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Detailed ReportPakistan Research
Please refer to the last page for Analyst Certification and other important disclosures
The cement industry in Pakistan has experienced several alternating phases of prici
arrangements and wars in the last decade. Even though the current pricing arrangement h
remained strong to date, recent events compel highlighting the risks involved.
Why the current arrangement has held strong: Increase in industry capacity was the princip
trigger for igniting price wars in the past. These pricing-cycle experiences have provid
valuable lessons to cement manufacturers: (1) Decreasing price does not necessarily imply
increased market share (2) Even if market share is successfully enhanced, reduction in marg
is most likely to offset the benefit from higher production (3) Overall, it is extremely risky t
break out of collusive agreements in hopes of higher earnings.
Recent events have raised concerns: We had recently raised concerns regarding t
sustainability of the pricing arrangement among cement manufacturers after the resignatio
of LUCK from APCMA. In addition to this, DGKC’s announcement regarding plans to expan
production capacity in the south made the situation even worse.
But the situation has been salvaged for now: Short term concerns regarding the sustainabil
of the pricing arrangement were recently alleviated after LUCK decided to rejoin APCM
Cement players made several important decisions in order to bring LUCK back on boa
including formalizing protocol for expansion decisions and deferring current expansions un
Mar-14. These initiatives, in our opinion, shall be sufficient to hold the pricing arrangement f
now.
We flag higher risk of a price war in future: Even though we believe that the current priciarrangement shall remain intact for now, DGKC and CHCC’s announcement to expan
production capacity hints that several industry players are eyeing expansions given th
favorable demand expectations going forward. This, in our opinion, is a serious long ter
threat to the pricing regime as other major players will also follow in the footsteps of DGK
and announce capacity expansions if DGKC decides to go through with its plan post Mar-14.
Incorporating price war scenario in our estimates: We expect that there is a high likelihood
DGKC going through with its expansion plans post Mar-14 and believe that several other lar
cement players will also follow suit. Despite this belief, we expect that the current prici
arrangement will hold until new capacities come online in FY18. However, after thes
capacities come online, it is more likely that cement players will disagree over utilization leve
leading to a price war. Nevertheless, we do not expect the price war to last very long abelieve that prices shall start picking up again within 12-18 months as they have in the past.
Downgrade to market weight: We have revised our price targets for Elixir’s cement univer
downwards after incorporating for a possible price war in FY18. We maintain our BUY call o
LUCK, DGKC, KOHC and CHCC. However, we downgrade our investment case on FECTC, AC
and FCCL from BUY to HOLD. We also downgrade our investment case on LPCL and MLCF
SELL.
Construction & Materials
Cements: Retracing history for finer stock selection
PPrice Target: PKR290/Share
Closing Price: PKR230.5/Share
DGKC PAPrice Target: PKR100/Share
Closing Price: PKR72.4/Share
KOHC PAPrice Target: PKR150/Share
Closing Price: PKR93.2/Share
CHCC PAPrice Target: PKR65/Share
Closing Price: PKR50.8/Share
ACPL PAPrice Target: PKR135/Share
Closing Price: PKR135.4/Share
FECTC PAPrice Target: PKR40/Share
Closing Price: PKR41.0/Share
FCCL PAPrice Target: PKR11.5/Share
Closing Price: PKR11.1/Share
MLCF PAPrice Target: PKR21/Share
Closing Price: PKR22.3/Share
LPCL PAPrice Target: PKR6.2/Share
Closing Price: PKR7.3/Share
Syed Nasir RizviAC
(+92-21) 3569 4679
Sohaib Bin ShahidAC
September 30, 20
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Detailed Report Cement
Overview
The cement industry in Pakistan has experienced several alternating phases of prici
arrangements and wars in the past decade. Pricing agreements broke down in the past owing
disagreements among manufacturers relating to fair utilization levels for each company, wi
large players trying to gain a higher than allocated market share by disregarding quo
restrictions. The phase of price determination prevalent in the market is a decisive factor
shaping the earnings outlook of the industry and is therefore critical to any analysis concernifuture earnings of cement manufacturers. Even though the current pricing arrangement h
remained strong to date, recent events compel highlighting the risks involved.
0
50
100
150
200
250
J u n - 0 5
S e p - 0 5
D e c - 0 5
M a r - 0 6
J u n - 0 6
S e p - 0 6
D e c - 0 6
M a r - 0 7
J u n - 0 7
S e p - 0 7
D e c - 0 7
M a r - 0 8
J u n - 0 8
S e p - 0 8
D e c - 0 8
M a r - 0 9
J u n - 0 9
S e p - 0 9
D e c - 0 9
M a r - 1 0
J u n - 1 0
S e p - 1 0
D e c - 1 0
M a r - 1 1
J u n - 1 1
S e p - 1 1
D e c - 1 1
M a r - 1 2
J u n - 1 2
S e p - 1 2
D e c - 1 2
M a r - 1 3
J u n - 1 3
USD 57
(USD)
USD 193
USD 60USD 77
Coal Price Trend (USD/ton)
Source: Bloomberg
150
200
250
300
350
400
450
500
J u l - 0 5
O c t - 0 5
J a n - 0 6
A p r - 0 6
J u l - 0 6
O c t - 0 6
J a n - 0 7
A p r - 0 7
J u l - 0 7
O c t - 0 7
J a n - 0 8
A p r - 0 8
J u l - 0 8
O c t - 0 8
J a n - 0 9
A p r - 0 9
J u l - 0 9
O c t - 0 9
J a n - 1 0
A p r - 1 0
J u l - 1 0
O c t - 1 0
J a n - 1 1
A p r - 1 1
J u l - 1 1
O c t - 1 1
J a n - 1 2
A p r - 1 2
J u l - 1 2
O c t - 1 2
J a n - 1 3
A p r - 1 3
J u l - 1 3
Price War
Price War
Weak
Arrangement
(PKR)
Strong
Arrangement
PKR323
PKR201
PKR501
PKR265
PKR382
Strong
Arrangement
Cement Price Trend (PKR/bag)
Source: PBS, Elixir Research
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Detailed Report Cemen
Pricing over time
Cement prices in Pakistan over time exhibit a predominant pricing cycle with arrangements a
wars alternating every 12-18 months. The only exception to this cycle is in fact the curre
pricing regime with the pricing arrangement remaining intact for the past 37 months.
Pricing Over Time Beginning Ending Highest Lowest Average
Jul-05 to Apr-06 267 323 323 267 287
May-06 to Nov-07 323 235 301 201 240
Dec-07 to Jul-08 235 380 382 235 273
Aug-08 to May-09 380 350 380 345 364
Jun-09 to June-10 350 302 350 265 290
Jul-10 to Present 302 501 504 302 415
Source: PBS, Elixir Research
Strong arrangement: Jul-05 to Apr-06 (10 months): Prices opened at PKR267/bag in Jul-0
increasing sharply to peak in Apr-06 at PKR323/bag. Dispatches increased during this time peri
(FY06), with stable costs of production allowing high profits for the industry.
Price war: May-06 to Nov-07 (19 months): Prices followed a negative trend after Apr-0
bottoming out at PKR201/bag in Jan-07. Following this downtrend, prices immediately jumped
Feb-07, sustaining around PKR235-240 levels for the next 9 months. This period was marked
minimal profits with most manufacturers reporting losses between 2QFY07 and 2QFY08.
Weak arrangement - Increasing coal prices: Dec-07 to Jul-08 (8 months): Following Nov-0
prices increased sharply by PKR145/bag to reach PKR380/bag in Jul-08. However, this w
primarily due to a large uptick in international coal prices. Coal prices surged 1.4x fro
USD81/ton in Nov-07 to USD193/ton in Jul-08. Industry posted higher aggregate losses betwe
3Q-4QFY08 since cement price increments did not offset the surge in coal cost.
Weak arrangement - Decreasing coal prices: Aug-08 to May-09 (10 months): Coal pricplummeted after Jul-08 from USD193/ton to USD60/ton by Mar-09. Even though costs reduce
substantially, cement manufacturers did not pass all the benefit to consumers. Aggregate profi
improved during this period, with only a handful of small manufacturers posting losses in FY09.
Price war: Jun-09 to Jun-10 (12months): Following Jun-09, cement prices witnessed anoth
round of sharp reductions. Prices bottomed at PKR265/bag in Dec-09 and continued to hov
between PKR270-285 between Jan-10 and Jun-10. Aggregate industry losses were close
PKR6bn in this period (FY10).
Strong arrangement: Jul-10 to Present (37 months): Cement prices have followed a consiste
upward trend following Jun-10. Market prices increased by PKR96/bag, PKR40/bag an
PKR45/bag in FY11, FY12 and FY13. Cement prices have jumped by PKR11/bag during FY14
date.
Cement manufacturers have not gained much from price wars
Increase in industry capacity was the principal trigger for igniting price wars amon
manufacturers in the past as larger players disregarded quota restrictions post-expansion
Industry statistics verify that the past price wars were accompanied with or preceded b
significant expansions in capacity. During FY07 LUCK, ACPL, MLCF, PIOC and CHCC expanded the
production capacities. The total expansions that came online during FY07 amounted to 46%
aggregate industry capacity (9.7mn tons). Similarly, during FY08-09, LUCK, MLCF, KOHC a
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Detailed Report Cement
GWLC expanded production capacity. The total expansions between FY08-09 amounted to 38
of aggregate capacity (11.8mn tons).
LUCK & BWCL gained market shares; LUCK clocked in EBITDA gains through price war
During the initial price war (May-06 to Nov-07) only LUCK and BWCL managed to notab
augment their average market shares. However, of these two, only LUCK managed to increase
EBITDA relative to the previous collusive period. In fact, LUCK was the only company to increa
its earnings during the price war. The primary cause for this improvement was that LUCK w
operating at less than 50% capacity utilization when the pricing arrangement was intact. Th
coupled with a 25% increase in capacity, allowed for aggressive growth. Furthermore, low
price cuts in the south, coupled with LUCK's higher dependence on exports, also cushione
LUCK's earnings.
Last price war did not have any winner in terms of profitability
The second price war (Jun-09 to Jun-10) did not produce any winner. Only KOHC and BW
managed to notably increase their average market share post-expansion. Prior to this perio
KOHC was operating at less than 30% utilization. However, EBITDA for each individu
manufacturer declined significantly as compared to the last collusive period. The industry post
large aggregate losses during this period.
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Detailed Report Cemen
Industry
Capacity
(Mn tons
per quarter)
Industry
Production
(Mn tons
per quarter)
Industry
Capacity
Increase
Industry
Capacity
Utilization
Industry
PAT
(PKR mn)
Industry
EBITDA/to
(PKR)
1QFY06 4.03 2.84 0% 71% 2,743 1,6792QFY06 4.03 2.82 0% 70% 2,912 1,828
3QFY06 4.03 2.89 0% 72% 2,601 1,673
4QFY06 4.03 3.38 0% 84% 3,849 1,773
1QFY07 4.94 3.77 23% 76% 1,979 1,221
2QFY07 4.94 3.98 0% 80% 642 546
3QFY07 4.94 4.47 0% 90% 955 624
4QFY07 4.97 4.55 0% 92% 1,238 512
1QFY08 6.18 4.85 24% 78% 827 545
2QFY08 6.18 4.86 0% 79% (142) 541
3QFY08 6.18 5.93 0% 96% 948 482
4QFY08 6.18 6.06 0% 98% (134) 590
1QFY09 7.40 5.54 20% 75% 1,410 1,275
2QFY09 7.40 5.44 0% 73% 2,299 1,248
3QFY09 7.40 6.38 0% 86% 1,467 970
4QFY09 7.40 6.79 0% 92% 2,583 1,295
1QFY10 7.57 6.46 2% 85% 1,520 855
2QFY10 7.57 6.49 0% 86% (1,033) 423
3QFY10 7.57 6.89 0% 91% (1,114) 307
4QFY10 7.57 7.20 0% 95% (669) 305
1QFY11 7.57 5.39 0% 71% (215) 643
2QFY11 7.57 6.03 0% 80% 63 706
3QFY11 7.57 6.19 0% 82% 923 862
4QFY11 7.70 6.49 2% 84% 2,237 1,078
1QFY12 7.75 5.85 1% 75% 2,118 1,186
2QFY12 8.15 6.06 5% 74% 3,515 1,541
3QFY12 8.15 6.51 0% 80% 4,870 1,695
4QFY12 8.15 7.03 0% 86% 8,655 1,984
1QFY13 8.15 6.08 0% 75% 6,683 1,974
2QFY13 8.15 6.46 0% 79% 9,041 2,359
3QFY13 8.15 6.72 0% 82% 9,326 2,330
Source: Elixir Research, Company Accounts
Using data of: ACPL, BWCL, CHCC, DGKC, FCCL, FECTC,GWCL, KOHC, LUCK, MLCF, PIOC
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Detailed Report Cement
Why the current arrangement has held strong: Lessons from the past
Last decade's pricing-cycle experiences have provided valuable lessons to ceme
manufacturers: (1) Decreasing prices does not necessarily imply an increased market share sin
all manufacturers match the reduction in price when a price war is triggered (2) Even if mark
share is successfully enhanced, reduction in margin is most likely to offset the benefit fro
higher production. (3) Overall, it is extremely risky to break out of collusive agreements in hope
of higher earnings.
