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StandardCapitalSecurities(Pvt)Ltd

November14,2011

KSE100 Closing 12.038.93(+69.88 points)

PakistanResearch

LUCKYCEMENT:Ratioreport Buy

Cement|Review
Analyst:
Ms.GulshanD.
Ferozepurwalla
gulshan@scstrade.com
+9221111111721

THECEMENTINDUSTRY

TheFY11yearwasnotanexcitingoneforthecementindustry.Theoverallcement
industrywitnessedadeclineof8.32%insalesinFY11.Thelocalsalescondensedby6.69%

to21.97mntonsasagainst23.55mntonsintheprioryear.Themainreasonbehindthis
negativegrowthwasthedisastrousfloodsandlackofmaterialisationofPSDPprojects.

Ontheexportfrontourcountryregisteredacutof11.94%to9.39mntonsascomparedto
10.66mntonsinFY10.

LUCKYCEMENT

Increasinglocalsales,decreasingexportsandclimbingrevenue.
LuckyCement,thelargestcementproducerinPakistan,withexportsasitsforte,started
capturinglocalmarketaswellandhasachievedgreatsuccessindoingso.Itsdomestic

marketshareincreasedto15.76%withagrowthof11.07%from3.12mn(FY10)tonsto
3.46mntons(FY11)inlocalsalesvolume.

However,theexportssufferedadeclineof32.9%from3.51mntonsto2.35mntonsinFY11

ostensiblyowingtoreducedexportstomiddleeastcountries,slumpinconstruction
activitiesandincreasingsupplyglut.

However,exportofbaggedcementincreasedby7.03%inFY11.

LUCKCurrent Price83.50
High84.00

Low83.25

Chg0.49
52weekhigh84.90
52weeklow59.55
Beta0.99
Noofshares323.37mn
Freefloat129.4mn

50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%

BASEDONCURRENT
MARKETPRICE

Localdispatches
Exportdispatches

FY11PE6.76x

Totaldispatches

FYE12PE5.43x

FY11EPSRs12.28/sh
FY09

FYE12EPSRs15.28/sh
FY10

FY11

AsfarastherevenueisconcernedlocalsalesrevenueaugmentedtoRs20131mnon

accountofincreasingsalesvolumesalongwithhighcementpriceper50kgbagsowingto
risingproductioncost.

3yearavg.PE7.05x

Theexportrevenuehowever,declinedby22%fromRs14861mninFY10toRs11636mnin
FY11.
Disclaimer: ThisreporthasbeenpreparedbyStandardCapitalSecurities(Pvt)Ltdandisprovidedforinformationpurposesonly.Theinformationanddataonwhichthis
reportisbasedareobtainedfromsourceswhichwebelievetobereliablebutwedonotguaranteethatitisaccurateorcomplete.StandardCapitalSecurities(Pvt)Ltd
accepts no responsibility whatsoever for any direct or indirect consequential loss arising from any use of this report or its contents. Investors are advised to take
professionaladvicebeforemakinginvestmentsandStandardCapitalSecurities(Pvt)Ltddoesnottakeanyresponsibilityandshallnotbeheldliableforunduerelianceon
thisreport.Thisreportmaynotbereproduced,distributedorpublishedbyanyrecipientforanypurpose.

StandardCapitalSecurities(Pvt)Ltd

Thus,thetotalrevenueofthecompanyregisteredapositivegrowthof9%toRs31.76bnin

FY11ascomparedtoRs29.05bninthesameperiodlastyear.

Salesrevenue

Rsmn

33,134

30,000
25,000

BASEDONJUNE30
MARKETPRICES
FY09PE4.12X

35,000
26,330

24,508

26,018

FY10PE6.41X

29,572

FY11PE5.77X
3yearavg.PE5.43x

20,000

16,958

15,000
10,000

LOCALSALES
GROWTH

12,522

5,000

FY106%

FY07

FY08

FY09

FY10

FY11

FYE12

FY1142%

FYE13

FYE1229%

Productiontosales

FYE1319%

AnotherpointthatcouldbenotedisthattheproductiontosalesratioofLuckyCement
declinedto51%fromtheprioryearsratioof53%mainlyowingtothedecreasein
production.

