Company Background:
Padma Cement Limited was incorporated as a private limited company in 1998 under Companies Act 1994. Subsequently the company was converted into public limited company with an authorized capital of Tk. 300 million divided into 30 million ordinary shares of Tk.10 each with a view to float its share to the public for an amount of Tk. 138 million. Present paid-up capital of the Company is Tk. 138 million. After the completion of the IPO the total paid up capital will be Tk. 276 million.

The Project
The Padma Cement Limited (PCL) is one of the latest Portland Cement Manufacturer in Bangladesh. The company is located at Baghabari ghat, Shajadpur, Sirajgonj, on a land measuring 6.11 acres which has a good communication facility. PCL is situated on the bank of rivers Baral and Karotoa. The PCL have good access to water and road transportation which is used extensively both for inward movement of clinker and outward movement of cement. The PCL is surrounded by Baghabari Power Plant, Milk Vita, Meghna oil depot, Jamuna Oil depot, Padma oil depot etc. The company commenced commercial operation in April 2001.

Other particulars regarding the company are as follows: 
 

Product & Production Capacity:
Padma Cement Limited produce only Portland cement. The production capacity of the company is 720 MT per day based on three-shift (8hour/shift) production. So yearly production capacity stands at 216,000 MT based on 300 working day.

Brand of the Company
The brand name of the product is "DOLPHIN". The company establishes its brand name all over the North-Bengal. The brand is now disseminating all over the country. The company registered its Trade Mark vide Memo no. 63617 dated 10th February 2000 under the Patent and Design Act 1911.

Scope of Business
The plant is largest in that region and maintains high quality. The company has a strong brand loyal customer group. 

Present diminishing trend of imported cement will fall to below 20%.

The project is located at the Baghabari Ghat, Sirajgonj that is one of the main trade center of north Bengal. The company enjoys excellent distribution facility. 

Raw Materials:
Clinker and Gypsum are the main raw materials for producing Portland Cement. The company does not have any raw material supply agreement with any supplier, however that has not been a problem since commencement of production due to long standing good relationship with the supplier. 

Existing supplier of clinker of Padma Cement Limited is Eurocem Limited which is situated at 1st floor, SEC Commercial Building, 178-180 Jaffe Road, Chai, Hong Kong. 

SOURCES OF AND REQUIREMENT FOR POWER AND WATER

Power and gas 

Company has set up a sub station at the project site and has taken the connection from REB line for smooth operation of the project. Moreover company is presently installing a diesel based 300KVA generator. Stand by generator will ensure PCL regular supply of electricity for uninterrupted power supply for official use and bagging plant. In future, PCL will consider to install a captive gas generator for producing power at a cheaper cost. This will reduce production cost even further and ensure smooth operation of the company. The factory is in 1/4 KM proximity from the main gas grid of the north Bengal. 

Water 
Required water is collected from river through pump. There is no water is required in cement manufacturing process but in ball mill few water is required for cooling this section. 

PRODUCT DIVERSIFICATION:
There is no immediate possibility of any product diversification in the related industry. However, if there is an opportunity in terms of cost and market PCL may consider producing other types of cement. 

Marketing and Distribution:
North Bengal is the main market of Dolphin brand cement. PCL employs 37 dealers in North Bengal region to distribute its product. Company is now appointing dealers in other region of the country to establish its brand name all over the country.

Similar to all existing local manufacturers of cement, PCL sells their products through appointed dealers who receive products at the factory gate. They sale their product to retailer/ end users.

Superior Quality
Dolphin brand cement always maintains high quality of its product. Bangladesh University of Engineering and Technology (BUET) certifies the quality of Dolphin Brand cement. The test result of BUET are as follows:

The comparison between the USA Standard and Dolphin Brand are as follows:
 

Modern Technology
The technology used in Padma Cement Limited was imported from China. The company always maintains stringent measure to ensure quality of its product. It is expected that this will ensure the competitive edge of PCL product over its competitors. 

