COMSATS Institute of Information Technology Islamabad

CF Research project
D.G.Khan Cement & Bestway Cement
Muhammad Hanif Raja

2010
Sp09-Mba-088
MBA 3A
Contents
D.G. Khan Cement Company Ltd...................................................................................................................3
Mian Mohammad Mansha, the chairman of Nishat Group continues the spirit of entrepreneurship and
has led the Group successfully to make it the premier business group of the region. The group has
become a multidimensional corporation and has played an important role in the industrial development
of the country. In recognition of his unparallel contribution, the Government of Pakistan has also
conferred him with “Sitara-e-Imtiaz”, one of the most prestigious civil awards of the country.................3
Acquisition of DGKCC by Nishat Group..........................................................................................................3
Expansion -Khairpur Project..........................................................................................................................4
Power Generation.........................................................................................................................................4
Environmental Management.........................................................................................................................5
Owners of the company................................................................................................................................5
Board of Directors.........................................................................................................................................6
Incorporation date.........................................................................................................................................6
Products........................................................................................................................................................6
Competitors...................................................................................................................................................7
Number of shares outstanding......................................................................................................................7
Total Market capitalization............................................................................................................................7
Book Value per Share....................................................................................................................................7
M/B Ratio......................................................................................................................................................7
Start of fiscal Year..........................................................................................................................................8
Capital Structure............................................................................................................................................8
Debt...........................................................................................................................................................8
Equity.........................................................................................................................................................8
Dividend policy..............................................................................................................................................8
Leases............................................................................................................................................................8
Finance leases............................................................................................................................................8
Operating leases........................................................................................................................................9
Depreciation Method....................................................................................................................................9
Bestway Cement limited..............................................................................................................................10
Bestway Cement Hattar...........................................................................................................................11

D.G.Khan Cement Bestway Cement

 Plant Conversion to Gas...........................................................................................................................11
Plant Conversion to Coal..........................................................................................................................11
Capacity Enhancement............................................................................................................................12
Listing on KSE...........................................................................................................................................12
Exports.....................................................................................................................................................13
Bestway Cement Chakwal-I.....................................................................................................................13
Mustehkam Cement................................................................................................................................14
Capacity Enhancement and Modernisation.............................................................................................14
Bestway Cement Chakwal-II....................................................................................................................14
Environment a top Priority......................................................................................................................15
Quality Assurance....................................................................................................................................15
Incorporation Date......................................................................................................................................15
Listing date..................................................................................................................................................15
Products......................................................................................................................................................15
Competitors.................................................................................................................................................16
Number of shares outstanding....................................................................................................................16
Total Market capitalization..........................................................................................................................16
Book Value per Share..................................................................................................................................16
M/B Ratio....................................................................................................................................................17
Start of fiscal Year........................................................................................................................................17
Capital Structure..........................................................................................................................................17
Debt.........................................................................................................................................................17
Equity.......................................................................................................................................................17
Dividend policy............................................................................................................................................17
Leasing.........................................................................................................................................................17
Depreciation Method..................................................................................................................................17
References:..................................................................................................................................................18

D.G.Khan Cement Bestway Cement

D.G. Khan Cement Company Ltd.
NISHAT GROUP
Nishat Group is one of the leading and most diversified business groups in South
East Asia. With assets over PRs.300 billion, it ranks amongst the top five business
houses of Pakistan. The group has strong presence in three most important business
sectors of the region namely Textiles, Cement and Financial Services. In addition,
the Group has also interest in Insurance, Power Generation, Paper products and
Aviation. It also has the distinction of being one of the largest players in each
sector. The Group is considered at par with multinationals operating locally in terms
of its quality of products & services and management skills.
 

Mian Mohammad Mansha, the chairman of Nishat Group continues the spirit
of entrepreneurship and has led the Group successfully to make it the premier
business group of the region. The group has become a multidimensional corporation
and has played an important role in the industrial development of the country. In
recognition of his unparallel contribution, the Government of Pakistan has also
conferred him with “Sitara-e-Imtiaz”, one of the most prestigious civil awards
of the country.
 
