6. Opportunities
•Existence of a cartel type arrangement of APCMA.
•Expansion of operations to southern regions.
•Greater budget allocations for PSDPs.
•Reduced tariffs and taxes.
•Pakistan is rich in coal reserves (Thar) whose exploitation can
provide a cheap and continuous source of energy to cement
industry.
•Economy is improving (low inflation rate).
•Improvement in infrastructure spending
7. Threats
•Political instability in the country.
•Poor law and order conditions.
•Governmental interference.
•Price volatility
•High circular debt
•Severe power energy shortages
8. PORTER’S FIVE FORCES MODEL OF CEMENT SECTOR
1. Bargaining Power of Suppliers
2. Bargaining Power of Buyers
3. Barriers to Entry in the Market
4. Threat of Substitute Product
5. Rivalry among the Existing Competitors
9. 1. BARGAINING POWER OF SUPPLIERS
the most significant industry among all industries of Pakistan
these raw materials are natural resources
Pakistan is abundant in limestone and gypsum resources
is coal or fuel which contributes approximately 40% cost.
10. 2. BARGAINING POWER OF BUYERS
structure with more than 50 % share with top five companies
Secondly formation of cartels has maintained same prices in the
region
Thirdly it’s difficult for a new company to enter in the market
because of the barriers (but big companies can
However in winter due to low demand prices could be decrease
but overall bargaining power is low
11. 3. BARRIERS TO ENTRY IN THE MARKET
1. High Cost
2. Absence of Healthy Competition
3. Nature of Industry
12. 4. THREAT OF SUBSTITUTE PRODUCT
threat of substitute product for cement is very low
steel as a substitute could prove very costly
timber, steel or gypsum which can replace cement we would
come to know that they are best fitted to be used in the regions
of extreme climate.
13. 5. RIVALRY AMONG THE EXISTING COMPETITORS
29 small and large cement companies which are currently
producing cement.
people can shift easily from one firm to another due to low
switching cost which increases competition between firms.
Prices are not competitive advantage
Brand image would help determine higher prices due to cartel
18. BREAK EVEN (A VIEW OF EXISTING INDUSTRY)
Cement companies Break-even in Rs. Break-even in units (ton)
Al-abbas cement 762,873 265,955
Attock cement 1,885,682 331,291
Bestway cement 2,694,403 448,737
Cherat cement 1,274,814 249,951
Dada bhoy cement 169,755 37,323
Dewan cement 2,232,315 364,814
Kohat cement 867,772 142,244
Lucky cement 4,996,686 936,576
Maple leaf cement 3,898,648 641,702
Lafarge Pak cement 3,394,987 635,968
Pioneer cement 1,441,959 226,362
Thatta cement 370,535 55,950
Leiner Pak Gelatine cement 327,917 10,499
D.G. Khan cement 7,428,762 1,811,695
Fauji cement 1,895,289 347,654
Flying cement 5,271 (19,027)
Ghareeb Wall cement 1,207,317 232,730
JVDC 203,726 35,991
Average 1,947,706 375,356
19. ABOVE AVERAGE BREAK EVEN COMPANIES
1. Bestway cement
2. Dewan cement
3. Lucky cement
4. Maple Leaf cement
5. Lafarge Pak cement
6. D.G. Khan Cement
The Real
compititon
20. SALES PRICE PER UNIT
S.P/Unit 2008
(000)Rs
2009
(000)Rs
2010
(000)Rs
2011
(000)Rs
2012
(000)Rs
2013
(000)Rs
Industry
Average
4.88 5.34 4.85 5.77 6.94 7.50
Rate of Change of
S.P/Unit
2008 2009 2010 2011 2012
Industry Average 0.15 0.45 0.20 0.21 0.15
Rate of change of
sales Price
21. VARIABLE COSTS PER UNIT
V.C/Unit 2008
(000)Rs
2009
(000)Rs
2010
(000)Rs
2011
(000)Rs
2012
(000)Rs
2013
(000)Rs
Industry Average
2.81 3.48 3.52 3.78 5.17 4.53
22. FIXED COST PER UNIT
F.Cost/Unit 2008
(000)Rs
2009
(000)Rs
2010
(000)Rs
2011
(000)Rs
2012
(000)Rs
2013
(000)Rs
Industry
Average
1.00 0.91 1.02 1.00 1.29 1.44
23. COST OF SALE PER UNIT
T.Cost/Unit 2008
(000)Rs
2009
(000)Rs
2010
(000)Rs
2011
(000)Rs
2012
(000)Rs
2013
(000)Rs
Industry
Average
3.80 4.39 4.54 4.78 6.46 5.97
24. MARGIN OF SAFETY
Margin of
Safety
2008 2009 2010 2011 2012 2013
Industry
Averages
34% 61% 25% 39% 43% 53%
25. CONCLUSION
The cost analysis has concluded that sales per unit in 2013 has
increased, cost per unit has decreased resulting in high profitability
so that’s a positive sign for the sector.
