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We like to dedicate this report to all those people who want to

establish a strategic move to cater an opportunity in cement Industry.
We hope that they would be satisfied from our task and that would
help them in their knowing knowledge. We owe profound gratitude to
Prof. Asad Hameed for stimulating our creative abilities by assigning
this project. We want to give vote of thanks to Prof. Asad Hameed
for his guidance, lifting up the morale and solving our problems with a
smile on his face. All can say is, are always thankful to you Respected
Sir. Whatever we have learnt from him has put indelible impression on
our mind. It is our conviction that this learning experience will always
be a source of help in our practical life and professional career.

The objective of this project and analysis is to provide suitable

information about how to make strategies in Cement business. We
have a very good experienced while making this project. All the valid
information about the analysis and strategic moves was given on
different sites and in books which was also the major advantage.
Sometimes it looked we cannot do task, but there is always a hope
which takes us to the destiny. We thank ALLAH for giving us hope and
belief in our self.

Praise is to ALLAH Almighty, the one testing us all at all times and
making decisions about what we don’t know and can’t know.
Writing this report appeared to be a great experience to us. It added a
lot to our knowledge while working on this report. If we say that this
report is one of our memorable and knowledgeable experiences in our
student life, then it would not be wrong.
May Allah Bestow His Blessings on All of Us.

The purpose and scope of this information report is to introduce the

subject matter and provide a general idea and information on the said
area. All the material included in this document is based on
data/information gathered from various sources and is based on
certain assumptions. Although, due care and diligence has been taken
to compile this document, the contained information may vary due to
any change in any of the concerned factors, and the actual results may
differ substantially from the presented information. Therefore, the
content of this report should not be relied upon for making any
decision, investment or otherwise. The prospective user of this report
is encouraged to carry out his/her own due diligence and gather any
information he/she considers necessary for making an informed
Cement industry is indeed a highly important segment of industrial
sector that plays a pivotal role in the socio-economic development.
Though the cement industry in Pakistan has witnessed its lows and
highs in recent past, it has recovered during the last couple of years
and is buoyant once again.

Purpose of the Document

This document is developed, to provide the Pioneer Cement with
potential investment opportunity in setting up and operating a medium
and large scale cement production plant.
The document is designed to provide relevant details to facilitate the
entrepreneur in making the decision by providing various technological
as well as business alternatives. It is aimed at providing the
entrepreneur with general advice and pointers to help in setting up a
new Cement production unit. This information can be helpful for the
existing businesses to expand and grow their operations further. The
document also allows flexibility to change various project parameters
to suit the needs of the entrepreneur.

Opportunity Rationale
The overall Cement market is a growing in Pakistan, relying heavily on
the trend of construction on big projects like industrial estates, house
building projects, and other infrastructure like Dams or development
projects of government like building of schools, hospitals, etc. In
Pakistan this business will pick up as development in infrastructure
Industry Profile
A market is a group of buyers and sellers exchanging goods that are
highly substitutable for one another. Markets are defined by demand
conditions; they embody the zone of consumer choice for the goods.
• Product type
Since cement is a specialized product, requiring sophisticated
infrastructure and production location. So, most of the cement
industries in Pakistan are located near/within mountainous regions that
are rich in clay, iron and mineral capacity. Structure of Cement
industry in Pakistan is as such that there is not much substitutability to
buyers. Which shows that the Cross elasticity of demand is negligible.
• Geographical Area
The other factor i.e. geographic location also doesn’t affects a lot
considering the flexibility of demand. Example can be taken from the
fact that if DG cement in DG KHAN raises its price and MAPLE LEAF
CEMENT in DaudKhel will raise its price to match DG cement’s. This is
due to cartel of all of the cement manufacturers in Pakistan. Thus the
customer has no choice at all to switch between two brands of cement.
As the cement market is moving from a virtual 'sellers' market' to an
over-supply situation, it is expected that when prices stagnate and
profitability becomes a function of volume and economies of scale,
location advantage and proximity to markets will become extremely
important factors. At present the freight charges are a massive 20% of
the retail prices. The plants located very close to each other and
tapping the same market will have to expand their markets which will
increase their freight expenses. Dandot, Pioneer, Maple Leaf and
Garibwal are all located within a radius of 100 kilometers and are
selling bulk of their production in the same areas and will thus face
serious competition from each other.
• Understanding the Demand
After the massive losses that the cement sector incurred during FY’96-
03 period, the dynamics of the industry have entirely changed.Cement
dispatches registered a healthy growth of 19.7% and 20.0% in FY'04
and FY'05 respectively.
In FY'05, domestic dispatches increased 18.2% to 14.8m tons from
12.5m tons in FY'04 whereas exports also showed a growth of 40.0% to
1.6m tons in FY'05 from 1.1m tons in FY'04. In 9mths'06, domestic
demand and exports maintained the momentum, grew 14.6% and
6.6% respectively.
The upward trend in the cement demand is likely to continue in the
next 3-4 years due to the better expected performance of the housing
sector and the GoP's focus on infrastructure development- National
Program for watercourses, construction of dams etc.
According to the “Medium Term Development Framework”, the
government will gradually increase its allocation for the Public Sector
Development Program from Rs272b in FY'05 to Rs597b in FY'10, which
is likely to generate further demand in coming years.

