Lucky Cement Limited, a company belonging to the Yunus Brothers Group, is the largest manufacturer and exporter of cement in Pakistan. With production facilities in Karachi and in Pezu, Lucky Cement is also Pakistan’s only cement manufacturer to have a loading and storage terminal at the Karachi port (KPT).
Thanks to location advantages of being in the south, it is not surprising to know that Lucky accounts for more than one-third of the total cement exports from Pakistan and caters to the Asian, Middle Eastern and African markets.
During the first quarter, the company’s revenues witnessed a YoY increase of more than 34%, brought on primarily by a surge in local sales.
The rise in revenues witnessed during the first quarter of FY12 is strongly attributable to a low-base effect since the same quarter last year was afflicted by the floods which caused a significant dip in cement sales back then.
Besides that, an increase in retention prices of cement locally, combined with a significant volumetric increase also played their part in helping the Company’s revenues soar.
However, the export side fell 13% in sales volume for 1QFY12 over the same period last year, the drip was particularly felt in loose cement sales. Industry sources claim that the decline in export sales comes at the heels of lower cement prices internationally, inducing manufacturers to divert their strategic direction towards local sales.
Local cement manufacturers including Lucky are also facing heightened competition from international competitors in markets in the Middle East, which have traditionally absorbed most of the country’s exports of the building material.
The cost of sales for the first quarter of FY12 also went up by about 19%, led by increases in prices of coal, fuel and other raw materials.
Yet, as a percentage of sales, the cost of sales was 61% in 1QFY12 versus 69% in 1QFY11, indicating good cost management by the company.
Overall, Lucky Cement registered a YoY increase of eight percentage points in the gross margin for 1QFY12.
On the operating side, distribution costs are a key component because of the nature of the business which warrants distribution across local as well as export markets.
Though distribution costs had stayed under 10% of sales in FY08 and FY09, they saw an upsurge in FY10, declining marginally in FY11 to 12.4% of sales.
For 1QFY12, distribution costs were nearly 12.3% of sales, likely to have been driven by an increase in transportation prices.
The decline in distribution costs as a percentage of sales in FY11 and 1QFY12 relative to FY10 is attributable to lower export sales during FY11 and the beginning of FY12. Net profits have grown at a Cumulative Average Growth Rate (CAGR) of about 10% between FY08 and FY11.
Profit after tax increased by a whopping 107% in 1QFY12 compared to 1QFY11, netting at INR1.5bn for the quarter.
As far as local sales are concerned, the company has got a promising outlook ahead. While the increase in retention price of cement promises a YoY increase in the company’s revenues for FY12, a volumetric increase is also expected because of a low-base effect and also due to reconstruction work in flood-affected areas, together with an improved PSDP allocation for FY12.
On the export side, while volumes have depicted a fall in the first quarter of the current fiscal year, the company is hopeful that exports to Afghanistan will reach the 5Mt level in FY12. Cement exports to Afghanistan were 4.7Mt in FY11. For 4MFY12, exports to Afghanistan had registered a 17 percent YoY growth. Due to the slow momentum expected in exports to Gulf countries and the Middle East, a phenomenal increase in export sales is not expected. In fact, for 4MFY12, overall cement exports for the industry declined by 3% YoY.