D.G. Khan Cement Company Limited (DGKCC), a unit of Nishat group, is the
largest cement-manufacturing unit in Pakistan with a production capacity of 5,500
tons clinker per day. It has a countrywide distribution network and its products are
preferred on projects of national repute both locally and internationally due to the
unparallel and consistent quality. It is list on all the Stock Exchanges of Pakistan.
 
DGKCC was established under the management control of State Cement
Corporation of Pakistan Limited (SCCP) in 1978. DGKCC started its commercial
production in April 1986 with 2000 tons per day (TPD) clinker based on dry process
technology. Plant & Machinery was supplied by UBE Industries of Japan.
 

D.G.Khan Cement Bestway Cement

Acquisition of DGKCC by Nishat Group
Nishat Group acquired DGKCC in 1992 under the privatization initiative of the
government. Starting from the privatization, the focus of the management has been
on increasing capacity as well as utilization level of the plant. The company
undertook the optimization by raising the capacity immediately after the
privatization by 200tpd to 2200tpd in 1993.
 
Capacity Addition
To meet the increasing demand and to capitalize on its geographic location, the
management further expanded the capacity by adding another production line with a
capacity of 3,300 tons per day in year 1998. Design of the new plant is based on
latest dry process technology, energy efficient and environmental protection from
particulate pollution according to the international standards. The plant and
machinery was supplied by M/s F.L. Smidth of Denmark. As a result, DGKCC
emerged as the largest cement production plant in Pakistan with annual production
capacity of 1,650,000 M tons of clinker (1,732,000 M.Tons Cement) constituting
about 10% share of the total cement production capacity of the country. The
optimization plan is still underway to increase the total capacity of the two units to
6700 TPD by mid of 2005 from 5500 TPD at present. 

Expansion -Khairpur Project

Furthermore, the Group is also setting up a new cement production line of 6,700
TPD clinker near Kalar Kahar, Distt. Chakwal, the single largest production line in
the country. First of its kind in cement industry of Pakistan, the new plant will have
two strings of pre-heater towers, the advantage of twin strings lies in the operational
flexibility whereby production may be adjusted according to market conditions. The
project will be equipped with two vertical cement grinding mills. The cement
grinding mills are first vertical Mills in Pakistan.  The new plant would not only
increase the capacity but would also provide proximity to the untapped market of
Northern Punjab and NWFP besides making it more convenient to export to
Afghanistan from northern borders.
 

D.G.Khan Cement Bestway Cement

Power Generation
For continuous and smooth operations of the plant uninterrupted power supply is
very crucial. The company has its own power generation plant along with WAPDA
supply. The installed generation capacity is 23.84 MW.

Environmental Management
DG Khan Cement Co. Ltd., production processes are environment friendly and
comply with the World Bank’s environmental standards. It has been certified for
“Environment Management System” ISO 14001 by Quality Assurance Services,
Australia. The company was also certified for ISO-9002 (Quality Management
System) in 1998. By achieving this landmark, DG Khan Cement became the first
and only cement factory in Pakistan certified for both ISO 9002 & ISO 14001...

Owners of the company

SHARES HELD PERCENTAGE

1. NISHAT MILLS LTD. 95,537,640 31.40

2. ADAMJEE INSURANCE COMPANY LIMITED 1,173,287 0.39

3. INVESTMENT CORPORATION OF PAKISTAN 1,400 0.00

4. NATIONAL BANK OF PAKISTAN-TRUSTEE WING

(NATIONAL INVESTMENT (UNIT) TRUST) 10,184,217 3.35

5. MRS. NAZ MANSHA DIRECTOR/ 78,541 0.03

CHAIRPERSON

6. MIAN RAZA MANSHA DIRECTOR/ 6,717,422 2.21

CHIEF EXECUTIVE

7. MR. I.U. NIAZI DIRECTOR/CFO 1,928 0.00

8. MS. NABIHA SHAHNAWAZ CHEEMA DIRECTOR 3,000 0.00

9. MRS. AMMIL RAZA MANSHA 4,091,041 1.34

(SPOUSE OF CHIEF EXECUTIVE)