Average market share
Strong
CollusionPrice War
Weak
CollusionPrice War
Strong
Collusion
1QFY06-
3QFY06
4QFY06-
2QFY08
3QFY08-
4QFY09
1QFY10-
4QFY10
1QFY11-
3QFY13
ACPL 7.2% 7.1% 7.0% 6.7% 7.3%
BWCL 9.7% 12.6% 13.8% 15.7% 12.8%
CHCC 4.9% 5.3% 4.3% 3.7% 3.9%
DGKC 18.0% 16.4% 17.7% 18.4% 16.1%
FCCL 9.1% 6.7% 4.9% 4.2% 7.4%
FECTC 5.2% 4.3% 3.3% 3.1% 3.0%
GWLC 3.8% 1.0% 1.6% 2.4% 3.5%
KOHC 4.7% 3.1% 2.8% 4.4% 6.6%
LUCK 17.6% 26.7% 24.5% 24.5% 23.5%
MLCF 12.7% 8.9% 13.2% 12.1% 10.9%
PIOC 7.0% 7.9% 6.8% 4.7% 4.9%
Source: Elixir Research, APCMA, Company Accounts
Average EBITDA per quarter (PKR million)
Strong
CollusionPrice War
Weak
CollusionPrice War
Strong
Collusion
1QFY06-
3QFY06
4QFY06-
2QFY08
3QFY08-
4QFY09
1QFY10-
4QFY10
1QFY11-
3QFY13
ACPL 369 412 529 395 527
BWCL 549 328 755 309 1,365
CHCC 250 109 127 17 299
DGKC 975 695 1,078 733 1,465
FCCL 566 334 370 173 844
FECTC 197 44 124 (39) 154
GWLC 57 (114) 36 (162) 246
KOHC 297 120 148 129 690
LUCK 736 983 1,745 1,413 2,503
MLCF 593 237 728 160 987
PIOC 334 160 240 18 392
Source: Elixir Research, APCMA, Company Accounts
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Detailed Report Cemen
Recent events have raised concerns
We had raised concerns regarding the sustainability of the pricing arrangement among ceme
manufacturers after the resignation of LUCK from APCMA on Aug 29, 2013 (Refer to our fla
note titled “Cements: Dark Clouds” dated: August 29, 2013). LUCK’s management highlight
that it had pointed out several issues related to management of the APCMA body. This includ
not keeping LUCK in the loop for critical decisions like price changes and capacity expansion
LUCK had also raised concerns in relation to the pricing arrangement in Afghanistan and passion of the impact of the recent power tariff increase (Refer to our report titled “Cements: Pow
tariff hike may hurt earnings” dated: August 29, 2013). In addition to this, DGKC’s announceme
regarding plans to expand production capacity in the south made the situation even worse. U
till now, LUCK and ACPL were the only major players in the south and we saw this announceme
as a clear threat to LUCK’s market share.
But the situation has been salvaged for now
Short term concerns regarding the sustainability of the pricing arrangement were recent
alleviated after LUCK decided to rejoin APCMA on Sep 16, 2013. An informal meeting was he
between several cement players where the issues raised by LUCK were addressed and
compromise was struck regarding the management of the APCMA body. The body made sever
important decisions in order to bring LUCK on board including: (i) Building consensus on nami
Muhammad Ali Tabba (CEO of Lucky Cement) as the chairman of APCMA (ii) Making it imperati
for companies to take authorization of APCMA before deciding to pursue capacity expansions (
Forming a committee to review demand and supply dynamics before authorizing any expansi
(iv) Deferring current expansion plans (DGKC and CHCC) until Mar-14. These initiatives, in o
opinion, shall be sufficient to hold the pricing arrangement for now. Our discussions wi
industry sources also suggest that cement players have decided to pass on the impact of t
recent power tariff increase by the end of Oct-13.
We flag higher risk of a price war
Even though we believe that the current pricing arrangement shall remain intact for now, t
events surrounding the resignation of LUCK have in fact shed light on serious weaknesses thhad emerged within the APCMA body. APCMA, despite its tampered history, had remaine
strong with things going smoothly and no conflicts emerging for more than three years. Rece
events have however, significantly increased the chances of the body succumbing
disagreements over time and falling into an all-out price war. We have already established th
the last two price wars were primarily triggered by capacity expansions and believe that anoth
expansion-cycle may not be too far away. DGKC and CHCC’s announcement to expa
production capacity hints that several industry players are eyeing expansions given the favorab
demand expectations going forward. This, in our opinion, is a serious threat to the pricing regim
as other major players may also follow in the footsteps of DGKC and announce capaci
expansions if DGKC decides to go through with its plan post Mar-14.
Incorporating price war scenario in our estimates
Owing to the high possibility of an expansion cycle and price war, we have opted to take
conservative stance and incorporated these prospects in our estimates for cement companie
We expect that there is a high likelihood of DGKC going through with its expansion plans po
Mar-14 and believe that several other large cement players will follow suit. Despite this belie
we expect that the current pricing arrangement will hold until new capacities come online
FY18. However, after these capacities come online, it is more likely that cement players w
disagree over fair utilization levels and disregard quota restrictions leading to a price wa
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Detailed Report Cement
Nevertheless, we do not expect the price war to last very long and believe that prices shall sta
picking up again within 12-18 months as they have in the past.
In order to incorporate these expectations into estimates of our cement universe, we ha
assumed increasing prices through FY14-17 (CAGR: 4%) and taken a sharp PKR100/bag reducti
in price during FY18. We project increasing prices post-FY18 with price rising through FY18-21
a CAGR of 8%. In order to keep the valuation procedure simple, we assume that market shares
cement companies shall remain at current levels throughout our projected horizon. We ha
taken FY21 as the terminal year for our valuation with terminal year EBITDA margins of mo
cement companies close to average of pricing arrangement and price war periods. In addition
this, we have also conservatively assumed that companies would earn 6% return on cas
balances moving forward. We believe that this surplus cash shall be used to undertake efficien
enhancement or expansion projects but have not incorporated this in our estimates to ke
things less subjective.
Downgrade to market weight
As mentioned before, we have opted to take a conservative stance on the sector and ha
revised our price targets for Elixir’s cement universe downwards after incorporating for
possible price war. We maintain our BUY call on LUCK, DGKC, KOHC and CHCC. However, w
downgrade our investment case on FECTC, ACPL and FCCL from BUY to HOLD. We al
downgrade our investment case on LPCL and MLCF to SELL.
Industry Assumptions FY14E FY15E FY16E FY17E FY18E FY19E FY20E FY21
Cement Price (PKR/bag) 515 536 557 579 479 527 569 609
Coal Price (USD/ton) 80 85 90 95 100 100 100 100
PKR/USD 104.4 108.6 112.9 117.4 122.1 127.0 132.1 137.4
Industry Dispatches (mn tons) 34.6 35.9 37.3 38.7 40.4 42.1 44.0 46.0
Local 26.6 28.2 29.8 31.6 33.5 35.5 37.7 39.9
Export 8.0 7.7 7.4 7.1 6.8 6.6 6.3 6.0
Industry Dispatch Growth 3% 4% 4% 4% 4% 4% 4% 5%
Local 6% 6% 6% 6% 6% 6% 6% 6%
Export -4% -4% -4% -4% -4% -4% -4% -4%
Source: Elixir Research
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Detailed ReportPakistan Research
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Construction and Materials
9MFY13 - Elixir Cement Universe ComparisonAverage Retention per ton
5,900
6,000
6,100
6,200
6,300
6,400
6,500
6,600
M L C F
A C P L
F E C T C
F C C L
C H C C
L U C K
D G K C
K O H C
L P C L
PKR
Source: Company Accounts, Elixir Research
Average Cost per ton
3,000
3,200
3,400
3,600
3,800
4,000
4,200
4,400
4,600
4,800
L U C K
K O H C
D G K C
C H C C
L P C L
F C C L
M L C F
A C P L
F E C T C
PKR
Source: Company Accounts, Elixir Research
EBITDA Margin per ton
1,000
1,200
1,400
1,600
1,800
2,000
2,200
2,400
2,600
K O H C
M L C F
F C C L
L U C K
D G K C
C H C C
A C P L
L P C L
F E C T C
PKR
Source: Company Accounts, Elixir Research
apacity Utilization
60%
65%
70%
75%
80%
85%
90%
95%
100%
L P C L
K O H C
M L C F
F C C L
L U C K
F E C T C
C H C C
D G K C
A C P L
ource: Company Accounts, Elixir Research
Operating Cost per ton
-
100
200
300
400
500
600
700
800
900
K O H C
F C C L
C H C C
M L C F
D G K C
F E C T C
A C P L
L P C L
L U C K
PKR
Source: Company Accounts, Elixir Research
Finance Cost per ton
-
100
200
300
400
500
600
700
800
A C P L
L U C K
C H C C
K O H C
F E C T C
D G K C
L P C L
F C C L
M L C F
PKR
Source: Company Accounts, Elixir Research
Debt to Equity
-
0.20
0.40
0.60
0.801.00
1.20
1.40
1.60
A C P L
L U C K
C H C C
D G K C
K O H C
F E C T C
L P C L
F C C L
M L C F
ource: Company Accounts, Elixir Research
FY14 - PER
-
1.00
2.00
3.00
4.005.00
6.00
7.00
8.00
F E C T C
M L C F
C H C C
K O H C
D G K C
L P C L
A C P L
L U C K
F C C L
Source: Elixir Research
FY14 - PBV
-
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
D G K C
L P C L
M L C F
F E C T C
F C C L
C H C C
A C P L
K O H C
L U C K
Source: Elixir Research
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Detailed ReportPakistan Research
Please refer to the last page for Analyst Certification and other important disclosures
With production capacity standing at 7.8mn tons per annum, Lucky Cement is the large
cement manufacturer in Pakistan and holds the highest market share (18%) in the countr
We highlight LUCK as one of the safest bets in the sector due to sizeable cost advantage ov
peers.
Leading operational efficiencies: LUCK remained the lowest cost producer in our sample of
large companies (98% of industry capacity) during 9MFY13. Despite having a larger share
low margin exports in its sales mix, LUCK managed to outperform industry peers on th
EBITDA margin front as well. EBITDA margin for LUCK clocked in at PKR116/bag in 9MFY1
13% higher than industry average of 103/bag.
WHR and RDF/TDF in place to hedge margins: Lucky Cement’s 25MW Waste Heat Recove
(WHR) projects are expected to make up around 23% of its total electricity requirement
FY14. In addition to this, TDF/RDF project at Karachi site which was completed during 3QFY1
helped LUCK replace 20% of its coal requirement. Combined, these projects are expected
contribute savings of PKR8/bag in FY14, yielding an EPS impact of PKR1.83/share. Th
company is also planning to set a TDF plant at Pezu as well as 5MW WHR plants at both site
These projects will further help LUCK maintain cost leadership in the industry.
Expanding footprint: LUCK led a consortium of other group companies to acquire ICI Pakist
Ltd in 2012. LUCK also has a strong portfolio of international projects lined up including
cement plant in Congo and a joint venture for a 0.9m tons grinding facility in Ira
Furthermore, LUCK started supplying surplus electricity to HESCO during FY13. The companyalso in process of negotiation with PESCO to provide surplus electricity from its Pezu plant.
Valuation: LUCK currently trades at FY14 PER of 6.5x and offers a total return of 31% to o
Jun-14 PT of PKR290/share. We believe that the Congo project, electricity supply to PESCO a
investment in Yunus Energy Limited and other efficiency projects will add further upside to o
investment case.
