production process and for other electricity requirements at the plant). Most of the industry players use coal to meet their fuel requirements, which is the major component of the energy cost. Recently few players have also started using alternative fuel, a cheaper source, to meet this requirement. The coal prices have significantly reduced in the last two years resultantly helped the industry players in registering better margins. The electricity requirement is being met through captive power plants (gas/coal/Waste Heat Recovery plants) and WAPDA. Though a hike has been observed in power tariffs recently, manufacturers have been able to pass on this increase on to the consumer via higher price to protect their margins. 11 | P a g e
Performance : During FY13, total cement production stood at 33mln tons (~3% YoY rise). Local sales of cement reflecting an increase of ~5% were 25mln tons, whereas, cement export (8mln tons) registered a meager decline of 2% mainly due to entry of Iranian cement in Afghanistan – Pakistan’s biggest export market (53% share in total exports during FY13). Owing to relatively stagnant domestic demand as against the available capacity, the industry faced intense competition in the past few years. Lately, the industry players, after experiencing sizeable business losses, have started focusing on improving their margins. This coupled with gradual increase in cement demand, particularly in the local market, has resulted in higher prices and thus improved profitability for the sector. Moreover, lower coal prices combined with alternative energy measures helped in rationalizing production costs. Benefiting from Financial Risk: Cement is moderately capital incentive industry. However, it usually requires considerable time to set up a unit (depending on the size of the plant) in comparison to other industries (textile or pharmaceutical). The cost of establishing a cement manufacturing unit varies as to the size of manufacturing capacity and also depends on the type of machinery/ plant (Chinese, European and Hybrid) being installed and requisite technological framework implemented to manage the plant. Nevertheless, the cement manufacturers have had a highly geared capital structure due to substantial set-up costs involved. The manufacturing of cement requires huge liquidity/ finances to fulfill its working capital requirements. The industry’s working capital requirements are mainly a function of its inventory and receivables. Players utilize short-term lines for working capital requirements while long term lines are used to conduct plant maintenance and optimization. The industry's financing needs (both short-term and long-term) are mostly being met by local banks. The cement industry is recipient of the total banking advances amounting PKR 55bln (as of end-Sep13) out of the total advances of the banking sector (PKR 4,210bln as of end-Sep13). The cement sector is among the highest Non Performing Loans (NPLs) to the tune of PKR 15bln depicting a NPL/Loan ratio of 28%.
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