$300m cement plant in Pakistan

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

“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 in Lahore on Thursday. 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 percent in the year ending June 30 and 4.75 percent in the following fiscal year by the International Monetary Fund.

The new plant near Hub, a city west of Karachi, will produce about 2 to 2.5 million tons of cement a 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 in Karachi. “This will impact the entire industry and could start a price war.”

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

Cement sales in Pakistan rose to a record 34.3 million tons in the year ended 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 percent 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 in the last fiscal year.

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