Tons'000
14,000

60%

12,000

58%

10,000

56%

8,000

54%

6,000

52%
50%

4,000

2,000

48%

46%
FY09

FY10

FY11

FYE12

FYE13

EXPORTSALES
GROWTH
FY106%
FY1122%
FYE128%

Clinker
Production

FYE131%

Cement
Production

PRODUCTION/SALES
RATIO

Total
Dispatches

FY0952%

Production
toSales
Ratio

FY1053%
FY1151%

FYE1255%
FYE1359%

Disclaimer: ThisreporthasbeenpreparedbyStandardCapitalSecurities(Pvt)Ltdandisprovidedforinformationpurposesonly.Theinformationanddataonwhichthis
reportisbasedareobtainedfromsourceswhichwebelievetobereliablebutwedonotguaranteethatitisaccurateorcomplete.StandardCapitalSecurities(Pvt)Ltd
accepts no responsibility whatsoever for any direct or indirect consequential loss arising from any use of this report or its contents. Investors are advised to take
professionaladvicebeforemakinginvestmentsandStandardCapitalSecurities(Pvt)Ltddoesnottakeanyresponsibilityandshallnotbeheldliableforunduerelianceon
thisreport.Thisreportmaynotbereproduced,distributedorpublishedbyanyrecipientforanypurpose.

StandardCapitalSecurities(Pvt)Ltd

PROFITABILITYMARGINS

Thecompanyhasincreaseditsmarketshareconsiderablyinthedomesticmarketwhichhas
largelycontributedtoitshighrevenueandhenceincreasedprofitmargins.
However,a25%declineoccurredinFY11intheexportmarketowingtosupplyglut.

PROFITABILTIY
RATIOS

Thegrossprofithasincreasedby3%to33.5%ascomparetosameperiodlastyear.
Theprofitbeforeinterestandtaxationincreasedfrom16%inFY10to19%inFY11
attributabletotheincreaseof31%inoperatingincomeanddecreaseddistributioncost.
TheprofitbeforetaxincreasedtoRs4.32bni.e.16.6%inFY11fromRs3.41bni.e.13.9%in
theprioryearwhichwascontributedbythedeclineinfinancecostinFY11.
Furthermoretheprofitaftertaxaugmentedby19%from3.13bninFY10toRs3.97bnin
FY11.
Theeffectivetaxrateofthecompanyincreasedto6.02%inFY11asagainst5.77%inthe
sameperiodlastyear.

NetMargins
FY0917.46%
FY1012.80%
FY1115.26%
FYE1216.71%
FYE1318.21%

LocalDispatchesMarketShare

GrossMargins
FY0937.26%

11%
20%

FY09

FY1032.55%

FY10
13%

FY11

FY1133.48%

FYE12

FYE1234.21%

FYE13

18%

FYE1334.69%

16%

ExportDispatchesMarketShare

PBITMargins
24%

32%

23%

FY0924.36%

FY09
FY10

FY1016.26%

FY11

FY1118.60%

FYE12
33%

FYE1220.45%

FYE13

FYE1321.69%

25%

Disclaimer: ThisreporthasbeenpreparedbyStandardCapitalSecurities(Pvt)Ltdandisprovidedforinformationpurposesonly.Theinformationanddataonwhichthis
reportisbasedareobtainedfromsourceswhichwebelievetobereliablebutwedonotguaranteethatitisaccurateorcomplete.StandardCapitalSecurities(Pvt)Ltd
accepts no responsibility whatsoever for any direct or indirect consequential loss arising from any use of this report or its contents. Investors are advised to take
professionaladvicebeforemakinginvestmentsandStandardCapitalSecurities(Pvt)Ltddoesnottakeanyresponsibilityandshallnotbeheldliableforunduerelianceon
thisreport.Thisreportmaynotbereproduced,distributedorpublishedbyanyrecipientforanypurpose.