10. Joint Stock Companies 134,836,295 44.32

11. Investment Companies 10,209,621 3.36

12. Insurance Companies 8,681,346 2.85

13. Financial Institutions 9,912,827 3.26

14. Modaraba Companies 3,338,100 1.10

D.G.Khan Cement Bestway Cement

Board of Directors
Mrs. Naz Mansha Chairperson
Mian Raza Mansha Chief Executive
Mr. Khalid Qadeer Qureshi
Mr. Zaka-ud-Din
Mr. Muhammad Azam
Mr. Inayat Ullah Niazi Chief Financial Officer
Ms. Nabiha Shahnawaz Cheema

Incorporation date
DGKCC was established under the management control of State Cement
Corporation of Pakistan Limited (SCCP) in 1978. DGKCC started its commercial
production in April 1986 with 2000 tons per day (TPD) clinker based on dry process
technology.

Products
i. Ordinary Portland Cement
ii. Clinker
iii. Sulphate Resistant Cement

Competitors
i. Fauji cement
ii. Bestway cement
iii. Dewan cement
iv. Lucky cement

D.G.Khan Cement Bestway Cement

Number of shares outstanding

304,249,400
Total Market capitalization

7,950,036,822

Book Value per Share

67.1108

M/B Ratio
0.3893

Start of fiscal Year

Fiscal year of DG cement starts from 1st July and ends at 30 June.

Capital Structure
DG cement is using equity and debt both but its capital structure is not complex
capital structure.

Debt 51.04%
Equity 48.96%

D.G.Khan Cement Bestway Cement

Dividend policy
Dividend distribution to the shareholders is recognised as a liability in the period in
which the dividends are approved. According to annual report 2009 DG cement
offers no dividend this year.

Leases
Finance leases
Leases where the Company has substantially all the risks and rewards of ownership
are classified as finance leases. At inception, finance leases are capitalised at the
lower of present value of minimum lease payments under the lease agreements and
the fair value of the assets, less accumulated depreciation and impairment loss, if
any.
The related rental obligations, net of finance costs, are included in liabilities against
assets subject to finance lease as referred to in note 8. The liabilities are classified as
current and non-current depending upon the timing of the payment.
Minimum lease payments made under finance leases are apportioned between the
finance cost and the reduction of the outstanding liability. The finance cost is
allocated to each period during the lease term so as to produce a constant periodic
rate of interest on the remaining balance of the liability. Contingent lease payments ,
if any are accounted for by revising the minimum lease payments over the
remaining term of the lease when the lease adjustment is confirmed. The interest
element of the rental is charged to income over the lease term.
Assets acquired under a finance lease are depreciated over the estimated useful life
of the assets on reducing balance method except plant and machinery which is
depreciated on straight line method at the rates mentioned in note 18. Depreciation
of leased assets is charged to profit and loss.
Depreciation methods, residual values and the useful lives of the assets are reviewed
at least at each financial year-end and adjusted if impact of depreciation is
significant.

D.G.Khan Cement Bestway Cement

Depreciation on additions to leased assets is charged from the month in which an
asset is acquired while no depreciation is charged for the month in which the asset is
disposed off.

Operating leases
Leases where a significant portion of the risks and rewards of ownership are
retained by the lessor are classified as operating leases. Payments made under
operating leases (net of any incentives received from the lessor) are charged to
profit on a straight-line basis over the lease term.

Depreciation Method
1) Assets acquired under a finance lease are depreciated over the estimated
useful life of the assets on reducing balance method.
2) Plant and machinery is depreciated on straight line method.