During last five years, price of cement has risen at a very high pace.
Cement industry faces an upward trend in prices and seldom goes
down due to which high stocks may result in huge profits. Due to high
demand, competition in the market is negligible
• Increasing Market
Due to Governments aggressive policies regarding heavy capital
expenditures for providing infrastructure and construction of dams etc.
Moreover rehabilitation of cities destroyed by earthquake few years
back in Pakistan, and for reliefe of victims of terrorism in Swat, Bonair,
and other tribal areas, require heavy construction work to carry in near
future. The client foresees drastic increase in the usage of cement
The current government is promoting cement industry by allowing
them to export cement to different countries which mainly includes:
 India;
 China;
 Afghanistan;
 Iran;
 UAE, etc.
Company’s Profile
Our Vision & Mission:
"Pioneer Cement Limited, is committed to make sustained efforts
towards optimum utilization of its resources through good corporate
governance for serving the interest of all its stakeholders."
We at Pioneer Cement Limited are committed to provide our customers
quality cement by producing it according to international and Pakistani
standards. We have selected ISO 9002 based quality assurance system
to ensure that our customers get quality cement according to their
Our Philosophy:
The Management of Pioneer Cement Limited are committed to
maintaining this quality policy at all levels of the company. For this, as
well as to achieve our corporate objectives, we all shall work as a team
and pursue continuous improvement.
Pioneer Cement Limited (PCL) was incorporated in Pakistan as a public
company limited by shares on February 09, 1986. Its shares are quoted
on all stock exchanges in Pakistan. The principal activity of the
Company is manufacturing and sale of cement
Core Objectives
 Customers’ satisfaction
 Efficient deployment of resources
 Optimization of cost
 Research and development
 Maximization of profits
 Environmental protection
Core Values
 Professional ethics
 Respect and courtesy
 Recognition of human assets
 Teamwork
 Innovations and improvement
Business Ethics
 Transparency in transactions
 Sound business policies
 Judicious use of Company’s resources
 Avoidance of conflicts of interest
 Justice to all
 Integrity to all levels
 Compliance of laws of the land
Our Quality Policy
Pioneer Cement Plant is well managed by professionals in the cement
filed. Stringent quality control procedures are applied for testing at
every stage of production to achieve high quality cement.
Its systems are also certified against ISO 9001:2000 QMS and
ISO:14001:2004 for environmental protection.
Policy Statement
Pioneer Cement Limited is committed to produce high quality cement
as per International and Pakistan Standards. The top management will
ensure that products of Pioneer Cement meet and exceed the product
quality requirements to achieve customer’s satisfaction.
The Company is committed to abide by all applicable legal and
regulatory requirements and shall orient for continual improvement
including prevention of pollution by establishing and monitoring of its
Quality and Environmental objectives.
The Chief Executive and management are committed to communicate
and maintain this policy at all levels of the company and achieve
continual improvement through teamwork.
Brand of the Year 2006
Pioneer Cement Limited markets its product under the brand name of
“Pioneer Cement” and because of its quality which meets rather
exceeds the expectations of the consumers, has been awarded as
winner of the “Brand of the Year Awards 2006” in cement sector in
National Category.
Environmental Obligations
Cement Industry is normally considered to be highly un-friendly to the
Environment because of its inherent processes difficulties. However,
with the development of technology, our modern plants are equipped
with dust collecting equipments which help to reduce the pollution.
Due to conversion from oil firing system to coal firing, there were
chances that Pioneer Cement may suffer on account of pollution. The
Management realized that for introducing Environmental ethics to
meet the challenges, ISO 14001 is the need of the day. Therefore, the
Management with the efforts of its employees succeeded in meeting
the environmental objectives and targets after evaluating legal
requirements, organizational aspects, technological options and other
The Company acquired the services of Moody International for the
assessment of audit. The audit has been carried out successfully and
the auditors have recommended Pioneer Cement Ltd. for the
Certification against ISO 14001 Environmental Management System.
This shows the commitment of the Management of PCL towards
environmental protection and prevention of pollution. PCL has been
playing its role towards the development of a better society and a
better future through continual improvement in the Environmental
Management System.
Performing Corporate Social Responsibility
Pioneer Cement Limited has been giving due importance to its social
obligations particularly in areas surrounding the factory:
• Primary Schools of Boys and Girls were constructed in 1995 in
Chenki village and is being managed by the Company.
• A dispensary was established near the factory site to cater the
emergency requirements of the workers as well as villagers
residing in the vicinity of the factory.
• A mosque has been constructed in Chenki village and is being
maintained by the Company.
• Metal road of 15 km length was re-constructed, raised and
widened to 30 feet for the residents of Jabbi and Chenki villages.
• Donations were extended for construction of educational block in
District Public School, Khushab.
• Donations were made to employees living in earthquake affected
areas and also to the victims of these areas.
• PCL is playing an active role in Khushab District Industrial
• PCL is providing technical support to Vocational Training
Institute, Quaidabad.
In addition to fulfilling social obligations in the adjoining areas, the
Company also made donations to organizations like TB centre, Family
Support Programmes, Emergency response centre and SOS schools.
Board of Directors
Mr. Manzoor Hayat Noon

Managing Director & CEO

Mr. Javed Ali Khan

Non-Executive Directors
Mr. K. Iqbal Talib
Mr. Adnan Hayat Noon
Mr. Salman Hayat Noon
Mr. Wajahat A. Baqai (NBP)
Mr. Rafique Dawood (FDIB)