StandardCapitalSecurities(Pvt)Ltd

COSTOFPRODUCTION

LuckyCementhasbeenabletokeepitsproductioncostlowcomparedtothehikein
inflationmainlyonaccountofeconomiesofscalesthatitthoroughlyenjoys;howevercost
haveincreasedforLUCK.

FYE12Rs24.15/sh
21,640

20,000
16,529

16,519

15,000
10,000

FY10Rs16.69/sh
FY11Rs19.82/sh

CostofSales

Rsmn
25,000

EBITDA/sh

17,306

FYE13Rs27.97/sh

19,456

12,601

8,847

EBITDA/sales

5,000

FY1022.03%

FY07

FY08

FY09

FY10

FY11

FYE12

FY1124.64%

FYE13

FYE1327.3%

Rawmaterialandfuelandpower
Analyzingcostofproductionitappearsthattheinputcostofrawmaterialandfueland
powerwerethemajorcomponentsresponsibleforhighcostofsalesperton,thatincreased
by19.26%duringFY11asagainstFY10.
Thecostofdieselincreasedby12%,withpackingrawmaterialcostrisingby15%,on
accountofinflationandincreaseddieselprices.Fuelandpowercostincreasingby23%as
againstthepriormainlyowingtothe40%hikeininternationalpricesofcoaltoaround
US$140US$145perton.
Pertondatacouldbeviewedbelow:
FY10 FY11 FYE12
PERTONDATA
Sa l es perton
3,697 4,478 4,781
Cos tperton
2,494 2,979 3,145
Ma rgi nperton 1,203 1,499 1,635
EBITDAperton 814 1,103 1,262
Source:Sta nda rdCa pi ta l Res ea rch

FYE1226.4%

EV/EBITDA
FY105.25x
FY114.71x

FYE13
4,915
3,210
1,705
1,342

FYE124.27x
FYE133.94x

Distributioncost,administrationcostandothercharges
Thedistributionexpenseswitnessedadeclineasexportsfellbutincreasedby0.19%asa
percentageofexportsalesinFY11.

P&LExtractRs'mn
FY09E
Di s tri buti oncos ts
2,427
Admi ni s tra ti veexpens es 166
Othercha rges
827
Source:Sta nda rdCa pi ta l Securi ti es

FY10F
3,433
303
258

FY11
3,237
313
325

FYE12
3,439
339
293

FYE13
3,554
390
369

Disclaimer: ThisreporthasbeenpreparedbyStandardCapitalSecurities(Pvt)Ltdandisprovidedforinformationpurposesonly.Theinformationanddataonwhichthis
reportisbasedareobtainedfromsourceswhichwebelievetobereliablebutwedonotguaranteethatitisaccurateorcomplete.StandardCapitalSecurities(Pvt)Ltd
accepts no responsibility whatsoever for any direct or indirect consequential loss arising from any use of this report or its contents. Investors are advised to take
professionaladvicebeforemakinginvestmentsandStandardCapitalSecurities(Pvt)Ltddoesnottakeanyresponsibilityandshallnotbeheldliableforunduerelianceon
thisreport.Thisreportmaynotbereproduced,distributedorpublishedbyanyrecipientforanypurpose.

StandardCapitalSecurities(Pvt)Ltd

Financecost

Thefinancecostofthecompanydecreasedbyapproximately9%fromRs569mntoRs518mn
inFY11hencecontributingtoincreaseinPBT.However,shorttermborrowingsincreased
manifoldsintheprioryearstomanageitsworkingcapitalrequirements.
Rsmn

P/BV

7,000

FY100.80x

6,000

FY110.82x

5,000
4,000

Longtermfinance

3,000

Shorttermborrowings

2,000

Financecost

FYE120.77x
FYE130.71x

1,000

FY09

FY10

FY11

FYE12

FYE13

P/Sales

FY100.0025x

VALUATIONS
Thecompanydeclaredadividendof40%i.e.Rs4/shwithapayoutratioof32.58%.The
companyyieldedanEPSofRs12.28/shwhichdisplaysasubstantialincreaseof27%.
20.00

