Lucky Cement saw a growth of revenue of 35.42%, 55.29% by the end of FY08 and FY09 respectively, which is pretty decent. However FY10 does not show a comparative increase in sales revenue. Rather it shows a downfall by 6.92%.

Turnover (Rs.)
30000000 20000000 10000000 0 FY08 FY09 FY10 Turnover (Rs.)

FY08 FY09 FY10 Turnover 16957879 26330404 24508793 (Rs.) The increase in revenue over FY08 and FY09 was owed to both, increase in sales volume and net retentions in those years. There was a shift in price trend over FY08 to FY09. The first three quarters of FY08 saw pressured prices at the domestic level, which was later relieved in the last quarter due to rising costs of productions and tax and duties levied by the Government in the federal budget, whereas FY09 enjoyed a price rise throughout. The point to consider is why the sales revenue fell over FY10? The main reason for this as per Lucky Cement s annual report for 2010 was a decline in cement sales prices, both in the domestic and export markets. The prices of cement in domestic market were under severe pressure during the year and on overall weighted average basis, local prices declined by 26.6% despite of increase in cost of production. The export prices declined by 8.7%. International markets provided robust price levels over both FY08 and FY09, and over both these years, we notice sales concentration on the export market. The ratio of sales revenue from exports was 54.43% whereas the local sales accounted for 45.57% during the FY08 and 60% to 40% for FY09. Despite the sales price decline in the export market in FY10, we find that Lucky Cement continues to derive majority of its sales revenue from the International market, amounting to 59% of total revenue. When we look at sales volume, we notice that FY08 witnessed a decline in local sales by 9.21% over the previous year. This is essentially attributed to a focus towards high yield exports.

Export sales growth is accounted for as 83% for FY08, and continues to grow by 28.8% for FY09 and 2.21% for FY10. Hence we can see that export orientation increases, but at a declining rate over these years. Nevertheless the export market sales continue to outweigh those made in the local market.



Total Export Local







SALES VOLUME (Tons) Local Export Total

FY08 2889736 2666450 5556186

FY09 2469291 3434348 5903639

FY10 3119107 3510083 6629190

If we analyze the COS ratios of Lucky Cement over three year period under review, we notice the following: 1) Overall, the COS ratio has improved significantly by reducing from 74.27% in 2008 to 67.44% in 2010, which is quite remarkable. 2) However, if we compare the COS ratio of FY09 to that of FY10, we notice that it has worsened a little. It has increased from 62.74% to 67.44%, which is a minor rise by 4.7%.

On top of that. from US$80 per ton in the previous year.00% FY08 FY09 FY10 COGS ratio FY06 FY07 FY08 COS 74. as furnace oil became more expensive.74% 67. Therefore any increase/decrease in energy price is bound to reflect on the overall cost of sales figure. the projects undertaken in the earlier were successfully completed. To deal and cope with this issue. This resulted in a detrimental effect on cost of production for cement industries worldwide. FY09 and FY10 respectively. the cost of cement bags went up due a rise in the price of paper and polypropylene in that year. which was subsequently reduced to 10%. FY08 witnessed a sharp rise in the International prices of coal which increased to approximately US$210 per ton by 30th June 2008.00% 70.27% 62. By 2009. Part of . Moreover the rising oil prices added to the already inflated cost of sales.00% 55. The waste heat generated from the cement production process can be used to generate electrical energy with no additional fuel consumption and ultimate reduction in greenhouse gases.COGS ratio 80.77%.00% 75. However their waste heat recovery project was still under process and was progressing as per schedule.62% and 62% of cost of production for FY08.44% ratio Investigation of the factors attributing to the improvement of the COS ratio revealed some interesting findings. Firstly we need to realize that the major component of the company s cost of production remains to be energy cost.00% 65. It amounted to 68. Lucky cement employed the following tactics which as we have now seen from the COS ratios. added to further cost reduction. 30% of power generation at the Karachi plant was oil-based. 72. proved to be effective. 2) The replacement of oil-based generators at the Karachi plant. 1) By 30th June 2008. The remaining 70% conversion continued to progress after the year end.00% 60. the company converted 30% of its oil-based generators belonging to the Pezu plant to gas generators.