Independent Non-Executive Directors

Mr. Cevdet DAL
Mr. Etrat Hussain Rizvi
Mr. Saleem Shahzada

Audit Committee
Mr. Rafique Dawood (FDIB)

Mr. Salman Hayat Noon
Mr. Adnan Hayat Noon
Mr. Etrat Hussain Rizvi
Mr. Wajahat A. Baqai (NBP)

Chief Financial Officer

Mr. Muhammed Saleem

Company Secretary
Syed Anwar Ali
PEST analysis
Political Factors

• The government of President Asif Ali Zardari faces mounting

security, economic and political pressures that could cause it to fall
during 2009.
• Zardari’s position will be weakened if the recent intensification of
US attacks into Pakistan continues under President-elect Barack
• The conditions attached to an IMF lending package will meet
fierce political resistance.
• The economy will slow and unemployment will rise, potentially
bringing serious civil instability.
• This will contribute to rising political opposition, which may
coalesce around the issue of deposed judges.

Economic Factors

 Inflation is controlling by state bank and under strict eyes but

unemployment rate is going up and up with the increase of level
of poverty

 Economic aspect of the crisis can’t be ignored as it is going to

affect the region long after the conflict ended. IDPs had lost their
crops of wheat and fruits. Plum, apricots, cherry, almond and
peaches are popular fruits of North West region but they are
short in the market this season, if available prices are high.

 The IMF recommends that the fiscal deficit should be reduced to

4.7 percent of the GDP and electricity subsidies should be

Socio-Cultural Factors
• As Pakistan is an Islamic country and people are very strict in case of
Islam any thing against the philosophy of Islam on either print or
electronic media are treated as against Pakistan.
• Most of the people dislike anything extra-ordinary or something
which sabotage their culture or subculture.

• In metropolitan cities women are doing work along with their other
responsibilities but other than metropolitan cities it is difficult for
women to convince their parents and spouses for work.
Technological Factors
Companies have technology with which they can compete in the
Pakistan and now companies are investing in their infrastructure to not
only expand but also to upgrade their existing structure.
 Pakistan's economy with a GDP growth rate of 5.8% has
attracted a foreign investment of US$ 5.15 billion in 2007-08.

 Communications Technology sector of Pakistan has emerged as

the fastest growing sector and is a major contributor to the GDP.
The investor friendly policies of the Government have attracted
US$ 1.63 Billion of foreign direct investment in the ICT sector.

 CONNECT has established itself as an exclusive B2B event of ICT

industry keeping in view the growing needs of IT and Telecom
sector. CONNECT 2010 will reinforce its position as a unique
opportunity for its participants to display and demonstrate wide
array of latest technologies and business solutions to maximize
market presence, establish new contacts and strengthen existing
businesses in a highly interactive environment.
Competitive Analysis (Porter’s Five Forces)

Rivalry among competing firms

Strategies are successful when we have competitive advantage over
the Rivals.Such as lowering prices, enhancing quality adding features,
providing services & increasing advertisements.
The intensity of Rivalry among competing firms increases competition
In cement industry rivalry is high. Rivalry also increases when
consumer can switch of brands easily, when barrier to leaving the
market are high.
Potential Entry of New Competitors
Whenever new firms can easily entre a particular industry, the
intensity of competitiveness among firms increases. Barrier to new
entry are:
 The lack of experience

 Need to gain technology & specialized know-how

 Strong customer loyalty

 Lack of access to raw material

 Tariffs

 Government regulatory policy

 Large capital requirements

 Lack of adequate distribution channel

Despite numerous barriers to new entry, new firms sometime entre

industries with high quality products, lower prices & substantial
marketing resources.

Substitutes availability
The rate of availability of substitute of cement is very low. So lots of
opportunity is there to entre into this industry
Bargaining power of suppliers
Firm may pursue a backward integration strategy to gain control or
ownership of suppliers. This strategy is effective when supplier are
unavailable, too costly, or not capable of meeting a firm’s need on a
consistent bases.
In cement industry the supplier power is high.
Bargaining power of consumers
Bargaining power of consumers also higher when the products being
purchased are standard or undifferentiated
Increases bargaining can be the most important force affecting
competitive advantage. The power of bargaining increases:
 If they can inexpensively switch to competitive brands