LUCK Financial Highlights
FY12A FY13E FY14E FY15E FY16E FY17E FY18E FY19E FY20E
EPS 21.0 30.0 35.9 39.3 41.3 43.3 26.9 33.5 39.6
DPS (PKR) 6.0 8.0 11.0 12.0 12.0 13.0 8.0 10.0 11.0
BV/share 102.9 124.9 152.9 176.2 204.5 233.6 251.4 273.7 301.0
PER (x) 11.0 7.7 6.4 5.9 5.6 5.3 8.6 6.9 5.8
Dividend Yield 3% 3% 5% 5% 5% 6% 3% 4% 5%
PBR (x) 2.2 1.8 1.5 1.3 1.1 1.0 0.9 0.8 0.8
EV/EBITDA 6.9 5.3 4.1 3.4 2.8 2.2 3.2 2.1 1.2
ROA 17% 23% 25% 24% 22% 20% 11% 13% 14%
ROE 22% 26% 26% 24% 22% 20% 11% 13% 14%
EBITDA Growth 59% 31% 20% 7% 5% 5% -43% 25% 18%
PAT Growth 71% 43% 20% 10% 5% 5% -38% 24% 18%
Source: Elixir Research
Construction and Materials
LUCK: Safest bet in the sector
LUCK PA BUYPrice Target: PKR290/Share
Closing Price: PKR230.5/Share
Key Data
12m Price Range (PKR) 264.8 – 126.6
Market Cap (PKR mn) 74,534.7
Outstanding Shares (mn) 323.4
Avg. Daily Volume mn (6m) 0.9
Yr – Relative Performance
ource: Elixir Research
Sensitivity of PT to FY21 PricesFY 21 (PKR/bag) Price Target
560 270
585 280
609 290
635 300
660 310
Source: Elixir Research
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Company Update LUCK
Financials & Assumptions
Income Statement
PKRmn FY10A FY11A FY12A FY13A FY14E FY15E FY16E FY17E FY18E FY19E FY20E
Net Sales 24,509 26,018 33,323 37,810 42,116 45,170 48,540 52,260 46,901 52,805 58,799 6
Operating costs 20,266 20,856 24,312 25,652 27,373 29,432 32,061 34,999 38,334 41,576 45,197 4
EBITDA 5,654 6,732 10,733 14,030 16,869 18,026 18,941 19,911 11,403 14,269 16,863
EBIT 4,243 5,161 9,010 12,158 14,743 15,738 16,479 17,261 8,567 11,229 13,602
Finance Cost 569 518 253 89 2 0 0 0 0 0 0
Net Profit – Reported 3,137 3,970 6,782 9,714 11,535 12,417 13,007 13,621 8,313 10,430 12,388
EPS – Reported (PKR) 9.7 12.3 21.0 30.0 35.7 38.4 40.2 42.1 25.7 32.3 38.3
DPS (PKR) 4.0 4.0 6.0 8.0 11.0 12.0 12.0 13.0 8.0 10.0 11.0
Source: Elixir Research
Balance Sheet
PKRmn FY10A FY11A FY12A FY13E FY14E FY15E FY16E FY17E FY18E FY19E FY20E F
Shareholders’ Funds 25,096 27,773 33,262 40,389 49,448 56,977 66,119 75,551 81,291 88,500 97,343 10
Long Term Loans 1,659 658 393 94 0 0 0 0 0 0 0
Current Liabilities 9,642 10,697 3,624 4,304 4,574 4,805 5,164 5,559 4,989 5,617 6,255
Capital & Liabilities 38,310 41,210 40,631 48,374 57,860 65,889 75,677 85,812 91,311 99,501 109,358 12
Net Fixed Assets 31,381 31,707 31,018 31,036 33,095 32,614 32,093 31,534 30,574 29,646 28,737 2
Current Assets 6,871 9,444 9,555 11,074 16,846 24,723 34,432 44,542 50,438 59,030 69,314 8
Total Assets 38,310 41,210 40,631 48,374 57,860 65,889 75,677 85,812 91,311 99,501 109,358 12
Source: Elixir Research
Basic Assumptions FY14E FY15E FY16E FY17E FY18E FY19E FY20E FY2
Volume (mn tons) 6.05 6.21 6.38 6.58 6.79 7.02 7.27 7.
Local (mn tons) 3.98 4.22 4.48 4.75 5.03 5.33 5.65 5.
Export (mn tons) 2.07 1.99 1.91 1.83 1.76 1.69 1.62 1.
Volume Growth (YoY) 2% 3% 3% 3% 3% 3% 4% 4Local (YoY) 6% 6% 6% 6% 6% 6% 6% 6
Export (YoY) -4% -4% -4% -4% -4% -4% -4% -4
Capacity Utilization 78% 80% 82% 85% 88% 91% 94% 97
EBITDA/ton - Local 3,610 3,725 4,148 4,221 2,393 2,873 3,085 3,4
EBITDA/ton - Exports 1,315 1,269 1,520 1,411 1,271 1,182 913 79
EBITDA/ton - Average 2,787 2,903 2,967 3,028 1,680 2,033 2,319 2,5
Tax Rate 24% 26% 28% 30% 30% 30% 30% 30
Source: Elixir Research
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Company Update LUCK
Cash Flow Statement
PKRmn FY10A FY11A FY12A FY13E FY14E FY15E FY16E FY17E FY18E FY19E FY20E F
Net Income 3,137 3,970 6,782 9,714 11,535 12,417 13,007 13,621 8,313 10,430 12,388 1
Depreciation 1,411 1,571 1,723 1,872 2,126 2,288 2,462 2,650 2,836 3,040 3,262 3
Capex (2,315) (1,896) (1,034) (1,891) (4,185) (1,807) (1,942) (2,090) (1,876) (2,112) (2,352) (2
Working Capital Changes 559 (1,625) (387) (510) (667) (473) (522) (577) 831 (915) (929)
FCFF 3,334 2,523 8,519 3,273 7,405 12,061 12,692 13,326 9,869 10,269 12,263 1
Net Debt Repayments (2,386) (876) (6,568) (282) (282) (94) 0 0 0 0 0
FCFE 578 1,311 1,787 2,933 7,122 11,968 12,692 13,326 9,869 10,269 12,263 1
Dividends 1,294 1,294 1,940 2,587 3,557 3,881 3,881 4,204 2,587 3,234 3,557 4
Equity Issued 0 0 0 0 0 0 0 0 0 0 0
Net Cash Flows (715) 18 (154) 346 4,646 7,080 8,828 9,138 7,296 7,049 8,717 1
Source: Elixir Research
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Detailed ReportPakistan Research
Please refer to the last page for Analyst Certification and other important disclosures
DG Khan Cement Co Ltd (DGKC) is the second largest cement producer in Pakistan in term
of market share and the third largest in terms of installed capacity. In addition to its ceme
operations, DGKC also owns a sizeable investment portfolio including holdings in texti
banking, power and insurance.
Higher utilization and margin expansion to support bottom-line: DGKC has enjoyed hi
utilization levels, approximately 26pp higher than industry average over the last five yea
High capacity utilization has helped DGKC sustain strong margins relative to peers, with COG
coming in at PKR196/bag during 9MFY13, below industry average of PKR201/bag. In additio
to this, EBITDA clocked in at PKR110/bag, 8% higher than industry average of PKR103/bag.
WHR and alternate fuels to sustain margins: DGKC completed its Tyre Derived Fuel (TDF)
Refuse Derived Fuel (RDF) projects at its DG Khan and Khairpur which have replaced ~20%
its coal requirement using waste tires and other alternate fuels. DGKC is expected to ful
39% of its power requirement through Waste Heat Recovery (WHR) projects in FY14. The
projects shall contribute savings of PKR23/bag in FY14 with an EPS impact of PKR2.7.
Diversification to reap rewards during price war: DGKC also owns a sizeable and diversifi
investment portfolio including holdings in textile, banking, power and insurance with mark
value per share of PKR66/share. In fact, DGKC derives around 25% of its income from the
investments. This shall provide the company with a major cushion during price war.
Expansion plan has weakened sentiments: DGKC recently announced its plan to expand in t
Southern region in the form of a 2.6mn ton plant at Hub. However, the expansion has bee
put on hold till Mar-14. Nevertheless, we do not expect expansions to affect cement pric
before they actually come online in FY18.
Cheap multiples and valuation offers strong upside: The company trades at an FY14 PER
4.7x and offers total return of 42% to our Jun-14 target price of PKR100/share. DGKC is one
our top cement picks due to the hedge available from portfolio income and low productio
costs. DGKC is trading at a steep discount to its closest peer’s (LUCK) FY14 PER of 6.5x. BUY!
DGKC Financial Highlights
FY12A FY13A FY14E FY15E FY16E FY17E FY18E FY19E FY20E
EPS 9.4 12.6 15.5 16.1 16.7 17.6 8.6 10.8 12.5
DPS (PKR) 1.5 3.0 2.8 3.0 3.0 3.3 1.8 2.0 2.5
BV/share 75.2 86.2 99.3 112.6 126.4 141.0 146.3 155.4 165.9
PER (x) 7.7 5.8 4.7 4.5 4.3 4.1 8.4 6.7 5.8
Dividend Yield 2% 4% 4% 4% 4% 4% 2% 3% 3%
PBR (x) 1.0 0.8 0.7 0.6 0.6 0.5 0.5 0.5 0.4
EV/EBITDA 6.9 4.6 3.4 2.7 2.1 1.4 3.0 1.4 0.3
ROA 8% 11% 13% 12% 12% 12% 5% 7% 7%
ROE 13% 16% 17% 15% 14% 13% 6% 7% 8%
EBITDA Growth 108% 34% 15% 2% 1% 0% -62% 30% 15%
PAT Growth 1318% 34% 23% 4% 4% 5% -51% 25% 16%
Source: Elixir Research
Construction and Materials
DGKC: Portfolio income shields bottom-line
DGKC PA BUYPrice Target: PKR100/Share
Closing Price: PKR72.4/Share
Key Data
12m Price Range (PKR) 95.9 – 47.0
Market Cap (PKR mn) 31,715.4
Outstanding Shares (mn) 438
Avg. Daily Volume mn (6m) 5.3
Yr – Relative Performance
ource: Elixir Research
Sensitivity of PT to FY21 PricesFY 21 (PKR/bag) Price Target
560 85
585 95
609 100
635 105
660 110
Source: Elixir Research
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Company Update DGK
Financials and Assumptions
Income Statement
PKRmn FY10A FY11A FY12A FY13A FY14E FY15E FY16E FY17E FY18E FY19E FY20E
Net Sales 16,275 18,577 22,950 24,916 27,660 29,187 30,817 32,551 28,072 31,106 33,959 3
Operating costs 14,737 16,874 17,914 17,747 19,203 20,603 22,161 23,897 25,829 27,717 29,823 3
EBITDA 2,931 3,133 6,502 8,736 10,040 10,193 10,288 10,312 3,925 5,095 5,867
EBIT 1,539 1,703 5,036 7,169 8,456 8,584 8,655 8,655 2,243 3,388 4,136 4
Finance Cost 1,903 2,052 1,671 995 917 685 448 0 0 0 0
Net Profit – Reported 233 171 4,108 5,501 6,784 7,053 7,335 7,708 3,784 4,717 5,483
EPS – Reported (PKR) 0.5 0.4 9.4 12.6 15.5 16.1 16.7 17.6 8.6 10.8 12.5
DPS (PKR) - - 1.5 3.0 3.0 3.0 3.0 3.3 1.8 2.0 2.5
Source: Elixir Research
Balance Sheet
PKRmn FY10A FY11A FY12A FY13E FY14E FY15E FY16E FY17E FY18E FY19E FY20E F
Shareholders’ Funds 26,519 30,217 32,931 37,775 43,484 49,316 55,382 61,770 64,089 68,087 72,674 7
Long Term Loans 5,090 4,881 4,629 3,235 1,794 586 0 0 0 0 0
Current Liabilities 13,786 12,657 11,206 9,442 8,673 7,605 6,174 4,761 4,029 3,542 3,832 4
Capital & Liabilities 47,046 49,673 50,685 52,371 55,871 59,426 63,475 68,450 70,037 73,548 78,425 8
Net Fixed Assets 25,773 25,985 27,186 27,387 26,428 25,444 24,435 23,401 22,342 21,257 20,147 1
Current Assets 16,417 18,295 18,440 19,998 24,458 28,997 34,055 40,063 42,709 47,305 53,291 5
Total Assets 47,046 49,673 50,685 52,371 55,871 59,426 63,475 68,449 70,036 73,547 78,424 8
Source: Elixir Research
Basic Assumptions FY14E FY15E FY16E FY17E FY18E FY19E FY20E FY2
Volume (mn tons) 4.01 4.04 4.07 4.11 4.15 4.20 4.24 4.
