Even though Lucky Cement’s results released yesterday showed impressive growth in net profits of about 49 percent, it was anticipations about the near future vis-à-vis transportation costs that kept the scrip’s prices from rising.
First, a narrative of 9MFY13 results: the company’s topline saw a 16 percent improvement, helped by increased volumes as well as improved retention prices of cement. Contrary to what has been the norm in local cement industry lately, Lucky posted a greater growth in export sales than in local sales – 30 percent year-on-year growth in export sales volume in 3QFY13.
Thanks to the use of alternate fuel as has been the general industry trend of late, as well as receding international prices of coal, the company saw its gross margins improving slightly, helping prop up the net margin as well.
However, industry sources have cited much apprehension about the recent increase in transportation costs due to hikes in charges of coal and raw material carriers. The additional charges are expected to come in effect from the coming month. And though cement prices will likely increase as a consequence; it will also marginally affect cement manufacturers’ margins in the coming quarter.
Despite that, Lucky continues to work towards improving its efficiency - for example, by replacing two cement grinding mills with European technology vertical mills to be able to tap into a wider export market. The firm is also installing and commissioning new packing plants.
Further, Lucky’s project proposal for setting up a cement manufacturing plant in DR Congo has been approved by the Economic Coordination Committee (ECC) and the cabinet, and financial negotiations for the project are currently under way. The company will also be investing in a cement grinding facility in Iraq.
Overall, demand for cement is expected to stay up for the coming few years in the country, while export demand, especially from Afghanistan and African markets, is also expected to stay healthy. Though the coming few months will be crucial in terms of the extent of increase in cement prices and the effect on cement manufacturers’ margins in the meanwhile, prospects appear great over a relatively longer term.

=================================================
LUCKY CEMENT
=================================================
RS(mn)                chg      9MFY13      9MFY13
=================================================
Net Sales             16%     27,735       23,945
Cost of Sales         4%      15,487       14,883
Gross Profit          35%     12,218        9,062
Gross Margin          17%      44%           38%
Distribution Cost     21%     3,009         2,478
Administrative Exp    29%      469           364
Taxation              32%     1,248          948
PAT                   49%     6,902         4,687
Net Margin            29%       25%           29%
EPS (Rs)                       21.59        14.49
=================================================