Total variable cost of the sector has decreased in 2013, hence
increasing the contribution margin. This will not only decrease the
break-even point but also increase the profit margin on each unit
after achieving break-even. The sector has a high contribution
margin of 2970 Rs in 2013. This means that after achieving break-
even each ton will give a profit of this amount.
Margin of safety is 53% in 2013 which means that if industry loses half
of its sales even then it would be safe from going into loss. So that
shows a very good performance of the sector. High Margin of safety
and high contribution margin in 2013 proved very good for the
sector.
26. Table 62: Overview of Cement Sector in F.Y. 2013
Overview of cement sector Financial year 2013
Average total assets
1.68 Billions
Average total liabilities
8.27 Billions
Average total equity
1.04 Billions
Average sales
1.01 Billions
Average EPS
8.14
Average installed cement capacity
1.62 M-Tons
Average actual cement production
1.47 M-Tons
Average installed clinker capacity
1.77 M-Tons
Average actual clinker production
5.96 M-Tons
29. PROPOSAL
Average total assets of the sector are increasing in recent years which
show positive growth prospective (i.e. sector is growing).
Cement sector is moving long financing to short term financing.
Cement sector increased emphasis on cost cutting has enhanced
profitability
Currently net profit in the sector has turned positive in recent years
because of increased sales and cost control measures therefore the
sector has become attractive.
Currently sector is utilizing their assets efficiently to generate revenues.
Cement sector has enough resources to pay short term obligations but
also facing short term liquidity and cash flow problems.
30. PROPOSAL
Currently cement sector is more solvent and debt financing is
decreasing.
Cement sector has less chance of loss and efficient assets
management in earning profits (High net profits) now.
The total variable cost per unit for the sector has decreased and
the portion of fixed cost in total cost has increased which has
resulted in low breakeven and high contribution margin.
Sale price per ton of cement sector has increased and total cost
per ton has decreased resulting in high profitability in 2013.
Margin of safety of cement sector has increased.
31.
32.
33. Reserve a company name online via the Securities and Exchange Commission of Pakistan (SECP)
E-services website
Pay the name reservation and company incorporation fees at the MCB Bank
Obtain a digital signature from the National Institutional Facilitation Technologies (NIFT) system of
SECP
Complete online registration on the Securities & Exchange Commission of Pakistan (SECP) e-portal
Apply for a national tax number (NTN) and register for income tax
Apply for a Sales Tax Number (STN) at the tax facilitation center of the Regional Tax Office (RTO) of
the Federal Board of Revenue (FBR) in Lahore
Register for Professional Tax with the Excise & Taxation Department of the District
Register with the Sind Employees Social Security Institution (SESSI)
Register with Employees Old-Age Benefits Institution (EOBI)
Register under the West Pakistan Shops and Establishment Ordinance 1969 with the Labor
Department of the District
34.
35. APPROVAL
THE PROPOSAL AFTER BEING PREPARED AND AUTHORIZED WILL BE
PRESENTED IN A MEETING AND CEO WILL APPROVE IT FOR FURTHER
PROCESSING
38. VARIABLE COST
Raw material, direct labor,
variable FOH and variable
selling and distributive
expenses
Variable FOH:
Fuel and power
Stores and spares
consumed
Repair and maintenance
Vehicle running and
maintenance
Indirect material
Communication
Transportation
Traveling and conveyance
Printing and stationary
Other manufacturing cost
Variable Selling and
Distributive Cost:
Salaries and wages
Logistic and related charges
Loading and others
Communication
Traveling and conveyance
Freight
Printing and stationary
Utilities
Vehicles and maintenance
Repair and maintenance
Others selling expense
39. FIXED COST
Depreciation and amortization
Insurance
Provision for slow moving spare
parts
Earthmoving machinery
Inspection for electrical installment
Rent, rates and taxes
Mess subsidy
Technical assistance
Legal and professional charges
Fixed Selling and Distributive
Expenses:
Insurance
Rent, rates and taxes
Depreciation
Security charges
Insurance
Fee subscription and periodicals
Advertisement and sales promotion
Entertainment
Office canteen
Meetings and conferences
45. Ratios analysis
Horizontal analysis
Vertical analysis
Overview of cement sector Financial year 2013
Average total assets 1.68 Billions
Average total liabilities 8.27 Billions
Average total equity 1.04 Billions
Average sales 1.01 Billions
Average EPS 8.14
Average installed cement capacity 1.62 M-Tons
Average actual cement production 1.47 M-Tons
Average installed clinker capacity 1.77 M-Tons
Average actual clinker production 5.96 M-Tons
Average capacity utilization-cement 90.9%