 If they are particularly important to the seller

 If seller are struggling in the face of falling consumer demand for


 If they are informed about seller’s products, prices & cost

EFA Matrix of Pioneer Cement
Particulars Weight Rating Weighted
1. Development in Real State .3 3 .9
Sector is accelerated.
2. Export opportunities in .3 4 1.2
neighboring Countries e.g.
Afghanistan, Iran, etc.
3. Rebuilding of Northern Areas .08 3 .24
which are destroyed due to
Earthquake & Military actions.
4. Construction of Roads .07 4 .28
5. Construction of Dams .06 3 .18
6. No Substitute is available .03 1 .03
7. High Cost of Furnace Oil .4 4 .8
8. High Rate of Electricity .4 4 .8
9. High Taxes .06 3 .18
10. Increase in Interest .06 3 .18
11. Import from China or .10 2 .2
12. Decrease in Disposable .08 2 .16
Total 1.00 4.11
IFE Matrix
Particulars Weight Rating Weighted
1.employee morals excellent .4 3 1.2
2.latest technology .08 2 .16
3.revenue per employee .03 3 .09
4.coordination among departments .04 2 .08
5.strong inventory management .05 1 .05
6.labour union problem .1 3 .3
7.late disbursement of salary .07 1 .07
8.low level of training department .09 3 .27
9.poor health facility .05 2 .1
10.discourge sexual harassment .09 2 .18
Total 1.0 2.5
TOS Analysis
Strengths – S Weaknesses – W
• Employee morals • Labor union problem
excellent • Late disbursement of
• Latest technology salary cheques
• Revenue per • Low level of training
employee department
• Coordination • Poor health facility
among • Problem of sexual
departments harassment
• Strong inventory
• Largest Financial
Structure in
Opportunities – O SO Strategies WO Strategies
• Development in Use strengths to take Overcoming weaknesses
Real State Sector is advantage of by taking advantage of
accelerated. opportunities opportunities
• Export opportunities
in neighboring Capturing Export
Countries e.g. Opportunity in
Afghanistan, Iran, Neighbouring
etc. Countries through our
• Rebuilding of Strengths
Northern Areas
which are destroyed
due to Earthquake &
Military actions.
• Construction of
• Construction of
Threats – T ST Strategies WT Strategies
• High Cost of Use strengths to avoid Minimize weaknesses
Furnace Oil threats and avoid threats
• High Rate of
• High Taxes
• Increase in Interest
• Import from China
or India
There is lots of opportunity for the expansion in cement sector. As
there is much capacity to do so. We can export the cement and
demand of cement is increasing gradually also. Development in real
sector is also big opportunity for the expansion. If some internal
weaknesses overcome by the management it will result in increase in
Construction of Dams, Roads and infrastructure also push demand of
cement upward.
We have latest technology for the production and employees &
managers working very well but we have to face some threats also like
sharply increase in the cost of furnace oil & Electricity and
unavailability of electricity. Some time due to shortage of cement
Pakistan imports this product. So if the expansion in Pioneer cement is
successfully started it will give big market share and revenues.
Space Matrix
RATING Interpretati
neither worst
Debt -to-Capital ratio is low 5 nor best
Return on assets is positive 5 good
neither worst
Strong Net Income 4 nor best
Cash Flows of Company 6 good
High Growth Pattern in respect of Financial
Aspects 5 good
Total 25
Supportive Regulation provides freedom of
expansion for Cement Industry 4 good
Supportive Regulation increases competition in
Cement industry 3 Normal
Industry laws allows mergers and acquisitions 5 good
Total 12

(-1best and -6

very bad to
Less developing country PEST unstable -5 worst
Major business with few industries which are now
depressed -3 bad
Cement industry de-regulation has created
instability -3 bad
Total -11


Extensive production processing capability -1 Best

Smaller companies becoming increasingly bad to Very
competitive -4 Bad
The company has large martekt base -2 good
Total -7
more to
FS average 5 wards best
more towards
IS average 4 best
more towards
ES average -3.66667 worst
neither worst
CA average -2.33333 nor best

Total of x-aixes (4+(-2.33)) = 1.67

Total of y-aixes (5+(-3.67)) = 1.58
The terminal ray of the resultant vector is in the 1st quadrant which
means that Pioneer should pursue the aggressive strategies.

Conservative Aggressive



-6 -5 -4 -3 -2 -1 - +1 +2 +3 +4 +5 +6
2 -1
Defensive 5
- Competitive
Grand Strategy Matrix


Quadrant II Quadrant I
Market development Market development
Market penetration Market penetration
Product development Product development
Horizontal integration Forward integration
Divestiture Backward integration
Liquidation Horizontal integration
Concentric diversification

Quadrant III
POSITION Retrenchment Quadrant IV
Concentric diversification Concentric diversification
Horizontal diversification Horizontal diversification
Conglomerate diversification Conglomerate diversification
Liquidation Joint ventures


In Grand Strategy matrix the firm is in high growth market and in a
good competitive position so the firm will pursue the strategies of
Quadrant I as results are drawn by the Space Matrix.
1) Market development
2) Market penetration
3) Product development
4) Forward integration
5) Backward integration
6) Horizontal integration
7) Concentric diversification
Recommended Strategies
The strategies recommended to Pioneer are:
1) Market Development
2) Market Penetration in newly developed market
The Pioneer Cement can grow outside the border as the company has
the required resources in bulk and have required competencies. The
Pioneer Cement can enter the market by having the minimum charges
as compare to new rivals and can penetrate into market by giving the
supreme Quality cement.
The markets available for entrance are Middle East, China, Iran and
India. The further work is done by the help of Quantitative Strategic
Planning Matrix to evaluate the best market to enter.
Quantitative Strategic Planning Matrix
Expand Exporting in
Operation Middle East,
s In Iran
Pakistan Afghanistan
and India
1 High Value currency 0.05 5 0.175 2.5 0.125
2 Trend of Development 0.15 5 0.375 3 0.45
Development Stage of 3. 0.468
3 Countries 0.125 75 75 4 0.5
Relevance in Corporate
4 Culture 0.075 4 0.3 3.5 0.2625
1 Saturated Market 0.05 5 0.175 3.5 0.175
2 Competitors aggressive 0.1 4 0.4 3 0.3
3 Instable economies 0.15 2 0.3 3 0.45
4 Required Production Range 0.125 3 0.375 4 0.5
3. 0.612
5 Low value of money 0.175 5 5 3 0.525
Total 1 25 3.2875