Regional Image: 
PCL is the largest factory in North Bengal. The other factories of north Bengal are small size and produce low quality cement. Sponsors of PCL are well known businessmen in North Bengal. PCL sells high quality cement at a competitive price. The management is very particular in retaining the image of the factory and quality of its product, which they have achieved through their sincere effort over their tenure of business. 

CUSTOMERS BUYING 10% OR ABOVE
The company has only one dealer buying 10% or above of the net sales.  The Name and Address of the customer is as follows:
Sarder Brothers, Nimtola, Dinajpur 
 
 

VAT, INCOME TAX, CUSTOMS DUTY OR OTHER TAX LIABILITY
The Company pays VAT regularly and has been enjoying tax holiday benefit for the company for a period of seven years commencing from April 2001. Custom duty or other liability is regularly paid as usual.

DESCRIPTION OF MATERIAL PATENTS, TRADE MARKS, LICENSE OR ROYALTY AGREEMENT
The company registered its Trade Mark vide Memo no. 63617 dated 10th February 2000 under the Patent and Design Act 1911. 

THE TOTAL NUMBER OF FULL TIME AND PART TIME EMPLOYEES ARE AS FOLLOWS
 

Paid up capital of the company has been raised to Taka 138,000,000 (one hundred thirty eight million) only during the period from 25th January 1998 to 18th July 2001 as follows:
 

Name                          Number of Shares                 Amount
Aminul Islam                       2,500,000                     25,000,000
Md Nazrul Islam                  2,400,000                     24,000,000
Mohammad Ali                    1,400,000                     14,000,000
Nahid Kawser                      1,500,000                     15,000,000
Mamun Ali Biswas               1,200,000                     12,000,000
Tanvir Nawaz                         800,000                       8,000,000
Biswas Cold Storage           3,000,000                     30,000,000
Natore Cold Storage           1,000,000                      10,000,000
TOTAL                                                                   138,000,000

The above amounts are duly reflected in the cash books, ledgers and bank statements of the company. Summery of bank statement is as follows:

Out of Taka 138 million deposited as paid up capital, the sponsors have deposited Taka 7,669,600 in Natore Branch, Islami Bank Bangladesh Limited in the following dates and amounts: - 
 

INDUSTRY OVERVIEW OF CEMENT INDUSTRY IN BANGLADESH 
The development of cement industry in Bangladesh dates back to the early-fifties but its growth in real sense started only about decade or so. Bangladesh has been experiencing an upsurge in the use of cement in recent years. Increase in demand for cement has soared mainly due to the property sector boom and infrastructure development concentrated in the Dhaka Metropolitan area and other major urban areas of the country. The infrastructural development at grass root level has led to an increased demand for cement at an average rate of 8% per annum during the past decade.

Existing industry Structure:
The Cement industry involves a huge outlay for setting up of the plant, developing the infrastructure facilities and also for creating a large sales network throughout the country. Due to higher profitability of the local cement manufacturers, more than 23 companies in the private and public sector are operating in the country. The Chhatak Cement,Sunamganj, the single largest government-owned enterprise in this sector, has been producing cement since 1941 ; while Chittagong Cement Clinker Grinding Co.Ltd., Confidence Cement Company Ltd., Meghna Cement Mills Limited, Niloy Cement Industries Ltd.,Aramit Cement Limited-ACL, Mongla Cement,Khulna, Holderbank PLC, etc. are the major manufacturers in the private sector. At Present, the 23 cement producing units of the country have a combined installed capacity to produce 8,380,000 MT of Portland cement. These factories produce 5,447,000 MT of cement per year utilising 65% of their production capacity. The capacity utilisation of these factories is expected to increase with the improvement in power, gas and labour management situation. Once fully operational to their economic capacity, the industry will be able to meet the entire demand of the country by the end of 2001 and also export the surplus quantity afterwards.

