Saudi Cement Industry

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SAUDI CEMENT INDUSTRY- A FUNDAMENTAL ANALYSIS
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International Journal of Science Commerce and Humanities Volume No 3 No 7 December 2015
SAUDI CEMENT INDUSTRY- A FUNDAMENTAL ANALYSIS
Dr. Asif Baig Dr. Jamal Radi El Zoubi

Assistant Professor ,Jubail Industrial College,
Management and Information Technology, Jubail Industrial City 31961
P. O. Box 10099,
Kingdom of Saudi Arabia
Abstract
The Saudi Arabian cement industry is the largest on the Arabian Peninsula, with an integrated capacity of over
50Mt/yr. This is unsurprising considering that it is also the largest and most populous country on the Peninsula,
with around 27m inhabitants and a cement consumption rate in the region of 1550kg/capita/yr based on 2010's
production level of 43Mt.In June 2012 it was anticipated that demand would rise to 49Mt for the whole of 2012
and 52Mt/yr for 2013.The recent increase in the country's domestic cement production capacity, which has seen
cement capacity almost double since 2005, makes it possible to satisfy these levels purely from domestic plants.
.
Objective and Methodology

This study is an attempt to analyze the various factors of the industry like cost structure and profitability,
government policy, and taxation whether these factors have any impact on the fundamental of the company or
not. The core aspect is to evaluate the past performance and the expected future performance of companies, to
analyze the profitability position of the companies and the various ratios of the past five years of sample
companies. The study is based on the secondary data collected from various government records and published
national document, websites and adopts analytical and descriptive research design.
Sampling Technique
The study is done with special reference to large scale cement companies and the technique of
„Convenience Sampling‟ is being adopted for the study.
Sample Size
Four Saudi large scale companies are chosen as sample size of the study, on account of sales, production
and profitability.
Tools for analysis
Ratio Analysis
Ratios have been calculated for past five years for the purpose of analysis. Ratios being designed are
named as: Earning per Share (EPS), Operating Profit Margin (OPM), Net Profit Margin (NPM), Debt Equity
Ratio (DER), and Price Earning Ration (PER), dividend payout ratio and Current Ratio.
Analysis of Variance (ANOVA)

The statistical tool that is used for testing hypothesis is one-way Analysis of Variance (ANOVA)
11
Hypothesis of the Study

The study tests whether the selected variables of sample companies vary significantly during the study
period. This specific hypothesis is tested at appropriate time while analyzing and interpreting the results. The
two basic hypotheses have been taken for testing. One is null-hypothesis and another is alternative hypotheses,
which have been framed as follows:
(HI): There is no significant difference between the position of a selected variable of Yamama Cement, Yanbu
Cement,Qasim Cement and Saudi Cement.
Introduction
Every developed and developing nation‟s favorite project is infrastructure and cement is a key infrastructure
industry. Saudi Arabia is fast emerging on the world map as a strong and efficient economy and an effective
global power. The country is going through a multiple phase of rapid development and growth. All the core
industries and sectors of the country are registering growth and thus, luring investors. And cement industry is
one of them. With growing Government Expenditure on Infrastructure sector in Saudi Arabia has generated a
higher demand of cement in the country and resulted increased participation of large companies in the sector
making year old Saudi cement industry one of the largest producer in the world. Saudi Arabian cement sector is
the most cost competitive in the world. The sector‟s average cement production cost per tonne of USD30.9 in
2010 was the lowest in the GCC. Cement production cost per tonne in Oman, the second most cost competitive
country in the region, averaged USD37.0. This is primarily because cement manufacturers in the Kingdom
procure fuel at artificially low prices from the government and also capitalize on the availability of abundant
raw materials (limestone). Fuel and raw materials account for around 50–60% of production cost globally.
Consequently, the Saudi Arabian cement manufacturers enjoy gross margins in excess of 50%. In contrast, their
GCC and international peers have average margins of less than 30%. Oman is the only other GCC country that
has high gross margins of around 45%.1
History of cement industry

