INTRODUCTION

A Brief Overview of Cement industry in Pakistan:

Growth of cement industry is rightly considered a barometer for economic activity. In 1947, Pakistan had inherited 4 cement plants with a total capacity of 0.5 million tons. Some expansion took place in 1956-66 but could not keep pace with the economic development and the country had to resort to imports of cement in 1976-77 and continued to do so till 1994-95. The industry was privatized in 1990 which led to setting up of new plants. Although an oligopoly market, there exists fierce competition between members of the cartel today. The industry comprises of 29 firms (19 units in the north and 10 units in the south), with the installed production capacity of 44.09 million tons. The north with installed production capacity of 35.18 million tons (80 percent) whiles the south with installed production capacity of 8.89 million tons (20 percent); compete for the domestic market of over 19 million tons. There are four foreign companies, three armed forces companies and 16 private companies listed in the stock exchanges. The industry is divided into two broad regions, the northern region and the southern region. The northern region has around 80 percent share in total cement dispatches while the units based in the southern region contributes 20 percent to the annual cement sales. Cement industry is indeed a highly important segment of industrial sector that plays a pivotal role in the socio-economic development. Since cement is a specialized product, requiring sophisticated infrastructure and production location. Mostly of the cement industries in Pakistan are located near/within mountainous regions that are rich in clay, iron and mineral capacity. Cement industries in Pakistan are currently operating at their maximum capacity due to the boom in commercial and industrial construction within Pakistan. The cement industry in Pakistan has grown steadily over time. At the time of freedom in 1947, there were only 4 cement factories with a total output of nearly 0.5 million tons. By 1972, the number of cement factories increased to 14 and the total output also increased to 2.5 million ton but this pace could not be continued in parallel with the countrys financial growth. Both Government and private sectors worked on proposals to set up new factories. Following the new policy of the Government of Pakistan, cement industry was also nationalized along other

industries in 1972 and the State Cement Corporation of Pakistan (SCCP) was constituted and given the responsibility of production of cement in the country. Taking into account the high cement demand as compared to supply, cement import was also allowed in financial year (FY) 76-77 and continued until FY 94-95. With a change in strategy of Government control over industrial units, the nationalized cement factories were put up for privatization along with other factories. The private sector was allowed to take over cement manufacturing. As a result, the role of SCCP as market leader went astray gradually and at present it owns only four factories, of which two have been closed down due to effectiveness and productivity issues. In view of the high demand during the period of free economic policy, a number of new plants were set up and many others introduced great extensions to increase their existing output.

SWOT Analysis
Internal Factor
STRENGTHS OF LUCKY CEMENT 1. Strong Financial Position. 2. High Product Quality. 3. High Pay scale. 4. Highest Export Share. 5. Support by Yunus Group WEAKNESSES OF LUCKY CEMENT 1. Low Advertising and Less Exposure. 2. Low Gratuity and PF funds. 3. Increasing General & Administrative Expenses

External Factor
OPPORTUNITIES OF LUCKY CEMENT 1. Upcoming national building projects. 2. Demand for cement in Gulf region 3. Less freight charges for export of cement 4. Expansion in cement industry due to house building loans by banks. 5. Advancements in technology. THREATS OF LUCKY CEMENT 1. Government Regulations on Slots 2. Price Competition 3. Alliance Opposition. 4. Labor Union Problems.

SWOT ANALYSIS (In detail):

Strength 1. Cement export to India through railway Most of the cement export to India is through railway. In order to facilitate cement export to India, the railways has doubled its cement capacity and increase its frequency of trains to India from Pakistan. This step has been taken by Pakistan Railways in order to increase cement export to India. This is regarded as a highly profitable market. 2. Use of Coal: Coal is found in all the four provinces of Pakistan. The country has huge coal resources, about185 billion tones, out of which 3.3 billion tones are in proven/measured category and about 11 billions are indicated reserves, the bulk of it is found in Sindh. At present most of the cement companies have switch to coal or gas as their basic fuel; the process has been completed in the last 6 to 7 years. According to the data of the All Pakistan Cement Manufacturing Association of mid-2007, the cost of cement production per tone by furnace oil was around Rs2,083 whereas the cost of production per tone by coal wasRs8,68,saving Rs1,215 per tone. Similarly, the saving per bag was Rs60.75, which is a huge difference. Reserves of coal can become strength for Pakistani cement industry if Pakistan import sulfur washing plant from European country than Pakistan cement industry is able to utilize local coal to meet its energy requirement 3. Cheaper labor: The labor of Pakistan is very cheap. This is the important strength of the cement industry as the cement companies of Pakistan has to pay less to there labor which result in saving of there income which later on can be utilized in the expansion of cement plant. This will increase the cement production 4. Good Domestic and Foreign Market: The export may reach to $ 500 million increase during 2008. Data for the first quarter of FY08shows that Afghanistan is Pakistans largest cement export market. The prospects for cement exports seem bright in the medium term due to rising domestic as well as regional cement demand.

