The construction of the Diamer Bhasha Dam is expected to be a particular blessing for the cement sector as the process will involve the usage of approximately five million tonnes of cement per annum.
This ostensibly provides an opportunity to all cement companies to enhance their existing local sales. It is noteworthy that the Asian Development Bank (ADB) has formally informed Pakistan that it is ready to provide $4.5 billion for the construction of the Diamer Bhasha Dam, which is an essential component of Pakistan’s energy mix.
This is expected to improve the national water storage capacity and enhance hydroelectric generation capacity and play a supporting role in boosting economic growth. Taking the expected benefits in consideration, it is expected that among all the companies, Fauji Cement (FFCL) is particularly well placed.
On the other hand, Lucky Cement has consolidated its position in the domestic market while this event will further enable it to raise its existing sale level, thereby allowing it to compensate for a decrease in exports.
FFCL stands to gain because of its close proximity to the construction sight and also owing to the fact that it receives regular orders from Chinese corporations. Chinese engineers are also expected to play an important role in the project.
The cement requirement of the dam is more than sufficient to perk up FCCL’s local sales and result in a high EPS which, according to forecast, is expected to stand at Rs0.48 per share for FY11 with restated EPS at Rs0.37 per share after the proposed rights issue in the ratio of 92:100, said Ms Gulshan D Ferozepurwalla at Standard Capital Securities. The construction of the dam is also expected to increase Fauji’s cash base for the FY12 making it seem a more attractive option for investors.
It is also anticipated that FCCL will increase its earnings as its new German plant with a clinker capacity of 7,200 tonnes per day will bring its cement section online by the end of FY11, almost doubling overall capacity. The new plant combined with the promise of Diamer will surely boost FCCL’s sales enabling it to earn high revenues.