Existing Cement Manufacturing Units of the country and their production capacity 
 

Under implementation Units:
At present, there are a number of under implementation units in the country. Some of these units belong to local groups and the rest belong to multinational groups. 
Units belonging to Local Owners:
Karnafully Cement and Shah Cement are the two units having yearly production capacity of 6000,000 MT and 1,200,000 MT respectively.

Units under Multinational Giants:
Among the multinational giants, Cemex, Scancem, Holderbank, Emirates Cement and Lafarge are most important. Due to environmental hazard and health consciousness, the developed countries, especially the Europe, these groups are in favour of setting up of cement factories in the developing regions like Bangladesh. In this process, the Lafarge, the second largest cement manufacturer in the world, is setting up a modern cement factory named Lafarge Surma Cement Limited in Sunamganj .The plant is expected to produce 1.2 million tons of grey Portland cement per year. The Cemex Limited, another giant cement producing group, has also started construction of its factory in Narayanganj with a capacity to produce 5 lac MT of cement per year. The Eerste Nederlandse Cement Industries N.V. (Scan cement) has already taken-over the management control of the Chittagong Cement Clinker Grinding Factory through purchasing 51 % share of the company. The Scan Cement has also set up a clinker grinding unit in Narayanganj. Besides, the above, some other multinational companies are also looking forward for setting up of cement factories in Bangladesh.
Holderbank PLC starts its operation by taking-over Hyundai Cement Industry. Now the production capacity stands at 11 lac MT after taking over United Cement. The company started marketing its product in its corporate brand name "HOLCIM". 
The estimated production capacity of the under implementation units are as below: 
 
 

Estimated Supply situation of Cement in Bangladesh:
The state owned Chhatak Cement Factory and Ayeenpur Cement Industries Limited in private sector are two basic cement factories in the country,which uses limestone to produce cement, while the rest of the factories simply import cement clinkers, crush the same , mix them with gypsum and put them into bags with a marginal value addition. The 24 units currently produce 5.4 million MT of cement, utilising on an average, 65% of their installed capacity. The volume of annual import of bagged cement in the country was around 3.5 million MT till 1995-96,but presently hardly any import of cement is being made. The major reasons behind the decreasing demand for the imported cement are as below:
? Diminishing strength of imported cement due to long time span between production and usage (120 days on an average)
? Increasing supply of quality cement from the local manufacturers.
? Continuous devaluation of local currency has put the imported cement in severe price competition with local products. 
? At present Import duty and Tax on clinker and finished cement are 40.5% and 68% respectively, which makes local production more attractive. 
On the basis of the capacity utilisation and the future expansion programmes of the existing units, and also the production capacity of the under implementation units, our projection of supply of cement in the country during the next five years stands as below:

A. Estimated Production of the Existing Units:
 
 

B. Estimated production of the under Implementation Units

Assumptions:
Local Companies utilize 65% of installed capacity
Multinational Companies utilize 75% of installed capacity
Capacity utilization is remaining static because of probability of come up of new unit and competitive situation in the market. 

Estimated Demand for Cement in Bangladesh:
Increase in demand for cement is dependent on the growth of property sector and infrastructure development of the country. With the introduction of the National Housing Policy and expansion schemes of the House Building Finance Corporation (HBFC) and other house finance agencies, the demand for cement is expected to grow further in future It is expected that the Demand for cement would grow at around 10% per annum, while production is expected to grow at a higher rate from the year 2003 onwards with the completion of a few under construction factories.  

The following table provides a Projection on GDP growth rate, year-wise production and demand for Cement in Bangladesh for the next five years:
 

BASIS OF DEMAND CALCULATION:
* Demand in 2000 was 5 million MT.
*The growth in demand for cement has been calculated at 1.5X of the GDP growth of the economy and is expected to remain so in the next five years.

Projection on Demand and Supply (Production) of cement in Bangladesh

As there is hardly any import of cement in recent years, we may consider the total production of cement of the local factories as the total supply of cement in the country. We however, are expecting marketing of bagged imported cement by multinational companies in an effort to establish their brand loyalty and at the same time marginalise the local producers through cut price policy. 

