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November14,2011
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
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.