Cement: LUCKY CEMENT COMPANY LIMITED - Analysis of Financial Statements Financial Year 2003 - Financial Year 2007
Sponsored by well known "Yunus Brothers Group - one of the largest export houses of Pakistan", Lucky Cement Limited is at present a 21,000 tons per day, dry process cement plant. Lucky Cement came into existence in 1996 with a daily production capacity of 4200 tons per day, currently is a leading cement plant of Pakistan, and rated amongst the few best plants in Asia.
With production facilities in Pezu in NWFP (production capacity: 13,000 tons per day) as well as in Karachi (production capacity: 8000 tons per day), it has the potential to become the hub of cement production in Asia.
In addition, Lucky Cement is aggressively pursuing to develop export markets for cement to export bulk loose cement from Pakistan to the Gulf countries, Africa, Far East Region and the regional countries including Nepal and Sri Lanka.
Lucky Cement has made an investment of over US $8 million to develop the infrastructure and logistics and is further developing a fleet of cement bulkers to carry loose cement from its Karachi Plant to the Ports. For loading cement form the bulkers to vessels, Lucky Cement has a dedicated system for discharging cement directly from the bulkers to the vessels; at very fast discharge rates, reducing the vessels idle time in turn making the shipments timely as per the customer requirements. Lucky Cement has also installed Jumbo Packers at its Karachi Plant to dispatch cement in one ton packing requirement.
LUCKY CEMENT UPDATES:
Due to high demand of cement export in regional market, Lucky Cement has a plan to add two more of 1.26m tpa each parallel to existing Karachi Plant. It will increase the cement manufacturing capacity of the company to 9.07m tpa from its current capacity of 6.55m tpa. This expansion plan is expected to come online in FY'10.
Lucky will use the same hybrid technology for this expansion plan which was earlier used for the existing production lines by acquiring the latest technology fuel consuming components from European suppliers with the combination of Chinese plant and machinery which helps to minimize expansion cost. It will ensure great efficiency for producing cement at lower cost.
The existing power generation facility at Pezu was due to be converted into gas powered from the existing furnace oil powered. The conversion is fast underway and the company has ordered the necessary parts available for the conversion to a dual fired system. This has been made possible due to the discovery of gas reserves in the Gurguri area which would produce adequate gas to meet the needs of the company. The completion of the conversion shall have a positive impact on the company's costs. Even now because of the hybrid technology that Lucky uses, it has one of the lowest cost of production in the industry.
To ensure minimum amount of hindrances in the export of cement, Company has developed transportation and loading facility enabling it to achieve daily ship loading capacity upto 6,500 tpd. In the second phase, the Company is setting up silos facility at Port for further enhancing its exports with higher ship loading rates and minimum risk of demurrage.
The expansion in the Karachi project shall be carried out through a GDR issue worth $150 million. Lucky became the first Pakistani cement manufacturer which was granted license to export cement to India by the Bureau of Indian Standards. It started exports of cement to India from September 2007.
RECENT RESULTS: 1QFY08:
During the period under review, the cement industry in Pakistan witnessed an overall robust demand growth of 33.64% with break up of 19.32% in domestic and 136.56% in exports as compared to same quarter last year. Lucky registered an overall growth of 37.70% with break up of 7.96% in domestic and 124.39% in exports as compared to same quarter last year. During the period under review, the overall share of Lucky was 18.84% of the industry with export market share of 36.28%.
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Sept-2007 Sept-2006 inc./(Dec)%
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(Rupees in '000
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Sales Revenue 3,651,506 3,166,665 15.31
Gross Profit 995,150 1,007,116 (1.19)
Profit after tax 730,600 477,951 52.86
Earning per share 2.77 1.81 53.04
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Source: Company Report
Although the retention price was low in the period under consideration, Lucky managed to thrive because of its volumetric gains as well as its ability to take advantage of the higher prices in the international market due to its presence in both the North and South regions. The demand from the GCC, Africa and India remained strong, leading to a commendable increase in the exports as well as the related prices.
