dg final lease

7/31/2019 DG Final Lease

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COMPANYS HISTORY:D.G. Khan Cement Company Limited (DGKCC), a unit of Nishat group, is the second largest cemen

manufacturing unit in Pakistan with a production capacity of 13,400 tons clinker per day. It has

countrywide distribution network and its products are preferred on projects of national repute bo

locally and internationally due to the unparallel and consistent quality. It is list on all the Stoc

Exchanges of Pakistan.

NISHAT

DGKCC was established under the management control of State Cement Corporation of Pakist

Limited (SCCP) in 1978. DGKCC started its commercial production in April 1986 with 2000 tons p

day (TPD) clinker based on dry process technology. Plant & Machinery was supplied by UIndustries of Japan.

Group history:Nishat Group is one of the leading and most diversified business groups in South East Asia.

With assets over PRs.300 billion, it ranks amongst the top five business houses of Pakistan. The

group has strong presence in three most important business sectors of the region namely

Textiles, Cement and Financial Services. In addition, the Group has also interest in Insurance,

Power Generation, Paper products and Aviation. It also has the distinction of being one of the

largest players in each sector. The Group is considered at par with multinationals operating

locally in terms of its quality of products & services and management skills.

Mian Mohammad Mansha, the chairman of Nishat Group continues the spirit of entrepreneurship an

has led the Group successfully to make it the premier business group of the region. The group ha

become a multidimensional corporation and has played an important role in the industr

development of the country. In recognition of his unparallel contribution, the Government of Pakista

has also conferred him with Sitara-e-Imtiaz, one of the most prestigious civil awards of the country


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Vision Statement

To transform the Company into modern and dynamic cement manufacturing company with qualifie

professionals and fully equipped to play a meaningful role on sustainable basis in the economy

Pakistan.

Mission Statement

To provide quality products to customers and explore new markets to promote/expand sales of th

Company through good governance and foster a sound and dynamic team, so as to achieve optimu

prices of products of the Company for sustainable and equitable growth and prosperity of th

Company.

Products of DGKhan Cement Company:

Two different products are produced at DGKCC namely Ordinary Portland Cement and Sulpha

Resistant Cement. These products are marketed through two different brands:

DG brand & Elephant brand Ordinary Portland Cement

DG brand Sulphate Resistant Cement

Products:

Ordinary Portland Cement

Sulphate Resistant Cement


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NAME OF THE ORGANIZATION: DG KHAN CEMENT

NATURE OF BUSINESS: CEMENT Products

STATUS OF THE ORGANIZATION: Public Limited Company

REGISTERED OFFICE ADDRESS: Nishat House, 53-A, Lawrence Road,

Lahore-Pakistan

Phone: 92-42-36367812-20 UAN: 111 11 33 33

Fax: 92-42-36367414

Email: [email protected]

web site: www.dgcement.com

IAT

DATE OF INCORPORATION: 1978.

NTN OF COMPANY: 223444-09

TERMS & CONDITIONS OF LEASE

TYPE OF LEASE: SALE AND LEASE BACK

DESCRIPTION OF ASSET: *MACHINERY.

LEASE AMOUNT: RS.35,448,679

SECURITY DEPOSIT [10%]: RS.3544867.9

RESIDUAL VALUE [10%]: RS.3544867.9

IRR: **16%.

LEASE RENTALS MONTHLY: RS.904,162.97

PROCESSING FEE @1%: RS.354486.79


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COMMITMENT FEE @1% PER ANNUM OR PART THEREOF ON UNDISBURSED AMOUNT COMMENCING 30 DAYS

FROM THE APPROVAL OF THE LEASE FACILITY.

DOCUMENTATION CHARGES: RS.10,000

PAYMENT TERMS: IN ARREAR ON MONTHLY BASIS.

LEASE TERM: 04 YEARS

SECURITY: A. PERSONAL GUARANTEES OF DIRECTORS.

I. MR.NAZ MANSHA (CHAIRPERSON)

II. MR.INAYAT-UL-ALLAH NIAZI (CHIEF FINANCIAL OFFICER)

B.CORPORATE GUARANTEE OF ASSOCIATEDCONCERN

I. MCBBANK

II. NATIONAL BANK OF PAKISTAN

C.35-POST DATED CHEQUES.

*MACHINERY.

Description. Qty. Amount (Rs).

Crushing MACHINERY 01 35,448,679

The present market and forced sale value of machinery is determined for rupees 37,000,000 and

35,448,679 by LAP approved valuator (copy of valuation report attached)

**The rentals calculated are indicative / tentative, actual rentals will be calculated and shall be fixe

as FLOOR on the date of agreement according to the KIBOR prevalent at that time and will b

revised every six months according to the KIBOR prevalent seven days before the expiry sem

annually.