Curiosity of exploring something good in the 18thcentury activated honorable people to explore the truth
and to understand why some limes possess hydraulic properties. John Smeaton generally known as “father of
civil engineering in England “ concentrated his efforts in this filed. Feting influenced by the work of Smeaton
and Parker in 1812 the French Engineer Louis Vicat started investigative study of hydraulic lines. In 1818 an
English patent was granted to Maurice Leger for”Improvement methods of making lime” (Leger used Vicat‟s
method), in 1822 the civil commercial production of “British Cement” had been started by James Frost at
Swanscombe based on a patent for “ a new cement or artificial stone”. JosephAspedin, an English Bricklayer in
1824 should be credited for the invention of Portland cement. It involves a double kilning such as was described
by Vicat. In 1838 Isaac Johnson a young chemical engineer innovated the modern Portland cement. In
1875,standards of cement were proposed by German Chemist Wilhelm Michaelis. Further the chamber kiln was
an improved design developed and patented by Mr. Johnson. Portland cement Company in 1898 bought
revolution in cement industry by improving the design of kiln. After 1900 there was speedy growth in both
rotary kiln and auxiliary equipment technology in the US.2
Saudi Cement Industry

Cement hold key status in infrastructure industry and in Saudi it has undergone a major shift over the last 6
years but still brand premium is almost non-existent in the industry. With massive investments being pumped
into the infrastructure space, the outlook for the Saudi cement sector looks bright in the coming years.Cement
companies have benefited largely from cheap raw materials and fuel availability, making them outstandingly
12
profitable. However, there are some concerns on fuel supply, which acts as a major hurdle for the sector. Saudi
Arabia boasts a booming construction industry with magnificent yearly industry output. The country is also the
largest market for construction work in the Middle East, ahead of Iran, Turkey, and other neighboring Gulf
countries. Hence, the demand for cement, which constitutes the intrinsic component in construction activities,
is inevitably high in Saudi Arabia. In terms of volume, the Kingdom of Saudi Arabia cement market exhibited a
production capacity of 55,700.0 kilo tons in 2013, and it is expected to reach 78,258.8 kilo tons by 2020,
developing at a moderate 5.4% CAGR between 2014 and 20203. The cement market in Saudi Arabia stood at
US$3.59 billion in 2013. Cement is the cornerstone of construction activities around the world. Fuelled by rapid
economic development, Saudi Arabia offers lucrative prospects for investment. Hence, investors from across
the globe are trying their luck in the economic segments of the country, the construction industry being one of
them. The country itself is guided by the policy of large-scale infrastructural development, which has
significantly aided its construction industry. Rapid urbanization, infrastructural development, and increasing
demand for commercial and residential construction are identified in the report as primary factors propelling the
Saudi Arabia cement market. “The growth prospects for the cement market in Saudi Arabia seem vibrant,
however, the key vendors may have to address challenges related to the supply of subsidized fuel and unbridled
government interventions to enjoy unhindered progress”, says a lead TMR analyst. The report on the Saudi
Arabia cement market provides an executive-level blueprint of the market that analyzes the different factors that
are likely to impact the growth trajectory of the market. Among the key application segments, infrastructure
development dominated the market in 2013, accounting for 50% of the total demand generated in the Kingdom
of Saudi Arabia. Fuelled by increased government spending to bolster infrastructure development, the cement
market in the Kingdom of Saudi Arabia is anticipated to expand exponentially. 4In terms of cement
consumption, the central region of the Kingdom of Saudi Arabia led the cement market with a 32% share in
2013. The region was trailed by the western and eastern regions. The high cement consumption in the central
region can be attributed to its rapid urbanization. Hence, the central and western regions in the Kingdom of
Saudi Arabia have become the most lucrative destinations for cement producers. The cement market in Saudi
Arabia will also benefit from the expanding tourism in the country, which will correspondingly boost new
construction activity in the country. Some of the leading players in the Saudi Arabia cement market profiled in
the report are Saudi Cement Company, Riyadh Cement Company, Yamama Cement Company, and Najran
Cement Company.5
Impact of globalization on cement industry