45.00%

18.00

40.00%

16.00

35.00%

14.00

FY110.0027x
FYE120.0025x
FYE130.0022x

30.00%

12.00

25.00%

10.00

20.00%

8.00

DPS

EPS

Equitymultiplier

Payout%

15.00%

6.00

VALUATION
RATIOS

4.00

10.00%

2.00

5.00%

0.00%
FY06

FY07

FY08

FY09

FY10

FY11

FY101.53x
FY111.48x
FYE121.47x

WeexpectLuckyCementtoyieldaDCFfairvalueofRs100.7/shwithFY11EPSof
Rs15.28/shandpotentialPEof5.43x.

FYE131.44x

WeexpectthatthefutureprojectsofLuckyoncematerialisedwillincreaseitstargetprice
beyondRs100.7/sh.

Disclaimer: ThisreporthasbeenpreparedbyStandardCapitalSecurities(Pvt)Ltdandisprovidedforinformationpurposesonly.Theinformationanddataonwhichthis
reportisbasedareobtainedfromsourceswhichwebelievetobereliablebutwedonotguaranteethatitisaccurateorcomplete.StandardCapitalSecurities(Pvt)Ltd
accepts no responsibility whatsoever for any direct or indirect consequential loss arising from any use of this report or its contents. Investors are advised to take
professionaladvicebeforemakinginvestmentsandStandardCapitalSecurities(Pvt)Ltddoesnottakeanyresponsibilityandshallnotbeheldliableforunduerelianceon
thisreport.Thisreportmaynotbereproduced,distributedorpublishedbyanyrecipientforanypurpose.

StandardCapitalSecurities(Pvt)Ltd

RATIOANALYSIS

ACTIVITYRATIOS

DividendcoverandInterestCoverageratios
Thecompanysdividendcoverratioimprovedby27%from2.43to3.07inFY11alongwith
animprovedinterestcoverageratioby31%from7.50inFY10to9.81inFY11,thusmaking
Luckyattractiveintheeyesofcreditors.

Inventoryturnover
FY093.49x/104.71days

Currentratio
Theliquidityofthecompanyalsoappearstohaveimprovedwiththecurrentratioincreasing
from0.71to0.88inFY11owingtohighinventoryvalues.

FY103.58x/101.86days
FY112.84x/128.43days

Cashratio

FYE122.07x/176.12days

Despiteofincreasedcapitalexpenditurethecompanyhasbeenabletomaintainitscash
ratioat0.03.Howeverthecashflowpersharehasdeclinedby59%to7.37inFY11on
accountofincreaseinstockintradeandstoresandspares.

FYE131.68x/216.78days

30.00

25.00

Receivableturnover
FY0926.50x/13.78days

20.00
15.00
10.00

EPS

FY1023.96x/15.24days

CF/sh

FY1137.17x/9.82days

EBITDA/sh

FYE1242.43x/8.60days
FY1E1338.33x/9.52days

5.00

FY08

FY09

FY10

FY11

FYE12

FYE13

Gearinglevels
ThegearinglevelsofthecompanyhaveshownadecliningtrendsinceFY06andhave
reached2.37%inFY11(0.02:1)mainlyduetoreducinglongtermfinancewhichhasbeen
replacedbytheshorttermborrowings

Payablesturnover
FY095.31x/68.79days
FY105.78x/63.16days

Cashconversioncycle

FY114.88x/74.73days

Thecashconversioncycleofthecompanyisgraduallydeterioratingfrom24.78daysinFY06
to63.52daysinFY11owingtoincreasedinventoryandreceivabledayswhichoverridethe
positiveeffectofincreaseinpayablesdaysfrom63.16daysto74.73days.

