DG Khan Cement

Company
Analysis Presentation

Bigger can be better in the cement

industry December
2016
Industry Analysis
Key Cement Players in the Pakistani Market:
1. D.G.Khan Cement Co. Ltd
2. Maple Leaf Cement Factory Ltd 19. Javedan Cement Ltd
3. Lucky Cement Limited 20. Bestway Cement Ltd. Farooqia
4. Bestway Cement Ltd 21. Thatta Cement Co Ltd
5. Fauji Cement Company 22. Askari-Wah Cement Co Ltd
6. Zeal Pak Cement Factory 23. Askari Cement Limited
7. Cherat Cement Company Ltd 24. Noon Group of Companies
8. Pioneer Cement Industries
9. Fecto Cement Limited Market Share
10.Attock Cement Pakistan Ltd
Bestway; 13%
11.Anwarzaib White Cement Ltd
12.Bestway Cement Ltd Hattar DGKC; 11%
Others; 42%
13.Dadabhoy Cement Ltd
13.ESSA Cement Industries Ltd
14.Khairpur Cement Industries Lucky Cement; 19%
15.Pakland Cement Ltd
Fauji Cement; 7% Maple Leaf; 8%
16.Kohat Cement Company Ltd
17.Pakistan Slag Cement Industries Ltd
18.Saadi Cement Ltd
 Imports (mn tons) of our Limited market share (based on
Domestic demand to exhibit strong current/potential sea export installed capacities) dilution for North
growth markets expected to decline as players from expansions, contrary to
local capacity comes online the South

Strong margin growth in FY16; limited upside Changes in Local Demand-Projections

after that
Demand Drivers
Pakistans low cement consumption per
capita (kg/capita) provides ample room to Hydro Power projects to lead public sector
grow demand in North

Pakistans rural/urban mix in 2014 mix shows significant Housing units (ms) in urban
1998 was skewed heavily towards urbanization over the last 15 areas doubled, relative to modest
rural years increase in rural
 The sector beat the MSCI market index, with an
average TRS CAGR of 11 percent versus 9 percent.
The industrys record of value creation is spotty,
with ROIC levels roughly equal to the cost of
capital, at around 9 percent.

The highest-performing cement companies (the top quintile)

capture almost the full economic profit of the industry, whereas
the next 60 percent of companies (quintiles 2 to 4) create returns
just above or below the cost of capital.
Source: http://www.mckinsey.com/industries/chemicals/our-insights/the-cement-industry-at-a-turning-point-a-path-
toward-value-creation
Revenue growth
Between 2010 and 2014, regional champions
achieved a CAGR of 12 percent in revenue growth,
almost entirely organically. Multiregional players,
on the other hand, showed negative growth of
about 3 percent each year.

Capital efficiency

Multiregional and regional players are roughly

similar in managing operating capital, as reflected
in the ratio of their invested capital to sales.
Relative to the regionals, however, multiregionals
typically have significantly higher capital invested
in goodwill and intangible assetspremiums paid
for expansion through acquisition.
Company Overview
 Company Profile
D.G. Khan Cement Company Limited (DGKCC), a unit of Nishat group, is amongst the largest
cement-manufacturing companies in Pakistan

DGKCC was established under the management control of State Cement Corporation
ofPakistan Limited (SCCP) in 1978.

Nishat Group acquired DGKCC in 1992 under the privatization initiative of the government

Current production capacity of 14,000 tons per day (4.200 million tons/annum)

DGKCC has a countrywide distribution network and has more than 1000 distributors.

DG Khan Cement became the first and only cement factory in Pakistan certified for both ISO
9002 & ISO 14001

DGKCC was given BRAND OF THE YEAR AWARD in 2008

Vision Statement:
To transform the Company into a modern and dynamic cement manufacturing company with qualified professionals and fully
equipped to play a meaningful role on sustainable basis in the economy of Pakistan.

Mission Statement:
To provide quality products to customers and explore new markets to promote/ expand sales of the Company through good
governance and foster a sound and dynamic team, so as to achieve optimum prices of products of the Company for sustainable
and equitable growth and prosperity of the Company.
SWOT Analysis
Strengths Weaknesses
Excellent credibility & No physical presence near port
creditworthiness. and in southern areas of Pakistan
Strong brand name.
Economies of scale.
Extensive dealer network.
Easy access to financial markets.

Opportunities Threats
Taping foreign markets through Inconsistent governmental
exports. policies.
Establishing manufacturing Unhealthy industry competition.
facilities in attractive foreign
markets, specially in African
continent.
Market in Southern Pakistan
Presently low population density
and per capita cement
consumption inPakistan
Plants Details Cement Manufacturing
New
Capacity Optimizatio Total
Plant Site Plant Year
Addition n Capacity
(M. Tons) (M. Tons) (M. Tons)
UBE Industries,
DG Khan 1986 2,000 - 2,000
Japan
DG Khan FL Smidth, Denmark 1992 - 200 2,200
DG Khan FL Smidth, Denmark 1998 3,300 - 5,500
DG Khan FL Smidth, Denmark 2005 - 1,200 6,700
Khairpur FL Smidth, Denmark 2007 6,700 - 13,400
 Key Financial Performance Indicators

Sales Debt to Equity

4,422,691
51.52

41.09
4,165,635

4,008,276 4,018,956
3,976,272
20.33
3,858,070

10.63
7.58
5.1
2016 2015 2014 2013 2012 2011

Sales Mix ROE

712,298 661,967
1,021,329 1,120,464 1,253,422 1,304,840
13.73 13.61
13.02
12.32
10.9

3,710,393 3,196,103
2,954,943 2,887,812 2,765,534 2,860,795

2016 2015 2014 2013 2012 2011

Local Export 0.6

2016 2015 2014 2013 2012 2011
Key Financial Performance Indicators
Current Ratio EPS

5.4
4.77 20.06
17.4

3.07 13.62
2.77 12.56

9.38
1.63
1.44

2016 2015 2014 2013 2012 2011

0.45

PE Ratio Divident Payout Ratio (%)

51.09 29.91
28.74
25.7
23.89

15.99

9.49 8.21
6.46 6.66 0
4.2
Stock Performance relative to KSE-100 Index
Returns Profile
Returns Variation
Drawdown and Risk Profile
Rolling Return
 Stock Beta and Jensens Alpha

> fit <- lm(dgkc ~ psx)

> summary(fit)

Call:
lm(formula = dgkc ~ psx)

Residuals:
Min 1Q Median 3Q Max
-0.070877 -0.009137 -0.000395 0.008612 0.058851

Coefficients:
Estimate Std. Error t value Pr(>|t|)
(Intercept) -0.0003918 0.0013299 -0.295 0.769
psx 1.2904191 0.1045922 12.338 <2e-16 ***
Stock Beta = 1.29
---
Signif. codes: 0 *** 0.001 ** 0.01 * 0.05 . 0.1 1 Jensens Alpha = -0.0003918
Risk Free Rate (10 Year Bond rate) = 8.5% ( 0.708% per
Residual standard error: 0.0167 on 158 degrees of month)
freedom Since Jensens Alpha > Rf(1-Beta), stock performed
Multiple R-squared: 0.4907, Adjusted R-squared: better than KSE-100 Index
0.4875
F-statistic: 152.2 on 1 and 158 DF, p-value: < 2.2e-16
Rolling Beta