Our projected Demand-Supply Gap of cement in the country during the next five years would stand as below:  

Assumption:
Demand in 2000 was 5 million MT. Surplus is shown in parenthesis. 
It may be observed from above that at present there is a surplus of 148,050 M.T. tons of cement in the country. We expect that after implementation of the on going units the country would not only be self sufficient in cement but also export the same in the near future. We expect that due to environmental hazard and health consciousness more cement manufacturing units will be shut down in the developed countries and more such units will be re-located in our region/ country. In order to meet the growing demand of the developed countries, the giant multinationals would produce more cement by setting up more factories in these regions. So, there exists enough scope for setting up of more import substitute basic cement factories in our country. 

The Duty Structure of the Industry
It is believed that favourable Govt. policy in the form of tariff protection and low price of clinker in the international market have lead to mushroom growth of clinker crushing units in the country. In the current budget 2001, the government has imposed a supplementary duty of 5% on import of clinker and 20% on import of cement. As a result the total import duty and tax on clinker and cement has become 40.5% and 68.0% respectively, which is expected to favour further growth of cement producing units in the country. 

Price Structure of the Industry and future pricing of cement:
Cement prices, like all commodity prices, are influenced by demand-supply dynamics. Seasonal factors like weak demand during monsoon in most areas also put pressure on prices. As the freight cost accounts for a substantial proportion of sales price, the ruling market price of cement becomes different in different regions.  

At present the retail price of cement at major distribution points Dhaka is around Tk.210-220 per bag depending on brand name. The ex-factory price of cement is Tk. 195- 205 per bag depending on brand name.

Additional capacity utilisation of the existing units as well as commissioning of new producing units is likely to bring down the sales price, unless there is an equivalent rise in demand. But if the demand does not rise proportionately to absorb the additional supply, the units would have to lower price to induce more sale to maintain the required level of revenue income. The quality of cement, brand image, export potential, price of cement in international market, anti- dumping position of cement manufacturer, future tariff policy etc. will have an impact on price of cement in future.  

The factories which would be using captive power, which is cheaper and more reliable than grid power and backed by uninterrupted clinker supply at competitive price are likely to be more cost efficient to emerge as the market leader. Thus, in the long run, the lime stone based factories have a better chance to take the lead in the market because of their ensured supply of limestone through long term arrangement.

Threat from the importers:
The current international price of cement is US$ 24/ton but the estimated landed cost of imported cement is at least Tk.236/ bag, as shown below. Port congestion, high freight cost, high tariff rates and various incidental expenses are responsible for the enormous rise in the retail price. Moreover, because of perceived ‘low quality’ and diminishing strength due to long time span in between production date and ultimate destination/consumption date, the imported cement always fails to attract the consumers as quality local produce is abundantly available at similar price range at nearby shops. Due to these factors imported cement is virtually out of the market and it is believed that the possibility of its import in the country is very bleak in the near future also. 

The detail break up of the cost of import of cement is as below:
 

Potentiality of Cement Export from Bangladesh
The local production scenario demonstrates that it would not only be able to meet the entire domestic demand but also export to the developed countries, the Middle East and other markets. The fear of environmental hazard, health consciousness etc of the developed countries and the low cost of labour, favourable tariff policy and better infrastructural facility of our country are likely to help us to make an inroad in the international market. 

Possibility of market dominance by the Giant Multinational Companies
The multinational companies, who have set up plants in the country, believe that the local production would be more than sufficient to meet the domestic demand and they would soon be able to dictate the market price as well as supply of cement through controlling the source of procurement of clinker as well as the network of distribution of finished cement. In apprehension, there is a number of locally established cement factories who are planning to get out of the business by way of selling to the giant operators. It is anticipated that by the year 2004, the cement market shall be dominated by major giants leaving some of the left-out small producers to continue to operate in their controlled market. This integration will continue to take place and the on-going process of acquisition and its acquisition cost of the existing facility will determine justification of future establishment of a brand new factory.