Globalization has impacted Saudi Cement Industry in a big way and has helped the industry to restructure itself
to compete with the alterations in all regards. The international cement demand is derivative in nature as it
solely depends on the constructional activities, real estate and other related industrial activities. Keeping pace
with the advance technological world, the Saudi cement industry has transformed itself into more advanced and
globally at par one. The Saudicement industry is among the oldest industries and has been catering to Saudi‟s
cement requirements from Decades. It is not only meeting the requirements arisen within the domestic territory
but also fulfilling the burgeoning demands of the international arena. Saudi is also exporting good amount of
cement clinker and by products of cement. With futuristic development policy the Government of Saudi has
lifted the ban on cement export. but. Due to the superlative quality, the Saudi cement has established high status
on the global map.With the Introduction of the cement export ban, the cement sector is highly regulated by the
government in Saudi Arabia. This also gives the government relatively high control of cement prices. In 2011
the average price was US$3.72/bag (50kg) or US$74/t.6
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Regulatory Developments
The Kingdom‟s cement sector enjoys a supportive regulatory environment alongside subsidies. As part of the
WTO „Safeguard Measures‟ framework, Saudi Arabia holds preemptive rights to invoke „antidumping‟ punitive
tariffs on foreign producers who choose to „dump‟ cheap cement into the Kingdom. The Saudi cement sector is
heavily regulated by MOCI. Being a subsidized industry, MOCI has the leverage to interfere in setting the
cement prices. In June 2008, MOCI introduced an export ban on cement in an effort to contain local production
and meet domestic demand.Saudi Arabia readily produces several types of both Portland cement and Blended
cement. The former comes in varying forms: Type I, known as Ordinary Port-land Cement (OPC); Type II,
known as Moderate Sulfate Resistant Cement; and Type V, known as Sulfate Resistant Cement (SRC). Blended
cement types include Port-land Pozzolana Cement (PPC), as well as oil well cement, which is produced
specifically for use by Saudi Aramco within the oil industry. An estimated 70% of the market share is attributed
to Type I, with the remainder being split between Type II, Type V and other variants. Over the years, Saudi
cement producers have leveraged their expertise and knowledge of the local market, and there is very little
foreign investor involvement. One ex-ample of a company that partnered with an international firm is Arabian
Cement, (Table 3). However, in August 2011, itannounced it would be liquidating its investment with
ItalcementGroup, on the back of accumulated losses. The companyInternational City Company for Concretewas
formed to primarily cater to King Abdullah Economic City (KAEC), but after mixed success with construction
timelines, the venture suffered financially7 .Increased cement demand and hoarding practices led to a higher-
than-anticipated rise in cement prices across Saudi Arabia in 2012. As a result, the government imposed a price
ceiling of SAR 240 per ton (down from SAR 250 per ton earlier) in March 2012. Moreover, cement exports are
banned, except to selected countries such as Bahrain. However, traders continued their practice of artificially
creating shortages, leading to higher prices throughout 2013. Acute labor shortage in 2014 disrupted cement
production, thereby resulting in lower sales. However, cement manufacturing companies took advantage of this
shortage, leading to inflated prices.Among listed players, Yanbu Cement and Qassim Cement sell cement for
SAR 250 per ton. At the end of 9M 2014, the average cement prices in the Kingdom stood at SAR 246 per ton.
Impact of competition
Cement industry in Saudi Arabia operates at the highest gross margin and net profitmargin in the world. This is
despite having the lowest price realizations after the UAE inthe GCC. Saudi Arabia commands low realizations
due to its reduced cost of production,thanks to the availability of fuel at cheap rates. Saudi Arabian cement
companies enjoycheap natural gas (at USD0.75 per mmbtu, about one-fifth the international market price)and
availability of majority of raw materials from local mines.The industry was caught up with oversupply situation
and prices started declining afterthe entry of new players. However, average cost of production remained steady
andhelped mitigate the overall impact on margins. In fact, Saudi Arabia was able to retain itsleading
profitability position in the industry. Average cost of production stood at aroundSAR109/tonne between 2008
and 3Q 2011, mainly due to cost-cutting measures such asinstallation of in-house power plants and cost
rationalization.Cement industry‟s gross margins hovered in the range of 52–60% during 2006–2010.
Themargins, which peaked in 2007, were lowest in 2010 due to significantly poorer marginsof Arabian Cement
and Al Jouf as well as a lower-than-average performance by EasternProvince and Tabuk Cement. However,
margins regained some of the lost sheen andreached 54.0% during 9M 2011 due to a 15% jump in volumes and
improved prices.Net profit margins for the Saudi Arabian cement industry moved in the range of 58–46%over
2007–2010. Net margins were adversely impacted by higher interest charges, andincreasing selling and
marketing expenses. However, the margins improved in 9M 2011to 48.3% from the average of 46.0% in 20108.
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Diversification away from oil – a key to growth

