter word caementum meant rough quarried stone or chips of marble from which a kind of mortar was made more than 2000 years ago in Italy. During the middle Ages term cement or sement generally was made for a mortar. Common lime, hydraulic lime, gypsum plaster, pozzolana, natural and Portland cement are few of the material, which are used for cementing purposes. This cementing material may be classified into two groups: Non-Hydraulic: Non-hydraulic cement do not have the ability to set and harden under water but requires carbon dioxide from air to harden e.g. non-hydraulic lime and plaster of Paris. Their cementing prosperity arises from the re absorption of gases that were expelled during their processing. Their products of hydration are not resistant to water. Hydraulic:

Hydraulic cement is defined as cement having the ability to set and develop strength in air or under water and which are insoluble in water after they have set. Such cement harden even in the absence of air and form a solid product which is stable in water and can be safely used in all structures in contact with water. Hydraulic cement includes hydraulic limes, Portland cement (both basic and blended), oil-well cement, white cement, colored cement, high alumna cement, expensive cement regulated and hydrophobic cement etc. 1. Quarrying and crushing

The primary raw material for cement manufacture is calcium carbonate or limestone. This is obtained from the quarry where, after the removal of overburden, the rock is blasted, loaded into trucks and transported to the crusher. A multistage crushing process reduces the rock to stone less than 25 mm in diameter. Most modern cement factories are located close to a source of limestone as about 1.5 tons of limestone is needed to produce one ton of cement.

2.

Blending and storage:

The crushed rock is stored in stockpiles where, by a carefully controlled process of stacking and reclaiming across the stockpile, blending takes place and a uniform quality of raw material is achieved. Systematic sampling and laboratory testing monitor this process. The other raw materials, normally shale, iron ore and sand, are also stored in stockpiles.

3.

Raw milling and homogenization:

Carefully measured quantities of the various raw materials are fed, via raw mill feed silos, to mills where steel balls grind the material to a fine powder called raw meal. Homogenizing silos are used to store the meal where it is mixed thoroughly to ensure that the kiln feed is uniform, a prerequisite for the efficient functioning of the kiln and for good quality clinker.

4.

Burning:

The most critical step in the manufacturing process takes place in the huge rotary kilns. Raw meal is fed into one end of the kiln, either directly or via a preheater system, and pulverized coal is burnt at the other end. The raw meal slowly cascades down the inclined kiln towards the heat and reaches a temperature of about 1 450 C in the burning zone where a process called clinkering occurs. The nodules of clinker drop into coolers and are taken away by conveyors to the clinker storage silos. The gas leaving the kiln is cleaned by electrostatic precipitators prior to discharge into the atmosphere.

5.

Cement milling:

The cement mills use steel balls of various sizes to grind the clinker, along with a small quantity of gypsum to a fine powder, which is then called cement. Without gypsum, cement would flash

set when water is added and gypsum is therefore required to control setting times. The finished cement is stored in silos where further blending ensures consistency.

6.

Quality assurance:

Extensive sampling and testing during the manufacturing process ensures the consistency and quality of the end product. Testing takes place at the stages of the manufacturing process indicated by the symbol.

7.

Cement dispatch:

Cement is dispatched either in bulk or packed in 50 kg bags and distributed from the factory in rail trucks or road vehicles. The 50kg bags are either packed directly onto trucks or can be palletized. The pallets can be covered by a layer of plastic to offer further protection from the elements.

Types Of Cement:
The types of special cement now being produced can be roughly classified in the following six categories according to the special purpose for which these have been designed. These are: Rapid hardening cement. Cement resistant to chemical attack of certain soil and aggregates. Low heat of hydration cement. Better protecting cement for steel reinforcement. Better workability and whether resisting cement. Decorative cement and other special cement.

INTRODUCTION TO THE COMPANIES D.G. KHAN CEMENT COMPANY LIMITED

DG Khan Cement Company Limited (DGKC) is a producer and seller of ordinary Portland and Sulphate-resistant cement. It is the largest cement- manufacturing unit in Pakistan with a production capacity more than 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 unparalleled and consistent quality. It is listed in 1992 on all the Stock Exchanges of Pakistan, D.G.Khan Cement was established by the State Cement Corporation of Pakistan (SSCP) at Dera Ghazi Khan in 1986. It was privatized to the Nishat group in 1994-95 at Rs35.90 per share. Now the company is a unit of Nishat group which is a leading and diversified business group with a strong presence in the three most important sectors of Pakistan: textiles, cement and financial services. The group also has considerable stake in insurance, power generation, paper products and aviation sectors.