Local (mn tons) 2.98 3.07 3.17 3.26 3.36 3.46 3.55 3.
Export (mn tons) 1.03 0.96 0.90 0.85 0.79 0.74 0.69 0.
Volume Growth (YoY) 1% 1% 1% 1% 1% 1% 1% 1
Local (YoY) 3% 3% 3% 3% 3% 3% 3% 3
Export (YoY) -6% -6% -6% -6% -6% -6% -7% -7
Capacity Utilization 95% 96% 96% 97% 98% 99% 100% 10
EBITDA/ton - Local 3,143 3,136 3,112 3,069 1,121 1,455 1,662 1,7
EBITDA/ton - Exports 886 827 752 659 546 471 373 24
EBITDA/ton - Average 2,505 2,524 2,526 2,509 946 1,214 1,383 1,4
Tax Rate 25% 27% 29% 31% 33% 33% 33% 33
Source: Elixir Research
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Company Update DGK
Cash Flow Statement
PKRmn FY10A FY11A FY12A FY13E FY14E FY15E FY16E FY17E FY18E FY19E FY20E F
Net Income 233 171 4,108 5,846 6,902 7,141 7,394 7,737 3,564 4,503 5,243
Depreciation 1,393 1,430 1,466 1,567 1,584 1,608 1,633 1,657 1,682 1,706 1,731
Capex (1,070) (1,643) (2,667) (1,768) (625) (625) (624) (623) (622) (622) (621)
Working Capital Changes (129) (653) (542) (24) (414) (366) (401) (462) (460) (450) (498)
FCFF 1,729 932 3,393 6,417 8,043 8,205 8,293 8,310 4,163 5,138 5,854
Net Debt Repayments (1,394) (1,240) (2,046) (3,117) (2,396) (2,449) (2,210) (1,609) (1,000) (747) 0
FCFE (901) (1,642) 261 2,578 5,051 5,310 5,792 6,700 3,163 4,390 5,854
Dividends (22) 0 0 (657) (1,075) (1,242) (1,285) (1,331) (1,470) (677) (856)
Equity Issued 5,390 3,527 (1,395) 0 (0) 0 0 (0) 0 (0) 0
Net Cash Flows (13) (63) 261 1,810 3,864 3,954 4,392 5,254 1,576 3,595 4,879
Source: Elixir Research
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Detailed ReportPakistan Research
Please refer to the last page for Analyst Certification and other important disclosures
Kohat Cement Company Limited (KOHC) remains the most efficient player in the ceme
industry with 9MFY13 EBITDA margin of PKR125/bag, significantly higher than indust
average of PKR103/bag. With surplus capacity and buoyant outlook on local demand, KOH
is an ideal bet on the volume growth theme and one of our top picks in the cement sector.
Volume growth has outpaced peers: Owing to low utilization levels, KOHC’s dispatch grow
has outpaced industry in the recent past, averaging at 25% between FY08-FY13 relative
average industry growth of 2%. Despite gaining a larger share of the market, KOHC still hol
significant surplus capacity. KOHC’s capacity utilization clocked in at a mere 62% during FY1
Due to its surplus capacity, we expect KOHC to be a primary beneficiary amid increased loc
demand.
WHR to enhance value: KOHC recently announced investment in a 9MW Waste He
Recovery (WHR) project. This shall allow KOHC to fulfill ~20% of its electricity requireme
post FY15. The project shall come online by mid FY15 and is expected to cost PKR2bn. Th
project will contribute savings of PKR7/bag and PKR15/bag in FY15 and FY16, yielding an E
impact of PKR1.4 and PKR3.4 during the same periods. Since it currently relies on t
expensive national grid, WHR project will be a major asset for KOHC as it will help ke
margins intact and act as a hedge against any further hike in power costs.
Deleveraged during good times: KOHC has followed an aggressive debt repayment strate
with net debt standing at PKR1.2bn at the end of 3QFY13 against PKR2.8bn at the end of FY1
This shall increase the company’s cash flows and will allow further investment in coefficiency projects.
Valuation: After incorporating the recently announced WHR project, our Jun-14 price targ
for KOHC stands at PKR150/share, which offers an upside potential of 61% along with
dividend yield of 5%. KOHC is one of our top picks in the sector owing to margin leadersh
and has the highest potential upside in our cement space.
KOHC Financial Highlights
FY12A FY13A FY14E FY15E FY16E FY17E FY18E FY19E FY20E
EPS 12.9 20.5 20.9 23.1 26.3 27.4 8.7 13.3 17.1
DPS (PKR) 3.0 5.0 5.0 11.0 12.5 13.0 4.0 6.5 8.0
BV/share 29.2 46.6 62.5 77.4 92.2 107.0 105.4 114.0 124.1
PER (x) 7.2 4.5 4.5 4.0 3.5 3.4 10.7 7.0 5.4
Dividend Yield 3% 5% 5% 12% 13% 14% 4% 7% 9%
PBR (x) 3.2 2.0 1.5 1.2 1.0 0.9 0.9 0.8 0.8
EV/EBITDA 4.8 2.7 2.7 2.2 1.7 1.4 3.8 2.4 1.6
ROA 18% 27% 24% 24% 25% 23% 7% 10% 12%
ROE 57% 54% 38% 33% 31% 28% 8% 12% 14%
EBITDA Growth 169% 49% 1% 9% 10% 3% -64% 42% 24%
PAT Growth 2506% 59% 2% 11% 14% 4% -68% 53% 29%
Source: Elixir Research
Construction and Materials
KOHC: Robust potential substantiates value
KOHC PA BUYPrice Target: PKR150/Share
Closing Price: PKR93.2/Share
Key Data
12m Price Range (PKR) 124.3 – 54.7
Market Cap (PKR mn) 11,997.6
Outstanding Shares (mn) 128.8
Avg. Daily Volume mn (6m) 0.6
Yr – Relative Performance
ource: Elixir Research
Sensitivity of PT to FY21 PricesFY 21 (PKR/bag) Price Target
560 125
585 135
609 150
635 160
660 170
Source: Elixir Research
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Company Update KOH
Financials and Assumptions
Income Statement
PKRmn FY10A FY11A FY12A FY13A FY14E FY15E FY16E FY17E FY18E FY19E FY20E
Net Sales 3,692 6,085 9,316 11,297 13,210 14,492 15,905 17,463 15,330 17,780 20,269 2
Operating costs 3,434 5,248 6,577 7,072 8,935 9,881 10,763 12,129 13,681 15,238 16,995 1
EBITDA 514 1,148 3,088 4,612 4,654 5,092 5,607 5,783 2,084 2,964 3,683
EBIT 258 837 2,739 4,216 4,275 4,611 5,143 5,334 1,648 2,542 3,274
Finance Cost 659 715 626 249 166 76 0 0 0 0 0
Net Profit – Reported (328) 64 1,661 2,633 2,693 2,977 3,388 3,529 1,122 1,713 2,203
EPS – Reported (PKR) (2.5) 0.5 12.9 20.4 20.9 23.1 26.3 27.4 8.7 13.3 17.1
DPS (PKR) 0.0 0.0 3.0 5.0 5.0 11.0 12.5 13.0 4.0 6.5 8.0
Source: Elixir Research
Balance Sheet
PKRmn FY10A FY11A FY12A FY13E FY14E FY15E FY16E FY17E FY18E FY19E FY20E F
Shareholders’ Funds 1,961 2,103 3,756 6,003 8,052 9,960 11,874 13,775 13,571 14,672 15,981 1
Long Term Loans 3,049 3,537 1,163 300 0 0 0 0 0 0 0
Current Liabilities 3,242 2,811 2,899 2,008 2,405 1,554 1,693 1,909 2,154 2,399 2,677
Capital & Liabilities 8,673 9,124 9,213 10,422 12,180 12,847 14,511 16,238 15,890 17,237 18,823 2
Net Fixed Assets 7,229 7,141 6,868 6,631 8,401 8,120 7,856 7,606 7,371 7,150 6,941
Current Assets 1,407 1,954 2,318 3,765 3,776 4,725 6,653 8,630 8,517 10,086 11,881 1
Total Assets 8,673 9,124 9,213 10,422 12,180 12,847 14,511 16,238 15,890 17,237 18,823 2
Source: Elixir Research
Basic Assumptions FY14E FY15E FY16E FY17E FY18E FY19E FY20E FY2
Volume (mn tons) 1.92 2.01 2.11 2.21 2.32 2.44 2.57 2.
Local (mn tons) 1.62 1.72 1.82 1.93 2.05 2.17 2.30 2.Export (mn tons) 0.30 0.30 0.29 0.28 0.28 0.27 0.27 0.
Volume Growth (YoY) 6% 5% 5% 5% 5% 5% 5% 5
Local (YoY) 7% 6% 6% 6% 6% 6% 6% 6
Export (YoY) -3% -2% -2% -2% -2% -2% -2% -2
Capacity Utilization 65% 68% 71% 75% 79% 83% 87% 91
EBITDA/ton - Local 2,676 2,773 2,890 2,834 883 1,245 1,495 1,6
EBITDA/ton - Exports 1,672 1,763 1,876 1,821 1,754 1,760 1,759 1,7
EBITDA/ton - Average 2,420 2,528 2,656 2,611 896 1,214 1,435 1,6
Tax Rate 31% 31% 31% 31% 31% 31% 31% 31
Source: Elixir Research
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Company Update KOH
Cash Flow Statement
PKRmn FY10A FY11A FY12A FY13E FY14E FY15E FY16E FY17E FY18E FY19E FY20E F
Net Income (328) 64 1,661 2,633 2,693 2,977 3,388 3,529 1,122 1,713 2,203
Depreciation 256 311 348 386 379 481 465 449 435 422 409
Capex 548 222 76 149 2,149 200 200 200 200 200 200
Working Capital Changes 412 (258) (117) (780) (283) (200) (225) (235) 432 (389) (390)
FCFF 365 481 3,064 2,980 414 2,721 3,039 3,154 1,400 1,545 2,022
Net Debt Repayments 176 (184) (2,459) (1,716) (199) (1,000) 0 0 0 0 0
FCFE (24) (65) 94 1,091 100 1,669 3,039 3,154 1,400 1,545 2,022
Dividends 0 0 0 386 644 1,069 1,474 1,629 1,326 612 895
Equity Issued 0 0 0 0 0 0 0 0 0 0 0
Net Cash Flows (6) 13 88 704 (544) 600 1,564 1,526 74 934 1,128
Source: Elixir Research
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Detailed ReportPakistan Research
Please refer to the last page for Analyst Certification and other important disclosures
CHCC is a small cement player with capacity of 1.1mn tons per annum. It is one of the mo
efficient players in the industry with EBITDA margin clocking in at PKR105/bag durin
9MFY13, 2% higher than industry average of PKR103/bag. Operational efficiencies couple
with strategic location make CHCC an ideal value play in our cement universe.
Operational efficiencies to drive growth: EBITDA margin for CHCC clocked in at PKR105/b
during 9MFY13, 2% higher than industry average of PKR103/bag. Its new RDF project h
recently come online during 1QFY14 and shall result in cost savings of PKR7/bag in FY14.
addition to this, CHCC’s existing WHR project is also estimated to lead to savings of PKR33/b
during the same period. Combined, these cost efficiency projects are expected to yield an E
impact of PKR6.2 in FY14.
Proximity to Afghanistan to keep exports outlook positive: CHCC’s plant location gives it
strategic advantage of lower transport costs on exports to Afghanistan. We expect over
industry exports to Afghanistan to gradually decline by an average of 2% per annum fro
current levels. However, due to CHCC’s proximity to Afghanistan, we expect it to be the lea
affected player in case of a decline in Afghan demand.
Expansion announced but details remain unclear: The Company announced its intention
expand existing plant capacity recently. Even though expansions have been halted till Mar-1
it remains unclear whether CHCC will actually go ahead with its expansion post Mar-13. Owi
to this uncertainty, we have not incorporated CHCC’s expansion into our estimates. In t
event that CHCC decides to expand, the company will have to take on a large amount of deand its cash position shall be compromised in the near term.
Valuation: Our Jun-14 PT of PKR65/share offers an upside of 28% along with a dividend yie
of 5%. Robust operational efficiencies and strategic location strengthen our investment ca
on CHCC. BUY!
