D.G. Khan Cement to Spend $360 Million on Factories

Nov. 12 (Bloomberg) -- D.G. Khan Cement Ltd., Pakistan’s second-biggest producer, plans to invest 30 billion rupees ($360 million) to build a factory at home and in Sri Lanka, aiming to double capacity and tap demand in South Asia and East Africa. Shares rose.

The company plans to invest as much as 10 billion rupees to build a 2 million ton plant in Sri Lanka in partnership with the government, Chief Executive Officer Mian Raza Mansha said in an interview in Lahore today. Another 20 billion rupees will be spent to build a 3 million ton factory at Hub near Karachi to increase sales to East African nations, he said.

D.G. Khan Cement expects to capture demand for cement as South Asian and African nations, which produce less cement than they need, spend more on building roads, bridges and power plants. The South Asian region is forecast to expand 7.8 percent in 2011, according to the World Bank.

“This is a brilliant strategy to find new markets and place production capacity according to the regional requirements,” said Rehan Khan, research analyst at First Capital Equities Ltd. in Karachi, who has a “buy” recommendation on the stock.

D.G. Khan’s shares, which have climbed 28 this year, rose 1.9 percent, to 27.01 rupees at the 3:30 p.m. local time close on the Karachi Stock Exchange, after rising as much as 3.4 percent earlier.

Rights Shares

The company plans to raise 1 billion rupees through a rights share issue in the next quarter, Mansha said.

D.G. Khan increased its production capacity to 4 million tons a year from 1.7 million tons in 2004. The Sri Lanka plant will supply cement to that country and to India and Bangladesh, he said.

The Karachi plant, which will be the company’s third after Dera Ghazi Khan and Kallar Kahar in the Punjab province, will focus on sales to Ethiopia, Sudan and Jabuti.

“We are concentrating on the East African market where demand is rising,” said Mansha, 37, who has worked in the family business since he graduated from the University of Pennsylvania in 1994. The company signed a contract last week to supply its first shipment of 250,000 tons of cement to Ethiopia, he said, adding he expects to increase sales to that country to 500,000 tons a year.

Lucky Cement Ltd., Pakistan’s biggest producer plans to start a factory in Africa by 2011, Chief Executive Officer Muhammad Ali Tabba said in an interview in August.

D.G. Khan, which sells 900 tons of cement a week to India, hopes to double sales if transport ties ease.

Indian Appetite

“India has tremendous appetite for Pakistani cement but we have to stop taking orders since we can’t deliver because of transport restrictions,” Mansha said. “If both countries give permission for trucks to be used to transport instead of trains, which have quota restrictions, both nations will benefit.”

Peace talks between the two nuclear-armed neighbors stalled after the Mumbai attacks in November, which India blames on the Pakistan-based Lashkar-e-Taiba militant group. Five years of peace talks from 2003 led to increased cultural and sporting links between the two nuclear-armed rivals and the establishment of new rail and road services.

The cement maker returned to a profit in the first-quarter ended Sept. 30 as borrowing costs declined. Net income was 630.3 million rupees, or 2 rupees a share, in the three months ended Sept. 30, compared with a loss of 223 million rupees, or 0.88 rupees, a year earlier.

Pakistani cement makers borrowed to expand capacity in the past five years to meet demand in Afghanistan and the Middle East.

D.G. Khan Cement began producing in 1986 and was acquired by the Nishat Group through a government asset sale program in 1992. The Nishat Group is Pakistan’s biggest business conglomerate with seven listed companies in banking, cement, textiles, insurance and power.

To contact the reporter on this story: Farhan Sharif in Karachi, Pakistan fsharif2@bloomberg.net.

Source: http://www.bloomberg.com/apps/news?pid=20601091&sid=aUjoL1TjKcCw