FYE124.44x/82.19days
FYE134.26x/85.69days

Disclaimer: ThisreporthasbeenpreparedbyStandardCapitalSecurities(Pvt)Ltdandisprovidedforinformationpurposesonly.Theinformationanddataonwhichthis
reportisbasedareobtainedfromsourceswhichwebelievetobereliablebutwedonotguaranteethatitisaccurateorcomplete.StandardCapitalSecurities(Pvt)Ltd
accepts no responsibility whatsoever for any direct or indirect consequential loss arising from any use of this report or its contents. Investors are advised to take
professionaladvicebeforemakinginvestmentsandStandardCapitalSecurities(Pvt)Ltddoesnottakeanyresponsibilityandshallnotbeheldliableforunduerelianceon
thisreport.Thisreportmaynotbereproduced,distributedorpublishedbyanyrecipientforanypurpose.

StandardCapitalSecurities(Pvt)Ltd

ROEandROA

TherelationshipandtrendbetweenReturnonEquity(ROE)andReturnonAsset(ROA)ofthe
companyisdispyedbelow:

30.00%

27.38%

Cashconversion
cycle
FY0949.7days

27.23%

FY1053.94days

25.00%
20.00%

FY1163.52days

FYE12102.53days

FYE13140.61days

19.77%
17.60%
15.96%

15.00%

14.35%

14.30%
12.50%

9.90%

10.00%

11.99%

8.20%

ROE

10.85%
8.19%

7.80%

5.00%

12.45%

ROA

9.63%

Totalassetturnover
0.00%

FY06

FY07

FY08

FY09

FY10

FY11 FYE12 FYE13

FY0968.68%

FUTUREOUTLOOK

FY1063.97%
FY1163.14%

TyreDerivedFuel(TDF)

FYE1264.96%

ThecompanysWasteHeatRecoveryPlantinPezusuccessfullycommencedinOctober2010
whichenabledLuckytoreduceitselectricitycost.However,thereductionincostwasnot
sufficientandthecompanyhasinvestedinTyreDerivedFuel(TDF)Plantwhichwouldenable
ittofurtherreduceitsenergyandproductioncostresultingingreaterGPmargins.

FYE1368.38%

GreenfieldCementManufacturingPlant
AlthoughLuckhasbeenstrugglingwithitsexportsithasplannedonincreaseditsexport
dispatchesbyfocusingonAfghanistan,IraqandAfricancountries.
Infact,LuckyhasdecidedtoinvestinaGreenfieldcementmanufacturingplantwitha
productioncapacityof1.18mntonsperannuminDemocraticRepublicofCongo.Thisproject
isajointventurebetweenLuckyCementandGroupeRawji,withanestimatedcostof
US$175mn,andislocatedinwestAfricawithanclosetotheseaport,whichwillnotonlyhelp
Luckyincreaseitssalesinthecontinentbutwouldalsoprovideitwithanopportunitytoreach
itsneighbouringcountries.

Fixedassetturnover
FY0986.39%
FY1077.95%
FY1181.91%
FYE1292.06%
FYE13102.07%

HESCO
Moreover,thecompanyisexpectingthecommencementofthesupplyof20MWofelectricity
toHESCObytheendofCY11,whichwouldhelpitearnarevenueofRs608mn(taxeffectsmay
reducethefigureaccordingly).

EPSFYE12Rs15.28/sh
PEFYE125.43x
DCFFVRs100.7/sh

Disclaimer: ThisreporthasbeenpreparedbyStandardCapitalSecurities(Pvt)Ltdandisprovidedforinformationpurposesonly.Theinformationanddataonwhichthis
reportisbasedareobtainedfromsourceswhichwebelievetobereliablebutwedonotguaranteethatitisaccurateorcomplete.StandardCapitalSecurities(Pvt)Ltd
accepts no responsibility whatsoever for any direct or indirect consequential loss arising from any use of this report or its contents. Investors are advised to take
professionaladvicebeforemakinginvestmentsandStandardCapitalSecurities(Pvt)Ltddoesnottakeanyresponsibilityandshallnotbeheldliableforunduerelianceon
thisreport.Thisreportmaynotbereproduced,distributedorpublishedbyanyrecipientforanypurpose.

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