NISHAT GROUP:

Nishat Group is one of the leading and most diversified business groups in South East Asia. With assets over PRs.300 billion 0r $3.5 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.

BRANDS (PRODUCT)
Two different products are produced at DGKCC namely Ordinary Portland Cement and Sulphate Resistant Cement. These products are marketed through two different brands: DG brand & Elephant brand Ordinary Portland Cement (It is also called the OPC and its demand is about 92% because of commonly used). DG brand Sulphate Resistant Cement (It is also called the SRC and its demand is about only 8% because it is only used in standing the foundations its main work is to finish the pours produced while standing the foundations and made the foundations much strong). In addition to following two brands they are also offering four different packaging which are as following: o o o o OPC SRC ELEPHANT BRAND DG PLASTIC BAG

Future Outlook:
Cement demand is highly correlated with the growth in GDP. Current prevailing economic conditions in the country are badly affected by poor governance and terrorist attacks. The industrial activities are suffering due to severe gas outage and power load shedding which is a bad omen for business and investment climate in the country. In addition the rising prices of goods and services have set an alarming situation in the country which is likely to further aggravate due to dangling political posture. Going forward, the rising cost of fuels like, furnace oil, diesel and coal in international markets is another serious threat to the economy of the country. Pakistan is passing through the worst phase and need of the hour is to take a few stiff and long term decisions for the revival and stability of the economy on strong footings. Political stability, consistency of policies, and tight and stringent monetary controls could change the destiny of our country. Going forward immediate steps should be taken to overcome the energy crisis in the country. Country badly needs a few big water reservoirs to overcome water scarcity for agriculture and cheap power generation for smooth and efficient running of industrial activities. In addition large scale housing projects should be launched which will have many fold effects on the business activities in the country. All these steps will bring the economy back on track and our country could be a preferred place for investors both foreigners and local. (Annual Report 2010-11)

Cost of production:

Since the industry faces a situation where sales price will be fixed by mutual consensus, the cost of production will be the most critical factor of profitability. Energy cost is a major component of total cost of production. It contributes at an average 40 to 45 percent towards total cost of cement production. Energy cost is even higher in case of those plants which use wet process. A cement plant based on wet process consumes 165 kg of furnace oil to produce one tone of clinker as compared to 85 kg of furnace oil used in dry process to produce the same quantity of clinker. Since cement plants use both furnace oil and electricity, any increase in the prices of these two products is detrimental to profitability of the industry. Ever since October 1995, however, there has been more than 60% increase in the price of furnace oil. Another significant cost component is packaging material. Cement is rarely sold in bulk in Pakistan almost all cement sales are in four-ply paper sacks. Cost of paper sacks has gone up by almost 90% since December 1994. D.G. Khan Cement was the most prized unit out of the cement units privatized by the Nawaz Sharif government. Of all it was the most modern plant with bulk of depreciation amortized and interest charges paid for. The company enjoys a virtual monopoly in its sales territory. There is no other cement plant within a radius of 400 kilometers in Suleiman Range. The expansion will come on line at a time when there will be supply overhang in the industry. With margins coming under pressure it will have to bear the added brunt of higher financial charges and increased depreciation cost in the years to come. Analysis of the latest half-yearly results of the company shows that although sales of the Company have gone up by 3.5%, the increase in cost of sales has reduced gross margin from 61% to 48%. With rising inputs cost not being matched by similar increase in price of cement, margins are expected to shrink further. The company, after the expansion is expected to face fiercer competition from Zeal Pak, Pioneer, Dandot and Wah. To wrest market share from the competitors, it is likely that D.G. Khan will have to reduce its cement prices.

Lucky Cement Limited

THE GROUP Lucky Cement Limited has been sponsored by Yunus Brothers Group (YB Group) which is one of the largest business groups of the Country based in Karachi and has grown up remarkably over the last 50 years. The YB Group is engaged in diversified manufacturing activities including Textile, Spinning, Weaving, Processing, Finishing, Stitching and Power Generation. The Group consists of a number of industrial establishments other than Lucky Cement Limited, they include: Lucky Textile Mills Fazal Textile Mills Limited Gadoon Textile Mills Limited

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Lucky Energy (Private) Limited Yunus Textile Mills