-

REFERENCES

CIB Report: as the lease proposal is for a corporate therefore Corpora

Information Report is generated and according to the report resul

the specific perspective customer is clear form overdue as its cred

history has revealed.

Creditors: Dg Khan Cement Company is clean as per the letter received fro

MCB bank and letters from other creditors are awaited


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Suppliers: From the suppliers of the company the company has good payme

schedule and never got late in terms of payments

INTRODUCTION

Establishment:

DG Khan Cement Company Limited (DGKCC) was established under the management control

State Cement Corporation of Pakistan Limited (SCCP) in 1978 as private limited company. DGKC

started its commercial production in April 1986 with 2000 tons per day (TPD) clinker based on d

process technology.

Acquisition by Nishat:

Nishat acquired DGKCC in 1992 under the privatization initiative of the government. Aft

privatization the company was listed on Stock Exchanges in September 1992.

Standard Certifications Obtained for Export (different countries)

DG Khan Cement Co. Ltd. is ISO 9001:2008 & ISO 14001:2004 certified systems

Following are the group concerns of DG KHAN CEMENT.

POWER GENERATION PIPE SECTOR:

NISHAT POWER LIMITED (200 MW)

Construction was started in April 2008. Its gross capacity of production is 200 MW and plan out

put is 195.260 MW. Power generation agreement is of 25 years.

Nishat Chunian Power Limited(200MW)

Nishat Chunian Power Limited (NCPL) is a public limited company incorporated in February

2007. It is listed on both Karachi and Lahore Stock Exchanges. The Company is established as a


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power generation project having gross capacity of 200 Mega Watts under a 25 year take or pay

agreement with National Transmission & Dispatch Company Limited (NTDCL). The project has

been commissioned under 2002 Power Policy of GOP and has been granted a generation license

by the National Electric Power Regulatory Authority (NEPRA) in September 2007. The compan

started its commercial operations on July 21, 2010.

Lalpir Power Limited (362MW)

Lal Pir (Pvt.) Limited owns and operates Lal Pir Thermal Power station, most efficient power

plant in Pakistan, Located near "Muzaffargarh". Lalpir is one of the world's leading power

companies. Generate and distributes electric power in 26 countries through an array of world

class power business. Electricity is mainly used to drive supercomputers, cutting edge industrial

technologies, hospitals, homes schools and businesses.

Pak Gen Power Limited 365MW)

Pakgen power Limited is 365 MW fuel oil based power plant with a net generation capacity of

347MW, located in Muzaffargarh, Pakistan. Pakgen had achieved commercial operation date on

Feb 0198 and has an operating life of 35yrs with a 30yr power purchase agreement. The PPA

was signed between Pakgen and WAPDA on Sep 0595 after which it was granted a generation

license with an implementation agreement with the GoP.

TEXTILES SECTOR

Nishat Mills Limited (The largest composite Unit in Pakistan)

Nishat Mills Limited is the flagship company of Nishat Group. It was established in 1951. It is one

of the most modern, largest vertically integrated textile company in Pakistan. Nishat Mills Limited

has 198,120 spindles, 655 Toyota air jet looms. The Company also has the most modern textile

dyeing and processing units, 2 stitching units for home texitle, one stitching unit for garments and

Power Generation facilities with a capacity of 89 MW. The Companys total export for the year

2011 was Rs. 36.015 billion (US$ 416 million). Due to the application of prudent management

policies, consolidation of operations, a strong balance sheet and an effective marketing strategy,

the growth trend is expected to continue in the years to come. The Company's production facilitie

comprise of spinning, weaving, processing, stitching and power generation


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Nishat (Chunian) Limited (The largest composite Unit in Pakistan)

Nishat Chunian Group has an enviable business history of over two decades. From a modest sta

in 1990 with a spinning mill of only 14,400 spindles, the group today has a vertically integrated

textile company which prides itself of being the fourth largest textile company in Pakistan (in term

of turnover). In 2007, the group diversified into the power sector by setting up a 200 MW

Independent Power Producer. Today, Nishat Chunian Group contains two companies Nishat

Chunian Limited (a textile company) and Nishat Chunian Power Limited (a power generation

company).

FINANCIALS AND INSURANCE

MCB Bank Limited

(The 3rd largest Bank in Pakistan)

Adamjee Insurance Company Limited

(The largest insurance business)

Security General Insurance Co. Limited

OTHERS

Nishat Hotels & Properties Limited

Nishat Developers (Pvt.) Ltd.