5. Good Government Policies: Government policies are in the favor of cement sector. Due to the government favorable policies the cement sector gets the highest growth rate of 21.11% among all the industries of Pakistan in year 2006-07. The total industry installed capacity is expected to reach 49.1 million tons per annum by FY10 6. High Quality of Cement: Pakistan produces good quality of cement. This is the main reason due to which recently Russia is offering high price for Pakistani cement. Globally Pakistan is recognized for producing good quality of cement due to which countries like Afghanistan, India, Middle east and some African countries prefer to import cement from Pakistan. Weakness: 1. Increase freight charges: Exporters of the cement often complain that railways freight charges for carrying cement from Lahore city to the border of India are Rs500 per ton ($8 per ton) while it covers only 35km. Against this, they say on the Indian side, the freight is only $3 per ton for bringing goods from Chundrigar to the border area. Cement exports have been badly hit by high fee that is being charged by trucks and also by foreign shipping companies for the haulage of cement from Pakistan to India. This increase in freight charges effect our exports due to which our exports is declining 2. Logistic Problem Some of the cement companies of Pakistan have received orders from Russia with a price tag of Rs 860 per bag. But our logistics is the biggest hurdle in the way as our transportation system is not good enough to transport cement to Russia due to which our cement companies might lose the chance to capture the Russian market which is a highly profitable market. 3. Usage of Paper bag: Pakistani cement companies export there cement in paper bags because paper bags are cheap as compared to plastic bags. But the Cement exported in paper bags is against the International standards and companies have to pack the cement in plastic bag. The cement export to India could be affected by the shortage of plastic bags used for transporting the commodity. Although

there are two companies that are manufacturing plastic bags for cement but they are not able meet the demand. So thats why Pakistan cement companies export cement in paper bags Opportunities 1. Government Development Expenditure Government development expenditures count for one third of total cement consumption. Increase in development expenditures has helped cement demand to grow at very high rates. Increase imps- as announced in Medium Term Development Framework 2005-10 made the cement demand to grow in the country. Infrastructure development in a region triggers private development projects having even positive impact on cement demand. 2. Construction of large dams Construction of four large dams will generate demand of 3.7mn tons as construction activities start. Our estimate does not include demand generation from Skardu-Katzarah dam as its feasibility study in not yet completed. Extent of demand generation will depend on size of dam, type of dam, and extent of relocation/resettlement activities required. Bhasha dam will generate maximum demand as it is RCC concrete dam whereas other dams being Earth fill/Rock fill dams will require less cement for their construction. Resettlement activities for Kalabagh dam will generate maximum demand as it is located in a highly populated area. 3. Improved access to regional market Afghanistan is Pakistans largest cement export market. The prospects for cement exports seem bright in the medium term due to rising domestic as well as regional cement demand. Pakistan also achieved improved access to India after the complete removal of the 12.5 percent custom duty on Portland cement imports in this country from January 2007, showing improved export opportunities for Pakistan. India is planning to import more cement from Pakistan to stabilize prices in the market and the government wants a balance in demand and supply of cement in the current fiscal year. The import of cement from Pakistan has increased manifold during last four months. India has registered a number of Pakistani cement manufacturers, a requirement to facilitate import of cement. Pakistan has already increased the frequency of trains from one to three in a week to carry cement from Pakistan to Wagah border. Due to boom in the construction industry, India needs cement in bulk to meet its growing needs. 4. Demand of Pakistani cement by Russia

Fresh enquiries have been received from Russia and buyers are quoting very attractive prices as Pakistani cement quality is of very high standard and holds good strength. 5. Earthquake in China In the month of May china is hit by severe earthquake having the magnitude of 7.8 this earthquake has cause the serious destruction in china. This disaster is also an opportunity for Pakistan cement industry to export cement to china. 6. High prices of cement in the international market Cement exports are expected to soar by a massive 107 per cent due to the primary source of overall cement growth in FY08, the high exports owing to the cement supply shortage in India and Middle East which lead to rocketing cement prices in the region. 7. 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 need to make the football stadiums for the World Cup and Sri Lanka are also expected to approach Pakistani companies for cement imports because sri-lanka to co-host the cricket world cup of 2011.