1.2% which is Rs.79% in FY08 to 17. sea freights as well as oil used for transportation. the gross profit margin ratio and the COS ratio discussed above are interlinked and hence their performances are reflective of each other.000. As per note 5.1237 million. Lucky Cement is in the process of setting up a cost handling/transportation operation. Coming to the FY10. Moreover. Of course. which almost equals RS.56%. Upon investigation of the components that make up cost of sales. 18 long trailers have been ordered and are expected to begin operation shortly. Naturally. The overall improvement can be linked to reduced coal and oil prices and introduction of Waste Heat Recovery Project in Karachi. fuel and power cost has reduced by 16. Distribution costs also increased in FY09 due to increased exports. since it imports material as well can be attributed to foreign exchange movements. . and a very significant amount.the Rs. Gross Profit and Net Profit Margin Ratio The gross profit margin ratio showed an overall improvement over the three year period under review. we must also consider the fact that Lucky Cement is also exposed to Foreign Currency Risk as its sales are more export oriented as opposed to local.000. The net profit margin ratio improved from 15. The decline in Gross profit Margin ratio over FY09 and FY10 is attributed to decreased selling prices which were partially offset by reduced cost per ton. which is a substantial investment for becoming more cost efficient.959. 8.126. in line with oil prices. Thus any minor fluctuations in sales and also costs. In the first phase. Thus despite of an increase in the cost of sales by 31% in absolute terms. The reason for this is coal procurement at lower prices and startup of the Waste Heat Recovery Project at Karachi plant during the 3rd quarter of FY10.73% in FY08 to 32.7 million to Rs. comparing the ratios of FY09 to FY10. we find a slight deterioration from 37.56% in FY10.46% in FY09.4 billion spent as capital expenditure during that was spent on conversion of dual fuel power generators. the company enjoyed a reduced COS ratio. in note 28 to the financial statements of Lucky Cement s annual report. we notice that the cost of sales remains almost at par.823. It increased from 25. This increase in finance costs occurred due to winding up of cross currency swap transfers during the first quarter of FY09 which were providing interest rate hedging to the company. the markup rates were also increased by the State Bank of Pakistan which further added to financing costs. However.4 to the financial statements additions to generators amounted to Rs. the major reason why the company s COS ratio improved so much was the fact that.732.2 billion. and a 23% rise in cost per ton of cement.334.26% to 32. As an additional measure to become cost efficient. 1. we find that. However. despite an increase in finance costs from Rs. coal prices fell in the International market and prevailed in the range of US$65 to US$85 per ton.

210 to Rs. In other words it tells us what income was generated from capital invested. Even though finance costs were brought down to Rs.00% 15.00% 10.9. the net profit margin in FY10 suffered as compared to the previous two years. Distribution cost also continued to increase due to the same reasons as in FY09.8% of total export expenses as opposed to 24.A logical reason to explain this improvement of ratios is the fact that net sales increased by almost which is the lowest over the three year period under review.00% 0.4 billion . Return on Assets. 40.000) in FY09 as compared to FY08.20% in FY10.525.26% 17. Assets include both debt and equity.569.80% In FY10 we find that the Net Profit Margin ratio has declined to 12.46% FY10 32.79% FY09 37.00% 25.82% to 12% and reduces to 8. the better as it indicates that the company is earning more money on less investment.56% 12.6% in FY09.00% 30.investopedia.00% 5.18 million and financing cost reduced from Rs. Equity and Capital Employed Return on Assets is an indicator of how profitable a company is relative to its total assets.00% 35.00% 20. Ocean freight in FY10 accounted for 49. The higher the ROA number.00% FY08 FY09 FY10 Gross profit margin Net profit margin Gross profit margin Net profit margin FY08 25. ROA gives us an idea of how effective company management is at generating earnings by using its assets.73% 15. 372.9 billion (Rs. When we refer to the Analysis of Balance sheet in the Financial Highlights section of Lucky Cement s Annual Report 2010.86 per ton.asp) ROA for Lucky Cement increases in FY09 from 7.80%. (http://www. we notice that total assets have increased by almost Rs.