Higher cost of production due to hike in prices of both furnace oil and coal along with a decline in the retention prices led to a marginal decline in the gross profit. But, Lucky fares better than the other companies as can be observed from the chart below.<.P>
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Cement Sector Review (1Q'08
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PAT (Rs m) EPS (Rs)
1Q'08 1Q'07 1Q'08 1Q'07 Chg.(%)
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1 AI-Abbas Cement (22) 6 (0.12) 0.03 -471.3
2 Attock Cement 88 318 1.22 4.41 -72.3
3 Bestway Cement (217) 39 (0.77) 0.14 -656.5
4 Cherat Cement 3 111 0.03 1.17 -97.3
5 Dadabhoy Cement 20 (20) 0.21 (0.21) 200.1
6 DG Khan Cement 268 484 1.06 1.91 -44.6
7 Fauji Cement 63 269 0.17 0.73 -76.6
8 Fecto Cement (12) 52 (0.26) 1.15 -122.6
9 Flying Cement (24) 68 (0.14) 0.38 -135.5
10 Gharibwal Cement (41) (56) (0.18) (0.24) 25.8
11 Javedan Cement 1 76 0.02 1.36 -98.6
12 Kohat Cement (23) 126 (0.20) 1.08 -118.5
13 Lucky Cement 731 478 2.77 1.81 52.9
14 Maple Leaf Cement 3 76 0.01 0.21 -96.7
15 Mustehkam Cement (107) (49) (7.14) (3.23) -121.2
16 Pakistan Cement (294) (70) (0.26) (0.06) -319.2
17 Pakistan Slag Cement (3) (7) (0.51) (1.11) 54.2
18 Pioneer Cement (122) 13 (0.61) 0.07 -1028.2
19 Zeal-Pak Cement (58) (37) (0.34) (0.22) -58.1
252 1,879 -86.6
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Courtesy: fnetrade.com
FY07 proved to be a milestone year for Lucky, despite the challenges faced by the rest of the industry. The company witnessed healthy growth in terms of sales as well as profits. For the year, Lucky managed to acquire a market share of 15.13% in the domestic market and 45.7% in terms of export sales.
FY07 saw a dynamic growth of 111.3% in terms of sales volume, against an overall industry growth of 32%. A 71.02% rise in local sales and 335% rise in export sales contributed to this growth. As a result of this, sales revenue registered a growth of 55.48%. This was accompanied by a 102.56% increase in clinker production and 99% increase in cement production.
FY07 was a year of declining profitability for the cement sector of the country due to a number of reasons. The most significant of these was a sharp decline in cement prices due to a supply overhang for most of the year. The prices in the South Zone were considerably higher than in the North Zone whereas international prices exceeded prices in the domestic market. Secondly, the industry was also plagued with the problem of rising fuel costs due to an increase in the price of oil and coal in the international market. As a result, the industry profits declined significantly, with the combined industry profits falling to Rs 5.3 billion, a 56% decline compared to Rs 12.3 billion in FY06.
Lucky, however, not only managed to maintain its profitability, but also witnessed a growth in the same. During the year, the company's sales revenue grew by 55.48% while gross profit and net profit grew at 23.32% and 31.56% respectively. This growth can be attributed partly to the tremendous growth in sales volume, which cushioned the company profits against the slim retention prices prevalent in industry. Moreover, the economies of scale and efficiency in fuel consumption protected the company against the rise in coal and oil prices in the international market.
The impact of the adverse market conditions was, however, notable on the profit margins of the company. The gross and net profit margins both posted a decline for the FY07.
The financial charges per ton also registered a manifold increase during FY07. This contributed to a decline in net profit margin of the company. Financial charges increased because of charging to profit and loss account which were last year capitalized to operating assets in compliance with the requirement of International Accounting Standards.
The performance of the company in terms of the management of inventory was fairly consistent with the preceding year's performance. The efficiency in terms of recovery of cash from debtors, however, declined significantly during the same period. This resulted in a prolonged operating cycle of the company, representing a decline in the asset management ability of Lucky. The total asset turnover and sales to equity ratios, however, present a different picture of asset management of the company during the year. The sales to equity and total asset turnover of the company both showed a positive trend during the year. This was a result of the volumetric growth in sales which brought about a 55.48% increase in sales revenue and outweighed the increase in assets and equity during the same period.