Bestway Cement limited

Bestway Cement Limited is part of the Bestway Group of the United Kingdom.
Bestway Group was founded by Sir Mohammed Anwar Pervez nearly thirty three

D.G.Khan Cement Bestway Cement

years ago on what could be best described as one man’s vision and passion. Since
then it has translated into a unique and successful group of businesses spread across
the globe with the help of committed, professional and hardworking management
and staff, together with loyal customers and suppliers. The Group has a well-
diversified portfolio incorporating within its folds cement manufacturing, global
banking, wholesale cash & carry business, a string of retail outlets, real estate
investment, ethnic food and beverage import and distribution and milling of rice.
Recently the group has embarked upon a large power generation project in Pakistan
thus further diversifying its operations and revenue base.

Bestway Group is an example of a dynamic enterprise. Over the last three decades
the Group has achieved remarkable success and positioned itself amongst United
Kingdom’s top 10 privately owned companies.

Bestway is U.K’s second largest cash and carry operator in terms of turnover with
group annual turnover in excess of US Dollars 3.6 billion and profits in excess of
US Dollars 135 million; the second largest cement producer in Pakistan and joint
owner of Pakistan’s third largest bank, United Bank Limited. Its rice milling
facilities are one of the largest of its kind in the country. The group is the largest
overseas Pakistani investor with investments in excess of US Dollars 1 billion and a
global workforce of over 22,000 people spread over four continents.

In response to successive governments’ efforts to attract foreign investment in the

country Bestway Group has invested heavily in Pakistan. In just over decade
Bestway’s cement production capacity is set to more than quadruple to over 6.0
million tonnes per annum, making Bestway the second largest cement producer in
the country.

In early 1992 when the Group decided to set up its first cement plant it faced
multiple challenges mainly due to a lack of credibility as a business due to the
absence of a track record in Pakistan. The domestic economy was highly
inhospitable characterized by high interest rates, high inflation and low liquidity
leading to a general economic and political inertia. It has however successfully
exhibited its managerial dynamism and technical excellence in setting up and
managing the manufacturing facilities and achieving market dominance through its
diversification strategy by investing in the local cement industry and continues to be
bullish about Pakistan.

D.G.Khan Cement Bestway Cement

Even during the period of economic slowdown and recession in the country in the
late 1990’s which adversely affected the profitability of the industry Bestway was
able to record pre-tax profits even at 60% capacity utilization. The Company has
been amongst the leaders in the recent market boom, operating at above 100% of its
installed capacity.

Bestway Cement Hattar

In 1994 work was started on the cement plant in the under developed area of Hattar,
Haripur in the North West Frontier Province, Pakistan. This was an initial
investment of US$120 million. The contract for the supply of main plant was signed
with Mitsubishi Corporation of Japan in June 1995. The suppliers sub contracted
some of the equipment to other international manufacturers, namely the crushers to
FAM of Germany, Cement mill to Fuller of USA and electrical and instrumentation
to ABB of Switzerland and Siemens of Germany. Civil works started in January
1996 and the Kiln was fired in April 1998, which is a record in itself.

Plant Conversion to Gas

Prior to 2001 production at Bestway Cement was being carried out using furnace oil
as fuel. The management’s proactive decision in anticipation of a further hike in oil
prices lead to modification of its plant to operate on natural gas. These were the first
steps in achieving a cost efficient production process and ultimately the production
process was converted to coal with a further investment of approximately US$10
million.

Plant Conversion to Coal

The machinery for coal conversion was procured from IPPR Engineering of China
while some of the fabrication and erection work was done locally. The whole
project was supervised by a highly skilful team of Chinese engineers alongside the
Company’s own engineers. The entire project from signing the agreement to
commissioning was completed within a record period of 10 months. The Company
has also set up its own coal testing and analysis laboratory, which is equipped with
the most up-to-date equipment to ensure that only quality coal is used in the process
to prevent undesired operational and environmental effects. Conversion to natural
gas and then to coal has significantly reduced the energy cost component, which at
times constituted about 65% of the total production cost.