The Saudi Arabian economy is largely dependent on oil-based revenues. Oil and gas sectorcontributes more
than 48% to the country‟s GDP. However, due to the volatile nature ofthis industry, the Saudi government has
been focusing on diversifying its economy awayfrom oil. The government has been taking steps to boost growth
in other industries. The efforts have yielded positive results, and the contribution of oil to GDP declined to 48%
in2009 from 52% in 2005. Despite a sharp drop in oil prices, the Kingdom‟s GDP expanded0.6% during 2009
due to a 3.8% growth in the non-oil sector.Cement has emerged as one of the important sectors in Saudi Arabia,
given its rapidgrowth due to favorable business dynamics. In terms of economic activities, theconstruction
sector is the sixth-largest contributor (5%) to the overall GDP. Increase inconstruction activities and healthy
economic expansion is expected to fuel further growthin the cement sector.Saudi Arabia is developing six
economic cities across the country to enhance nationalcompetitiveness and attract foreign and domestic
investment into the downstreamenergy, transport and knowledge-based sectors through various incentives. The
focus isto improve the quality of education and build human resources. These cities would alsostimulate the
overall growth in the region, which up till now was restricted to the central,western and to some extent southern
parts of the country9.
Fundamental analysis & interpretation of results

To trace out the impact of cost structure & profitability, governmental policies, globalization, taxation
we have analyzed four large scale companies in the field of Cement sector at the bases of Fundamental analysis.
In fundamental analysis we find out the comparative balance sheet, income statement of each company.
>Yamama Cement
>Yanbu Cement
>Qassim Cement
> Saudi Cement
1. Operating profit margin (OPM)
Operating Profit Margin indicates how effective a company is at controlling the costs and expenses
associated with their normal business operations. This ratio is found out using the following formula and
expressed in percentage terms.
1. Operating Profit Margin = Operating Profit X 100

Net Sales
The Operating Profit Margin position of the sample companies is depicted in
Table: 1 and discussed below.
Year Qasim Yamama Yanbu cement Saudi

Cement cement cement
2010 53.3431 51.6471 48.9984 50.1075
2011 50.5325 51.3035 47.1272 51.4890
2012 53.5305 55.7274 50.1273 50.0029
2013 55.6612 55.3435 50.6177 50.4943
2014 56.3186 50.4890 54.7147 53.0520
2010 51.6879 51.6471 48.9984 50.1075
Source: Computed using MS- Excel spread sheets from the data available riyadhcapital.com
15
We can see that operating profit margin of Qasim cement is highest among all the companies and Yanbu
cement is low so Qasim cement is best among all in case of operating profit margin.
Hypothesis Testing
Ho: OPM position of Yamama Cement, Yanbu Cement, Qasim Cement and Saudi cements does differ
significantly.
Ha: OPM position of U of Yamama Cement, Yanbu Cement, Qasim Cement and Saudi csments does
differ significantly.
Table 2: One-Way ANOVA for Operating Profit Margin

Sum of df Mean Square F 50% F-limit
Squares
Between 692.303 4 2.225 2.90
Groups
Within 1478.181 19 173.076
Groups
Total 2170.484 23 77.799
Source: One-Way ANOVA has been calculated by SPSS.
Inference
Since the calculated value of F is 2.225 which is less than the table value of
2.90 (CV < TV at 5% significance level), the null hypothesis is accepted and hence it is concluded that the
operating profit margin position of Yamama Cement, Yanbu Cement, Qasim Cement and Saudi cements does
differ significantly.
2. Net Profit Margin (NPM)