CHCC Financial Highlights
FY12A FY13A FY14E FY15E FY16E FY17E FY18E FY19E FY20E
EPS (PKR) 4.6 12.8 13.7 14.8 15.6 16.2 5.1 6.9 8.1
DPS (PKR) 2.0 2.5 2.5 2.5 2.5 6.5 2.0 3.0 3.5
BV/share 28.8 38.6 49.8 62.0 75.2 87.9 87.8 92.4 97.4
PER (x) 11.1 4.0 3.7 3.4 3.3 3.1 10.0 7.3 6.2
Dividend Yield 4% 5% 5% 5% 5% 13% 4% 6% 7%
PBR (x) 1.8 1.3 1.0 0.8 0.7 0.6 0.6 0.5 0.5
EV/EBITDA 5.5 2.6 2.1 1.6 1.0 0.5 1.5 0.7 0.3
ROA 9% 26% 25% 24% 21% 19% 5% 7% 8%
ROE 17% 38% 31% 26% 23% 20% 6% 8% 9%
EBITDA Growth 93% 87% 3% 4% 1% 0% -69% 33% 15%
PAT Growth 536% 180% 7% 8% 6% 3% -69% 37% 17%
Source: Elixir Research
Construction and Materials
CHCC: Buoyant investment case
CHCC PA BUYPrice Target: PKR65/Share
Closing Price: PKR50.8/Share
Key Data
12m Price Range (PKR) 80.6 – 35.8
Market Cap (PKR mn) 4,854.5
Outstanding Shares (mn) 95.6
Avg. Daily Volume mn (6m) 0.5
Yr – Relative Performance
ource: Elixir Research
Sensitivity of PT to FY21 PricesFY 21 (PKR/bag) Price Target
560 55
585 60
609 65
635 70
660 75
Source: Elixir Research
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Company Update CHCC
Financials and Assumptions
Income Statement
PKRmn FY10A FY11A FY12A FY13A FY14E FY15E FY16E FY17E FY18E FY19E FY20E
Net Sales 3,469 4,244 5,457 6,294 7,117 7,668 8,321 9,012 7,953 8,715 9,414 1
Operating costs 3,620 3,909 4,562 4,388 5,152 5,620 6,240 6,928 7,471 7,990 8,543 9
EBITDA 70 597 1,151 2,157 2,225 2,304 2,333 2,331 725 966 1,109
EBIT (151) 335 895 1,906 1,964 2,048 2,081 2,084 481 725 871
Finance Cost 161 286 311 109 74 23 0 0 0 0 0
Net Profit – Reported (14) 69 437 1,224 1,311 1,412 1,492 1,544 486 664 779
EPS – Reported (PKR) (0.1) 0.7 4.6 12.8 13.7 14.8 15.6 16.2 5.1 6.9 8.1
DPS (PKR) 0.0 0.0 2.0 2.5 2.5 2.5 2.5 6.5 2.0 3.0 3.5
Source: Elixir Research
Balance Sheet
PKRmn FY10A FY11A FY12A FY13E FY14E FY15E FY16E FY17E FY18E FY19E FY20E F
Shareholders’ Funds 2,246 2,332 2,748 3,685 4,757 5,930 7,184 8,398 8,392 8,836 9,313 9
Long Term Loans 976 1,221 889 250 0 0 0 0 0 0 0
Current Liabilities 1,622 1,800 1,040 1,061 897 538 593 654 701 747 795 Capital & Liabilities 4,857 5,365 4,712 5,031 5,684 6,494 7,798 9,070 9,107 9,592 10,114 1
Net Fixed Assets 3,446 3,388 3,245 3,376 3,316 3,260 3,208 3,161 3,117 3,076 3,039
Current Assets 1,239 1,718 1,289 1,478 2,191 3,057 4,413 5,732 5,813 6,339 6,898
Total Assets 4,857 5,365 4,712 5,031 5,684 6,494 7,798 9,070 9,107 9,592 10,114 1
Source: Elixir Research
Basic Assumptions FY14E FY15E FY16E FY17E FY18E FY19E FY20E FY2
Volume (mn tons) 1.02 1.05 1.08 1.11 1.12 1.12 1.12 1.
Local (mn tons) 0.67 0.71 0.75 0.80 0.81 0.83 0.84 0.
Export (mn tons) 0.35 0.33 0.32 0.31 0.30 0.29 0.28 0.
Volume Growth (YoY) 3% 3% 3% 3% 0% 0% 0% 0
Local (YoY) 6% 6% 6% 6% 2% 2% 1% 1
Export (YoY) -3% -3% -3% -3% -3% -3% -3% -3
Capacity Utilization 92% 95% 98% 101% 101% 102% 102% 10
EBITDA/ton - Local 2,352 2,350 2,251 2,144 151 438 603 69
EBITDA/ton - Exports 1,869 1,886 1,958 1,967 1,986 2,055 2,121 2,1
EBITDA/ton - Average 2,188 2,202 2,163 2,094 649 861 987 1,0
Tax Rate 28% 29% 29% 29% 29% 29% 29% 29
Source: Elixir Research
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Company Update CHCC
Cash Flow Statement
PKRmn FY10A FY11A FY12A FY13E FY14E FY15E FY16E FY17E FY18E FY19E FY20E F
Net Income (14) 69 437 1,224 1,311 1,412 1,492 1,544 486 664 779
Depreciation 220 261 256 251 261 256 252 248 244 241 237
Capex 422 205 111 382 200 200 200 200 200 200 200
Working Capital Changes 115 (332) 304 (154) (136) (91) (108) (114) 175 (126) (116)
FCFF (412) 46 1,241 1,039 1,282 1,387 1,429 1,471 704 571 694
Net Debt Repayments 421 310 (1,016) (694) (483) (400) 0 0 0 0 0
FCFE 2 (0) (12) 260 745 971 1,429 1,471 704 571 694
Dividends 9 (17) 21 287 239 239 239 330 492 220 301
Equity Issued 0 0 0 0 0 0 0 0 0 0 0
Net Cash Flows (7) 17 (33) (27) 506 732 1,190 1,141 212 351 393
Source: Elixir Research
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Detailed ReportPakistan Research
Please refer to the last page for Analyst Certification and other important disclosures
Attock Cement Pakistan Limited (ACPL) is a dominant player in the southern region and se
its cement under the premium ‘Falcon’ brand. However, ACPL is a relatively inefficie
player with COGS of PKR221/bag during 9MFY13, 10% higher than industry average and th
second highest in our cement universe. Since the plant runs at full capacity, earnings grow
will be a function of margins which have remained on the lower side compared to peers.
Higher utilization, lower margins to suppress growth: ACPL has been operating at an avera
capacity utilization of 101% during the past five years. Owing to inefficiencies, ACPL’s EBITD
margin clocked in at PKR83/bag during 9MFY13, 19% lower than industry average
PKR103/bag. ACPL seems to be a major loser in our price war scenario owing to high utilizatio
and lower margins. Earnings growth can only be achieved on the back of efficiency projec
that will help ACPL survive amid lower retention levels.
Investing in cost efficiencies: Various initiatives are currently underway to counter the rece
cost hike. These include investing in a coal-based power plant and replacement of cement m
internals. Coal-based power project is expected to cost ~USD1.4mn per MW and sh
generate electricity at a cost of ~PKR9/Kwh (at current coal prices). On the other han
replacement of cement mill internals is expected to cost PKR750mn and would reduce pow
consumption by 9.0Kwh/ton. While we have factored in the impact of cement mill internals
our estimates, we await further clarity on implementation of the coal project.
Strong cash position to support efficiency investments: ACPL possess a debt-free balan
sheet with cash balances of PKR2.7bn (including short term investments). This shall allow tcompany to undertake efficiency investments without needing external finances.
Valuation: ACPL trades at FY14 PER of 5.5x and offers total return of 10% to our June-14 targ
price of PKR135/share. Owing to low production efficiency and limited surplus capacity, w
downgrade our stance on the company from BUY to HOLD. However, implementation co
based power generation project may improve our investment case.
ACPL Financial Highlights
FY12A FY13A FY14E FY15E FY16E FY17E FY18E FY19E FY20E
EPS 13.1 21.5 24.5 26.9 27.5 28.0 7.5 11.7 15.7
DPS (PKR) 7.4 13.0 14.5 16.0 16.5 17.0 4.5 7.0 9.5
BV/share 66.6 79.8 91.3 103.7 115.2 126.8 117.3 124.5 133.2
PER (x) 10.3 6.3 5.5 5.0 4.9 4.8 18.1 11.5 8.6Dividend Yield 5% 10% 11% 12% 12% 13% 3% 5% 7%
PBR (x) 2.0 1.7 1.5 1.3 1.2 1.1 1.2 1.1 1.0
EV/EBITDA 6.0 4.3 2.9 2.4 2.0 1.7 9.0 4.5 2.9
ROA 16% 22% 21% 21% 20% 18% 5% 8% 10%
ROE 21% 29% 29% 28% 25% 23% 6% 10% 12%
EBITDA Growth 68% 39% 9% 11% 3% 3% -78% 81% 35%
PAT Growth 90% 64% 14% 10% 2% 2% -73% 57% 34%
Source: Elixir Research
Construction and Materials
ACPL: Lower efficiency limits upside
ACPL PA HOLDPrice Target: PKR135/Share
Closing Price: PKR135.4/Share
Key Data
12m Price Range (PKR) 178.9 – 86.4
Market Cap (PKR mn) 13,479.8
Outstanding Shares (mn) 99.6
Avg. Daily Volume mn (6m) 0.1
Yr – Relative Performance
ource: Elixir Research
Sensitivity of PT to FY21 Prices
FY 21 (PKR/bag) Price Target
560 105585 120
609 135
635 150
660 165
Source: Elixir Research
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Company Update ACPL
Financials and Assumptions
Income Statement
PKRmn FY10A FY11A FY12A FY13A FY14E FY15E FY16E FY17E FY18E FY19E FY20E
Net Sales 7,668 8,554 10,504 11,508 13,068 13,810 14,605 15,438 13,223 14,697 16,107 1
Operating costs 6,361 7,523 8,618 8,814 10,096 10,498 11,203 11,955 12,785 13,584 14,466 1
EBITDA 1,578 1,303 2,194 3,050 3,322 3,685 3,789 3,886 855 1,547 2,092
EBIT 1,307 1,031 1,886 2,694 2,973 3,312 3,402 3,483 438 1,113 1,641
Finance Cost 78 24 12 15 12 12 12 12 12 12 12
Net Profit – Reported 1,017 684 1,303 2,136 2,437 2,682 2,742 2,793 744 1,169 1,563
EPS – Reported (PKR) 10.2 6.9 13.1 21.5 24.5 26.9 27.5 28.0 7.5 11.7 15.7
DPS (PKR) 5.0 4.5 7.4 13.0 14.5 16.0 16.5 17.0 4.5 7.0 9.5
Source: Elixir Research
Balance Sheet
PKRmn FY10A FY11A FY12A FY13E FY14E FY15E FY16E FY17E FY18E FY19E FY20E F
Shareholders’ Funds 5,395 5,798 6,629 7,947 9,089 10,327 11,475 12,625 11,676 12,397 13,263 1
Long Term Loans 0 0 0 0 0 0 0 0 0 0 0
Current Liabilities 1,065 1,378 1,335 1,674 1,901 2,009 2,124 2,246 1,940 2,152 2,356
Capital & Liabilities 7,059 7,743 8,901 10,706 12,074 13,420 14,684 15,955 14,701 15,634 16,703 1
Net Fixed Assets 4,202 5,332 5,472 5,999 6,063 6,401 6,380 6,363 6,350 6,341 6,336
Current Assets 2,793 2,347 3,358 4,631 5,935 6,943 8,228 9,516 8,275 9,217 10,291 1
Total Assets 7,059 7,743 8,901 10,705 12,074 13,420 14,684 15,955 14,701 15,633 16,703 1
Source: Elixir Research
Basic Assumptions FY14E FY15E FY16E FY17E FY18E FY19E FY20E FY2
Volume (mn tons) 1.85 1.86 1.87 1.88 1.90 1.92 1.95 1.
Local (mn tons) 1.42 1.47 1.53 1.59 1.66 1.72 1.78 1.
Export (mn tons) 0.43 0.38 0.34 0.29 0.25 0.21 0.17 0.