1 High Profit Margins 0.15 2 0.3 5 0.4875
Development of New 2.
2 Products 0.1 5 0.25 3 0.3
3 High Growth Chances 0.1 25 0.125 3.5 0.35
4 Suitable Polices 0.1 5 0.15 3 0.3
Pretax Profit is higher than 2. 0.337
5 Industry 0.15 25 5 3 0.45
1 Restructuring cost high 0.1 75 0.375 4 0.4
2 Export operation loosing 0.15 2 0.3 3 0.45
The company is slow in 2. 0.337
3 globalization 0.15 25 5 4 0.6
Total 1 2.175 3.3
The market of Asia looks promising to enter in due to some strong
reasons. In Asia there is no major difference across the culture though
some countries are entirely different from each other but in starting
Pioneer should enter in countries like India which is a big market and
there are no major corporate differences.
In exporting there are many options. The Company may exploit great
opportunities in Asia Pacific. The India, Iran and China may be good
markets to explore.
Summing Up the Report:
The Pioneer cement company must re-structure the organization to
enter into new markets. The structure of organization must be similar
to the multi national companies to survive in the new market.
The company has the adequate resources to enter into the
international market. company has strong financial backup and having
enough resources to enter into a new market with all new structure
and culture.
New standard of operations are required to enter into to new market.
Evaluation and Control:
The evaluation and control system required to be updated to
implement the strategy because the firm is leaving its home country.
New standard of information must be implemented and adequate
measures must be applied to evaluate the strategies
• According to the provisional numbers released by All Pakistan
Cement Manufacturing Association (APCMA), cement sales
remained muted to 21.8mn tons in the 9MFY09, despite 52%
growth in exports, as local sales continue to disappoint declining
by 17%. We strongly believe that March dispatches data will be
revised upwards since it doesn’t contain the data of five plants
(most notably Fauji and Mustehkam Cement).
• Coal prices are down 27% QoQ in 3QFY09, while cement price
are still buoyant. We expect margins of sector to improve
substantially in 2HFY09.
• Local sales show growth of 11% MoM: For the month of
March, local sales increased by 11% MoM because of start of
summer season in which local sales remain high due to increase
in construction activities. Because of increase in capacities in
North, utilization is low there when compared to South, where
proximity to port is another reason for higher utilization.
• Exports still growing: March exports increased by 9% MoM, to
reach the 1mn tons mark for the second time in history. Looking
at the trend exports are expected to remain steady atleast till
FY09 end.
• Pioneer Cement leads in QoQ sales comparison: In our FSL
cement universe, Pioneer cement has registered a growth of
25% QoQ in 3QFY09 while Pioneer cement lags showing a decline
of 25%. Lucky and D.G. Khan Cement have also shown good
growth of 14% and 20%, respectively.
• Coal prices show decline while cement prices remain
steady: Coal prices on South Africa’s Richards Bay and
Australia’s Newcastle in 3QFY09 are down by 27% QoQ & 21%
QoQ, respectively. Currently coal price in RB index stands at
$63/ton (-43% YoY). Currently cement prices are still in the range
of Rs330-350/bag, which is very high considering that production
costs are coming down and utilization level is below 80%.
Outlook & recommendation
• Local sales peak in summer season while exports are expected
to remain steady atleast till FY09 end. Looking at the decline in
coal prices trend and buoyant cement prices, we expect 2HFY09
results to be exceptional.
• From FY10 onwards, exports are projected to decrease which will
lead to competition in local market amid increased plant
capacities (especially in North). Local sales post FY09 are
projected to show some improvement but the size of growth
depends a lot on the size of PSDP in the FY10 budget.
• Since most of the additional capacity has come in North we
expect increased competition and prices cuts in that region first.
However, North plants could benefit if some substantial aid is
given for development spending (dams) in the upcoming Friend
of Pakistan summit. Otherwise we advice investors caution on
cement sector from a long term perspective because of
overcapacity problems. In the sector we like Attock Cement
(South location, strong brand name & low leverage) and Lucky
Cement (increased presence in South, exports leader and
moderate leverage).
Source: Foundation Securities

Our Internal Research And Development Department conducted a

Market Research and gave us some valuable findings which are as
Export of Cement / Clinker
Export of cement/clinker showed a phenomenal increase of 125% to
reach 450,659 tons as against 132,284 tons exported during last year.
It comprised 157,228 tons cement and 293,431 tons clinker as
compared with last year»s export of 130,284 tons cement and 2000
tons clinker. The Middle East has emerged as the largest potential
buyer of clinker due to depleted Limestone reserves and idle installed
grinding capacities. This growth was also backed by increased
construction in India, Middle East and Afghanistan. India has emerged
as a large potential importer of cement. Its retention price is better
than other export markets which will help us improve our gross
We are confident that recovery phase for cement sector is just around
the corner, as high demand period is about to begin. Cement
dispatches for the first quarter signal strong demand growth in coming
months, during 4QFY08. On the export front things are looking bright
as the Company has received queries from new buyers from Russia,
Central Asia, Madagascar and Nigeria, apart from strong demand from
the conventional export markets. Key risks still remain such as
frequent fallout and deterioration in country’s political/law and order
situation, PSDP allocation and further increase in coal prices.
Project Investment
This section will provide the total cost of the project;

Item Cost (PKR)

Machinery & Plant 100,000,000
Installation & Transportation 15,000,000
Factory Building 35,000,000
Working Capital 38,250,000
Total 188,250,000

For the abovementioned project cost, is collected through IPO and a

Syndicated loan.
Fixed Cost Break-up
Our fixed cost is comprises of rent of land for mill, maintenance of
plant, administrative expenses, and other factory overheads.