Therefore the increase in the collection period of receivables may be indicative of a change in the credit policy of the company rather than a decline in management and efficiency. The liquidity stance of Lucky, assessed with respect to the current ratio, deteriorated during FY07 from an already weak position in FY06.
Trade debts have increased substantially in FY07. Again this may reflect a change in the management's credit policy. The cash balances, on the other hand, have declined for the same period. A higher growth in current liabilities resulted in a decline in the current ratio. One of the most significant reasons for this growth was an increase in the short term borrowings of the company.
The financial strength of Lucky has improved during FY07. This is evident from the lower debt ratios which reflect a decline in the level of financial leverage of the company.
A decline in the long term financing undertaken by the company, accompanied by an increase in total equity from accumulation of profits, brought down the long term debt to equity ratio and played an important role in lowering total debt to equity ratio. The TIE however, has plummeted sharply since FY05 and FY07 saw a continuation of the trend. The financial charges this year grew manifold because of charging to profit and loss account costs which were last year capitalized to operating assets.
Also, the numerous expansion and upgradation activities that the company is carrying out are adding to the financial costs. This is one reason why the company is looking towards the issuance of a GDR in order to finance its expansion activities.
The higher net profit for FY07 translated into a rise in the EPS of Lucky. Hence EPS grew to Rs 9.67 from Rs 7.35 last year, depicting a growth of 31.56%. This increase in EPS has resulted in a higher Dividend Per Share (DPS) of Rs 1.25, compared to Rs 1.0 l in FY06. The book value per share has also risen during the year under review.
FUTURE OUTLOOK:
The future outlook for the industry is positive because of government spending on the PSDP, and private investment coming to Pakistan through internationally reputed groups such as Emaar, Nakheel, Al-Ghurair and Meinhardt will create a sustained domestic demand. Also, rising international prices because of shortage in the region along with rising international freight charges give a great opportunity to the industry. Lucky is most likely to benefit from the arising situation because of its size and location.
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(Rupees in million)
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2007 2006 2005 2004 2003 2002
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ASSETS EMPLOYED
Property, plant & equipment 20,319 19,165 13,462 5,032 4,222 4,182
Long term deposits
and deferred cost 2 2 2 2 3 3
Current assets 5,403 4,456 1,343 1,978 593 684
25,724 23,623 14,807 7,012 4,818 4,869
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FINANCED BY
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Shareholders' equity 9,354 7,070 5,134 4,307 3,621 3,790
Long-term liabilities
Long-term finance 8,329 10,156 6,530 1,150 100 221
Current portion of
long - term finance 1,615 2,383 617 - - 120
9,944 12,539 7,147 1,150 100 341
Long-term deposits and
deferred liabilities 1,689 1,645 1,000 624 344 119
Current liabilities 6,352 4,752 2,143 931 753 739
Current portion of
long - term finance (1,615) (2,383) (617) - - (120)
4,737 2,369 1,526 931 753 619
Total Funds Invested 25,724 23,623 14,807 7,012 4,818 4,869
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TURNOVER & PROFIT
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Turnover 12,522 7,985 3,980 2,908 2,190 1,977
Gross profit 3,675 2,911 1,380 1,100 448 440
Operating profit 3,066 2,770 1,294 1,034 390 373
Profit/{loss) before taxation 2,690 2,553 1,210 971 343 305
Profit/{loss) after taxation 2,547 1,936 827 686 228 295
Cash Dividend 263 263 - - 184 184
Bonus Shares - - - 184 - -
General Reserve 3,000 - - - - -
Profit/{loss) carried forward 2,730 3,446 1,510 867 365 350
Earnings per share (Rupees) 9.67 7.35 3.14 2.60 0.93 1.20
Break up value per share
(Rupees) 35.51 26.84 19.49 17.58 14.78 15.47
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COURTESY: Economics and Finance Department, Institute of Business Administration, Karachi, prepared this analytical report for Business Recorder.
DISCLAIMER: No reliance should be placed on the [above information] by any one for making any financial, investment and business decision. The [above information] is general in nature and has not been prepared for any specific decision making process.
[The newspaper] has not independently verified all of the [above information] and has relied on sources that have been deemed reliable in the past. Accordingly, the newspaper or any its staff or sources of information do not bear any liability or responsibility of any consequences for decisions or actions based on the [above information].
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