KARACHI, Jan 11: Almost all major cement companies are currently in the throes of giant expansions in their capacities, which, analysts say, would be absorbed by the market assuming demand growth to continue at 12-15 per cent per year.

The first of the expansion of 4300 tons per day, which would be from Pioneer Cement Company Limited is expected to come on stream by October this year. Analyst Sadaf Irfan at stock brokerage firm Taurus Securities says: "The company aims to acquire enhanced market share on the fact that other expansions by major cement manufacturing companies are to commence production much after the commencement of the (4300tpd) production line of Pioneer."

Analysts who follow cement sector for another brokerage firm, First Capital Securities, observe that earlier start of the extended capacity could give the company the 'first mover advantage'. The mega expansion project would result in trebling company's production capacity to 1.8 million tons compared to current 0.6 million tons.

Relative to other cement company stocks, market price of the share in Pioneer Cement has been trading at huge discount, though that is now picking up pace. On Tuesday, the market price of the company stock gained 45 paisa to close at Rs 18.75.

But analysts calculated: "Based on FY'05 earning per share (eps) of Rs 2.80 (inclusion of right issues in the paid-up capital) and a price-to-earnings (p/e) ratio of 12 times, the short term price of Pioneer share comes to Rs 34.60. That leaves room for rise of as much as 84 per cent in the stock value", said a market punter.

Executive director Pioneer Cement told Dawn that Asian Development Bank (ADB) had deferred loan payment amounting to Rs280 million or 1.3 billion yen, for two years, after conducting due diligence on finances and to enable the company finance the project. He claimed that with the additional production coming on line, Pioneer would be able to raise its market share from 4 to 7.5 per cent.

The executive director also said that late last month, Mr Ceret Dal, the Managing Director of Dal Teknik Engineering--the Turkish main contractor, had visited the site and expressed his appreciation over faster than expected progress on the work over the project.

Also last week, foreign consultants from Turkey and Thailand and the consortium of local leasing companies and financier National Bank of Pakistan had been given a presentation about the project at the site.

The expansion project would cost Rs2 billion, of which two-thirds or Rs1.2 billion is being generated from internal resources; Rs470 million from right issues and Rs400 million through loan.

He said that the interest rate on loan that had to be paid by the company at exorbitant 18 per cent in 2003, had been rescheduled to 6.5 per cent, which should result in substantial savings in financial charges.

The Pioneer Cement's Executive director stated that by securing appropriate machinery from Austria and the European countries, the company's capital cost worked out to 28 euro per ton, which was considerably lower than 45 to 70 euro per ton that worked out for most other companies.

He said that besides being the first to launch production from expansion, the company also had a history of being the first to build a sulphur resistant cement plant in the north and the first to have converted all of its production from furnace oil to coal-fired system.

Market watchers believed that the recent announcement by the Executive Committee of National Economic Council (Ecbec) of Rs66 billion for new water lining projects plus higher allocation for the Public Sector Development Programme (Rs202 billion in (FY04-05) bodes well for the cement sector. The market is also awaiting the announcement of construction of dams, all of which would boost cement demand.

Analysts observed that the 1Q'05 earnings at Pioneer Cement depicted a massive 459 per cent upsurge to Rs110 million compared to Rs20 million in the corresponding period of the previous year. "Higher sales volume, lower financial charges and deferred taxation during the period brought about tremendous increase in the bottom line," said the analyst.