POWER CEMENT LIMITED

Extract NPV for incremental Sale

 Power Cement
Power Cement Limited has started as Private Limited Company on 01st December, 1981 and was

transformed into Public Limited Company on 09 July 1987 and is listed on Pakistan Stock

Exchange. The Company’s principal activity is manufacturing, sell and marketing of cement. The

registered office of the Company is situated at 23, Arif Habib Center, M. T. Khan Road, Karachi

and its undertaking is situated at Deh Kalo Kohar, Nooriabad Industrial Estate, District Jamshoro

(Sindh)

Stock Exchange Symbol: POWER

Group: Arif Habib

Products:

OPC (Ordinary Portland Cement)

It is the product which is used in general construction normally.

SRC (Suplhate Resistant Cement)

It is normally used in Coastal and corrosive soil areas.

Slag Cement (also Known as Blast Furnace Cement)

Mostly used in Mass concentration structures like Dams, Power Projects and so on.
In recent years, Power cement shifted its focus from producing Raw material used in cement

production towards producing cement with their own Brand name.

Current Production Capacity

The current capacity is power cement is 0.9 Mt/y.as per the Audited Financial reports, it is very

much mentioned that current plant is incurring extra cost of almost 20% due to its old technology.

Expansion in Production Capacity

Company is expanding its production line in order to enhance its capacity and secondly to increase
its market share. Power Cement is known for its Quality which gives them edge. Expansion of
2.37 MT/y is expected which will increase the presence of Power Cement especially in Southern
Market. On Average last three year, last grow with 1.92%. Previous 3-Year Avg Growth is 5.67%,
expectation to further grow with 15% due to government and CPEC related project
Expansion Strategy

The expansion is going to benefit Power cement in way that company will start capturing its market

share which is the ultimate objective of firm. Secondly, now Power cement is subsidiary of one of

the finest Business group. They are in hunt to expand this company and run it will good

profitability index as cement sector has got huge potential. Discussion regarding drivers of

expansion in capacity are briefly described below:

China-Pak Economic Corridor

China-Pakistan Economic Corridor (CPEC) is one of the major driver of expanding production

line because most of the CPEC Projects are infrastructural which creates huge demand for cement.

Few examples of projects are: Sukkur-Multan Motorway, Infrastructural development of Gwadar

City, Govt of Sindh is building small dams and so on.

Current Plan of Investment from Iconic Companies

Recently, few of Fortune 500 Firms are their production facilities in Pakistan. Which can be seen

as positive sign as new or existing players are coming with huge projects.

Demand of Pakistani Manufactured Cement in Neighboring Markets

The demand of Pakistani manufactured cement in international countries continues to rise. India

is one of the largest importer of cement from Pakistan. However, East Africa in general, and

Uganda and Tanzania, in particular, could be other potential export venues for Pakistani cement.
Project Debt/Equity Structure

The Project is financed at debt/equity of 69%-31%.

Debt Portion
As per their published annual report it is decided to take syndicate finance from NBP (leading) at

6-Month KIBOR + 2.25%.

Equity
Local equity raised from proceeds of right share issued already received. Moreover, Foreign

Equity raising is consortium of F Smidths &Co. (Danish Global Engineering company).

Weighted Average Cost of Capital

Cost of Equity (Ke)

Cost of Equity is measured through CAPM model.

Cost of Debt (Kd)

Cost of debt is taken on the basis of 6-Months KIBOR+2.25% (Surplus Charged for debt by

lenders) which is mentioned in financial statements of Power Cement.

Debt to Equity Structure

The prevailing capital structure of company since 2009 is shown in the table below.

However, This the Expansion based capital structure of a Power cement.

BETA Measure

New Beta was calculated because due to change in Debt to Equity structure of company because

Beta depicts the risk sensitivity of company. Moreover, as shown in Beta Measure Table, in 2018

Debt to Equity ratio of a company was 54%-46% with Beta of 1.23. However, New Beta has an

increased value 1.71 due to risen in Debt in capital Structure.

Now Weighted average cost of Capital is measured through its Formula.

The Weighted average cost of capital for Power cement is 11.87%.

Result
On incremental sale of cement after expansion is discussed and analyze to calculate through Free
Cash Flow method.
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