LUCKY CEMENT LIMITED Lucky Cement came into existence in 1996 with a daily production capacity of 4200Tons per day, currently is an omnipotent cement plant of Pakistan, and rated amongst the few best Plants in Asia Lucky Cement Limited is presently a 21,000 Tons Per Day, dry process Cement Plant, located on main Indus Highway between D.I.Khan&Bannu in Pezu, Distt. LakkiMarwat, NWFP With production facilities in Pezu (Production capacity: 13,000 Tons per day) as well asin Karachi (Production capacity: 8000 Tons per day) it has the tendency to become the hub of cement production in Asia. In addition, Lucky Cement is aggressively pursuing to develop export markets for cement to export bulk loose cement from Pakistan to the Gulf Countries, African Markets, and Far East Region including Nepal & Sri Lanka. It is the desire of Lucky Cement to put Pakistan on world map as a leading producer &exporter of loose cement in international market. Lucky cement has made an investment of over US$ 8 Million to develop the infrastructure & logistics and is further developing a fleet of cement bulkers to carry loose cement from its Karachi Plant to the Ports. For loading cement form the bulkers to vessels, Lucky Cement has a dedicated system for discharging cement directly from the bulkers to the vessels; at very fast discharge rates, reducing the vessels idle time in turn making the shipments timely as per the customer requirements. Lucky Cement has also installed Jumbo Packers at its Karachi Plant to dispatch cement in one ton packing requirement. All this and much more have made Lucky Cement the largest cement producer, with major emphasis on supply of superior quality cement to its consumers. CURRENT SCENARIO Lucky Cement is the largest cement producing company in Pakistan with an annual capacity of 6.5mtpa. Currently, it is the only company in Pakistan with a plant each in the country's northern and southern regions, making it ideally located to cater to domestic as well as Afghan and Middle Eastern export demand. Lucky currently controls almost 90% of the exports to Middle East and 48% of the overall Pakistan exports. As you can see in the chart lucky cement earns a major chunk of its revenue from exports but most of its revenue is from local sales and it is the market leader in Pakistan with 16% market share locally. Lucky has emerged as the market leader in Pakistan last year from the number three position previously (domestic market share rose to 16% from 8%). The timely completion of key expansion projects enabled Lucky Cement to exploit the rapidly growing domestic demand. When peer group companies were busy with their expansionary work on new projects, the timely expansion has helped the company outperform industry domestic demand growth by a wide gap

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FINANCIAL ANALYSIS
For financial analysis of both companies selected, we have used the ratios approximately of all types. These have been interpreted and compared as follows: 1 2 3 4 5 Liquidity Activity Debt Profitability Market

Liquidity Ratio's
Liquidity ratios are those ratio's that measure a firm's ability to meet short term obligation. In other words we can say that. This group of ratios is used to check that how much a firm Is in liquid position towards its short term obligation. These ratios are included: 1. Current Ratio It is a ratio between current assets to current liabilities of the company. Current Ratio = Current assets Current Liabilities 2:1

The current ratio is calculated as: DG CEMENT Financial year Current assets Current liabilities 2010 2011 2012 LUCKY CEMENT
12

Ratio 1.19 1.44 1.65

16,417,492 18,325,209 18,440,377

13,786,189 12,687,375 11,205,943

Financial year Current assets Current liabilities 2010 2011 2012 6,871,464 9,444,466 9,554,647

Ratio 0.71 0.88 2.64

9,641,691 10,696,789 3,624,324

INTERPRETATION: The analysis shows that both companies current position increased than previous years, further showing that the current assets ability of Lucky cement was better than DG cement in 2012, because in this year the lucky cement reduced its obligations than previous years. If we make analysis of 2010 and 2011 DG cement performed well than Lucky. 2. Quick (Acid-test) Ratio It shows the ability to meet current liabilities with its most liquid assets Current assets-inventory Current Liabilities The quick ratio is calculated as: DG CEMENT
FINANCIAL YEAR CURRENT ASSETS CURRENT LIABILITIES INVENTORY RATIO

Quick Ratio

1:1

2010 2011 2012 LUCKY CEMENT 2010 2011 2012

16,417,492 18,325,209 18,440,377 6,871,464 9,444,466 9,554,647

13,786,189 12,687,375 11,205,943 9,641,691 10,696,789 3,624,324

1,036,876 862,141 954,645 608,813 1,248,538 1,276,433

1.12 1.38 1.56 0.65 0.77 2.28

INTERPRETATION: This ratio showing that the liquidity wise both the companies were in better liquidity position to meet their current obligation in 2012 than previous years , comparatively it is showing that the liquidity position of DG cement remained better in three years than Lucky, but in 2012 the position of lucky cement was better the reason was that the there was no short term borrowing outstanding, due to this factor its obligations became reduced and its positively impacted on the liquidity . There is showing that in 2010 and 2011 the lucky cement was unable to meet its current obligations through its liquid assets, in comparison with the DG it was in good position to meet current obligations. 3. Cash Ratio: It shows the ability to meet current liabilities with cash and its equivalents Cash + Marketable Securities Current Liabilities The cash ratio is calculated as: Cash Ratio =