Pakistan Aviators & Aviation (Pvt.) Ltd.


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Directors Information:

Following are the directors of the DG KHAN CEMENT (Pvt) Limited.

Name Status

Mrs. Naz Mansha Chairperson

Mian Raza Mansha Chief Executive

Mr. Khalid Qadeer Qureshi director

Mr. Zaka-ud-Din Director

Mr. Farid Noor Ali Fazal Director

Mr. Inayat Ullah Niazi Chief Financial Officer

Ms. Nabiha Shahnawaz Cheema

SHARES HELD PERCENTAGE Shares held Percentage

Directors, Chief Executive Officer, 18,709,311 4.27

And their spouse and minor children


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PESTS ANALYSIS

Political factors include government regulations and legal issues and define both formal and informa

rules under which the firms operate. The rule and regulations that the cement industries follow are as

follows:

According to the tax memorandum 2008, the cement industries have to abide by the following rules

The tax rates on telephones will be collected at the rate of 10 % of the amount exceeding Rs.

1000.

General sales tax is enhanced from 15 % to 16 % including sales tax on services under the

Provincial Sales Tax Ordinance, etc.

Due to the increase in the general rates of sales tax, the rate sales tax on the natural gas has

been increased from 24 % to 25 %.

Duty on cement (that includes Portland cement, aluminous cement, slag cement, super

sulphate cement and similar hydraulic cements, whether or not colored or in the form of

clinkers) has been enhanced from Rs. 750 to Rs. 900 per metric ton.

The government has put special excise duty of 1 % as well.

Duty on the services such as goods insurance, fire Insurance, theft Insurance, marine

Insurance, other Insurance, non-fund services provided by banking companies or non-bankin

companies has been enhanced from 5 % to 10 %.

The rate of tax for the collection at the import stage for all imports of goods has been reduced

to 2 % from 5 %.


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According to the tax memorandum 2008, the importer will not be taxed at the importing stage

of goods such as mineral fuels, mineral oils and products of their distillation

Under SRO 575 (I)/ 2006, raw materials, machinery, components &equipments etc. were exempted

from the whole of the sales tax and subjected to the custom duty at 0 to 5 per cent, with the condition

that such imported goods were not locally manufactured. Now the condition of not being locally

manufactured for the import of capital goods worth US $50 million or above for setting up of new

industrial projects has been removed.

Employment Laws:

The labor policy issued by the Government of Pakistan lays down the parameters for the growth of

trade unionism, the protection of workers' rights, the settlement of industrial disputes, and the redres

of workers' grievances. The policy also provides for the compliance with international labor standards

ratified by Pakistan. At present, the labor policy as approved in year 2002 is in force. The minimum

wages for unskilled worker is Rs. 2,500. The minimum threshold of income for taxation of salaried

individuals has been enhanced from Rs. 150,000 to 180,000 per annum.

Environment regulations

At present Pakistan industries follow the Pakistan Environmental Protection Act, 1997.

The Pakistan government has now become conscious of the environmental pollution.

It has set some specific laws that all the manufacturing industries have to follow according to the

Pakistan Environmental Protection act, 1997.

Political stability

The present situation regarding the political stability is negative in Pakistan.

This political instability has been in process since the fate full attack of9/11, 2001.

This instability has affected the businesses adversely.


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The poor security situation and uncertainty leading up to the parliamentary elections in

February have caused a capital flight from Pakistan, and its rupee currency has fallen 13%

against the US dollar since January 2008.

However, the stepping down of Pervaiz Musharraf as president has shown some hope for the

reviving of the political stability.

According to the survey conducted by IRI (international republican institute), 52 % of the

people expected that the things will get better now that there is a new government

But still there are many factors that are prevailing up till now and are the cause of the unrest.

More over, the geographical region where Pakistan is located, having the neighbors such as

India and Afghanistan, and the pertaining international situation regarding the war against

terrorism, not only the direct investors have stepped back even the investors who have made

investments in the country are backing up.

The demonstrations, social unrest, suicidal attacks and terrorists attacks on different areas a

well are highest risks to the companys operations

Economic factors

Economic factors affect the purchasing power of potential customers and the firms cost of

capital. Following are the factors affecting the macro economy:

Economic growth

According to the report of UN Economic and Social Commission for Asia and the Pacif

Pakistan maintained its momentum in 2007, slightly more than the 6.6 % for 2006.

The manufacturing sector growth continued 8.4 % in 2007, which is slightly more

moderate than 10 % for the year 2006

The industry also suffered from a drastic decline in profitability as industry profits

declined by 56% from Rs 12.3 billion in FY06 to Rs 5.3 billion in FY'07.

