Research Analyst

Sep 22 - 28, 2008

Lakson Tobacco Company Limited's principal activity is to manufacture and selling of cigarettes and tobaccos in Pakistan. Lakson tobacco is the second largest tobacco company in Pakistan, with an estimated 47% cigarette market share. Philip Morris International (PMI) had entered into an agreement to acquire an additional 50.21% stake in Pakistan cigarette manufacturer, Lakson Tobacco Company Limited from a number of Lakson Tobacco's principal shareholders for PKR 666.89 (USD 10.96) per share. PMI hold a 40% stake in Lakson Tobacco and this transaction will bring PMI's stake in Lakson Tobacco to approx 90%. Lakson Tobacco's shares are listed in the Karachi and Lahore stock exchanges. Morven Gold and Diplomat are core brands in Lakson Tobacco's mainstream portfolio, while Red & White and Marlboro, manufactured under license from PMI, complement the portfolio. Lakson Tobacco operates four cigarette manufacturing facilities in Pakistan. The Company operates five factories located in Karachi, Dadu, Sahiwal, Rawalpindi and Swabi districts.




31MAR FY08 RS. (000)

Net Sale


Cost of Sale


Gross Profit


Lakson tobacco company Ltd, during the last one year increased its net sales by 9% because of high demand in related products and good performance of the management. The cost of sales also increased by 14% during 1QFY08 because due to increased inflation in Pakistan. The gross profit was decreased by 6.5% in Jan-March 2008, due to high competition in the market and high taxes imposed by the government.



31MARCH FY08 RS. (000)

Profit before tax


Profit after tax


The company's Profit before tax decreased by 5.2% during one year. The profit after tax decreased slightly by 0.2% during 31 March 2008.


The turnover is Rs. 22.4 billion compared to Rs 20.6 billion from last year i.e. an increase of 9%. The increase came mainly due to an increase in the prices. In line with the increase in sales, the gross profit has also increased by 8% to Rs. 4.49 bn over the last year's gross profit of Rs. 4.17 bn. Due to a moderate increase in marketing and distribution, administrative and other operating Expenses, the operating profit, PBT and PAT has increased by 12% to Rs. 2.63 bn and Rs 1.73 bn respectively, resulting in an EPS of Rs. 28.22 compared to Rs. 25.25 in FY07.

FY07 provided temporary relief to the profitability of LTC in the form of largely stagnant profit margins and a modest growth in top and bottom lines. The year saw an increase in the sales and profit figures for LTC, as sales revenue increased 9% during the year. The top line growth has resulted in an 8% increase in gross profits, and a 12% increase in the bottom line.


The Tobacco Industry has to bear the burden of high excise duties on its products. The rates on various varieties are 63% on premium brands, 50-58% on mediocre brands and 42% on low quality brands. Moreover, Pakistan has ratified the Framework Convention on Tobacco Control (FCTC), which is the world's first global agreement devoted entirely to tobacco control. The FCTC is an agreement amongst many countries to restrict advertising of tobacco. The agreement calls for prohibition of advertising in the print and electronic media. It only allows for promotion to take place within the shop and on its boards.

In addition, the government has passed the Prohibition of Smoking at Public Places and Protection of Non-Smokers Health Ordinance of 2002, which aims to stop people from smoking in public. It also includes restriction of promotional campaigns of the tobacco industry. This law is also the first statutory move to regularize promotional campaigns of the tobacco industry. At present, all forms of cigarette advertising have been banned (including TV and billboard advertising) as tobacco industry's claim that their advertisements were designed to convince existing smokers to change brands and not to attract youngsters has been merely rejected. Sale of cigarettes to people under the age of 18 is also restricted. The true effect of this will be visible over time as 50% of the Pakistani population is under 24 and the potential smokers will not be advertised, leading to a loss in demand.


Pakistan's economy continues to remain under pressure as it adjusts to new economic challenges and realities. The performance of the economy directly influences the performance of the industrial sector. The Company is mindful of its role in the national economy, in order to play an important role as one of the major contributors to the national exchequer as it continues to use its best endeavors to further improve the marketing programs and distribution coverage for the Company's brands, as well as enhance quality standards and cost control measures in order to remain competitive in the future. The acquisition of the company by PMI and the subsequent changes in the company's management may bring significant changes in future as the new management is focusing to bring an improvement in the overall performance of the company. With the expertise available internationally in all the fields, the company is poised to grow. This can be achieved through strategic marketing activities, cost control measures, development of human resource and bringing about improvement and advancement in technology. Moreover, the government's ratification to the FCTC may be a source of concern for the company as it may adversely affect the sales and distribution of the company's products.