LAHORE - The cement plants capacity utilization levels in the South is 90 per cent compared to the North of 73 per cent, forcing the Punjab units invest in Southern region. As per industry sources, while abandoning its investment plans in Mozambique to set up a cement plant in the Southeast African nation, DGKC’s board has approved a new expansion plan for setting up a new domestic cement plant in Hub, District Lasbela. They said that It is a greenfield project with a capacity of 2.6 million tons per annum and with an estimated cost of Rs40.9 billion. DGKC is likely to finance the project with a capital structure comprising of a mix of a debt-equity of 60:40.
The management is confident that it will not need to raise equity via a rights issue given the strong internal cash flow generation. Experts also concur with the management’s view on this, assuming that the current pricing arrangement sustains over a period of three years. However, additional debt on the books can prove to be a burden, especially heading into a monetary tightening environment.
Experts said that although DGKC has been contemplating the idea of setting up a cement plant in the south for many years now, the timing of the announcement has raised a few eyebrows, given that the prevailing market share arrangement is already standing on shaky ground.