Growth in Pakistans exports and imports slowed sharply in 2007: the rate for exports

fell to 3.4%, for imports to 6.9%.


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Pakistan has formulated sound macro economic policies that will help the Pakistani

economy to grow stronger but the recent political violence and uncertainties could slow

down the growth.

However according to the report, including all the sectors Pakistans economic growth

expected to remain strong at 6.5 % in 2008

Inflation rate

Pakistan, with a population of about 16 million people has undergone a remarkable

macroeconomic growth during last few years, but the core problems of the economy are still

unsolved. Inflation is one of these core problems.

The inflation in year 2008 has recorded to be the highest according to the Federal Bureau of

Statistics.

Consumer Price jumped to 17.21% in March 2008 according to the statistics given by Federa

Bureau of Statistics.

In April 2008, the Pakistan inflation accelerated at it fasted pace and the inflation is still

increasing.

The reason behind this is that in April 2008 the

food prices rose 25.5percent from a year ago and

fuel prices climbed 8.6 percent and the tensio

among the political leaders

Interest rates

The monetary policy of Pakistan is controlled by the

state bank of Pakistan.

The state bank, in order to control the inflation has taken measures and tightened up the

monetary policies.

Pakistan has raised its main interest rate by 1 percentage point to 13 % to help fight inflation.

Exchange rates

The exchange rates of Pakistan with respect to the U.S. dollar, has declined .The Pakistani rupee ha

depreciated since the proclamation of emergency rule in November 2007. In other words we can say


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that the value of the rupee has fallen as the time passed by. In figurewe can see the rise in the valu

of dollar in the month of July. Minimum was recorded as Rs. 71.2556 and maximum as Rs. 76.2183

Social factors

Health consciousness

Health consciousness among the people of Pakistan has been increasing day by day.

The citizens of Pakistan are getting aware of their duties in order to maintain the healthy

environment.

Government is taking several steps in order to educate, how important it is for the people to

live in the healthy environment.

The government discourages the operation of the industries with in the city by charging these

factories with environmental charges.

In spite of this discouragement, there are many factories that are running inside the city,

discharging poisonous gases and chemicals.

By the passage of time, the people as well along with the government are discouraging such

activities and demand for clean environment.

Technological factors Automation

This is the era of high competition

The Pakistani industries not only have to compete among them selves but with the

international market as well.

Pakistan is steadily automating particularly its development sectors to stir quality production

and ensure skilled management, as it would ensure a good place for the country in the global

competitive market.

The ERP is being implemented or is in the phase of being implemented in the cement industr

Technology incentives

According to the report issued by the ministry of technology, the government will invest in

various fiscal and non-fiscal incentives to nurture, develop, and promote the use of IT in

organizations, to increase their efficiency and productivity.


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The strategies focus on promotion of venture capital industry through incentives, recognition o

software development as a priority industry for financing by the banks and DFIs, creation of

investment friendly environment, and building investors confidence.

Rate of technological change

In recent years, technology has been seen to be progressing at very fast rate all over the worl

It has helped to raise income and alleviate poverty in the developing countries.

The change in technology can be seen in the Pakistani industries as well

uditing an organization and its environment. It is the first stage of planning and helps marketers to focuson key issues. SWOT stands for Strengths, weaknesses, opportunities, and threats. Strength

and weaknesses are internal factors. Opportunities and threats are external factors.

han Cement Co. is as following:

Strengths:

1. Availability of Raw Material.

2. DG Cement is a well-known brand in Pakistan and it has good image in the market. Peop

rely on this cement. The customer demands for the DG Cement. They have goo

positioning through their slogan, which represents durability.

3. Imported Machinery and plants in most of companies, which provide better quality to ov

all process.

4. Pakistan has been ranked 5th in the worlds cement exports after a jump of 47 percent

exports during last fiscal year, the Global Cement Report shows. ( Daily Times Saturda

August 01, 2009)

5. The compressive strength is a very important factor of cement. The Portland ceme

achieves its maximum strength in 28 days. The Pakistan standard PSS 232-1883 (R)

British Standard BS 12: 1978 provides for 28 days strength of 5000Psi and 5950P

respectively for mortar cubes.

6. Cement industries in Pakistan are currently operating at their maximum capacity due to th

boom in commercial and industrial construction within Pakistan.


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7. Housing demand to grow:

Following indications have showed a considerable demand of cement in Pakistan:

Housing projects consume roughly 40% of cement demand

Currently 0.3mn houses are built annually against demand of 0.5mn

Low interest rates, post 9/11 remittances inflow, and real estate boom have helpe

housing sector growth

Easy mortgage availability and announcement of low cost housing schemes will determin

housing sector growth in the long-run.