Net Profit Margin indicates how much a company is able to earn after all direct and indirect expenses to
every rupee of revenue. This ratio is calculated by using the following formula and expressed in percentage
terms.
Net Profit Margin = Net Profit X 100
Net Sales
Table 3: Net profit margin (in %) of the sample companies
Year Qasim Cement Yamama Yanbu cement Saudi cement
cement
2010 50.7664 50.2371 47.9984 51.1075
2011 49.2365 48.3035 48.1272 50.4890
2012 51.5205 52.7274 49.1273 50.1229
2013 52.6712 55.3435 51.6177 50.4543
2014 50.3186 53.1290 53.7147 54.0520
Average 50.4461 51.6234 49.6123 51.2345
Source: Computed using MS- Excel spread sheets from the data available in riyad capital.com
As shown we can watch here that NPM of Yamama cement is higher than other companies so here we
can easily interpret that in terms of NPM Yamamacement limited is best amongst all the four companies.
16
Ho: NPM position of Yamama Cement, Yanbu Cement, Qasim Cement and Saudi cements does differ
significantly.
Ha: NPM position of Yamama Cement, Yanbu Cement, Qasim Cement and Saudi cements does differ
significantly
Table 4: One-Way ANOVA for Net Profit Margin

Squares
Between 18.859 4 20.465 271 2.87
Groups
Within 1510.711 20 75.536
Groups
Total 1592.570 24
Source: One-way ANOVA has been calculated by SPSS Inference

Since the calculated value of F is .271 which is less than the table value of 2.87 (CV < TV at 5% significance
level), the null hypothesis is accepted and hence it is concluded that the net profit margin position of Yamama
Cement, Yanbu Cement, Qasim Cement and Saudi cements does differ significantly.
3. Earnings Per Share (EPS)

Earnings per share is the measure of company's ability to generate after tax profits per share held by the
investors. This ratio is computed with the help of the following formula and expressed in rupee terms.
Earnings per share = Profit after tax – Preference dividend
No. of equity share
Table 5: Earning Per Share (in %) of the sample companies

Year Qasim Yamama Yanbu Saudi cement
2010 2.25 4.87 4.10 4.31
2011 6.35 5.48 3.58 5.43
2012 5.25 4.04 7.21 7.20
2013 6.50 4.39 5.38 7.36
2014 6.26 4.89 5.16 7.00
Average 5.32 4.73 5.04 6.26
Source: Computed using MS- Excel spread sheets riyadhcapital.com.

As shown in table EPS position Saudi cement is very high SR 6.26 as compare to others and that of Yamama
cement is very low just SR.4.73 so here we can say that Saudi cement enjoys a good position in market as
compared to other companies. The EPS position of sample companies are compared and tested using the
following hypothesis. The details are shown in Table.
Ho: EPS position of Yamama Cement, Yanbu Cement, Qasim Cement and Saudi cements does differ
significantly.
17
Ha: EPS position of Yamama Cement, Yanbu Cement, Qasim Cement and Saudi cements s does differ
significantly.
Table 6: One-way ANOVA for Earning Per Share

Sum of df Mean Square F 50 % F-
Squares limit
Between 1064033.821 4 266008.455 4.961 2.87
Groups
Within 1072423.098 20 53621.155
Groups
Total 2136456.919 24
Source: One-way ANOVA has been calculated by SPSS
Inference
Since the calculated value of F is 4.961 which is more than the table value of 2.87 (CV > TV at 5% significance
level), the null hypothesis is rejected and hence it is concluded that the earning per share position of Yamama
4.Dividend Payout Ratio: Dividend per share

Earnings per share
Table 7: Dividend payout ratio (in %) of the sample companies

2010 16.0185 30.23 80.1381 27.1557
2011 327.3648 32.12 47.9188 21.6381
2012 9.4838 23.12 94.6739 22.9563
2013 6.3647 36.36 11.8079 9.8175
2014 6.1769 30.33 10.7039 11.7637
Average 73.0825 30.33 49.0486 18.6662
Source: Computed using MS-Excel spread sheets from the data available in riyadhcapital.com
From this table we can easily came to know that Qasim cement limited has got the best position if dividend
payout ratio is concerned.
Hypothesis Testing
Ho: DPR position of Yamama Cement, Yanbu Cement, Qasim Cement and Saudi cements does differ
significantly.
Ha: DPR position of Yamama Cement, Yanbu Cement, Qasim Cement and Saudi cements does differ
significantly.
18
TabIe8: One-way ANOVA for Dividend Payout Ratio.
Sum of df Mean Square F 50 % F-limit