13

DG CEMENT
FINANCIAL YEAR M/SECURITIES CURRENT LIABILITIES CASH RATIO

2010 2011 2012 LUCKY CEMENT 2010 2011 2012 INTERPRETATION

0 0 0

13,786,189 12,687,375 11,205,943

230,792 197,821 428,441

0.017 0.016 0.038

0 0 0

9,641,691 10,696,789 3,624,324

333,629 351,202 844,422

0.035 0.033 0.233

Through analysiswe found variation in the period of three years. Overall in 2012 lucky cement had more cash to meet its current obligations than DG cement and throughout three years Lucky cement was in good positions than DG.

Activity Ratio's
These groups of ratios are used to measure that how a firm effectively using its assets. Group included following ratios: i ii iii iv v vi vii viii I. Inventory turnover Days Sales In Inventory Account Receivable Turnover Average Collection Period Operating Cycle Account Payable Turnover Average Payment Period Total Asset Turnover

Inventory turnover Inventory Turnover =

Inventory turnover measures the activity, of firm's inventory. It is calculated as: Cost of goods sold Average Inventory The inventory turnover ratio is calculated as: DG CEMENT FINANCIAL YEAR COST OF GOODS SOLD 2010 13,569,994 AVERAGE INVENTORY 13.09
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RATIO

1,036,876

2011 2012 LUCKY CEMENT 2010 2011 2012 INTERPRETATION:

14,192,229 15,443,098 16,529,932 17,306,400 20,601,261

862,141 954,645 608,813 1,248,538 1,276,433

16.46 16.18 27.15 13.86 16.14

Comparatively in 2010 Lucky performed well than DG. In 2011 the performance of DG was higher and in 2012 the performance of DG was also well but with minor effect. II. Days Sales In Inventory The days sales in inventory shows that for how many days a company retain its inventory, how many days a company generate its sales through available inventory if no changes were accrued: = Average Inventory Cost of goods sold per day Cost of goods sold per day = Cost of goods sold 365 The days sales in inventory for the comparative three years is calculated as, answer in days:
FINANCIAL YEAR AVERAGE INVENTORY COST OF GOODS SOLD RATIO

Days Sales In Inventory

DG CEMENT 2010 2011 2012 LUCKY CEMENT 2010 2011 2012 608,813 1,248,538 1,276,433 16,529,932 17,306,400 20,601,261 13.26 25.97 22.31 1,036,876 862,141 954,645 13,569,994 14,192,229 15,443,098 27.51 21.87 22.25

INTERPRETATION: In 2010 DG had inventory for 28 days that was 100% more than Lucky. In 2011 inventory days of DG less than Lucky. In year 2012 both companies were almost at same level with respect to days sales in inventory. III. Account Receivable turnover Net credit Sales The Account Receivable turnover shows the sales are how much time of accounts receivables: Account Receivable turnover = Average Gross Receivable

The account receivable turnover ratio is calculated as, answer in times:

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Financial year Net sales 2010 2011 2012 Lucky cement 2010 2011 2012 Interpretation: 24,508,793 26,017,519 3,322,535 16,275,354 18,577,198 22,949,853

Account receivables 303,949 459,300 317,970 779,305 620,961 1,050,639

Ratio 53.55 40.45 72.18 31.45 41.90 31.72

DG cement performed well in order to generate ,ore sale with respect to receivables, in year 2012 the performance of DG was very good than Lucky, but in 2011 Lucky performed well than DG but with minor differences. IV. Average Collection Period The average collection period shows that how much time period a company adopt towards collection of its receivables: Account Receivable Average sales per day Average sales per day = Annual sales 360 The Average collection period is calculated as: Financial year A/c Receivable DG CEMENT 2010 2011 2012 LUCKY CEMENT 2010 2011 2012 Interpretation: The collection period of DG cement was shorter than Lucky cement in year 2010 and 2012, but if we compared with 2011 both companies were almost had equal time period adopt to recover outstanding amount. V. Account Payable Turnover 779,305 620,961 1,050,639 24,508,793 26,017,519 33,322,535 11.45 8.59 11.35 303,949 459,300 317,970 16,275,354 18,577,198 22,949,853 6.72 8.90 4.99 Annual sales Ratio Average collection period =