8. Governments development spending shall continue to rise due to:

Government development expenditures count for one third of total ceme

consumption

Increase in development expenditures has helped cement demand to grow at ve

high rates

Increase in PSDP- as announced in Medium Term Development Framework 200

10 will help cement demand to grow in the country

Infrastructure development in a region triggers private development projects havin

even positive impact on cement demand.


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9. Pakistan cement industry is one the largest exporter in Asia, major markets are

Afghanistan and Iraq will be after peace. Its increased GDP by exports, providing cemen

in Large Dams Project and earthquake rehabilitations projects.

10. Laboratory testing facilities meeting all American and European standards and Vertic

cement grinding mills.

11. Today, we find a relatively better scenario as compare to past. Most of the cement plant

that used to operate on furnace oil, have now been converted into coal and gas system

which has substantially reduced cost of production.

12. The most modern selection of production equipment possible in every major department

the plant.

13. Cement export to India through railway

Most of the cement export to India is through railway. In order to facilitate cement export

India, the railways has doubled its cement capacity and increase its frequency of trains

India from Pakistan. This step has been taken by Pakistan Railways in order to increas

cement export to India. This is regarded as a highly profitable market.

14. Use of Coal

15. Coal is found in all the four provinces of Pakistan. The country has huge coal resource

about 185 billion tones, out of which 3.3 billion tones are in proven/measured category an

about 11 billion are indicated reserves, the bulk of it is found in Sindh.

16. At present most of the cement companies have switch to coal or gas as their basic fuel; th

process has been completed in the last 6 to 7 years. According to the data of the A

Pakistan Cement Manufacturing Association of mid-2007, the cost of cement productio

per ton by furnace oil was around Rs2, 083 whereas the cost of production per ton by co

was Rs8, 68, saving Rs1, 215 per ton. Similarly, the saving per bag was Rs60.75, which

a huge difference. Reserves of coal can become strength for Pakistani cement industry

Pakistan import sulphur washing plant from European country than Pakistan ceme

industry is able to utilize local coal to meet its energy requirement

17. Cheaper labor

The labor of Pakistan is very cheap. This is the important strength of the ceme

industry as the cement companies of Pakistan has to pay less to their labor whic


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result in saving of their income which later on can be utilized in the expansion

cement plant. Which will increase the cement production?

18. Good Domestic and Foreign Market

The export reached to $ 500 million during 2008. Data for the first quarter of FY0

shows that Afghanistan is Pakistans largest cement export market. The prospec

for cement exports seem bright in the medium term due to rising domestic as well a

regional cement demand.

19. Good Government Policies

Government policies are in the favor of cement sector. Due to the governme

favorable policies the cement sector gets the highest growth rate of 21.11% amon

all the industries of Pakistan in year 2006-07. The total industry installed capacity

expected to reach 49.1 million tons per annum by FY10

20. High Quality of Cement

Pakistan produces good quality of cement. This is the main reason due to whic

recently Russia is offering high price for Pakistani cement. Globally Pakistan

recognized for producing good quality of cement due to which countries likAfghanistan, India, Middle East and some African countries prefer to import ceme

from Pakistan.

Weaknesses:

1. The stage of industrial development, in most of the segments, is still at a very low level

technology and the existing industrial base is very narrow and consists of very basic industrie

such as cement, sugar, textile, cigarette, edible oil, fertilizer, soda ash, caustic soda, PVC etc

2. Since cement is a specialized product, requiring sophisticated infrastructure and productio

location. So, most of the cement industries in Pakistan are located near/within mountainou

regions that are rich in clay, iron and mineral capacity. Structure of Cement industry

Pakistan is as such that there is not much substitutability to buyers. Which shows that th

Cross elasticity of demand is negligible.


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3. The customer has no choice at all to switch between two brands of cement due to cartel of

of the cement manufacturers in Pakistan.

4. The freight charges are a massive 20% of the retail prices. The plants located very close

each other and tapping the same market will have to expand their markets which will increastheir freight expenses. Dandot, Pioneer, Maple Leaf and Garibwal are all located within

radius of 100 kilometers and are selling bulk of their production in the same areas and will thu

face serious competition from each other.

5. Consumers face a tough decision with regards to prefer which brand over which because

the similar pricing of cement industry. The formation of cartel by the cement manufacture

have exploited local consumers a lot and this has led to the concentrated degree of oligopo

where the firms are acting as a single unit to perform their monopoly. Their combined mark

power is simply a diluted version of the dominance that a single firm with a monopoly mark

share can exert.