otherwise any increase in borrowing will reduce shareholders' earnings. This caused equity to rise by a great amount and hence caused ROE to deteriorate. However in FY10. it declined to we see that no significant changes in equity took place.wikipedia. This explains why the ROCE fell in FY10.64% in FY09.77%.59% in FY08 to 24. It is similar to Return on Assets (ROA). though the reserves did increase. which is not too significant a reduction.544. 118. Whereas in FY10. 759. 2 billion. It measures a firm's efficiency at generating profits from every unit of shareholders' equity (also known as net assets or assets minus liabilities).50%. (http://en. except for a slight decline and the net profit figure actually reduces by approximately Rs. Return on Capital Employed compares earnings with capital invested in the company. at RS110 per share. the company s ROE showed an improvement as it increased from 14. but takes into account sources of financing. A high ROE indicates good potential for generating cash internally.000.wikipedia.1. the profit after tax in FY10 was lower than that of FY09 which explains why the ROE ratio fell. ROE shows how well a company uses investment funds to generate earnings ROCE should always be higher than the rate at which the company borrows. .82. In FY09. (http://www.asp) Lucky Cement s ROCE rose decently from Investors are normally interested in companies where ROE is high and growing. However.000 GDR s which equaled 30. It is used to show the value/return the business gains on its assets and liabilities. When we FY09 as compared to FY08 with a corresponding increase in net profit of approximately Rs. Comparing to FY10. (http://en. the assets figure remains almost stagnant.35% to 19.000.80% in FY10. The total assets reduced by Rs. Return on Equity measures the rate of return on the ownership interest (shareholders' equity) of the common stock owners. If we compare the profit before tax in FY10 to that in FY09. this explains the reason behind the fall in ROA in FY10 as against FY09.1 billion. we see that it has reduced by Rs.000 shares. we find that ROE of the company also underwent a sharp decline in FY08 due to the issuance of 150. It fell down to 14. To some extent.

In FY10 we see a slight decline due to a fall in revenue. Debtor turnover period (days) 20 15 10 5 0 0 1 2 3 4 Debtor turnover period (days) . It is an indicator of pricing strategy.64% FY10 8.35% 11. (http://www.00% 15.97% in FY10.00% 20.investopedia.30.59% FY09 12.00% FY08 FY09 FY10 ROA ROE ROCE FY08 ROA ROE ROCE 7.00% 0.20% 12.50% 14. Thus.77% 10.00% 25.53% to 68. Companies with low profit margins tend to have a high asset turnover and vice verse.00% 19.82% 14.00% 5.asp) Lucky Cement s asset turnover shows an improvement from 49.80% ASSET TURNOVER The asset turnover ratio indicates the relationship between assets and revenue.58% but then reduces to 63. over FY08/09 we notice a trend of volumetric growth of sales in line with total assets.

3 . improved quality of debtors and a stronger cash flow position as compared to FY09. Considering the fact that Lucky Cement is a largely export oriented company.Asset Turnover FY08 49.57   reditor turnover period (days) FY10 15.58% FY10 63. An increase in debtor days could imply that the quality of a company s debtors is decreasing. This implies better debt management. ( FY09 Debtor days of Lucky Cement rise to approximately 18 days in FY09 from 16 days in FY08. 80 70 60 50 40 30 20 10 0 FY08 FY09 FY10 Debtor turnover period (days) Debtor turnover FY08 11.53% FY09 68. This means that there is a higher risk of default and possibility of weakened cash flow position of a company. More working capital is required in such a case. Then in FY10 the figure falls to 12 days. this implies that they are dealing with foreign debt in an efficient manner as well.97% LIQUIDITY AND EFFICIENCY Debtor Turnover Period and Creditor Turnover Period Debtor period/days measures the average time taken to receive payment.