Squares
Between 1137.139 4 2844.285 489 3.06
Groups
Within 87264.752 15 5817.650
Groups
Total 98641.891 19
Inference
level), the null hypothesis is accepted and hence it is concluded that the Dividend payout position of Yamama
5. Return On Net Worth (RONW) This ratio helps us in examining what the shareholders getting after paying
out all the liabilities. RONW takes into account final profit and all the shareholders‟ funds.
Table 9: Return on net worth (in %) of the sample companies
Return on net worth: Net profit X 100

Equity share capital + reserve and surplus

2010 26.99 22.50 20.26 19.56
2011 28.27 21.89 19.26 25.32
2012 24.11 20.39 22.50 20.82
2013 23.23 21.32 21.23 23.69
2014 25.67 23.34 24.22 24.46
Average 25.65 21.42 21.49 22.77
Source: Computed using MS- Excel spread sheets from the data available in riyadhcapital.com
This table shows us that YamamaCements has got low figure 21.42
that of Qasim cement* is quite good as compared to others.Qasim cement RONW is around 25 so here we can
say that Qasim cement enjoying the dominant position over the other companies in terms of return on net worth.
Hypothesis Testing
Ho: RONW position of Yamama Cement, Yanbu Cement, Qasim Cement and Saudi cements does differ
significantly.
Ha: RONW position Yamama Cement, Yanbu Cement, Qasim Cement and Saudi cements does differ
significantly.
19
Table 10: One-way ANOVA for Return on Net Worth

Squares
Between 1023.767 4 255.942 0,730 2.87
Groups
Within 7011.698 20 350.585
Groups
Total 8035.465 24
Inference
level), the null hypothesis is accepted and hence it is concluded that the return on net worth of Yamama
6. Current ratio
Current ratio is a liquidity ratio which shows the liquidity position of a company. Current ratio is current assets
over current liabilities. Current ratio signifies how efficient the company is to pay off its liabilities the higher
the ratio better the company is in liquidity position.
Table 11: Current ratio (in %) of the sample companies
2010 0.6646 3.3442 1.4189 0.7100
2011 0.8226 2.8754 1.0056 0.8800
2012 0.6844 3.2029 0.8833 0.7704
2013 0.6323 3.5097 2.3013 0.9910
2014 0.7181 1.7774 2.0619 1.0198
Average 0.7244 2.9419 1.5342 0.8742
Current ratio = Current asset
Current liabilities
Over here we can see that YamamaIndia cement is a having a good liquidity position,and Qasim cement
is having low liquidity position.
Hypothesis Testing
Ho: CR position of Yamama Cement, Yanbu Cement, Qasim Cement and Saudi cements does differ
significantly.
Ha: CR position of Yamama Cement, Yanbu Cement, Qasim Cement and Saudi cements does differ
significantly.
20
Table 12: One-way ANOVA for Current Ration

Squares
Between 17929.342 4 4482.335 1.007 2.87
Groups
Within 89008.436 20 4450.433
Groups
Total 106937.778 24
Inference
Since the calculated value of F is 1.007 which is less than the table value of 2.87 (CV > TV at 5%
significance level), the null hypothesis is accepted and hence it is concluded that the current ratio of Yamama
7- Debt equity ratio
Debt equity ratio shows us company‟s position in maintaining and handling its capital structure. Capital
structure is composed of proper portion debt and equity. It also shows how efficiently company had gone with
its capital structure.
Debt equity ratio: Debt X 100
Equity
Table 13: Debt equity ratio (in %) of the sample companies

2010 1.4457 5.8153 1.3408 2.0987
2011 1.4350 5.8792 0.9784 2.0635
2012 1.3984 1.7715 1.1742 1.5322
2013 0.8950 1.4848 1.9351 1.0164
2014 0.6454 0.6976 1.8878 1.7148
Average 1.1639 3.1297 1.4633 1.6852
From the above table we can easily interpret that almost all the companies has got somewhat similar
ratio but Yamama cement has got really high debt equity position i.e.3.12 and Qasim cement has got least debt
equity ratio.
Hypothesis Testing
Ho: DER position ofYamama Cement, Yanbu Cement, Qasim Cement and Saudi cements does differ
significantly.
Ha: DER position of Yamama Cement, Yanbu Cement, Qasim Cement and Saudi cements does differ
significantly.
21
Table 14: One-way ANOVA for Debt Equity Ratio.

