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Sample Securities (Pvt.) Ltd

Corporate Member Karachi Stock Exchange (G) Ltd

RESEARCH REPORT ON
CEMENT SECTOR
FOCUSING

LUCKY CEMENT LTD

Saturday
May 31 08

Research Analyst
M. Faisal Panawala
Cell: 0321-2956003
fpanawala@hotmail.com

Content
Particulars
01

Page No.

Overview Cement Sector

Future Outlook Sales & Growth......... 1
Hike in Cost... 1
Export Demand & Expansions..

Final Word......... 2

02

Lucky Cement Limited

Expansions......... 3
Exports... 3
Operation Results... 3
LUCK Highlights... 3
GDR Issue of US$ 109.3mn.. 3
Recommendation... 4

03

Pivot Analysis 5

This report has been prepared by Sample Securities (Pvt) Ltd (SSPL) and is provided for information
purposes only. As a result, investors should consider this report as a single factor in making their
investment decisions with out undue reliance on this report and the company accepts no responsibility
whatsoever for any direct or indirect consequential loss arising from any use of this report or its
contents. The views expressed are of research department & do not necessarily reflect those of SSPL
directors.

Pakistans Cement Sector Analysis

Sample Securities (Pvt) Ltd

Industry Overview
Future Outlook Sales & Growth
The robust growth of 32% cement demand both in domestics
and export markets during FY 07, continued as cumulative
dispatches for 10 months FY 08 showed an increase of 25%.
Total domestic consumption grew by 1% YoY while exports
grew by whopping 157% YoY.

Hike in Cost
The industry debt to asset ratio is 60%, the recent volatility in
interest rates is likely to affect the finance cost significantly.
However companies including DGKC, LUCK & MLCF have
entered into interest swap agreements linked to Libor.
On the other hand coal prices in Intl markets have reached to
US $142/ton during Feb 08 which were US $80 last year,
increasing cost by PKR 32 per 50kg bag and oil prices
soaring at US $133/barrel have increased the cost of
production.

Hike in Prices
The price increase of PKR 40-45 per 50kg bag during the
year, due to impact of rising coal & fuel prices, have been
passed on to consumers which indicates margins are expected
to remain intact in the short term.
Cement Sector MKT CAP
Cement Sector MKT CAP
Cement Sector Weightage in KSE 100
Capacity Utilization
Cement Sector
PAT Growth
EV/ton US$ mn
EV/EBITDA x
ROE

FY07A
-32%
$ 147
11.2
14%

Synopsis
Sector P/E
Capacity in tones
Local demand
Export demand
9M FY 08
Production in tones
9M FY 08 Growth
in %
Domestic
Export
No. of Companies

11.5
37mn
30.4mn
7mn
21.9mn
24.79%
8.68%
140.24%
22

Production Output

21%
LUCK
DGKC

59%

12%

OTHERS

8%
According to FY 06-07

PKR 118.66bn
US$ 2,221mn
3.02%
90%
FY08E
19%
$ 93
6.5
13%

MLCL

FY09E
28%
$ 89
4.9
16%

Source: FCEL report on cement sector

Export Demand & Expansions

Local cement dispatches registered 7% growth at 20.6mn tons
during 11months FY 08. Demands from Mid Eastern &
African countries gave significant boost to production which
stood at about 24m tons in FY 07 and export revenues stood
at $23m in Jan 08. The upward trend in cement demand is
likely to continue for years to come as UAE finds it cost
effective to import cement from Pakistan.
Page 1

Pakistans Cement Sector Analysis

Sample Securities (Pvt) Ltd

Export avenue also includes India & South Africa besides

Afghanistan & UAE. India now with demand deficit with 8mn
tones, which is partially fulfilled by Pakistani cement.
Year wise Industry Growth
40%
35%
30%
25%
20%
15%
10%
5%
0%
2004

Year wise Industry Dispatches

36%
30

32%
M. Tons

25

20%

20

12%

15
10

2005

2006

2007

2008

2009

0
2005

2006

2007

2008

Source: LCL Annual Accounts FY 06-07

Final Word
The increase in demand coupled with rising coal & fuel prices
and construction season at its peak, it is expected local prices
to increase by 5% by end of FY 08. However regional
demand shows promise till FY 10-11.