Variable Cost Break-up

Our variable cost is comprises of raw material, energy, and factory
labor, and other cost concerned to the factory.

General Terms & Conditions

• Order to be booked at least one month before the supply.
• Irrevocable Letter of Credit will need to be opened by the
Importer’s Bank.
• 40% advance of contract value will be charged at the time of
booking the order, 30% at the time of delivering the order and
the remaining 30% after 15 days of delivery.
• 50% of the payment to creditor will be made when the material
received and remaining 50% will be paid through two post dated
cheques of equal amounts after one month and second month
Factory Area Requirement
The floor space needs to be carefully allocated to allow for maximum
storage space for finished goods and equipment also allowing for easy
handling. The allocation of space between the two sections would be
as follows:

Details Area (Kanal)

Storage of raw 5.0
Storage of finished 3.0
Equipment 5.0
Management Offices 1.0
Total 14.0

Main Office
Eport division plant of Pioneer Cement Plant will be installed at Chenki
at a distance of 40 Km from Khushab and 34 Km from Jauharabad
where Pioneer has already has its factory. Its privileged location at
central Punjab allows easy and fast Supply of raw material.

Human Resource Requirement

The human resource requirement for the factory and main office are as

Designation /Type Number

Export Division Managers 2
Accountant 3
Asst. Accountant 5
Supervisor 3
Trained Factory Workers 50
Helper to factory Workers 100
Loader 50
Office boy 5
Driver 10
The project cost estimates for the proposed export division setup have
been formulated on the basis of discussions with relevant stakeholders
and experts. The cost projections cover the cost of land, building,
inventory, equipment including office furniture etc. The specific
assumptions relating to individual cost components are given as under:

Revenue & Cost Projections

The Sales are expected to increase by 10% every year while the cost of
raw materials is assumed to increase due to inflation which is expected
to be 5%. The annual increase in revenue is expected to result from a
part increase in population increase and part increase in product price.

Depreciation on Equipment
Depreciation on Equipment is assumed 10% per annum based on the
straight line method for the projected period.

Working Capital
It is estimated that an additional amount of approximately PKR
38,250,000 will be required to meet the working capital requirements /
contingency cash for the initial stages. The requirement is based on
the rent, utilities and salaries expenses for at least four months.

The tax rate applicable to corporate in Pakistan is 35% has been used
for calculating income tax in this feasibility report.

Cost of Capital
We gathered the information from the steel industry, and obtained
industry beta-β, risk free rate and other relevant information.
Considering all this, by using WACC, we calculate our cost of capital
Key Assumptions:

Initial Investment PKR 150,000,000

Economic Life 10 years
Tax Rate 35%
Cost of Capital 15%
Projected Sales (50kg Bag) 0,000
Dollar Price 4.50
Rs. Per $
Conversion Rate (Avg) 85
Sales Price Per Unit 383
Variable Cost Per Bag 235
Fixed Cost PKR 100,000,000
Inflation rate 7%
Inventory/sales 10%
Growth in sales/year 10%

Moreover on the basis of these assumptions we can calculated the

following factors:

Year 1 Year 2 Year 3 Year 4 Year 5

1,331,00 1,464,10
Units 1,000,000 1,100,000 1,210,000 0 0
Unit price 382.50 409.28 437.92 468.58 501.38
Unit cost 235.00 251.45 269.05 287.89 308.04
Pro-Forma Income Statement
This is the statement in which we measure performance over some
period of time, usually a year. The general equation of income
statement is given below.

Revenues – Expenses = Income

Now we are making our forecasting income statement on the basis of

our project. And this income statement is for 5 years. Because our
forecasting business is for five years so the income statement is given
Year 1 Year 2 Year 3 Year 4 Year 5
382,500,00 450,202,50 529,888,3 623,678,5 734,069,
Sales 0 0 43 79 688
235,000,00 276,595,00 325,552,3 383,175,0 450,997,
Variable Cost 0 0 15 75 063
100,000,00 107,000,00 114,490,0 122,504,3 131,079,
Fixed Cost 0 0 00 00 601
89,846,02 117,999,2 151,993,
47,500,000 66,607,500
Gross Profit 8 04 024
15,000,00 15,000,00 15,000,0
Depreciation 15,000,000 15,000,000
0 0 00
32,500,00 51,607,50 74,846,0 102,999, 136,993,
0 0 28 204 024

11,028,40 12,972,70
6,452,175 7,984,762 -------------
Interest 14.5% 0 2
63,817,62 90,026,50 136,993,
Taxable Income 26,047,825 43,622,738
7 2 024
22,336,17 31,509,27 47,947,5
Tax 35% 9,116,739 15,267,958
0 6 58

16,931,08 28,354,78 41,481,4 58,517,2 89,045,4

Net Income 6 0 58 26 65
Pro-Forma Cash Flows

Operating Cash Flows:

Operating Cash Flows are equal to:

Operating Cash Flows = EBIT + depreciation - Taxes

Now our operating cash flows are:

Year 1 Year 2 Year 3 Year 4 Year 5

Operating Cash 38,383,26 51,339,54 67,509,8 86,489,9 104,045,
Flows 1 2 58 29 465

Change in Net Working Capital:

Our change in Net Working Capital is as Follows:

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

Sales 382,500, 450,202,50 529,888,34 623,678,5 734,069,6
000 0 3 79 88
NOWC (10% of 38,250,0 45,020,2 73,406,96
52,988,834 62,367,858 --------
sales) 00 50 9
CF due to (38,250, (6,770,2 (11,039,11 73,406,96
investment in (7,968,584) (9,379,024)
000) 50) 1) 9
Change in Net Capital Spending
There is there is only one value of capital spending in 0 year.