Volume Growth (YoY) 0% 0% 1% 1% 1% 1% 1% 1
Local (YoY) 4% 4% 4% 4% 4% 4% 4% 4
Export (YoY) -10% -11% -12% -13% -15% -17% -20% -24
Capacity Utilization 103% 104% 104% 105% 106% 107% 109% 11
EBITDA/ton - Local 2,200 2,334 2,325 2,320 423 822 1,110 1,3
EBITDA/ton - Exports 472 639 671 651 624 649 670 68
EBITDA/ton - Average 1,795 1,983 2,027 2,062 450 804 1,073 1,2
Tax Rate 22% 24% 26% 28% 30% 30% 30% 30
Source: Elixir Research
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Company Update ACPL
Cash Flow Statement
PKRmn FY10A FY11A FY12A FY13E FY14E FY15E FY16E FY17E FY18E FY19E FY20E F
Net Income 1,017 684 1,303 2,136 2,437 2,682 2,742 2,793 744 1,169 1,563
Depreciation 271 272 308 355 350 374 388 402 418 434 450
Capex (329) (1,402) (448) (883) (414) (712) (367) (385) (404) (425) (446)
Working Capital Changes 307 (552) (281) 640 30 (29) (31) (34) (226) (8) (18)
FCFF 1,279 (1,013) 1,252 2,401 2,410 2,322 2,739 2,783 539 1,178 1,557
Net Debt Repayments (623) 0 0 0 0 0 0 0 0 0 0
FCFE 424 (812) 1,221 2,182 2,402 2,315 2,731 2,775 532 1,170 1,550
Dividends 361 498 448 740 1,295 1,444 1,593 1,643 1,693 448 697
Equity Changes 144 0 0 130 0 0 0 0 0 0 0
Net Cash Flows 207 (1,310) 773 1,573 1,108 871 1,138 1,132 (1,161) 722 852
Source: Elixir Research
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Detailed ReportPakistan Research
Please refer to the last page for Analyst Certification and other important disclosures
FECTC is among the smallest cement plants in the country with production capacity standi
at 0.82mn tons per annum. The company is a relatively inefficient player with 9MFY
COGS/ton 14% higher than industry average and highest among Elixir’s Cement Univers
Owing to low production efficiency, we believe FECTC is a very risky bet in the event of
reversal in price trend and downgrade our stance on the stock from BUY to HOLD.
High costs to limit margins: FECTC is a relatively inefficient player with 9MFY13 COGS clocki
in at PKR230/bag, 14% higher than industry average of PKR201/bag. In fact, FECTC is the lea
efficient producer among Elixir’s Cement Universe. Owing to high costs of production, FECT
generates the lowest EBITDA margin in our cement space as well. 9MFY13 EBITDA marg
clocked in at PKR70/bag, PKR33/bag lower than industry average of PKR103/bag.
Small size to bound investment in production efficiencies: Even though FECTC holds a 6M
WHR plant and generates ~30% of its power requirement from the project, it has no RDF/TD
project to mitigate potential fuel costs increases. We believe that company’s small size lim
its ability to aggressively invest in production efficiencies after the recent increase in pow
tariff. This places the company at a considerable disadvantage to other players in the indust
with cash-rich balance sheets and significant room to invest in efficiency enhanceme
projects. Owing to this we expect FECTC to face margin attrition even under a price-u
scenario. We expect EBITDA margin for the company to clock in at PKR84/bag, PKR80/bag a
PKR76/bag during FY14, FY15 and FY16.
Valuation: FECTC currently trades at FY14 PER of 2.6x. Weak production efficiencies alimited ability to reduce costs lead us to believe that FECTC shall be a major loser in the eve
of a price war. Our price target of PKR40/share offers total return of 13%. We downgrade o
recommendation on the stock from BUY to HOLD.
FECTC Financial Highlights
FY12A FY13A FY14E FY15E FY16E FY17E FY18E FY19E FY20
EPS 6.9 11.6 15.9 15.0 14.0 13.7 (3.5) (0.7) 0.5
DPS (PKR) 1.0 1.5 6.3 5.8 5.5 5.3 0.0 0.0 0.3
BV/share 27.4 38.1 52.4 61.1 69.4 77.6 68.9 68.1 68.6
PER (x) 5.9 3.5 2.6 2.7 2.9 3.0 (11.8) (55.2) 80.9
Dividend Yield 2% 4% 15% 14% 13% 13% 0% 0% 1%PBR (x) 1.5 1.1 0.8 0.7 0.6 0.5 0.6 0.6 0.6
EV/EBITDA 5.1 2.8 1.7 1.4 1.1 0.8 -9.1 32.0 9.9
ROA 11% 17% 21% 18% 15% 14% -3% -1% 1%
ROE 29% 36% 35% 26% 21% 19% -5% -1% 1%
EBITDA Growth 92% 59% 27% -4% -3% -5% -110% -131% 226
PAT Growth 429% 68% 36% -6% -6% -2% -125% -79% -168
Source: Elixir Research
Construction and Materials
FECTC: A risky bet
FECTC PA HOLDPrice Target: PKR40/Share
Closing Price: PKR41/Share
Key Data
12m Price Range (PKR) 64.0 – 22.7
Market Cap (PKR mn) 2,056.6
Outstanding Shares (mn) 50.2
Avg. Daily Volume mn (6m) 0.3
Yr – Relative Performance
ource: Elixir Research
Sensitivity of PT to FY21 PricesFY 21 (PKR/bag) Price Target
560 20
585 30
609 40
635 45
660 50
Source: Elixir Research
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Company Update FECT
Financials and Assumptions
Income Statement
PKRmn FY10A FY11A FY12A FY13A FY14E FY15E FY16E FY17E FY18E FY19E FY20E
Net Sales 2,903 3,304 4,343 4,588 5,146 5,491 5,897 6,342 5,549 6,100 6,617
Operating costs 3,125 3,069 3,826 3,707 4,000 4,388 4,827 5,325 5,760 6,162 6,598
EBITDA (157) 323 621 988 1,251 1,206 1,171 1,117 (113) 35 114
EBIT (223) 235 516 881 1,146 1,103 1,070 1,018 (211) (62) 19
Finance Cost 83 150 206 143 119 96 81 73 65 61 61
Net Profit – Reported (208) 66 347 583 795 750 702 688 (174) (37) 25
EPS – Reported (PKR) (4.2) 1.3 6.9 11.6 15.9 15.0 14.0 13.7 (3.5) (0.7) 0.5
DPS (PKR) 0.0 0.0 1.0 1.5 6.3 5.8 5.5 5.3 0.0 0.0 0.3
Source: Elixir Research
Balance Sheet
PKRmn FY10A FY11A FY12A FY13E FY14E FY15E FY16E FY17E FY18E FY19E FY20E F
Shareholders’ Funds 964 1,029 1,376 1,909 2,629 3,066 3,480 3,892 3,455 3,417 3,443 3
Long Term Loans 650 450 250 100 0 0 0 0 0 0 0
Current Liabilities 1,336 1,503 1,652 1,424 1,408 1,328 1,357 1,396 1,423 1,493 1,569
Capital & Liabilities 3,123 3,108 3,309 3,464 4,067 4,422 4,864 5,314 4,904 4,935 5,036 Net Fixed Assets 2,125 2,163 2,137 2,044 2,009 1,976 1,945 1,915 1,887 1,860 1,835
Current Assets 940 906 1,136 1,385 2,023 2,411 2,884 3,364 2,982 3,040 3,166
Total Assets 3,123 3,108 3,309 3,464 4,067 4,422 4,864 5,314 4,904 4,935 5,036
Source: Elixir Research
Basic Assumptions FY14E FY15E FY16E FY17E FY18E FY19E FY20E FY2
Volume (mn tons) 0.74 0.75 0.76 0.78 0.78 0.79 0.79 0.
Local (mn tons) 0.49 0.52 0.55 0.59 0.60 0.62 0.64 0.
Export (mn tons) 0.24 0.23 0.21 0.19 0.18 0.17 0.15 0.
Volume Growth (YoY) 1% 2% 2% 2% 0% 0% 1% 1
Local (YoY) 3% 6% 6% 6% 3% 3% 3% 3
Export (YoY) -2% -7% -7% -7% -8% -8% -9% -9
Capacity Utilization 90% 91% 93% 95% 96% 96% 97% 97
EBITDA/ton - Local 2,031 1,914 1,776 1,616 (442) (187) (52) 1
EBITDA/ton - Exports 1,028 912 895 869 844 904 965 1,0
EBITDA/ton - Average 1,701 1,613 1,535 1,432 (145) 44 144 18
Tax Rate 20% 25% 30% 30% 30% 30% 30% 30
Source: Elixir Research
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Company Update FECT
Cash Flow Statement
PKRmn FY10A FY11A FY12A FY13E FY14E FY15E FY16E FY17E FY18E FY19E FY20E F
Net Income (208) 66 347 583 795 750 702 688 (174) (37) 25
Depreciation 66 87 105 107 105 103 101 100 98 97 95
Capex 713 126 79 13 70 70 70 70 70 70 70
Working Capital Changes 264 (24) (96) (215) (99) (30) (37) (38) 222 (74) (63)
FCFF (598) 81 426 580 825 824 752 729 121 (43) 30
Net Debt Repayments 657 30 (168) (297) (150) (150) (50) (50) (50) 0 0
FCFE 0 5 18 164 581 603 646 628 25 (86) (13)
Dividends 46 0 0 50 75 314 288 276 263 0 0
Equity Issued 46 0 0 0 0 0 0 0 0 0 0
Net Cash Flows 0 4 18 114 505 289 358 352 (238) (86) (13)
Source: Elixir Research
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Detailed ReportPakistan Research
Please refer to the last page for Analyst Certification and other important disclosures
Fauji Cement Company Limited (FCCL) is one of the most efficient players in the indust
with EBITDA margin of PKR121/bag during 9MFY13, 18% higher than industry average
PKR103/bag. The company maintained a market share of 8% during 9MFY13. However, w
believe that the positives have already been priced in and have a HOLD stance on the stock
Strong reputation allows premium pricing: FCCL, owing to its strong reputation, has remain
relatively immune to cyclical cement price movements and has been able to charge a premiu
during times of weak cement price. During FY07 and FY10, the worst years in terms of ceme
prices, FCCL made EBITDA margins of PKR55/bag and PKR31/bag respectively, 79% and 65
higher than industry average EBITDA.
Volume growth may alter investment case: FCCL shall be a major beneficiary of the expect
increase in cement demand as it has significant surplus capacity since its new plant cam
online in FY12. The company currently operates at a capacity utilization of ~70%. FCCL se
around 80% of dispatches in the local market and buoyant outlook on local demand owing
increased government spending can prove to be a major positive for FCCL.
High debt levels to constrict earnings: Due to its untimely expansion towards the end of t
last expansion cycle, Fauji Cement has a large stock of debt standing at PKR11.5bn as
3QFY13. This will likely suppress earnings and cash flows amid rising interest rates. T
company is also expected to take on further debt following its announcement of PKR2.3b
investment in WHR project.
Valuation: We believe that FCCL is fairly valued at current levels as it trades at FY14 PER
6.7x. Our price target of PKR11.5/share offers total return of 15% at current levels. W
downgrade our investment case on the stock to HOLD. However, with large surplus capaci
any uptick in cement demand shall be major positive for the company.