16

The account payable turnover shows that the cost of goods are how much time of account payables, its answer calculated in times: Account Payable Turnover = Cost of Goods purchased Average Gross Payables

The account payable turnover ratio is calculated as:

Financial year Cost of Goods purchased Account Payables Ratios

DG CEMENT 2010 2011 2012 LUCKY CEMENT 2010 2011 2012 Interpretation: In 2012 the Lucky had higher ratio, but in 2011 the DG has higher turnover with respect to the account payables than Lucky and if compared the both companies in year 2010 the DG cement had also higher turnover than Lucky, that is showing good performance by DG. VI. Average Payment Period In this ratio we have analysis that how much time needed a firm to pay its account payables. This ratio calculated as following: Average payment period = Account Payable Average CGS per day 16,529,932 17,306,400 20,601,261 920,236 1,073,380 802,516 17.96 16.12 25.67 13,928,614 14,192,229 15,443,098 376,307 204,423 647,238 37.01 69.43 23.86

Cost of Goods Sold 365 The Average collection period of for the two years is calculated as: Financial year A/c Payable DG CEMENT 2010 2011 2012 LUCKY CEMENT 2010 2011 920,236 1,073,380 16,529,932 17,306,400 20.04 22.33
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Average purchase per day

Cost of Goods Sold

Ratios 9.73 5.19 15.09

376,307 204,423 647,238

13,928,614 14,192,229 15,443,098

2012 Interpretation:

802,516

20,601,261

14.02

Overall the DG cement was in better position to meet its payables with in shorter period of days than Lucky. VII. Total Asset Turnover Total asset turn over shows that how a firm efficient uses its assets to generate sale, In other words can say that how much assets are contributing to generate sales. Total asset turnover = Sales Average Total Assets

The total asset turnover of DG & LUCKY cement for three years is calculated as: Financial year DG CEMENT 2010 2011 2012 LUCKY CEMENT 2010 2011 2012 Interpretation: In three years the Lucky cement performed well to utilization of assets in order to generate sales than DG cements, especially in 2012 there was much difference with respect to utilization of assets. 24,508,793 26,017,519 33,322,535 38,310,244 41,209,855 40,631,241 0.64 0.63 0.82 16,275,354 18,577,198 22,949,853 47,046,043 49,703,229 50,685,198 0.35 0.37 0.45 Net Sales Average Total Assets Ratio

Debt Ratios
Also called financial leverage ratio's that show the extent to which the firm is financed by debt. For the analysis of firm's debt we have the following ratios: 1. Debt to total assets Debt ratio measures the contribution of the firm's creditors towards its assets. It is calculated as following: Total Liabilities Total Assets The Debt ratio is calculated of both the companies for three years as: Debt Ratio =

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Financial year DG CEMENT 2012 2011 2010

Total Liabilities 17,754,566 19,485,946 20,526,823

Total Assets 50,685,198 49,703,229 47,046,043

Ratio 0.35 0.39 0.44

LUCKY CEMENT 2012 2011 2010 Interpretation DG cement based more on the credit financing than Lucky. In all years the debt contributions was more in DG while lucky had less rely on credits. In year 2012 the DG cement generates credits 100% above the Lucky. 2. Debt to Equity This ratio shows the proportion between total liabilities and share's holder equity. Calculated as: Debt to Equity = Equity The debt to equity ratio of DG & Lucky for the comparative of three years is calculated as: Financial year 2012 2011 2010 2012 2011 2010 Total Liabilities Share's holders Equity ratio 17,754,566 19,485,946 20,526,823 7,369,496 13,437,026 13,214,315 32,930,632 30,217,283 26,519,220 33,261,745 27,772,829 25,095,929 0.54 0.64 0.77 0.22 0.48 0.53 Total Liabilities 7,369,496 13,437,026 13,214,315 40,631,241 41,209,855 38,310,244 0.18 0.33 0.34

DG CEMENT

LUCKY CEMENT

19

Interpretation: The analysis is showing that the DG cement more rely on the debt than Lucky in three years the debts of DG were above 50% of equity.