So, our net cash flow will be

Net Cash Flow, 2009-2014

Year Net Cash Flows

2009 (188,250,000)
2010 31,613,011
2011 43,370,958
2012 58,130,834
2013 75,450,818
2014 177,452,434

In this case we are investing PKR 188,250,000 today. And against it we

are expecting to get five payments in next five years. And the
payments will be PKR 31,613,011 in 2010, PKR 43,370,958 in 2011,
PKR 58,130,834 in 2012, PKR 75,450,818 in 2013 and last payment will
be PKR 177,452,434 in 2014.
And for this we will calculate the net present value. Because if our net
present value of our project is positive then this project will be
acceptable otherwise it will be rejected. Here we are using 15%
required rate of return.
Net Present Value

NPV is the difference between an investment’s market value and its

cost. The formula for net present value (NPV) is given below:

Net Present Value = Present Value of Future Cash Flow – Initial


But for this we need a formula for present value of each year, so:

Present Value = (Future Value) / (1 + Rate of Return) ^ t

• For First Year

Present Value = (31,613,011) / (1 + 15%) ^ 1
Present Value = 27,489,575

• For Second Year

Present Value = (43,370,958) / (1 + 15%) ^ 2
Present Value = 32,794,675

• For Third Year

Present Value = (58,130,834) / (1 + 15%) ^ 3
Present Value = 38,221,967

• For Fourth Year

Present Value = (75,450,818) / (1 + 15%) ^ 4
Present Value = 43,139,250

• For Fifth Year

Present Value = (177,452,434) / (1 + 15%) ^ 5
Present Value = 88,225,222
Present Values
2010 27,489,575
2011 32,794,675

2012 38,221,967

2013 43,139,250

2014 88,225,222

Total 229,870,689

Now we able to find out the NPV, so

Net Present Value = 229,870,689 – 188,250,000

Net Present Value = 41,620,689 PKR

As we have mentioned that our initial cost is 188,250,000 so with the

help of this we can see that our NPV is positive. So we can say that this
project is acceptable.
Internal Rate of Return (IRR)

The internal rate of return means that the discount rate that makes the
NPV of an investment zero.

For internal rate of return (IRR) it is necessary that NPV must be zero.
So for IRR

0 = Present Value – Initial Investment

IRR can be calculated by using Spreadsheet Formula, or by using

Financial Calculator, or by hit and trail method. We use the
Spreadsheet Formula and calculate the IRR which is;

Rate of Return = 21.72%

This rate of return is internal rate of return (IRR). So this rate makes
NPV is equal to zero. Now based on IRR rule, an investment is
acceptable if the IRR exceeds the required return. It should be rejected
otherwise. But in this project we can see that our IRR is 21.72% and
our required rate of return is 15%. So we can say that this project is
acceptable on the base of IRR rule, because our IRR is greater than our
rate of return.

IRR > Required Return

21.72% > 15%

Payback Period

This method tells us that the amount that we have invested on our
project, how many periods required to covering this amount.
As we know that our initial cost is PKR 188,250,000. After the third
year, the cash flows total PKR 133,114,803, so the project pays back
between somewhere in fourth year. Because the accumulated cash
flow for the fourth year is PKR 208,565,621, we need to recover PKR
55,135,197 in the fourth year. The fourth year cash flow is PKR
75,450,818, so we will have to wait 0.73 year to do this.

(55,135,197) / (75,450,818) = 0.73

So the payback period is thus 3.73 years. But on the payback rule, an
investment is acceptable if its calculated payback period is less than
some pre-specified number of years. And also we can say that this
project is acceptable for us because our payback period is only 3.73
years. And we can cover our initial investment only in three years,
eight months and twenty three days.

Discounted Payback Period

This method tells us that the amount that we have invested on our
project, and how many periods required to covering this amount by
discounting as the value of rupees fall.
As we know that our initial cost is PKR 188,250,000. After the four
years, the discounted cash flow is total PKR 141,645,467, so the
project pays back between somewhere in fifth year. Because the
accumulated cash flow for the fourth year is PKR 88,225,222 , we
need to recover PKR 46,604,533 in the fifth year. The fifth year
discounted cash flow is PKR 88,225,222 , so we will have to wait ..53
year to do this.

(46,604,533) / (88,225,222) = 0.53

So the payback period is thus 4.53 years. But on the payback rule, an
investment is acceptable if its calculated discounted payback period is
less than some pre-specified number of years. And also we can say
that this project is acceptable for us because our discounted payback
period is 4.53 years. And we can cover our initial investment only in
four years six months and ten days.
Average Accounting Return

Another approach to making capital budgeting technique involves the

average accounting return(AAR).
The basic formula for calculating AAR is

Average Accounting Return = Average Net Income

Average book Value

= _46,866,003_

ARR = 49.79%

Based on the average accounting return, a project is acceptable it its

average accounting return exceeds targeted average accounting

Profitability Index

Another tool used to evaluate project is called the profitability index

(PI), or benefit cost ratio. This index is defined as the present value of
the future cash flows divided by the initial investment.
More generally, if a project has a positive NPV, then the present value
of the future cash flows must be bigger than the initial investment. The
profitability index would thus be bigger than 1 for a positive NPV
investment and less than 1 for a negative NPV investment. The formula
for calculating profitability index is given below.