FCCL Financial Highlights
FY12A FY13A FY14E FY15E FY16E FY17E FY18E FY19E FY20E
EPS 0.4 1.6 1.8 2.0 2.6 2.8 0.7 1.4 2.0
DPS (PKR) 0.0 1.3 1.3 1.3 1.8 2.0 0.5 1.0 1.3
BV/share 10.4 11.9 12.3 12.8 14.1 15.1 13.8 14.6 15.5
PER (x) 39.0 7.8 6.7 6.2 4.3 4.0 18.2 8.3 5.7
Dividend Yield 0% 11% 11% 11% 16% 18% 5% 9% 11%PBR (x) 1.1 0.9 0.9 0.9 0.8 0.7 0.8 0.8 0.7
EV/EBITDA 7.2 4.0 3.8 3.6 2.7 2.3 5.6 3.8 2.7
ROA 2% 7% 8% 9% 11% 12% 3% 6% 9%
ROE 4% 14% 15% 16% 20% 19% 5% 10% 13%
EBITDA Growth 293% 54% 6% 4% 19% 4% -58% 36% 23%
PAT Growth 30% 279% 15% 8% 34% 7% -77% 110% 44%
Source: Elixir Research
Construction and Materials
FCCL: Positives priced in
FCCL PA HOLDPrice Target: PKR11.5/Share
Closing Price: PKR11.1/Share
Key Data
12m Price Range (PKR) 15.7 – 5.6
Market Cap (PKR mn) 14,722.1
Outstanding Shares (mn) 1,331
Avg. Daily Volume mn (6m) 18.4
Yr – Relative Performance
ource: Elixir Research
Sensitivity of PT to FY21 PricesFY 21 (PKR/bag) Price Target
560 9.5
585 10.5
609 11.5
635 13.0
660 14.0
Source: Elixir Research
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Company Update FCCL
Financials & Assumptions
Income Statement
PKRmn FY10A FY11A FY12A FY13A FY14E FY15E FY16E FY17E FY18E FY19E FY20E
Net Sales 3,808 4,743 11,523 15,968 18,230 19,870 21,681 23,648 20,775 23,909 27,092 3
Operating costs 3,444 4,142 8,685 11,236 13,110 14,533 15,077 16,684 18,511 20,359 22,446 2
EBITDA 691 993 3,908 6,002 6,357 6,585 7,862 8,167 3,415 4,651 5,698
EBIT 364 601 2,838 4,732 5,119 5,337 6,603 6,964 2,264 3,550 4,645
Finance Cost 41 104 1,825 1,512 1,356 1,207 1,129 1,018 849 635 459
Net Profit – Reported 250 426 553 2,097 2,414 2,615 3,510 3,750 872 1,834 2,649
EPS – Reported (PKR) 0.3 0.5 0.3 1.4 1.6 1.8 2.6 2.8 0.6 1.3 1.9
DPS (PKR) 0.0 0.0 0.0 1.3 1.3 1.3 1.8 2.0 0.5 1.0 1.3
Source: Elixir Research
Balance Sheet
PKRmn FY10A FY11A FY12A FY13E FY14E FY15E FY16E FY17E FY18E FY19E FY20E F
Shareholders’ Funds 9,611 11,014 13,905 15,791 16,314 17,025 18,807 20,164 18,311 19,416 20,671 2
Long Term Loans 11,909 11,805 10,175 7,794 6,548 5,848 4,348 3,348 2,348 1,348 348
Current Liabilities 3,985 5,385 5,494 5,341 5,082 5,497 6,376 6,618 6,293 5,871 6,184
Capital & Liabilities 26,780 32,211 30,703 30,669 29,687 30,113 31,273 31,872 28,694 28,377 28,946 3
Net Fixed Assets 23,819 26,658 25,898 24,759 24,971 25,172 24,064 23,011 22,010 21,060 20,157 1
Current Assets 2,071 4,792 4,160 5,350 4,155 4,379 6,649 8,301 6,123 6,757 8,229 1
Total Assets 26,780 32,211 30,703 30,669 29,687 30,113 31,273 31,872 28,694 28,377 28,946 3
Source: Elixir Research
Basic Assumptions FY14E FY15E FY16E FY17E FY18E FY19E FY20E FY2
Volume (mn tons) 2.61 2.72 2.83 2.96 3.09 3.24 3.39 3.
Local (mn tons) 2.12 2.25 2.39 2.53 2.68 2.84 3.01 3.
Export (mn tons) 0.48 0.46 0.44 0.43 0.41 0.39 0.38 0.
Volume Growth (YoY) 5% 4% 4% 4% 5% 5% 5% 5
Local (YoY) 6% 6% 6% 6% 6% 6% 6% 6
Export (YoY) 0% -4% -4% -4% -4% -4% -4% -4
Capacity Utilization 76% 79% 82% 86% 90% 94% 99% 10
EBITDA/ton - Local 2,561 2,537 2,878 2,863 956 1,352 1,639 1,8
EBITDA/ton - Exports 1,916 1,901 2,253 2,183 2,100 2,073 2,037 1,9
EBITDA/ton - Average 2,439 2,426 2,776 2,762 1,104 1,437 1,680 1,8
Tax Rate 33% 33% 33% 33% 33% 33% 33% 33
Source: Elixir Research
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Company Update FCCL
Cash Flow Statement
PKRmn FY10A FY11A FY12A FY13E FY14E FY15E FY16E FY17E FY18E FY19E FY20E F
Net Income 250 426 553 2,097 2,414 2,615 3,510 3,750 872 1,834 2,649
Depreciation 327 392 1,070 1,271 1,238 1,249 1,259 1,203 1,151 1,101 1,053
Capex 5,369 3,231 310 132 1,450 1,450 150 150 150 150 150
Working Capital Changes (144) (2,342) 356 377 (220) (157) (239) (195) 545 (355) (348)
FCFF (6,807) (4,593) 3,140 5,339 2,890 3,065 5,135 5,291 2,987 2,855 3,512
Net Debt Repayments 7,185 4,493 (5,198) (2,437) (1,792) (500) (700) (1,000) (1,600) (1,700) (1,000)
FCFE 346 (191) (3,102) 1,663 (38) 1,516 3,616 3,545 754 666 2,141
Dividends 330 (116) 3,178 0 1,664 1,664 1,664 2,329 2,662 666 1,331
Equity Issued 0 0 6,378 0 0 0 0 0 0 0 0
Net Cash Flows 16 787 (764) 1,663 (1,702) (148) 1,952 1,215 (1,908) 1 810
Source: Elixir Research
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Detailed ReportPakistan Research
Please refer to the last page for Analyst Certification and other important disclosures
MLCF has the fifth largest cement plant in the country with production capacity standing
3.4mn tons per annum. Though the company has one of the highest EBITDA margins in t
sector, MLCF is one of the most leveraged companies as well. Even though we expect th
company to become deleveraged by FY18, it might not yield significant benefits since w
expect the industry to enter into a price war by that time.
Strong retention prices support margins...Despite production costs remaining on the high
side; MLCF had the second highest EBITDA margin in our cement space during 9MFY13 owi
to strong retention prices. In fact, MLCF had the highest retention price in the industry wi
9MFY13 retention averaging at PKR325/bag as compared to industry average of PKR311/bag
...but are also a source of risk: MLCF's strong EBITDA is a result of very high share of loc
sales in the volume mix which stands at 79%, as compared to 62% for LUCK, 64% for CHCC an
72% for DGKC. This makes MLCF highly sensitive to changes in domestic cement prices.
Margins highly sensitive to prices: MLCF’s margins have been highly volatile during price wa
During FY07 and FY10, the worst years in terms of price wars, MLCF’s EBITDA margin clock
in at PKR23/bag and PKR10/bag respectively, 27% and 49% lower than industry averag
During FY18, EBITDA margin for MLCF is expected to clock in at 19/bag leading to negligib
profits during the period.
Price war to overshadow benefits of deleveraging: MLCF is one of the most leverag
companies in our cement space with total debt standing at a whopping PKR16bn at the end
3QFY13. We expect strong debt repayments to improve profitability in the near term wi
finance costs expected to decrease by 17% and 31% in FY14 and FY15. Even though th
company shall become deleveraged by FY18, it might not yield significant benefits since w
expect the industry to enter into a price war by that time.
Valuation: MLCF currently trades FY14 PER of 3.3x. Owing to high leverage and volat
margins, our price target of PKR21/share implies that the stock is overvalued at current leve
Thus, we downgrade our stance on the stock from BUY to SELL.
MLCF Financial Highlights
FY12A FY13E FY14E FY15E FY16E FY17E FY18E FY19E FY20E
EPS 0.7 6.1 6.7 7.3 7.6 8.1 0.1 1.5 2.5
DPS (PKR) 0.0 0.0 0.0 1.0 1.0 1.0 0.0 0.5 0.5
BV/share 17.3 22.4 29.1 35.4 41.9 49.1 49.1 50.1 52.1
PER (x) 30.0 3.6 3.3 3.0 2.9 2.7 302.6 15.1 8.8
Dividend Yield 0% 0% 0% 4% 4% 4% 0% 2% 2%
PBR (x) 1.3 1.0 0.8 0.6 0.5 0.5 0.5 0.4 0.4
EV/EBITDA 6.2 4.4 3.6 3.1 2.5 1.9 10.3 5.5 3.8
ROA 1% 10% 11% 12% 12% 13% 0% 2% 4%
ROE 4% 31% 26% 23% 20% 18% 0% 3% 5%
EBITDA Growth 188% 34% 4% -1% -1% -2% -83% 76% 29%
PAT Growth -122% 723% 9% 10% 3% 8% -99% 1905% 71%
Source: Elixir Research
Construction and Materials
MLCF: Highly sensitive to price cycles
MLCF PA SELLPrice Target: PKR21/Share
Closing Price: PKR22.3/Share
Key Data
12m Price Range (PKR) 32.5 – 8.3
Market Cap (PKR mn) 11,747.4
Outstanding Shares (mn) 527.7
Avg. Daily Volume mn (6m) 11.3
Yr – Relative Performance
ource: Elixir Research
Sensitivity of PT to FY21 PricesFY 21 (PKR/bag) Price Target
560 12
585 16
609 21
635 26
660 30
Source: Elixir Research
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Company Update MLC
Financials and Assumptions
Income Statement
PKRmn FY10A FY11A FY12A FY13A FY14E FY15E FY16E FY17E FY18E FY19E FY20E
Net Sales 13,631 13,073 15,461 17,357 19,140 20,726 22,454 24,337 21,535 24,514 27,489
Operating costs 14,197 12,775 12,551 12,364 13,879 15,505 17,277 19,257 21,471 23,656 26,088
EBITDA 483 1,562 4,497 6,045 6,291 6,231 6,167 6,051 1,017 1,793 2,319
EBIT (567) 298 2,910 4,993 5,261 5,221 5,178 5,080 64 858 1,401
Finance Cost 2,059 2,166 2,351 1,705 1,436 1,051 666 281 44 0 0
Net Profit – Reported (2,584) (1,769) 496 3,225 3,521 3,862 3,990 4,294 39 778 1,328
EPS – Reported (PKR) (4.9) (3.4) 0.9 6.1 6.7 7.3 7.6 8.1 0.1 1.5 2.5
DPS (PKR) 0.0 0.0 0.0 0.0 0.0 1.0 1.0 1.0 0.0 0.5 0.5
Source: Elixir Research
Balance Sheet
PKRmn FY10A FY11A FY12A FY13E FY14E FY15E FY16E FY17E FY18E FY19E FY20E F
Shareholders’ Funds 4,134 8,681 9,128 11,811 15,331 18,666 22,128 25,894 25,933 26,448 27,512 2
Long Term Loans 15,817 17,963 16,806 14,806 11,306 7,806 4,306 806 0 0 0
Current Liabilities 4,414 4,907 4,485 3,471 3,828 4,145 4,491 4,867 4,307 4,903 5,498
Capital & Liabilities 26,095 33,690 32,728 32,434 32,846 33,029 33,369 34,049 32,667 33,835 35,552 3
Net Fixed Assets 21,035 28,203 26,774 26,223 25,692 25,182 24,693 24,222 23,769 23,334 22,917 2
Current Assets 5,003 5,414 5,886 6,145 7,088 7,781 8,613 9,764 8,835 10,439 12,574 1
Total Assets 26,095 33,690 32,728 32,435 32,848 33,031 33,373 34,054 32,672 33,841 35,559 3
Source: Elixir Research
Basic Assumptions FY14E FY15E FY16E FY17E FY18E FY19E FY20E FY2
Volume (mn tons) 2.73 2.83 2.93 3.04 3.16 3.28 3.41 3.
Local (mn tons) 2.19 2.30 2.42 2.54 2.67 2.80 2.94 3.
Export (mn tons) 0.53 0.52 0.51 0.50 0.49 0.48 0.47 0.
Volume Growth (YoY) 4% 4% 4% 4% 4% 4% 4% 4
Local (YoY) 5% 5% 5% 5% 5% 5% 5% 5
Export (YoY) -2% -2% -2% -2% -2% -2% -2% -2
Capacity Utilization 70% 73% 76% 78% 81% 85% 88% 92
EBITDA/ton - Local 2,416 2,298 2,182 2,053 87 367 536 64
EBITDA/ton - Exports 1,824 1,736 1,654 1,562 1,460 1,434 1,402 1,3
EBITDA/ton - Average 2,308 2,206 2,105 1,990 322 547 680 76
Tax Rate 5% 5% 10% 10% 20% 20% 20% 20
Source: Elixir Research
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Company Update MLC
Cash Flow Statement
PKRmn FY10A FY11A FY12A FY13E FY14E FY15E FY16E FY17E FY18E FY19E FY20E
Net Income (2,584) (1,769) 496 3,225 3,521 3,862 3,990 4,294 39 778 1,328
Depreciation 1,050 1,264 1,586 1,052 1,030 1,010 990 971 952 935 918
Capex (773) (1,770) (512) (500) (500) (500) (500) (500) (500) (500) (500)
Working Capital Changes 750 (4,251) (469) (1,679) (269) (239) (260) (284) 422 (449) (448)
FCFF 636 (6,839) 2,909 3,243 4,750 4,847 4,685 4,701 888 822 1,356
Net Debt Repayments 677 2,146 (1,156) (2,000) (3,500) (3,500) (3,500) (3,500) (806) 0 0
FCFE (26) (6,101) 225 135 318 665 753 1,019 54 822 1,356
Dividends 0 0 0 0 0 (528) (528) (528) 0 (264) (264)
Equity Issued (1,000) 1,768 199 (541) 0 (0) (0) (0) 0 (0) (0)
Net Cash Flows (26) 215 175 (406) 318 137 226 491 54 559 1,092
Source: Elixir Research
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Detailed ReportPakistan Research
Please refer to the last page for Analyst Certification and other important disclosures
LPCL is a mid-sized cement plant with annual production capacity of 2.04mn tons. Th
company has been marred with poor performance in the past, and incurred losses betwee
CY06-11. Owing to high operating and financial leverage, the company is a relative
inefficient player with EBITDA margins among the lowest in our cement space. Aft
incorporating for a possible price war in FY18, we have downgraded our investment case o
LPCL from HOLD to SELL.