Sum of df Mean Square F 5% F- limit
Squares
Between 18.102 4 4.525 1.007 2.90
Groups
Within 85.414 19 4.495
Groups
Total 103.516 23
Inference
Since the calculated value of F 1.007 which is less than the table value of 2.90 (CV>TV at 5% significance
level), the null hypothesis is accepted and hence it is concluded that the debt equity position of Yamama
8- Price Earnings Ratio

This price earnings ratio shows the relationship between market price per share and earnings per share. Here we
analyze what a shareholder is getting how much is justified by the current prevailing price of share in the
market.
Price earnings ratio:Market price per share
Earnings per share
Table 15: Price earnings ratio (in %) of the sample companies

2010 0 5.2949 37.5353 7.6518
2011 1528.5799 203.0730 40.6252 5.8024
2012 37.0582 69.4505 169.1677 9.0463
2013 11.4925 7.0807 17.9066 2.9154
2014 9.6347 8.2588 14.4422 2.7132
Average 317.3531 56.5136 55.9354 5.6258
As shown in above table we can easily conclude that Qasim cement is best in price earnings ratio and
Saudi cement is having low price earnings ratio. So a shareholder/investor can have very good response towards
Qasim if he goes for price earnings ratio as criteria for investment.
Hypothesis Testing
Ho: PER position of Yamama Cement, Yanbu Cement, Qasim Cement and Saudi cements does differ
significantly.
Ha:PER position of Yamama Cement, Yanbu Cement, Qasim Cement and Saudi cements does differ
significantly.
22
Table 16: One-way ANOVA for price earnings ratio

Squares
Between 429326.024 4 107331.506 1.095 2.93
Groups
Within 764286.764 18 98015.931
Groups
Total 2193612.787 22
Inference
Since the calculated value of F 1.095 which is less than the table value of 2.93 (CV<TV at 5% significance
level), the null hypothesis is accepted and hence it is concluded that the price earnings ratio of Yamama
Findings of the Study
 It is revealed that demand for cement in domestic market of Saudi has been increasing at a fast pace and
it has surpassed the economic growth rate of the country
 Cement consumption in Saudi is forecasted to grow by over 22% by 2010-14 from 2007-08 and the
installed capacity is expected to increase to 241 MTPA by FY 2015-end.
 Housing sector is expected to remain the largest cement consumer in coming years.
 It is revealed that Saudi cement modern plants are among the best in the world and 93 per cent of the
total installed capacity is based on modern and environment-friendly dry process.
 It is revealed that due to inflation there is 23 percent rise in its raw material cost, wholesale prices of
cement surged by 2.5 percent, prices of limestone have climbed by 9.9. Fire clay has risen by as much as
10.6 percent. The power and fuel cost have also increased.
 It is revealed that Cement Industry is one of the highest contributors in terms of zakat in the country and
certainly the highest in the world.
 It is revealed that 20 per cent of all cement produced was OPC, 60 percent was PPC and 8 per cent was
PBFC.
 It is revealed that Saudi consumption of cement is comparatively lower than international standard.
Companies
o It is revealed that operating profit margin is maximum of Qasimcement over the period of five
years 2010-2014.
o Net profit margin is at dominant position in case of Yamama cement i.e. 12.05912 over the five
years period time 2010-2014.
o It is revealed that Earning per Share of Saudi Cement tends to have advantage its really very high
as compared to other companies.
o The study revealed that dividend payout ratio of Qasim cement is 73.0825 percent, followed by
23
Yanbu cement 49.0486 percent.