6. Increase freight charges

7. Exporters of the cement often complain that railways freight charges for carrying cement fro

Lahore city to the border of India are Rs500 per ton ($8 per ton) while it covers only 35 km

Against this, they say on the Indian side, the freight is only $3 per ton for bringing goods fro

Chundrigar to the border area. Cement exports have been badly hit by high fee that is bein

charged by trucks and also by foreign shipping companies for the haulage of cement fro

Pakistan to India. This increase in freight charges effect our exports due to which our expor

is declining

8. Logistic Problem

9. Some of the cement companies of Pakistan have received orders from Russia with a price ta

of Rs 860 per bag. But our logistics is the biggest hurdle in the way as our transportatio

system is not good enough to transport cement to Russia due to which our cement companie

might lose the chance to capture the Russian market which is a highly profitable market.

10. Usage of Paper bag

11. Pakistani cement companies export there cement in paper bags because paper bags a

cheap as compared to plastic bags. But the Cement exported in paper bags is against th


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International standards and companies have to pack the cement in plastic bag. The ceme

export to India could be affected by the shortage of plastic bags used for transporting th

commodity. Although there are two companies that are manufacturing plastic bags for ceme

but they are not able meet the demand. So thats why Pakistan cement companies expo

cement in paper bags.

12. Idle capacity of various players:

The biggest problem of cement industry is the idle capacity of various players. As man

cement players are not operating at their full capacity.

13. They are still using obsolete marketing practices. Top management should use up-to-da

marketing practices rather to use orthodox ideas. This is the age of advertisement and the

should advertise their product rather use push strategy. They should emphasize on pu

strategy as well. They have good, energetic, experienced marketing and sales team the

should use it constructively.

14. They have not divided their zones for marketing and sales teams.

15. They are not paying much attention to promotional tools. They are not advertising the

product. They are only using trade promotions, which are not enough to have a goo

positioning in the market.

16. They do not have much interaction with the distributors. They do not go to the distributors f

inquiring about the sales.

Threats:

1. Unanticipated increase in interest rates or less than expected demand growth might crea

severe crises for the sector couple of years forward.

2. Lack of demand or depressed demand in future will prove to be lethal for the sector that h

just started to recover from the miseries of 90s. Lack of demand forced cement units


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operate at very low capacity utilization in nineties. There was a fierce competition amon

cement manufacturers.

3. A price war was witnessed which ended up with no conqueror. Similar apprehensions exist f

the future when there will be plenty of excess capacity. Any hurdle in the growth of ceme

demand may force the sector into the price war. Yet, we expect cement manufacturers to a

prudent and learn lesson from the history. Any mistake, similar to the one made in the la

decade, will again coerce the sector into the era where all are losers with no winner.

4. Main component of the cost is fuel. Pakistan's cement industry has converted their plants

coal considering it to be the cheapest fuel, but its price in international markets has gone up b

more than 300 per cent in the last one year, which directly relate increasing the cost o

production.

5. The demand of cement falls heavily during rainy weather in the country, which directly affec

the running cost of a unit. It is only the rising levels of cement exports, which are sustaining th

industry.

6. Instead of appreciating the marketing skills of cement entrepreneurs to explore new marke

for cement, the industry is being pressurized constantly without realizing that any reduction

cement exports from Pakistan will not only deprive the country of foreign exchange ($2 billio

last year), but will also result in losses to the industry.

7. The burden of increased input costs has to be borne by the consumers. It is only th

government, which can provide relief to the consumers by cutting down or abolishing th

central excise duty.

8. Problems of oversupply situation:

Following problems might arise with the oversupply situation in cement industry:

Lower capacity utilization will reduce benefits of economies of scale. High leverag

will also adversely affect profitability of new plants.

New plants will gain market share at the cost of older players, which are n

undergoing expansion. Large idle capacity is will create panic in players and th

may result in price wars in the coming years.


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9. IMF Package in Future can cause to decrease GDP and economical development in Pakista

Which will also be cause to stop development of infrastructure? So it will have huge effect o

cement industry also.

10. Indian and Iran industry is also expanding its cement capacity

Presently, India faces an acute cement shortage in its Southern states of Tamilnad

and Madras and in north Punjab. However, reports indicated that the Indian industry

also working on a fast track to expand their capacity in these regions to o

set the shortfall Major capacities of countries like India and Iran are expected

come online by FY10 and onwards which are likely to convert these countries fro

dependent importers to potential exporters.

