LUCKY CEMENT LIMITED

THE GROUP

MARIAM NASIR
Manager Research
Sep 10 - 16, 2007

Yunus Brothers Group is country's prestigious and largest business groups. The Group is engaged in diversified manufacturing activities including Finishing, Stitching, Textile, Spinning, Weaving, Processing, and Power Generation. Group comprises Lucky Cement Limited, Lucky Textile Mills, Fazal Textile Mills Limited, Gadoon Textile Mills Limited, Lucky Energy (Private) Limited, Yunus Textile Mills.

PERFORMANCE IN FY07

By year ending June 30, 2007 Company's sales growth risen by 111.29% to 4.64 mtpa against last year of 2.20 mtpa. The majority of the company's new expansion lines streamlined operation at different time intervals during FY07. During FY07 the company has achieved a growth of 111.29% in term of quantity. Net sales revenue registered a growth of 55.48% as compared to FY06. The cost per ton has been reduced by 17.5% during the year because of economy of scale and efficiency in fuel and power consumption despite increase in coal prices and oil on international level. The gross profit grew by 23.31% compared to FY06; reason behind this rise was mainly attributed by volumetric growth in sales and reduction in cost of production. Company's financial charges per ton were Rs.186 per ton during the year against Rs.38 per ton for the same period last year. The net profits of the company increased by 31.58% from Rs.7.35 per share to Rs.9.67 per share.

(Rs in Mn)

FY06

FY07

Change

Turnover

8,054

12,522

55%

Cost of Sales

5,074

8,847

74%

Gross Profit

2,980

3,675

23%

Administrative Cost

107

111

4%

Distribution Cost

103

498

381%

Finance Cost

83

863

942%

Other operating income

(0)

(629)

 

Other Charges

134

142

6%

Profit Before Tax

2,553

2,690

5%

Taxation

617

143

-77%

Profit After Tax

1,936

2,547

32%

Earning Per Share (Rs.)

7.35

9.67

 

Gross Margin (%)

37%

29%

 

Net Margins (%)

24%

20%

 

MARKET SHARE

The company successfully managed an overall market share of 19.16% of the industry. The domestic market share of your company was 15.13% whereas your company acquired 45.70% in overall exports and 79.13% in terms of exports by sea route.

EXPANSION

Lucky Cement recently announced another expansion plan of two additional lines totaling up to 2.5mtpa at its Karachi (Nooriabad) project. The company had already acquired the land and has started civil works for the new plant. The company has an aggressive plant completion target of 18 months. When commissioned, the total capacity of the company will increase by 38% to 9mtpa, by far the highest in the industry.

The Lucky Cement Company Limited will further raise its capital by issuing ordinary shares to a depository company on behalf of international investors, who will, in turn, issue the global depository receipts (GDRs) outside Pakistan to be listed in London Stock Exchange. A special resolution was passed at an extra-ordinary meeting, which has authorized the company to raise further its capital without issuance of right shares. The ordinary shares, represented by GDRs, will be issued as the aggregate offering value of GDRs, including Green Shoe Option, will not exceed US$150m and the number of GDR will represent the shares to be issued, determining the base on the results of the book building process. The actual subscription price per GDR will be determined by means of a book building process. The GDRs at the option of a GDR-holder can be converted into ordinary shares of the company vice versa and the issuance of ordinary shares will be effected pursuant to the first provision of section 86(1) of the Companies Ordinance, 1984 and subject to further approval of the Securities and Exchange Commission of Pakistan (SECP) and State Bank of Pakistan (SBP).

COMPANY TO DISPATCH 1ST CEMENT BATCH TO INDIA

The company will dispatch first consignment to India amounting to 5,000 tonnes to 10,000 tonnes of cement. Lucky Cement received the certification for its cement from Bureau of Indian Standards (BIS) earlier, which cleared its way to export the building material to the neighboring country, which is facing a huge shortage. The company expects to sell from one million tonnes to 1.5 million tonnes cement to the buyers in India within one year. The landed cost of cement imported from Pakistan is around 170 Indian Rupees per 50kg bag as against 240 Indian Rupees charged by the domestic producers. Even if another 30 Indian Rupees is added as transportation cost, Pakistani cement will be available for 200 Indian Rupees in Indian cities. The government has done away with the countervailing duty of 16% and additional duty of 4% on cement imports to meet demand for cement. Company is also pursuing additional international certifications apart from BIS, which would further augment its international image and may create additional export markets.

SWOT ANALYSIS

STRENGTH AND OPPORTUNITIES:

* It has manufacturing facilities in both North and South Zones in Pakistan.

* Given its presence near the sea port of Karachi, Lucky Cement can capture the growing cement demand in Gulf countries.

* It has acquired the first mover advantage and has been able to increase its market share in both local and export markets.

THREATS AND WEAKNESS:

* Company's new plants are of Chinese origin, hence increasing its cost of maintenance.

* Company's utilization may remain low until a couple of years if the demand didn't keep the pace.

* Coal prices have increased sharply in the international market raising the cost for the company.

FUTURE OUTLOOK

The economic performance of the Country in terms of GDP growth rate is one of the best performing countries of the region which has been consistently over 6.5% for the last four years. The Public Sector Development Projects (PSDP) allocation for the last five years has been growing with CAGR of 35.5%. The PSDP allocation of Rs.520 billion for the financial year 2007-08 with focus on dams, canal linings, infrastructure work, housing construction, deep sea ports and development work all over the country will lead to a drastic increase in the demand of cement in future, which ultimately favors Lucky Cement.