Profitability Ratios
There are two types of ratios, those showing profitability in relation of sales and those showing profitability in relation of investment. Together, these ratio's indicates the firm's overall effectiveness if operation. The profitability ratio's include: 1. Gross Profit Margin The Gross profit margin measures the ratio between sales and gross profit, also shows that the firm margin (profit) relative to sales after deduct the cost of producing. Gross Profit Sales The Gross Profit Margin of DG & Lucky for the comparative of three years is calculated as: Financial ratio Gross Profit DG CEMENT 2010 2011 2012 LUCKY CEMENT 2010 2011 2012 7,978,861 8,711,119 12,721,274 24,508,793 26,017,519 33,322,535 0.33 0.33 0.38 2,705,360 4,384,969 7,506,755 16,275,354 18,577,198 22,949,853 0.17 0.24 0.33 Net Sales Ratio Gross Profit Margin =

Interpretation: In three years analysis we found that the Lucky cement had better control on its cost of production than DG, therefore; lucky had high margin with respect to gross profits. 2. Operating Profit Margin The operating profit margin is a measure of the firm's profitability of sales after taking account of all expenses excluded interest and taxes. = Operating Profit Sales The Operating Profit Margin of DG & Lucky for the comparative of three years is calculated as: DG CEMENT Operating Profit Margin

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Financial yearOperating Profit 2012 2011 2010 2012 2011 2010 Interpretation 5,723,250 2,680,338 2,261,163 8,577,211 4,838,309 3,986,698

Net Sales 22,949,853 18,577,198 16,275,354 33,322,535 26,017,519 24,508,793

ratio 0.25 0.14 0.14 0.26 0.19 0.16

LUCKY CEMENT

This analysis is showing the Lucky cement had better control on its cost and expenses to increase its profitability in term of percentage and amount also. In three years of analysis the Lucky cement had higher operating profit margins than DG. 3. Net Profit Margin The net profit margin is a measure of the profitability of sales after deducting of all expenses including interest, and income taxes. Net Profit Net Sales The Net Profit Margin of DG & Lucky for the comparative of three years is calculated as: Financial year Net Profit DG CEMENT 2012 2011 2010 LUCKY CEMENT 2012 2011 2010 Interpretation Although DG cement had in profitable position in three years but in comparison with its competitor its performance is not up to the mark because Lucky cement had generated more income than DG. 4. Operating Asset Turnover 6,782,416 3,970,400 3,137,457 33,322,535 26,017,519 24,508,793 0.204 0.153 0.128 4,108,118 170,961 233,022 22,949,853 18,577,198 16,275,354 0.179 0.009 0.014 Net Sales ratio Net Profit Margin =

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Operating assets turn over shows that how a firm efficient uses its Operating assets to generate sale, In other words can say that how much operating assets are contributing to generate sales. Operating Asset Turnover = Net Sales Average Operating Assets

It is calculated as: Financial year Net Sales CEMENT 2012 2011 2010 LUCKY CEMENT 2012 2011 2010 Interpretation In three years the Lucky cement performed well to utilization of assets in order to generate sales than DG cements, especially in 2012 there was much difference with respect to utilization of assets. 5. Return onOperating Assets Return on Operating Assets = Calculated as: Financial year Net Profit DG CEMENT 2012 2011 2010 LUCKY CEMENT 2012 2011 2010 Interpretation 6,782,416 3,970,400 3,137,457 33,137,387 33,304,896 32,320,697 0.205 0.119 0.097 4,108,118 170,961 233,022 28,571,812 27,045,347 26,574,970 0.144 0.006 0.009 Average Operating Assets Ratio Net Profit Average Operating Assets 33,322,535 26,017,519 24,508,793 33,137,387 33,304,896 32,320,697 1.01 0.78 0.76 Average Operating Assets 28,571,812 27,045,347 26,574,970 Ratio 0.80 0.69 0.61 DG

22,949,853 18,577,198 16,275,354

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In terms of generating higher profits from operating assets the Lucky cement in well positions its performance was better than DG, it is showing the ability of company to well utilizing its operating assets. 6. Sales to Fixed Assets: Net Sales Avg.Net Fixed Assets The sales to fixed assets ratio for DG & Lucky Cement for three years calculated as: FINANCIAL year Net Sales Avg.Net Fixed Assets Ratio DG CEMENT 2012 2011 2010 LUCKY CEMENT 2012 2011 2010 Interpretation The performance of Lucky cement had well than DG, in three years the DG had low ratio than Lucky in order to generate sales with respect to fixed assets. 7. Return on Total Assets Return of assets measures the firm efficiency to generating the profit from the firm's assets; also shows that the how the firm's efficient use its assets to generate revenues. Return on Total Assets = Net Profit Total Assets The total asset turnover of DG and Lucky cement for three years comparatively calculated based on the available information in financial statements as: Financial year DG CEMENT 2012 2011 2010 2012 2011 2010 4,108,118 170,961 233,022 6,782,416 3,970,400 3,137,457 50,685,198 49,703,229 47,046,043 40,631,241 41,209,855 38,310,244 0.081 0.003 0.005 0.167 0.096 0.082 Net Profit Total Assets ratio 33,322,535 26,017,519 24,508,793 31,016,532 31,705,156 31,378,255 1.07 0.82 0.78 22,949,853 18,577,198 16,275,354 27,185,726 25,985,385 25,307,302 0.84 0.71 0.64 Sales to Fixed Assets =

LUCKY CEMENT

Interpretation
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In terms of generating higher profits from total assets the Lucky cement in well positions its performance was better than DG, it is showing the ability of company to well utilizing its total assets.

