Lucky Cement Limited (LUCK) is the largest market player in Pakistan's cement sector. The Company operates under the umbrella of Yunus Brothers (YB) Group. The Company commenced operations in 1996 with a capacity of 1.2 million tons per annum with installations of Line A and B at the Pezu plant, Lakki Marwat. Production capacity was to increase to 1.5 million tons in 1999 followed by conversion of plant Kiln Firing system from furnace oil to coal.
Lucky reached an important milestone in 2002, which marked the beginning of its export operations. The year 2005 brought major expansionary plans with the commencement of Line C at the Pezu plant and inauguration of production facility at Karachi. Currently, the Company has seven production lines in place, bringing in its total production Capacity to 7.75 million tons per annum. 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. Lucky Cement Limited is an ISO 9001:2008 and 14001:2004 certified companies, which is listed on all three bourses of the country.
YUNUS BROTHERS GROUP YB Group was founded in 1962 as a fabric trading business house. Over the years, the trading company has morphed from a textile giant to a leader in cement industry, and is today one of the largest and most diversified conglomerates in the country. The Group has concerns in textile through Lucky Textile Mills, Gadoon Textile, Fazal Textile and Yunus Textile; in cement through flagship Lucky Cement; chemical through acquisition of ICI Pakistan; and power generation through Lucky Energy (Pvt) Limited. The group is well known for philanthropy through its Aziz Tabba Foundation, Aziz Tabba Kidney Center, and Tabba Heart Institute.
INDUSTRY REVIEW FY13 proved to be an excellent year for the cement sector, with total industry cement dispatches growing by nearly three percent. This was despite the two percent decline in cement export, which dropped due to lower demand for bagged cement. However, domestic sales proved to be the saving grace for the sector, which saw growth by more than 1.11 million tons, making up for the lost export volumes.
For several years, exports have stood at around a quarter of total cement dispatches for the industry. Lucky's cumulative share in the export market was 27 percent during FY13, an improvement from last year. However, it should be noted that Lucky's share at 36 percent in FY08, and has fallen ever since.
Still, the Company has been able to maintain its monopolistic position in the loose cement export, in which it has been the sole player for the last two years. Lucky's position in the local market also remains unchallenged, where its share stands at 15 percent. Overall, Lucky's market share was 18.1 percent of total industry off-take, the largest in the cement industry.
PERFORMANCE BRIEF FY13 FY13 was a year of record performances for Lucky Cement, registering top line of Rs 37.8 billion. This is the highest ever net revenue earned by the Company, a 13.5 percent growth from last year. The improvement in revenue was recorded on the back of higher sale volume as well as higher prices per bag.
Company's total sales volume during FY13 stood at 6.1 million tons, which translates into 1.4 percent year-on-year growth, 85 thousand tons greater than the previous year total sales. Consistent with long-term sale trends, local dispatches formed a greater proportion of Company sales compared to exports, clocking in at 62 percent of total dispatches.
Cement exports stood at 2.3 million tons, a year-on-year growth of nearly two percent. Greater proportion of volume growth came from loose cement export that grew by ten percent or 49 thousand tons. In contrast, bagged exports actually declined by six thousand tons-albeit a nominal year-on-year decline of 0.4 percent.
Cost of sales increased by 2.4 percent compared to last year mainly on account of higher transportation and energy costs. Regular pricing increases allowed the Company to pass on the hikes to the customers. However, coal prices, which form a major chunk of cement production cost, actually declined internationally during the year, allowing the Company to keep cost-side under control, despite inflation.
PROFITABILITY As a result of favourable cost structure, gross profit improved by a humongous 600 bps during the year, from 38.2 to 44.2 percent. Distribution costs remained at nearly ten percent of total sales, increasing from Rs 3.2 to 3.6 million. Administrative expenses, however, nearly doubled, growing from 1.4 to 2.5 percent of top line. Higher admin costs were mainly a result of increases in "professional and advisory services" and salaries and benefits.
Growth in operating profitability, however, remained intact, with operating margin improving by more than 500 bps. Finance cost continued on its downward trend and declined from 0.8 percent of total sales to a negligible 0.2 percent. Compared to last year, finance cost declined by nearly 65 percent, mainly on account of lower mark-up on short-term borrowing.
The Company posted record before-tax profit of Rs 11.7 billion compared to Rs 8.3 billion from last year. After-tax profits improved by more than 43 percent, translating into an increase of more than nine rupees in earnings per share. Another highest-ever recorded in FY13 was Lucky's bottom-line profitability margin; clocking in at 25.7 percent, net margin recorded an improvement of 534 percentage points from last year.