Page 2

Lucky Cement Ltd

Sample Securities (Pvt) Ltd

Lucky Cement Overview

Expansion
Expansion of 2.5mn MT is expected in two phases. One
plant of 1.25mn MT is expected to be operational by Dec
08, while other plants announcement is expected soon.
LUCK is also converting its power plants from furnace oil
to a mix of furnace & gas. This will increase margins as
energy costs make up of 65% of total cost of sales.

Exports
LUCK is the market leader & has 21% of the total market
share. LUCK sales comprise of 44% exports & 56% local
sales and similar mix is expected to continue. Recently a
memorandum of understanding (MOU) with Noor
Financial Investment Company for supply of 0.5mn MT of
Clinker per year for a period of 5 years, guaranteeing 810% utilization at current capacity & 7-8% of post
expansion. Companys edge over export makes it unique,
relative to its peers.

Operating Results
Description
Sales Revenue
Gross Profit
Operating Profit
Profit After Tax
EPS

Synopsis
Symbol
LUCK
Shares O/S local
263mn
GDR Issue
60mn
GDR US$
109.3mn
Mkt Cap (PKR)
33.43bn
Mkt Cap (US$)
484.5mn
Current Price
103.5
Average Price
112.09
Average Volume
10.94mn
Index Weightage % 0.84
Exchange Rate
PKR 69
Market Share
21.57%
Ratio Analysis FY 06-07
Gross Profit to Sales
29.35%
Net Profit to Sales
20.34%
Acid test ratio
0.85:1
ROE
27.23%
Book Value per share
Rs. 35.51

(Rupees in million except EPS)

9M FY 07-08
11,865
3,121
2,300
2,014
7.65

FY 06-07
12,522
3,675
3,066
2,547
9.67

9M Growth
32.14%
23.72%
6.64%
49.74%
49.71%

FY 06-07 Growth
55.48%
23.32%
10.68
31.56%
31.56%

Source: LCL 3rd QTR Accounts FY 07-08

LUCK Highlights
Description
Net Sales
EBITDA
Net Profit
EPS
P/E
ROE

(PKR in mn)
(PKR in mn)
(PKR in mn)

Price Target PKR 135.00 BUY

FY 07

FY 08E

FY 09E

FY 10E

12,522
4,410
2,547
9.67
14.3
27.2

18,800
4,600
2,900
11.05
15.2
24.4

20,900
6,400
4,100
15.70
9.3
26.5

21,300
7,100
3,900
15.10
9.1
21.2

Source: Company reports, JP Morgan estimates. All data based on prices as of March 28 08

GDR Issue of US$ 109.3mn

Additional raising of capital worth US$ 109.3mn through issue of 15mn Global Depository
Receipts (GDRs), each representing 4 ordinary shares of LUCK has now been completed.
The raised capital is used to payoff the costly debt and up to 55%-60% short & long terms
have been paid off. This has significantly reduced the financing burden.

Page 3

Lucky Cement Ltd

Sample Securities (Pvt) Ltd

Synopsis
WACC
Beta
Risk Free Rate
Equity Risk Premium
Req Return by investor
Target Price
Reiterate

16.8%
1.18
12%
6.0%
17.5%
135
Buy

Source: JP Morgan estimates

Recommendation
High margins of exports are expected to boost sales & growth to increase prices. Key risks to
our price target are:
a) Changes in coal prices
b) Expansion
c) Fall in price
d) Local & foreign growth
Due to positive long term earnings as result of export of cement and the recent downturn in
stock price, the current valuation is very attractive and we strongly reiterate Buy
recommendation

Page 4

Pakistans Cement Sector Analysis

Sample Securities (Pvt) Ltd

30th May 08

Pivot Analysis
Script Close Strategy

S3

S2

S1

Pivot

R1

R2

R3

Upper Lower RSI

LUCK

103.5 BUY

94.17 96.45 99.98 102.26 105.79 108.07 111.60 111.60 108.68 26.9

MLCF

12.90 WEAKNESS 12.07 12.27 12.59 12.79

13.11

13.31

13.63

13.55

12.26

17.5

PCCL

7.10

7.42

7.73

8.32

8.10

6.10

28.9

DGKC

69.24 BUY

69.89

70.53

71.07

72.70

65.78

15.4

BUY ON

BUY

5.62

5.93

6.52

6.83

67.53 68.17 68.71 69.35

Source: KASB Research & RSI based on 14 days from SC Securities (Pvt) Ltd

S3 = Third Support
R3 = Third Resistance

S2 = Second Support
S1 = First Support
R2 = Second Resistance R1 = First Resistance

Page 5