Lucky Cement Limited, touted as the largest producer and leading exporter of cement in Pakistan operates under the umbrella of Yunus Brothers (YB) Group. YB Group is an internationally recognised group having business concerns in varied sectors such as cement, textile and energy. The group not only caters to the local market but is also one of the chief export houses of Pakistan.
The company is also very vigorous in social activism, as it operates state-of-the-art, not-for-profit hospitals, Tabba Heart institute and Aziz-Tabba Kidney Centre. Lucky Cement Limited is an ISO 9001:2008 and 14001:2004 certified company which is listed on all the three stock exchanges of the country. The company has an annual production capacity of 7.75 million tons.
Over the years, the company has substantially grown its production operations with manufacturing facilities at strategic locations in Karachi to cater to the south region, Pezu and KPK to supply to the northern areas of the country. Lucky is the only cement manufacturer to have its own loading and storage terminal at Karachi Port. Another noteworthy factor that distinguishes Lucky from its competitors is its exclusive supply chain with specialised loose cement carriers and ship loaders.
Performance Snapshot FY12 FY12 concluded as the best performing year in the history of the Company. During the year, the Company achieved various milestones including sales revenue reaching Rs 33.3 billion; up by 28 percent compared to the previous year owing to an improvement of three percent in sales and 25 percent in the retention prices.
The phenomenal performance that began at the top, cascaded down to the floor, resulting in the highest ever bottom line figure of Rs 6.78 billion in FY12. This represents a robust growth of 71 percent over and above last year. During the period under review, the Company was able to dispatch 5.97 million tons of cement.
While domestic sales thrived strikingly by seven percent, export sales volume registered a downturn of four percent clocking in at 2.25 million tons as against 2.36 million tons, last year. However, overall sales volume surged by a respectable three percent compared to the previous accounting cycle.
As of FY12, the Company accounts for 22.1 percent of the total market shares in the export market and 15.5 percent in the local market. Currently, the Company derives 62 percent of its sales revenue from the domestic market while export sales have a contribution of 38 percent to its sales mix.
During FY12, the cost of production surged by 15.9 percent on the back of high fuel and energy cost. Thanks to relatively stable coal prices, the Company was able to avoid any further escalation in its operating costs. The gross profit posted a remarkable growth of 38 percent as compared to 33.5 percent growth achieved in the same period last year.
Operating expenses soared by seven percent during the period, but as a percentage of sales revenue, the same dropped, thus buttressing the operating income by 77 percent. During FY12, the Company was able to trim its financial cost by 51 percent which also played a prominent role in propping up the net profit.
Keeping the financial performance aside, we cannot avert our minds from the momentous capital expenditure and investment projects that the Company has undertaken during the recently concluded fiscal year. These projects include installation of European origin packing plant at Karachi project to further modernise its bagging operations, an alternative fuel replacement plant and power project to supply electricity to Hesco.
Further, as a part of its diversification strategy, the Company has signed a share purchase agreement of 75.81 percent shareholding in ICI Pakistan at a bid value of 152.5 million dollars to be payable in the rupee equivalent of this amount.
Performance over the years A cursory glance at Company's performance over the years gives an insight of FY10 being the worst performing year for the company with top line turning down by seven percent while bottom line recording a whopping decline of 32 percent.
Whereas the sales volume of the Company touted a handsome growth of 12.3 percent during FY10, the downturn comes from the severe pressure on cement prices in both local and international market, owing to overcapacity and depressed demand. While the local cement prices plummeted by 26.6 percent, export prices declined by 8.7 percent, thus hitting the Company's performance hard, during the period.
A reason for optimism during FY10 was various cost reduction measures taken by the Company which reduced the per ton cement cost by 11 percent thus, slightly propelling the gloomy gross margins. Amid dwindling selling prices, another factor hammering Lucky's bottom line was soaring distribution cost on the back of increase in export sales, sea freight charges as well as increase in prices of oil consumed in transportation. Thus, the Company posted a meager return of 8.19 percent on assets as compared to 11.97 percent in FY09.
But Lucky recovered to a great extent in FY11 despite the shaky industry backdrop during the period. In FY11, albeit the industry posted a negative growth of 8.32 percent, Lucky's local sales volume during the year registered a growth of 11.07 percent from 3.12 million tons cement sold last year.
The export sales volume however, plunged sharply by 32.9 percent in FY11 from 3.51 million tons last year mainly due to sharp decline in clinker and loose cement sales in the Middle East; coupled with slack construction activities and oversupply of cement. However, bagged cement export sales volume of the company increased by 7.03 percent.
In FY11, company's bottom line bounced back by 27 percent. While cost of production gushed by five percent due to increase in the per ton cost of cement which corresponded to a rise of 19.6 percent. The factors that propped up the Company's bottom line during the year were dropped in distribution expense (due to fall in export sales volume) and plunged in finance costs. Hence, during the year the Company generated an EPS of Rs 12.28 per share, up from Rs 9.7 per share, last year.
Liquidity position Over the years, Lucky illustrated a negative working capital and a current ratio of less than one. Nevertheless, as of FY12, the Company's current ratio clocked in at 2.64 which boasts an impressive and improving liquidity position. This might be attributable to the fact that the Company has trimmed down its current liabilities by over 66 percent in FY12. However, current assets grew ostensibly by just one percent in FY12.
Unlike, the other cement units, which are leveraged, some heavily; Lucky has streamlined its capital structure from a D/E ratio of 0.65 in FY09 to 0.22 in FY12. This demonstrates that company is on the strong liquidity boulevard.
Future outlook The 1QFY13 results announced by Lucky Cement are much in line with remarkable performance exemplified throughout FY12. In 1QFY13, Lucky Cement Limited declared a profit after tax of Rs 2.014 billion, which is 33.79 percent higher than last year's first quarter net profit of Rs 1.506 billion.
Cement industry portrays a dazzling outlook to the fore. Higher PSDP spending has led to a revival in domestic cement demand in FY12. Moreover, with increased PSDP allocation for FY13 and General Elections due in February-March CY13, domestic demand is likely to remain robust over the next six to nine months.
Reportedly, in addition to public sector infrastructure projects, a boom in the privately funded real estate development activities is also imminent in all the major cities. Real estate giants such as Bahria Town and Habib Construction are developing both commercial and housing projects in Islamabad, Karachi and Lahore which may further bolster the domestic cement dispatches.
However, unlike domestic demand, the industry exports remained lackluster touting a decline of 20.5 percent YoY in the month of October. However, the dreary export position is likely more attributable to logistical hurdles than to lack of demand. Going forward, strong retail prices, lower input costs and lower cost of borrowing should bode well for the Company, especially if higher level of funds is allocated for large-scale infrastructure and development projects going forward.
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