Threats
1. Indian and Iran industry is also expanding its cement capacity Presently, India faces an acute cement shortage in its Southern states of Tamil ado and Madras and in north Punjab. However, reports indicated that the Indian industry is also working on a fast track to expand their capacity in these regions to off -set the shortfall M a j o r c a p a c i t i e s o f countries like India and Iran are expected to come online by FY10 and onwards which are likely to convert these countries from dependent importers to potential exporters. 2. High energy prices Recently cement industry of Pakistan is facing high energy prices due to increase in the international prices of coal and oil. As our coal contain high percentage of sulfur. Due to which Pakistan cement industry is not able to use local coal as a source of energy. Due to which Pakistan cement industry has to import coal from different countries at high prices.

Analysis of Cement industry.

We have chosen the following companies from cement industry; here we will use lucky cement as a main company for our analysis for the year of 2007 to 2011 and also compare this analysis with the industry analysis.

s. no 01 02 03 04 05

companies
Lucky cement ltd Attock Cement Pakistan Ltd Bestway Cement Ltd. Fauji Cement Company Ltd. Fecto Cement Ltd.

Following are the ratios which we will find for using the data of above companies. LIQUIDITY RATIO.
Quick ratio Current ratio

PROFITABILITY RAIO.
Net Profit ROA ROE

LONG TERM SOLVINCY RATIO

Time int. ratio Debt ratio

ACTIVITY RATIO

Receivable turnover Inventory turnover Operating cycle

RATIO ANALYSIS
I.

2007

RATIOS
Quick Current Net profit Inventory turnover Receivable turnover Operating cycle Debt ratio Time int. ratio
II.

Lucky
0.430 0.850 27.519 13.704 0.203 41.223 0.636 0.274

Attock
0.649 1.269 33.108 1.571 0.175 34.679 0.413 0.075

Bestway Fauji
0.426 0.822 22.581 5.393 0.009 27.975 0.741 0.955 0.902 1.354 27.823 2.033 0.187 29.856 0.416 0.204

Fecto
0.092 1.348 9.451 2.137 0.009 11.588 0.549 0.704

Industry Comparison
0.500 1.129 24.097 4.968 0.117 29.064 0.551 0.442 low low high high high high high low

2008
Lucky
0.460 1.087 20.267 15.292 0.158 35.558 0.455 0.301

RATIOS
Quick Current Net profit Inventory turnover Receivable turnover Operating cycle Debt ratio Time int. ratio

Attock Bestway Fauji

0.455 1.510 37.925 3.592 0.135 41.516 0.398 0.221 0.238 0.696 1.693 2.157

Fecto
0.265 1.214 19.551 11.124 -0.035 30.676 0.615 -2.494

Industry Comparison
0.622 1.333 29.395 10.059 0.079 39.454 0.491 -0.023 low low low high high low low high

40.547 28.684 17.556 0.023 2.734 0.117

58.103 31.417 0.730 1.621 0.255 0.237

III.
RATIOS
Quick Current

2009
Lucky
0.360 0.864 20.267 15.292 0.158 35.558 0.455 0.301

Attock Bestway Fauji

1.357 2.433 38.099 1.966 0.175 40.065 0.315 0.045 0.265 0.648 37.858 14.217 0.066 52.075 0.709 0.654 0.182 0.629 13.642 3.701 0.190 17.344 0.548 0.133

Fecto
0.134 1.107 23.770 6.832 0.091 30.602 0.550 0.201

Industry Comparison
0.459 1.136 27.889 8.809 0.139 36.698 0.503 0.244 low low low high high high low low

Net profit Inventory turnover Receivable turnover Operating cycle Debt ratio Time int. ratio