Low retention prices and high costs have restricted margins: On the back of low retentio
prices and high operating costs, LPCL has one of the lowest EBITDA margins in our ceme
space. LPCL posted an EBITDA of PKR81/bag during 9MFY13, significantly lower than indust
average of PKR103/bag. Retention prices during the same period clocked in at PKR305/ba
lower than industry average of PKR311/bag.
Complete reliance on the national grid to cause margin attrition: With no WHR or capti
power plant, LPCL is one of the few companies in our cement space that is completely relia
on the national grid to fulfill its power requirement. Owing to this, we believe that t
company has been a key loser under the recent ~60% increase in power tariff. Even though w
expect prices to increase by PKR20/bag by the end of Oct-13 to pass on the cost hike, LPCL w
face margin attrition during 2HCY13 with costs increasing by PKR25/bag.
Deleveraging to offer some relief: Owing to strong expected debt repayments, we expe
finance costs for the company to clock in at PKR515mn and PKR463mn during CY13 and CY1
down 51% and 10% YoY. This shall offer some relief to profitability after the recent cost hiand allow LPCL to post consistent earnings growth through FY16.
Valuation: LPCL is currently trading at FY14 PER of 5.2x. With high operating and financ
leverage, we believe that the company is a risky play in the event of a price war. Our pri
target of PKR6.2/share offers negative total return of 10% and we downgrade our stance o
the stock from HOLD to SELL.
LPCL Financial Highlights
CY12A CY13E CY14E CY15E CY16E CY17E CY18E CY19E CY20
EPS 1.1 1.1 1.4 1.5 1.7 0.9 0.2 0.6 1.1
DPS (PKR) 0.3 0.3 0.4 0.6 0.8 0.5 0.0 0.3 0.5
BV/share 7.8 8.6 9.7 10.8 11.9 12.0 11.7 12.3 13.
PER (x) 6.5 6.6 5.2 4.9 4.3 7.9 36.8 11.3 6.9Dividend Yield 4% 4% 5% 8% 11% 7% 0% 4% 7%
PBR (x) 0.9 0.9 0.8 0.7 0.6 0.6 0.6 0.6 0.6
EV/EBITDA 5.2 5.0 3.8 3.1 2.6 4.1 10.8 5.2 3.1
ROA 8% 8% 10% 10% 11% 6% 1% 4% 6%
ROE 16% 14% 15% 15% 15% 8% 2% 5% 8%
EBITDA Growth 89% -5% 16% 1% 1% -41% -62% 77% 33%
PAT Growth -1357% -2% 27% 7% 12% -45% -78% 227% 62%
Source: Elixir Research
Construction and Materials
LPCL: Inefficiencies to mar performance
LPCL PA SELLPrice Target: PKR6.2/Share
Closing Price: PKR7.3/Share
Key Data
12m Price Range (PKR) 11.0 – 4.4
Market Cap (PKR mn) 9,608.6
Outstanding Shares (mn) 1,312.6
Avg. Daily Volume mn (6m) 7.3
Yr – Relative Performance
ource: Elixir Research
Sensitivity of PT to FY21 PricesCY 20 (PKR/bag) Price Target
535 4.8
560 5.5
587 6.2
610 6.8
635 7.5
Source: Elixir Research
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Company Update LPCL
Financials and Assumptions
Income Statement
PKRmn CY09A CY10A CY11A CY12A CY13E CY14E CY15E CY16E CY17E CY18E CY19E C
Net Sales 8,130 6,881 7,804 9,624 10,224 12,218 13,171 14,209 13,955 13,945 15,666 1
Operating costs 1,044 901 734 853 1,152 1,232 1,319 1,411 1,510 1,616 1,729
EBITDA 634 610 1,543 2,910 2,776 3,214 3,258 3,299 1,952 743 1,318
EBIT (23) (45) 921 2,282 2,136 2,592 2,652 2,710 1,377 181 769
Finance Cost 1,231 981 1,064 1,053 515 463 275 89 0 0 0
Net Profit – Reported (1,279) (949) (118) 1,488 1,454 1,848 1,973 2,213 1,211 261 852
EPS – Reported (PKR) (1.0) (0.7) (0.1) 1.1 1.1 1.4 1.5 1.7 0.9 0.2 0.6
DPS (PKR) 0.0 0.0 0.0 0.3 0.3 0.4 0.6 0.8 0.5 0.0 0.3
Source: Elixir Research
Balance Sheet
PKRmn CY09A CY10A CY11A CY12A CY13E CY14E CY15E CY16E CY17E CY18E CY19E C
Shareholders’ Funds 9,764 8,815 8,701 10,189 11,250 12,704 14,151 15,577 15,738 15,342 16,195 1
Long Term Loans 6,706 7,577 7,411 6,059 4,262 2,862 1,362 0 0 0 0
Current Liabilities 3,234 2,851 2,893 3,243 3,367 3,665 3,951 4,263 4,186 4,184 4,700
Capital & Liabilities 19,704 19,504 19,217 19,528 18,917 19,269 19,502 19,877 19,962 19,563 20,932 2
Net Fixed Assets 16,688 16,292 15,793 15,316 14,876 14,464 14,079 13,721 13,389 13,083 12,802 1
Current Assets 2,145 2,359 2,526 2,931 2,760 3,524 4,142 4,875 5,291 5,199 6,849 8
Total Assets 19,704 19,504 19,217 19,528 18,917 19,269 19,502 19,877 19,962 19,563 20,932 2
Source: Elixir Research
Basic Assumptions CY13E CY14E CY15E CY16E CY17E CY18E CY19E CY2
Volume (mn tons) 1.71 1.77 1.82 1.88 1.95 2.02 2.09 2.
Local (mn tons) 1.25 1.31 1.38 1.45 1.52 1.60 1.68 1.
Export (mn tons) 0.46 0.45 0.44 0.44 0.43 0.42 0.41 0.
Volume Growth (YoY) 4% 4% 4% 4% 4% 4% 4% 4
Local (YoY) 7% 7% 7% 7% 7% 7% 7% 7
Export (YoY) -4% -4% -4% -4% -4% -4% -4% -4
Capacity Utilization 84% 86% 89% 92% 95% 98% 102% 10
EBITDA/ton - Local 2,317 2,050 2,020 1,988 1,042 268 610 84
EBITDA/ton - Exports 1,656 1,147 1,056 960 859 751 718 68
EBITDA/ton - Average 1,619 1,818 1,785 1,751 1,002 369 631 81
Tax Rate 6% 10% 15% 15% 15% 15% 15% 15
Source: Elixir Research
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Company Update LPCL
Cash Flow Statement
PKRmn CY09A CY10A CY11A CY12A CY13E CY14E CY15E CY16E CY17E CY18E CY19E C
Net Income (1,279) (949) (118) 1,488 1,454 1,848 1,973 2,213 1,211 261 852
Depreciation 658 655 622 628 640 622 605 590 575 561 549
Capex 94 259 123 (151) (200) (210) (221) (232) (243) (255) (268)
Working Capital Changes 3,436 (661) (109) 350 (31) (220) 38 42 (10) (0) 69
FCFF 2,442 220 1,116 2,442 2,198 2,341 2,574 2,670 1,533 567 1,202
Net Debt Repayments (1,448) 871 (166) (1,352) (1,797) (1,400) (1,500) (1,362) 0 0 0
FCFE 194 454 258 405 67 640 895 1,250 1,533 567 1,202
Dividends 0 0 0 0 (394) (394) (525) (788) (1,050) (656) 0
Equity Issued 0 0 0 0 0 0 0 0 0 0 0
Net Cash Flows 194 454 258 405 (327) 246 370 463 483 (90) 1,202
Source: Elixir Research
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Analyst Certification The research analyst(s) denoted AC on the cover of this report, primarily involved in the preparation of this report, certifies that (1) the views
expressed in this report accurately reflect his/her personal views about all of the subject companies/securities and (2) no part of his/hercompensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report. Disclaimer The report has been prepared by Elixir Securities Pakistan (Pvt.) Ltd and is for information purpose only. The information and opinions containedherein have been compiled or arrived at based upon information obtained from sources, believed to be reliable and in good faith. Suchinformation has not been independently verified and no guaranty, representation or warranty, expressed or implied is made as to its accuracy,completeness or correctness. All such information and opinions are subject to change without notice. Descriptions of any company or companies
or their securities mentioned herein are not intended to be complete and this document is not, and should not be construed as, an offer, orsolicitation of an offer, to buy or sell any securities or other financial instruments. Research Dissemination Policy Elixir Securities Pakistan (Pvt.) Ltd. endeavors to make all reasonable efforts to disseminate research to all eligible clients in a timely manner
through either physical or electronic distribution such as mail, fax and/or email. Nevertheless, not all clients may receive the material at the same
time. Company Specific Disclosures Elixir Securities Pakistan (Pvt.) Ltd. may, to the extent permissible by applicable law or regulation, use the above material, conclusions, research oranalysis in which they are based before the material is disseminated to their customers. Elixir Securities Pakistan (Pvt.) Ltd., their respectivedirectors, officers, representatives, employees and/or related persons may have a long or short position in any of the securities or other financialinstruments mentioned or issuers described herein at any time and may make a purchase and/or sale, or offer to make a purchase and/or sale of any such securities or other financial instruments from time to time in the open market or otherwise. Elixir Securities Pakistan (Pvt.) Ltd. may
make markets in securities or other financial instruments described in this publication, in securities of issuers described herein or in securitiesunderlying or related to such securities. Elixir Securities Pakistan (Pvt.) Ltd. may have recently underwritten the securities of an issuer mentioned
herein. Other Important Disclosures Foreign currency denominated securities is subject to exchange rate fluctuations which could have an adverse effect on their value or price, or theincome derived from them. In addition, investors in securities such as ADRs, the values of which are influenced by foreign currencies effectivelyassume
currency
risk.
© Copyright 2013, Elixir Securities Pakistan (Pvt.) Ltd. All rights reserved. This report or any portion hereof may not be reproduced, distributed,published or sent to a third party without prior consent of Elixir Securities Pakistan (Pvt.) Ltd.
37 Elixir Securities September 30, 2013
Detailed Report Cement
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Chief Executive Officer
Junaid Iqbal(92-21) 3569 4617 [email protected]
Pakistan Research Team Institutional Equities Retail Equities
Azfer Naseem, CFA
Head of Research(92-21) 3569 [email protected] Sateesh Balani
(92-21) 3569 [email protected]
Faisal Bilwani
Head of Equities - FII (92-21) 3569 3919 [email protected]
M. Sibtain Mustafa
Head of Equities - LII(92-21) 3569 [email protected]
Muhammad Ali Taufiq
Head of Equity Strategy Retail(92-21) 3569 [email protected]
Sikandar Rahim
(92-21) 3569 [email protected]
Ujala Adnan(92-21) [email protected]
Jawwad Aboobakar(92-21) 3565 3182 [email protected]
Kamran Kaludi(92-21) 3569 [email protected]
Mubashir Anis Silat(92-21) 3569 [email protected]
Muhammad Raza Rawjani(92-21) 3569 [email protected]
Adil Abid(92-21) 3569 [email protected]
Syed Nasir Rizvi(92-21) 3569 [email protected]
HNW & Family Offices
Harris Ahmed Batla(92-21) 3569 [email protected]
Khurram Malik(92-21) 3569 [email protected]
Ibad-ur-Rehman(92-21) 3569 [email protected]
Lahore Office Tahir Maqbool(92-42) 3577 [email protected]
Islamabad OfficeAsim Ghafoor Qureshi
(92-51) 227 [email protected]
Syed Tahseen(92-21) 3569 4622
Faisalabad Office Syed Baqar Hassan
(92-41) 254 [email protected]
DetailedReport Ceme