Profitability Index = (Present Value of Future Cash Flow) /

(Initial Investment)


Profitability Index = (229,870,689 ) / (188,250,000)

Profitability Index = 1.22

Now we can see that our profitability index is 1.22 which is greater
than 1. So this project is acceptable for us on the basis of profitability

Profitability Index > 1

1.22 > 1
Break Even Analysis

For thorough analysis of break even, we have calculated accounting

break-even, cash break-even and financial break-even. Following table
shows break-evens for all years at price PKR 383.00 per 50 kg Bag,
with PKR 235.00 variable cost per 50 kg Bag and fixed cost PKR
100,000,000 (Inflation 7%) So:

1 2 3 4 5
Years (Bags (Bags (Bags (Bags (Bags
) ) ) ) )
Accounting Break- (FC+D)/(P-VC) 77966 77300 76679 76097 75554
Even 1 8 0 9 9
Financial Break- (FC)/(P-VC) 67796 67796 67796 67796 67796
Even 6 6 6 6 6
Cash Break-Even (FC+OCF)/(P-VC) 93819 10032 10777 11566 12161
2 60 34 21 07

Accounting break-even gives the sales level that result in zero project
net income. This means that it gives that level of sale where EBIT will
be zero. So it is calculated for every year as we can calculate EBIT for
every year. It is very obvious from the figures that break-even occurs
quite in time with respect to sales in units.
Cash break-even gives the sales level that result in zero operating cash
flows. This means that for calculating this break-even have to take
OCF equal to zero. As this break-even depends only on the price,
variable costs and fixed costs, so it can be calculated for each year.
Same is true for cash break-even as it also occurs quite in time with
respect to sales in units.
Financial break-even is the sales level that results in zero NPV. This
break-even is one for the whole project. Reason for this is we have
different total project cash flows for our five year project. In order to
get this break-even we must calculate OCF in calculating this break-
even. It is very obvious from the table that break-even also occurs at a
suitable position.

Operating Leverage
Operating cost basically the degree to which firm or project relies on
fixed assets. A firm with low operating leverage will have low fixed
costs compared to a firm with high operating leverage. Generally
speaking, projects with a relatively heavy investment in plant and
equipment will have a relatively high degree of operating leverage.
Such projects are said to be capital intensive.
Years 1 2 3 4 5
Degree of 1 + (FC) / 3.61 3.08 2.70 2.42 2.26
Operating (OCF)

So degree of operating leverage is given on above table. And All these

calculations is find out with the help of following formula.
Degree of Operating leverage = 1 + (FC) / (OCF)
Pro-Forma Balance Sheet

year 1 year 2 year 3 year 4 year 5


20,0 20,0 20,00 20,00 20,000

Fixed Assets 00,000 00,000 0,000 0,000 ,000
Accumulated (2,0 (4,0 (6,000 (8,000, (10,000,
Depreciation 00,000) 00,000) ,000) 000) 000)
18,0 16,0 14,0 12,0 10,000,00
Net Fixed Assets 00,000 00,000 00,000 00,000 0
Current Assets
47,9 57,5 77,96 89,98 165,143
Cash 83,050 38,573 0,402 6,214 ,451
18,6 22,3 30,31 34,99
Inventory 60,075 76,112 7,934 4,639 -
22,2 26,6 36,09 41,66
Receivables 14,375 38,228 2,779 0,284 -
3,5 3,5 3,50 3,50
Other Assets 00,000 00,000 0,000 0,000 -

110,3 126,0 161,8 182,1 246,81

57,500 52,913 71,114 41,137 0,226

Liabilities & Equity

Current liabilities
27,3 32,8 46,34 53,65
payables 43,000 21,165 8,446 6,455 -
43,0 53,2 75,52 88,48
short term loan 14,500 31,748 2,668 4,682 -
40,0 40,0 40,00 40,00 40,000
Owner's Equity 00,000 00,000 0,000 0,000 ,000
16,9 28,3 41,28 58,32 206,810
Retained Earning 31,086 54,780 6,458 2,226 ,226

110,3 126,0 161,8 182,1 246,81

57,500 52,913 71,114 41,137 0,226

In this balance sheet we have forecasted this for five years. In which
we have assets side as well as liabilities and owner’s equity side. And
in assets side we have current side and net fixed assets. And net fixed
assets we have depreciated the amount of net a fixed asset which has
PKR 2,000,000.
But in liabilities side we see that the total liabilities vary each year. And
in owner’s equity will be PKR 40,000,000 each year.

Total Assets – Total Liabilities = Owner’s Equity


As we have mentioned that Pioneer opting for an entirely new

project and the are establishing export division. And we have
calculated all those calculations which can be helpful for company
which is entering in the new market. So we can say that this project is
acceptable on the basis of NPV, IRR, Payback Period, and Profitability
Also Strategic Analysis, Industrial analysis, and Market Research
support our decisions which describe that in current situations
prevailing in pakistan it is better to go for exploring the new markets.
So, we will be more oriented towards new strategic objective.