D.G.Khan Cement Bestway Cement

Capacity Enhancement
Bestway’s proactive management has kept the Company one step ahead of its
competitors. The timely and strategic decisions of the management have enabled the
Company to maintain its current market share of around 8% and its position as the
lead exporter.

Hattar plant’s initial capacity was 1.0 million tonnes per annum. In 2002, at a cost
of US$20 million, plant capacity was enhanced to 1.15 million tonnes per annum to
meet the ever increasing demand for quality cement.

Owing to the management’s insight on growing market demand and the potential to
export, in 2004 the plant’s capacity was further upgraded to 1.25 million tonnes of
clinker production.

Listing on KSE
Despite all the challenges the cement plant, since it’s commissioning in October
1998, has been generating positive cash flows. Bestway Cement was listed on the
Karachi Stock Exchange in February 2001 and since listing its market capitalisation
has grown by approximately 850% making Bestway Cement one of the largest
companies by market capitalization. Bestway Cement Hattar continues to play a key
role in the local economy, providing direct employment to over 600 people with a
further 1,500 jobs being created in the transportation of cement from the plant. Due
to its prudent policies and professional management Bestway has been one of the
most profitable entities in the industry since it commenced commercial operations
in 1998 making substantial contributions to the public exchequer through direct and
indirect taxes.

Exports
The Company has been able to maintain its status as a market leader due to superior
product quality, effective marketing, customer focus and staff dedication. Prior to
the commissioning of Chakwal-I and Mustehkam Cement, Bestway enjoyed more
than 8% of the market share of the domestic market. Successful introduction of its
brand in Afghanistan and more recently in India, Africa and Middle East has made
Bestway one of the largest exporters of cement in Pakistan.

Bestway Cement Chakwal-I

In February 2004 owing to the growth in market demand, Bestway Group took the
strategic decision of expanding its operations through the setting up of a 1.8 million

D.G.Khan Cement Bestway Cement

tonnes per annum cement plant near Village Tatral of District Chakwal, Punjab
Province, Pakistan. This is the Group’s second Greenfield development project at a
cost of US$ 140 million.

The Company started its land acquisition in June 2004 and civil constructions in
January 2005. The plant specifications were compiled by Bestway’s own engineers
selecting the best equipments available. The raw-mill and coal-mill has been
supplied by Loesche, fans by Venti, gear boxes by Flender, Switch Gear by ABB,
Bucket Elevators by Aumund, Motors, Motor Control Systems and Automation by
Siemens of Germany.

In April 2005, the Prime Minister of Pakistan, Mr Shaukat Aziz performed the
groundbreaking ceremony for the plant. Civil works for Bestway Chakwal were
initiated in January 2005, the Kiln was fired in May 2006 and the plant went into
production in June 2006 which is an industry record. During the planning and
construction phase the company took all the necessary steps to guarantee that the
plant and machinery not only met the local and international environmental
standards but also exceeded them.

Bestway Cement Chakwal-I has led to the direct and indirect creation of jobs for
more than 2,000 jobs - injecting a new lease of life in one of the most economically
dispossessed parts of Pakistan.

Mustehkam Cement
To further extend its presence in the cement industry, Bestway decided to bid for
85.29% of equity of Mustehkam Cement Limited a 0.6 million tonnes per annum
capacity plant, following an offering by the Privatisation Commission, Government
of Pakistan. The company’s bid of approximately US$70.0 million was accepted in
September 2005. Mustehkam’s plant is in close vicinity of our existing operations in
Hattar, District Haripur, NWFP. Though the production of the enterprise had been
discontinued in 1999, due to the hard work and dedication of our local staff and
management, Mustehkam started production in December 2005 – one month after
acquisition.

Capacity Enhancement and Modernisation

Mustehkam Cement has a glorious past with the company winning best
performance awards from the local stock exchanges. Through increased investments

D.G.Khan Cement Bestway Cement

in capacity and plant upgradation Bestway seeks to return past glory to Mustehkam
Cement.