11. High energy prices

Recently cement industry of Pakistan is facing high energy prices due to increase in th

international prices of coal and oil. As our coal contain high percentage of sulphur. Du

to which Pakistan cement industry is not able to use local coal as a source of energ

Due to which Pakistan cement industry has to import coal from different countries

high prices. High finance and depreciation cost as Pakistan cement industry

expanding its capacity to get the proper advantage of strong demand of cement

different countries. The total industry installed capacity is expected to reach 49.1 millio

tons per annum by FY10 and because of higher expansion finance and depreciatio

cost is also going to rise by the FY10.

12. Decrease profitability due to competition in cement industry

The sharp decline in cement prices has been witnessed due to domestic competitio

among producers has dampened the profitability of the industry. This increase

competition among the players has further decreased the prices of cement in the loc

market. The cement manufacturers decrease the prices of their products in order to g

high market as compared to its competitor.

13. High level of taxation


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Presently, the cement industry of Pakistan is heavily burdened due to levy of Feder

Excise Duty @ Rs. 750 per ton and General Sales Tax @ 16% on duty paid value.

addition to Federal Excise Duty and General Sales Tax, cement industry is also payin

the provincial levies (Royalty and Excise Duty) on acquiring of raw material f

production of cement i.e. lime stone and shall clay.

Opportunities:

1. The local cement industry faces high upfront fuel costs. In order to facilitate their conversion

coal, which is widely available in the country, the government has given incentives for importe

plant and equipment for coal firing units.

2. The demand of Pakistani cement is expected to continue to grow at the rate of 20 per cent f

about four years to come. It may then follow traditional growth rate of seven per cent per yeaAnnouncement of major dams will dramatically increase this demand.

3. Deregulation after accession of Pakistan to WTO is expected to open the window

competition from cheaper markets. There may be no tariff after this deregulation on import

cement allowing its entry into Pakistan from cheaper market at lower rate. Cement fro

cheaper markets may also block Pakistans export of cement to its neighboring countrie

Global market has vigorously taken up the advantage of economy of scales and multination

giants now control more than 40 per cent of world production (China not included). The rece

acquisition of Chakwal Cement by an Egyptian giant, Orascom may be a beginning of such a

entry in Pakistan by multinationals. New avenues for export of cement are opening up for th

indigenous industry as Sri Lanka has recently shown interest to import 30,000 tons ceme

from Pakistan every month. If the industry is able for avail the opportunity offered, it ma

secure a significant share of Sri Lanka market by supplying 360,000 tons of cement annually.

4. Government Development Expenditure

Government development expenditures count for one third of total cement consumptioIncrease in development expenditures has helped cement demand to grow at very hig

rates. Increase in PSDP- as announced in Medium Term Development Framewo

2005-10 made the cement demand to grow in the country. Infrastructure developme

in a region triggers private development projects having even positive impact on ceme

demand.


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5. Construction of large dams

Construction of four large dams will generate demand of 3.7mn tons as constructio

activities start. Our estimate does not include demand generation from Skardu-Katzara

dam as its feasibility study in not yet completed. Extent of demand generation wdepend on size of dam, type of dam, and extent of relocation/resettlement activitie

required. Bhasha dam will generate maximum demand as it is RCC concrete da

whereas other dams being Earth fill/Rock fill dams will require less cement for the

construction. Resettlement activities for Kalabagh dam will generate maximum deman

as it is located in a highly populated area.

6. Improved access to regional market

Afghanistan is Pakistans largest cement export market. The prospects for ceme

exports seem bright in the medium term due to rising domestic as well as region

cement demand. Pakistan also achieved improved access to India after the comple

removal of the 12.5 percent custom duty on Portland cement imports in this count

from January 2007, showing improved export opportunities for Pakistan. India

planning to import more cement from Pakistan to stabilize prices in the market and thgovernment wants a balance in demand and supply of cement in the current fiscal yea

The import of cement from Pakistan has increased manifold during last four month

India has registered a number of Pakistani cement manufacturers, a requirement

facilitate import of cement. Pakistan has already increased the frequency of trains fro

one to three in a week to carry cement from Pakistan to Wagah border. Due to boom

the construction industry, India needs cement in bulk to meet its growing needs.


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7. Demand of Pakistani cement by Russia

Fresh enquiries have been received from Russia and buyers are quoting very attractiv

prices as Pakistani cement quality is of very high standard and holds good strength.

8. High prices of cement in the international market

Cement exports are expected to soar by a massive 107 per cent due to the prima

source of overall cement growth in FY08, the high exports owing to the cement supp

shortage in India and Middle East which lead to rocketing cement prices in the region.