FUTURE OUTLOOK Going forward, cement sector in general as well as Lucky is expected to see growth in FY14 on the back of higher budget allocations towards PSDP by the Federal Government. The government's decision to increase gas tariffs for captive power plants by only 17 percent (compared to 50 percent increase for industrial consumers) benefited the Company disproportionately since it meets most of its electricity demand through captive generation.
The Company has several efficiency and productivity enhancing projects on the cards for FY14. A ventomatic packing plant has been installed at Pezu plant. Plans to introduce Tyre Derived Fuel (TDF) plant at Pezu to reduce fuel cost are also already under way.
In line with industry best practices, the Company is planning to install Waste Heat Recovery (WHR) mechanism at both Karachi and Pezu captive power plants, each of which produces 5 MW power.
Dispatch of 20MW of electricity to HESCO from Karachi plant began in 2012 and negotiation to supply the same to PESCO from Pezu plant are also under process. Company has major future investment plans subsequent to the successful acquisition of ICI Pakistan through Lucky Holdings Limited. These include joint ventures for investment in cement plant in DR Congo, and a cement grinding facility in Iraq, both of which are expected to start operations by 2H FY14. Lucky Cement plans to make equity investment in an associated company for a 50 MW wind farm. The projected is expected to become operational by CY2015 and Upfront Tariff from NEPRA is expected to be awarded soon.
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LUCKY CEMENT LIMITED
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Rs (mn) FY13 FY12 FY11 FY10 FY09 FY08
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Financial Performance
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Turnover - net 37,810 33,323 26,018 24,509 26,330 16,958
Cost of sales (21,089) (20,601) (17,306) (16,530) (16,519) (12,601)
Gross profit 16,721 12,721 8,711 7,979 9,811 4,357
Distribution cost (3,666) (3,236) (3,236) (3,433) (2,428) (1,155)
Administrative cost (897) (474) (313) (303) (166) (126)
Operating profit 12,158 9,011 5,161 4,243 7,217 3,076
Finance cost (89) (253) (518) (569) (1,237) (127)
Other income/charges (368) (433) (323) (256) (804) (643)
Profit before taxation 11,701 8,324 4,321 3,418 5,177 2,307
Taxation (1,987) (1,542) (350) (280) (580) 371
Profit after taxation 9,714 6,783 3,970 3,137 4,597 2,678
Earnings per share (Rs) 30.04 20.97 12.28 9.70 14.21 9.84
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Source: Company Accounts
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LUCKY CEMENT LIMITED
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Rs (mn) FY13 FY12 FY11 FY10 FY09 FY08
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Financial Position
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Share capital and reserves 41,035 33,262 27,773 25,096 23,252 18,655
Non-current liabilities 5,315 3,745 2,740 3,573 6,042 7,897
Current liabilities 3,846 3,624 10,697 9,642 9,099 7,687
Total liabilities 9,161 7,369 13,437 13,214 15,140 15,584
Total equity and liabilities 50,196 40,631 41,210 38,310 38,392 34,239
Non-current assets 37,183 31,077 31,765 31,439 30,534 25,884
Current assets 13,013 9,555 9,444 6,871 7,858 8,356
Total assets 50,196 40,631 41,210 38,310 38,392 34,239
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Source: Company Accounts
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Year ending June UoM FY13 FY12 FY11 FY10 FY09 FY08
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Profitability
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Gross margin % 44.2% 38.2% 33.5% 32.6% 37.3% 25.7%
Operating margin % 32.2% 27.0% 19.8% 17.3% 27.4% 18.1%
Net margin % 25.7% 20.4% 15.3% 12.8% 17.5% 15.8%
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Return to Stakeholders
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Return on capital employed % 26.0% 21.9% 14.4% 11.6% 17.4% 12.5%
Return on equity % 23.7% 20.4% 14.3% 12.5% 19.8% 14.4%
EPS (basic) Rs 30.04 20.97 12.28 9.70 14.21 9.84
P/E ratio times 6.98 5.50 5.77 6.40 4.12 9.96
Dividend payout % 26.6% 28.6% 32.6% 41.2% 28.2% 0.0%
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Solvency & Liquidity
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Debt-to-Equity times 0.00:1 0.01:1 0.02:1 0.07:1 0.18:1 0.36:1
Interest coverage times 136.21 35.58 9.97 7.45 5.83 24.27
Current ratio times 3.38:1 2.64:1 0.88:1 0.71:1 0.86:1 1.09:1
Quick ratio times 1.66:1 0.80:1 0.18:1 0.23:1 0.36:1 0.46:1
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Activity
Total asset turnover times 0.75 0.82 0.63 0.64 0.69 0.50
Fixed asset turnover times 1.22 1.07 0.82 0.78 0.86 0.66
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Source: Company Accounts
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