Pakistan’s DG Khan Cement plans US$300mn cement plant

8008 DG Khan Cement, owned by Mian Muhammad Mansha, Pakistan’s third-largest maker of the construction material, wants to build a US$300 million plant near Karachi as economic growth boosts demand, Bloomberg news agency reports.

“There will be a shortage domestically in three years if there is 10 percent growth in demand each year,” said chief financial officer Inayat Ullah Niazi in an interview with Bloomberg in Lahore. The company’s two cement plants have operated near full capacity in the past two years.

The company is building its first plant since 2007 to tap economic growth that Prime Minister Nawaz Sharif’s government forecasts will be the fastest in seven years, even as the nation grapples with an electricity supply crisis and terrorism. Pakistan’s output is projected to expand 4.3% in the year ending June 30 and 4.75% in the following fiscal year by the 4362 International Monetary Fund.

The new plant near Hub, a city west of Karachi, will produce about 2 to 2.5 million tonnes of cement/year, Niazi said. Construction is targeted for completion late in 2018. The plant will be financed 40 percent through internal cash and the rest through debt, Niazi said.

“Expansion means the company will enter the southern region of the country,” Tahir Abbas, an analyst at brokerage Arif Habib, said by phone to Bloomberg staff in Karachi. “This will impact the entire industry and could start a price war.”

DG Khan shares rose 2.9% to 128.63 rupees in Karachi on Thursday 19 February. The stock has gained 48% over the last year, compared with a 32% gain in the benchmark KSE100 Index.

Cement sales in Pakistan rose to a record 34.3 million tonnes in the year to June 30, 2014, according to the cement manufacturers’ association. Sales are on track for another record this year.

DG Khan is spending $30 million to generate electricity from coal to run its plant in Punjab province to decrease reliance on natural gas. South Asia’s second-biggest economy is struggling to meet gas demand and plans to import liquified natural gas.

The company forecasts net income will rise 25% to 7.5 billion rupees ($74 million) in the year ending June 30, Niazi said. Domestic sales with higher margins than exports will contribute to the projected gain. Net income was a record 5.99 billion rupees (58.84 million) in the last fiscal year.