IV.
RATIOS
Quick Current

2010
Lucky
0.230 0.713 13.259 11.447 0.128 24.706 0.345 0.135

Attock Bestway Fauji

1.668 2.622 23.085 2.599 0.133 25.685 0.236 0.045 0.193 0.521 0.229 0.520

Fecto
0.120 0.704 14.232 1.351 -0.072 15.583 0.691 -0.379

Industry Comparison
0.488 1.016 17.120 5.148 0.033 22.267 0.530 0.549 low low low high low high low low

Net profit Inventory turnover Receivable turnover Operating cycle Debt ratio Time int. ratio

24.452 10.570 8.024 -0.091 2.317 0.066

32.476 12.887 0.751 2.852 0.626 0.094

V.
RATIOS
Quick Current

2011
Lucky
0.180 0.883 25.972 8.592 0.153 34.564 0.326 0.102

Attock
0.335 1.703 28.545 2.137 0.080 30.681 0.251 0.007

Bestway Fauji
0.156 0.530 41.129 7.477 0.013 48.607 0.627 0.859 0.344 0.890 45.366 2.806 0.090 48.171 0.559 0.166

Fecto
0.051 0.603 14.633 2.039 0.020 16.672 0.669 0.645

Industry Comparison
0.213 0.922 31.129 4.610 0.071 35.739 0.486 0.356 low low low high high low low low

Net profit Inventory turnover Receivable turnover Operating cycle Debt ratio Time int. ratio

RESULTS
Ratio Analysis is a form of Financial Statement Analysis that is used to obtain a quick indication of a firm's financial performance in several key areas. The ratios are categorized as Short-term Solvency Ratios, Debt Management Ratios, Asset Management Ratios, Profitability Ratios, and Market Value Ratios. Ratio Analysis as a tool possesses several important features. The data, which are provided by financial statements, are readily available. The computation of ratios facilitates the comparison of firms which differ in size. Ratios can be used to compare a firm's financial performance with industry averages. In addition, ratios can be used in a form of trend analysis to identify areas where performance has improved or deteriorated over time. Because Ratio Analysis is based upon Accounting information, its effectiveness is limited by the distortions which arise in financial statements due to such things as Historical Cost Accounting and inflation. Therefore, Ratio Analysis should only be used as a first step in financial analysis,

to obtain a quick indication of a firm's performance and to identify areas which need to be investigated further. As far as quick, current and net profit ratios are concerned it remains low as compared to Industry average. Whereas inventory and receivable turnover are high and operating cycle is also high with industry average which the good for the Lucky cement.

TREND ANALYSIS
TREND sales operating expenses net income cash accounts receivable accounts payable inventory COGS current assets fixed assets current liabilities fixed liabilities equity 2007 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 2008 135% 210% 89% 22% 151% 140% 105% 142% 155% 127% 121% 79% 114% 2009 155% 203% 193% 389% 176% 158% 169% 131% 94% 118% 118% 77% 171% 2010 93% 140% 62% 32% 61% 114% 51% 100% 87% 103% 106% 59% 105% 2011 106% 98% 122% 105% 80% 129% 205% 105% 137% 101% 111% 77% 119% Average 118% 150% 113% 129% 114% 128% 126% 116% 115% 110% 111% 78% 122%

Trend analysis is also a tool used for projection and this analysis is made on certain key elements such as sales, income, costs and assets etc. we also made such analysis the results of which are pasted above.

Fore casted Income statement

For the year 2012 sales less: cost of goods sold gross profit less: operating expenses operating income

31 July, 2011 26,017,519 17,306,400 8,711,119 3,549,814 5,161,305

31 July, 2012 30,697,197 20,016,356 10,680,841 5,329,242 5,351,599

Fore casted Balance sheet

For the year 2012

Current assets Fixed assets Total current liabilities fixed liabilities equity

31 July, 2011
9,444,466 31,765,389 41,209,855 10,696,789 2,740,237 22,772,829 41,209,855

31 July,2012
10,834,520 34,900,123 45,734,643 11,900,862 2,143,801 27,741,409 41,786,073

Total

Conclusion
In this study we used ratio and trend analysis to make the projected financial statement for Lucky cement. Income statement and balance sheet both are projected on the basis of 2011 results. When we look at the balance sheet we have to make a decision regarding financing the firm trough equity or debt. It is advisable for the firm that he makes further financing through equity because through this way their cost of capital will be low. And if we look at their debt ratio over in the past years so we can easily conclude that low debt ratio is beneficial for this firm and it is making huge profits.