Recently, Bestway has embarked upon a major upgradation and modernization of

Mustehkam. In the initial phase, one of the process lines at Mustehkam is being
upgraded to a capacity of 0.9 million tonnes per annum at an estimated cost of US
Dollars 50 million. This enhancement is being carried out mainly with the
assistance of FL Smidth and will take the total production capacity at Mustehkam to
above 1.2 million tonnes per annum of clinker. Planning is already in progress to
upgrade and enhance the remaining production lines also.

Bestway Cement Chakwal-II

In May 2006 the Group announced plans for the establishment of a second 1.8
million tonnes per annum capacity plant adjacent to our existing operations in
Chakwal at a cost of US$180.0 million. This would be Bestway’s third Greenfield
cement plant in Pakistan. This would be an identical plant to the existing Line-1,
having 1.8 million tonnes capacity.

By the end of the first quarter of 2008, through these investments, the Group’s
cement manufacturing capacity is set to exceed 6.0 million tonnes per annum,
making Bestway the second largest cement producer in the country.

Environment a top Priority

Bestway’s plants are environmentally friendly with emission standards that far
exceed prevailing acceptable standards, both local and international. The plants’
emission levels are 50 microns whereas the Government of Pakistan’s acceptable
standards are 300 microns and international standards are 100 microns per cubic
meter of air at NTP.

Quality Assurance
Bestway Cement is driven by high standards of efficiency and quality. Strict quality
control procedures are applied to ensure that these aims are achieved. The best
quality control equipment in Pakistan is in use at its plants. Apart from the usual
equipment, Bestway’s laboratories are equipped with state-of-the-art X-ray
Fluorescent Analyzer and Diffractometer technology. Bestway Group was a pioneer
in introducing this technology in Pakistan for the first time. By virtue of this
equipment, the Company has been able to consistently produce better quality
cement than is currently available in the country. Since inception, Bestway has been

D.G.Khan Cement Bestway Cement

producing Portland cement of specifications far superior to the Pakistani, Indian,
British and American standards.

Incorporation Date
1st Cement plant of Bestway was incorporated in 1992.

Listing date
Bestway cement was listed at Karachi stock exchange on Feb, 2001.

Products
i. Ordinary Portland Cement
ii. Clinker
iii. Sulphate Resistant Cement
iv. Quick setting cement

Competitors
v. Fauji cement
vi. DGK cement
vii. Dewan cement
viii. Lucky cement

Number of shares outstanding

325,747,591

Total Market capitalization

6,511,694,344

Book Value per Share

25.22

D.G.Khan Cement Bestway Cement

M/B Ratio

0.7926

Start of fiscal Year

Fiscal year of Bestway starts from 1st July.

Capital Structure
Debt 29.12%
Equity 70.88%

Dividend policy
Dividend distribution to the shareholders is recognised as liability in the period in
which it is declared.

Leasing
Leases in term of which the Company assumes substantially all the risks and
rewards of ownership are classified as finance lease. Assets acquired by way of
finance lease are stated at amounts equal to the lower of their fair value and the
present value of minimum lease payments at the inception of the lease less
accumulated depreciation and impairment losses, if any. Outstanding obligations
under the lease less finance charges allocated to the future periods are shown as
liability. Depreciation on assets held under finance lease is charged in a manner
consistent with that for depreciable assets which are owned by the Company.

Depreciation Method

1. Depreciation is charged to income applying the reducing balance

method.

D.G.Khan Cement Bestway Cement

 2. Buildings and plant and machinery are depreciated on straight line
method.
3. Leasehold land is amortized over the remaining period of the lease.

References:

www.corporateinformation.com

www.scribd.com

www.yahoofinance.com

www.khistocks.com

www.kse.com.pk

www.brecorder.com

www.bestway.com

www.dgkcement.com

D.G.Khan Cement Bestway Cement

D.G.Khan Cement Bestway Cement