9. Increase in demand of cement due to the upcoming sports event

South Africa is schedule to host the football world cup of 2010 due to which they nee

to make the football stadiums for the World Cup and Sri Lanka are also expected

approach Pakistani companies for cement imports because Sri Lanka to co-host th

cricket world cup of 2011.

BACKGROUND INFORMATION

DG CEMENT COMPANY IS NOT OUR EXISTING LESEE, HOWEVER THE ASSOCIATED COMPANIES (NISHAT POWE

LIMITED) HAS TAKEN FACILITIES FROM US PREVIOUSLY AND FOLLOWING IS THEIR CREDIT HISTORY WITH OU

FINANCIAL INSTITUTION:

CONTRACTDATEASSET

DESCRIPTION

LEASEAMOUNT

(RS.)

SECURITY

DEPOSIT(RS.)LEASETERM IRR

JUN2006 MACHINERY

3,000,000

300,000

03YEARS

K

+4.00

EXPOSURE TO THE GROUP CONCERN


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CONTRACT CAPITAL COSTPRINCIPAL

OUTSTANDING

RENTALS

OUTSTANDING

MONTHLY

RENTAL

RENTALS

OVERDUE

CONTRACT01 3,000,000 937,221 997,440 87,825 Nil.

TOTAL 3,000,000 937,221 997,440 87,825

.

GROUP DISBURSED /FRESH EXPOSURE

STATUSCAPITAL COST

(RS.)

PRINCIPAL

OUTSTANDING (RS.)

Rentals

Outstanding

(Rs.)

DISBURSED 3,000,000 937,221 997,440

APPROVED BUT

UNDISBURSEDNIL NIL NIL

FRESH EXPOSURE 35,448,679 6,236,710 8,389,030

TOTAL 10,128,000 7,173,931 9,386,470

FINANCIAL INFORMATION

This financial statement is audited by M/s A. F. Ferguson & Co., Chartered Accountants as audito

for the year ending 30 June 2012

BALANCE SHEET

Equity and liabilities: 2011 2010

---- (Rupees in thousands) ----

Non current Liabilities

Long term finances 4,880,579 5,089,507

Long term deposits 70,893 81,138


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Retirement and other benefits 139,213

104,029

Deferred Taxation 1,707,886 1,456,960

----------- ------------

6,798,571 6,740,634

Current Liabilities

Trade and other payables 1,644,045 1,679,749

Accrued markup 284,511 346,125

Short term borrowing-secured 8,691,982 9,585,642

Current position of non-current liabilities 2,001,566 2,139,283

Provision for taxation 35,090 35,090

------------- ------------

12,657,194 13,786,189

ASSETS

2011 2010

---- (Rupees in thousands) ----

NON CURRENT ASSETS

Property, plant and equipment 24,611,565 25,307,302

Capital work in progress 1,373,820 465,650

Investments 5,259,416 4,696,922

Long term loans, advances and deposits 133,219 158,677

----------- ------------

31,378,020 30,628,551

CURRENT ASSTES

Stores, spares and loose tools 3,543,034 3,017,742

Sock in trade 862,141 1,036,876

Trade debts 459,300 303,949


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Investments 12,126,349 10,740,972

Advances, deposits, prepayments

And other receivables 1,136,564 1,087,161

Cash and bank balances 167,642 230,792

------------- ------------

18,295,030 16,417,492

Profit and Loss Account for the year ended June 30,2011


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COMMENTS

1. As per the balance sheet companys total liability ratio is only 39% which means

company has equity of more than 60% in its total capital. Which shows that Dg cement

is in a strong equity position and has very less chance to get bankrupt


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2. As per balance sheet data companys total long term liability ratio is only 71%

3. Current ratio f year 2011 is 1.44 which is neither below the prescribed limit of 1 nor

above than 2.5

4. TIE (EBIT/Interest) for the year ended June 30, 2011 is 1.3 only

5. Total assets of the company is increasing at 89%

6. Net financial debt is decreased by 7.38%

7. Working capital for the year ended June 30, 2011 is 56,37,836 which means company

is able to pay off its short term liabilities on immediate basis.

REQUIREMENT OF THE REGULATORY BODIES

Long-term Debt/Equity ratio is within the prescribed limit of60/40.

Current ratio is within the prescribed limit which shows that company has strong liquidity

position.

Borrowers total facilities are within the limit of 10 times of capital & reserves free of losses.

The prescribed exposure limit is within 20% of equity.

TIE is under the prescribed limits of 4.

LEASE JUSTIFICATION

Profitability of the prospect is improving.

Existing relationship with one of its group company with satisfactory repayment behavior.

Guarantee of one of the group concern is strong enough to rely upon

LEASE PROPOSAL PROCESSED BY

dg final lease

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