VERTICLE ANALYSIS

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BALANCE SHEET DG CEMENT ASSETS Non-current assets Property, plant and equipment Long-term loans, advances, deposits Investments Total Current assets Stores and spares Stock-in-trade Trade debts Loans and receivables Tax refunds Government Investment Taxation-net Sales tax refundable Cash and bank balances Total TOTAL ASSETS EQUITY Share capital Issued, capital Reserves Accumulated Profit Total LIABILITIES Non-current liabilities subscribed and paid-up 8.64 46.49 9.84 64.97 8.81 50.21 1.77 60.80 7.76 47.10 1.50 56.37 7.96 73.90 0.00 81.86 7.85 59.55 0.00 67.39 8.44 57.07 0.00 65.51 0 0.85 36.38 100.0 0 0.40 36.87 100 0 0.49 34.90 100 advances & Other 0.03 2.89 from the 0.00 21.95 0.00 24.40 0.00 22.83 1.33 0 0.31 0 2.08 23.52 100 1.31 0 0.10 0 0.85 22.92 100 1.41 0 0.38 0 0.87 17.94 100 due 0.00 2.28 0.01 2.30 0.62 1.33 0.71 0.18 0.76 0.13 8.16 1.88 0.63 7.13 1.73 0.92 6.41 2.20 0.65 13.28 3.14 2.59 15.32 3.03 1.51 10.46 1.59 2.03 53.78 0.24 9.60 63.62 52.28 0.27 10.58 63.13 53.79 0.34 9.98 65.10 76.34 0.14 0.00 76.48 76.94 0.14 0.00 77.08 81.91 0.15 0.00 82.06 2012 2011 2010 LUCKY CEMENT 2012 2011 2010

Short-term prepayments

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VERTICAL ANALYSIS

Long term finance Long term deposits Deferred liability Deferred tax liability Retirement and other benefits Total Current liabilities Trade, other payables Short term borrowings Accrued mark-up Taxation - net Total TOTAL EQUITY LIABILITIES AND

9.13 0.13 0.00 3.29 0.37 12.92 4.16 13.28 0.32 0.07 22.11 100

9.82 0.14 0.00 3.44 0.28 13.68 3.37 17.49 0.57 4.03 0.07 25.53 100

10.82 0.17 0.00 3.12 0.22 1.43 3.57 20.38 0.74 4.55 0.07 29.30 100

0.97 0.13 8.12 0.00 0.00 9.22 8.23 0.03 0.00 0.65 0.00 8.92 100

1.60 0.09 4.96 0.00 0.00 6.65 9.81 0.00 0.00 0.64 0.00 25.96 100

4.33 0.08 0.83 0.00 0.00 9.33 7.94 16.36 0.00 0.46 0.00 25.17 100

Current portion of long term finances 4.27

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PROFIT AND LOSS ACCOUNT DG CEMENT 2012 Net sales Cost of sales Gross profit/loss Distribution expenses Administrative expenses Other expenses Other income operating 2.18 operating 5.18 24.94 7.28 before 17.66 0.24 after 17.90 0.92 1.43 20.35 15.26 12.80 3.24 2.32 2.20 0.77 24.98 4.63 16.61 1.35 13.94 1.14 6.10 14.43 11.19 5.60 13.89 11.69 0.02 25.74 0.76 0.01 18.60 1.99 0.01 16.27 2.32 0.20 1.16 1.32 1.25 1.05 100 67.29 32.71 1.17 9.60 100 76.40 23.60 1.14 13.30 2011 100 83.38 16.62 1.06 6.11 2010 100 61.82 38.18 9.71 1.42 LUCKY CEMENT 2012 100 66.52 33.48 12.44 1.20 2011 100 67.44 32.56 14.01 1.24 2010

Operating Profit/loss Finance costs Profit/loss taxation Taxation Profit/loss taxation

Short term debt paying ability:

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DG khan cements company: By seeing the ratios of DG khan cement company we can allocate A1 scale to it because it has strong capacity to timely repayment of its short term debts. In 2012 current assets (Stores, spares, Stock-in-trade, Cash and bank and Advances, deposits) increased from previous year and liabilities (Accrued markup and borrowing) also decreased as result the liquidity ratios increased. Average age of inventory is also low as compared to 2010. Average collection period also reduced to 5 days which helps to repay short liabilities on time. These ratios are showing that the company is in a better li position to meet their current obligation on time in 2012 than previous years. Lucky Cement Company: In 2012 lucky cement company has better short term debt paying ability than previous years. By analyzing the financial data of lucky cement we can allocate A1+ to it because in 2012 current assets (Cash and bank, Taxation - net, and Trade debts) increased but there were too much decreased in liabilities (Trade and other payables, Accrued mark-up and borrowingszero).average age of inventory is also low as compared to previous year but it is less efficient in collection of its account receivables average collection period is 11 days which is greater than previous year. Comparatively: Both the companies were in better liquidity position to meet their current obligation in 2012 than previous years, comparatively it is showing that the liquidity position of DG cement remained better in three years than Lucky, but in 2012 the position of lucky cement was better the reason was that the there was no short term borrowing outstanding, due to this factor its obligations became reduced and its positively impacted on the short term debt paying ability. There is showing that in 2010 and 2011 the lucky cement was unable to meet its current obligations through its liquid assets, in comparison with the DG it was in good position to meet current obligations.

Long term debt paying ability

DG khan cements company: We can allocate BBB ranking to it by analyzing its balance sheet and profit and loss account contents. In year 2010 the company 44% of its assets generated through debt financing. In year 2011 company total assets (investment, stocks and debts) increased and the liabilities decreased (long term financing, accrued mark-up, short term borrowing) it means the contributions of creditors towards assets was reduced. In year 2012 company further increased its assets(Property, plant and equipment, Intangible assets, Stores, spares, deposits, prepayments) and paid some of the amount of the creditors (Long term finances, Deferred taxation, Accrued markup, borrowing) as result the ratio decreased by 4%. In 2012 interest payments decreased as compared to previous years and EBIT increased above 100% this change accrued due to increase in Sales, Gross profit, decreased in Selling and distribution expenses (Freight and handling charges - export and Postage, telephone and telegram), Impairment on investments-Zero. Lucky Cement Company:

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AA credit rating seems suitable for long term debt paying ability of lucky cement. In year 2010 the company creditors contributing 34% in total assets. In 2011 company assets increased (Stores and spares, Stock in trade, Cash and bank) and the liabilities were also increased (Trade and other payables, Short term borrowings) therefore the ratio was increased by 1%. In 2012 company assets were reduced (Stores and spares, Trade deposits and short term prepayments) and liabilities (Trade deposits and short term prepayments, Short-term borrowings, Accrued mark-up) were also reduced but more proportionate than assets as result the ratio decreased by 15%. In 2012 company interest payments reduced by almost 100% and increased EBIT due to increase in Net sales, gross profit and other income, decreased in Finance cost, therefore ratio further increased. Comparatively: DG cement based more on the credit financing than Lucky. In all years the debt contributions was more in DG while lucky had less rely on credits. In year 2012 the DG cement generates credits 100% above the Lucky. In three years analysis the performance of Lucky remained better with respect to interest payments than DG. We found the huge difference in each year between the DG and Lucky.

Equity investors
Lucky cement has more attraction for equity investor because lucky cement has more profitability than DG Cement Company. Although DG cement had in profitable position in three years but in comparison with its competitor its performance is not up to the mark. Lucky cement had generated more income than DG in 2012.Lucky cement company performed very well in order to generate more sales and increase the other income and better control on its cost and expenses {interest and distributions (Logistic and related charges, Communication, Travelling and conveyance, Insurance, Depreciation)} as result the margin with respect to net income on sales increased than previous both years.Second reason for attraction in lucky cement is its capital structure. Lucky cement use most of its equity funds to run its operations while DG cement use higher debt portion in its capital structure that higher the risk element for investors and they require higher rate of returns.

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Conclusion
It is concluded that the Lucky Cement is the largest cement producer and exporter in Pakistan. Its share prices are higher than DG Cement. In terms liquidity ratios the DG Cement performed well, and liquid wise this company has more liquid assets. It is also concluded that the year 2012 was very favorable for DG Cement. It is founded that there is higher demand for share in the market of Lucky Cement. In terms of Earning per Share the Lucky announced higher dividend. The Lucky Cement earns maximum profit in three years than DG. In terms of turnover Lucky Cement performed well. In case of cost control the Lucky Cement also performed very well.

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