o Study revealed that return on net worth of Qasim cement is 25.65 followed by Saudi cement
which is 22.77.
o The study revealed that Current Ratio of Yamama Cement has got comparative advantage on
others as it is around 3:1 which shows good liquidity position.
o It is found that Debt equity ratio of Yamama cement is comparatively high and its position i.e.
3.12 and simultaneously Qasimcement limited has got least debt equity ratio.
o The study revealed that Qasim cement has better Price earnings ratio than others it is around
Rs.317.3531 over the period of five years 2004-2008 and Saudi Cement has lowest PER which is
Rs.5.6258 per share.
Recommendations
Infrastructure projects are considered as mother of employment and it require proper and futuristic
planning which may generate more balance growth and employment. Government initiatives in the
infrastructure sector and the housing sector are likely to be the main drivers of growth for the industry. The
international cement demand is derivative in nature as it solely depends on the constructional activities,real
estate and other related industrial activities and the demand-supply situation is tightly balanced.
Government has to develop balance and growing if not then constant demand for the industry through
promoting housing development, concrete highways and roads and use of ready mix concrete in large
infrastructure projects. Government has to rationalize the tax and duties structure with more liberalized export,
import policy.
Foreign companies have to be allowed with controlled freedom and government has to act as parental
body. Licensing of coal and limestone reserves, supply of power from the state grid and availability of railways
for transport have to be economical, efficient and effective. Rising interest rates, price of raw material, fuel
prices are to be controlled as it has direct impact on cost of the product and its profitability. To meet out
increasing demand expansion must be ecofriendly. Companies who have sound ratios have to keep pace and
promises and those who have average and below to average have to improve their performance for their
competitive survival.
References:
1. Al Jazeera Capital Report, Research Division
2. References can be found in the digital version of this article at
http://www.globalcement.com/magazine/articles.
3. . NCB Economics Development, 'Comparative energy costs and expansionary fiscal policies are fuelling
the Saudi cement sector,'
http://www.menafn.com/updates/research_center/Saudi_Arabia/Economic/NCB040612.pdf, June 2012.
4. Transparency market research analysis, report 2015.
5. 'Global Cement Directory 2013,' PRo Publications International Ltd., Epsom, UK, November 2012, and
work conducted towards publication of future editions of same.
6. NCB Economics Development, 'Comparative energy costs and expansionary fiscal policies are fuelling
the Saudi cement sector,'
http://www.menafn.com/updates/research_center/Saudi_Arabia/Economic/NCB040612.pdf, June 2012.
7. NCB Economics Development, 'Comparative energy costs and expansionary fiscal policies are fuelling
the Saudi cement sector, 'June 2012.
24
8. Al Jazeera, 'Capital Report, Saudi cement sector,' December 2011

9. Al Jazeera, 'Capital Report, Saudi cement sector,' December 2012.
25
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SAUDI CEMENT INDUSTRY- A FUNDAMENTAL ANALYSIS

Article · December 2015

Jamal Radi AL-zoubi

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SAUDI CEMENT INDUSTRY- A FUNDAMENTAL ANALYSIS

Dr. Asif Baig Dr. Jamal Radi El Zoubi

Objective and Methodology

Tools for analysis

Analysis of Variance (ANOVA)

Hypothesis of the Study

History of cement industry

Impact of globalization on cement industry

Diversification away from oil – a key to growth

Fundamental analysis & interpretation of results

1. Operating Profit Margin = Operating Profit X 100

Year Qasim Yamama Yanbu cement Saudi

Table 2: One-Way ANOVA for Operating Profit Margin

Source: One-Way ANOVA has been calculated by SPSS.

2. Net Profit Margin (NPM)

Table 4: One-Way ANOVA for Net Profit Margin

Source: One-way ANOVA has been calculated by SPSS Inference

3. Earnings Per Share (EPS)

Table 5: Earning Per Share (in %) of the sample companies

Source: Computed using MS- Excel spread sheets riyadhcapital.com.

Table 6: One-way ANOVA for Earning Per Share

4.Dividend Payout Ratio: Dividend per share

Table 7: Dividend payout ratio (in %) of the sample companies

TabIe8: One-way ANOVA for Dividend Payout Ratio.

Sum of df Mean Square F 50 % F-limit

Return on net worth: Net profit X 100

Year Qasim Yamama Yanbu Saudi cement

Table 10: One-way ANOVA for Return on Net Worth

Table 12: One-way ANOVA for Current Ration

Table 13: Debt equity ratio (in %) of the sample companies

Table 14: One-way ANOVA for Debt Equity Ratio.

Source: One-way ANOVA has been calculated by SPSS

8- Price Earnings Ratio

Table 15: Price earnings ratio (in %) of the sample companies

Table 16: One-way ANOVA for price earnings ratio

Findings of the Study

Yanbu cement 49.0486 percent.

8. Al Jazeera, 'Capital Report, Saudi cement sector,' December 2011

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