79 63. when compared to debtor days. this shows that payments are received much earlier than payments are made. These figures were mentioned in the financial highlights of the annual accounts for FY10. (http://moneyterms. which improves liquidity. It is worth noting that since Lucky Cement exports majority of its products. the better it is for the company. it is only accurate for an entity which is purely a trading operation and the whole of its cost of sales is the cost of purchases.16 As far as creditor days are concerned. This indicates that cash outflow has increased. This figure reduced from about 74 days in FY08 to 69 days in FY09 to 63 days in FY10. Hence I had to rely on the ratio figures available in the accounts. However. Ofcourse. Often. There was a limitation involved with obtaining the creditor days. It is very rare that a company discloses its purchases in its annual accounts. For a manufacturing organization like Lucky Cement. the higher the inventory turnover period. they represent the number of days a company takes in average to repay its debts. the Cost of sales figure is used to substitute the annual purchases figure for calculating this Inventory Turnover Period This ratio represents the number of times inventory is sold and replaced over a 68. Over the three year period under review. there is transit time involved in transport of the stock to the desired destination. this approach is likely to be inaccurate. However. this ratio has been pretty consistent and does not cross 18 times. it could prove to be an adverse sign.period (days) Creditor turnover period (days) 73. In FY09 it reduces to 17 times approximately but recovers to 18 times in FY10. Since creditor days are showing a declining trend. . which could cause working capital requirement to rise.

Inventory turnover (times) FY10 FY09 FY08 16.investopedia. A ratio under 1 suggests that the company would be unable to pay off its obligations if they came due at that point. except that this ratio excludes stock and prepayments as assets that can be easily liquidated. (http://www. and is calculated in a manner very similar to that in which the current ratio is the acid test ratio is also used to assess liquidity of a company.5 17 17.but it is definitely not a good sign. A ratio of 2:1 is considered ideal.54 (times) FY07 FY08 15. The higher the current ratio.5 18 18.5 Inventory turnover (times) FY06 Inventory turnover 18.18 Current and Acid Test Ratio The current ratio is mainly used to give an idea of the company's ability to pay back its shortterm liabilities with its short-term assets. Similarly. it does not necessarily mean that it will go bankrupt . While this shows the company is not in good financial health. the more capable the company is of paying its obligations.asp) .97 there are many ways to access financing .

1 and 25.2 to financial statements for FY10) to boost liquidity.00 FY09 0.2 0 FY08 FY09 FY10 Current Ratio Acid Test Ratio Current Ratio Acid Test Ratio FY08 1.2 1 0. but it is highly required that appropriate measures be taken to improve liquidity situation of the company to maintain healthy working capital management. A declining trend is evident from the graph above. Overall current liabilities have risen. liquidity has fallen even below 1.71 0.09 1. The company has utilized the export refinance option (note 25. Net Cash Flows from Operations to Current Liabilities This ratio shows how effectively current liabilities are covered by cash flowing inside an entity via regular operative activities. Moreover.4 0.73 FY10 0.65 The current and acid test ratio figures show a very gloomy picture of the company s liquidity. .86 0. The stock in trade and debtors figure have declined significantly in FY10 as compared to FY09.1. 25.6 0.8 0.

461.5 0.000.4 0. GEARING RATIOS Gearing is a measure of financial leverage.860 5.675.7 0. This can be attributed to the fall in cash flow from operating activities by Rs.0.814 FY09 5.3 0.475. Particulars Clinker production (tons) Cement production (tons) Cement dispatches (tons) Clinker dispatches (tons) FY10 6. demonstrating the degree to which a firm's activities are funded by owner's funds versus creditor's funds.376 153. A company with high gearing (high leverage) is more vulnerable to downturns in the business .1 0 FY08 FY09 FY10 Net cash flow from operations to current liabilities FY08 Net cash flow from operations to current liabilities 0.713 6.2 0.247.768 Clearly there is a lot of holdup of clinker inventory which can be a very genuine reason why Lucky Cement s cash flows are suffering.1.6 0.054. A significant curtailment in finance costs has been achieved but this has not assisted in boosting the cash flow from operating activities figure above that in FY09. We can also conveniently attribute this to the fact that sales (dispatches) have been much lower than production of clinker.726 6. The ratio declines to 0.546 in FY10.166 FY09 0. The table below shows some relevant figures extracted from the director s report from the 2010 annual accounts.8 0.455 5.610.871 227.742.546 Over the three year period under review FY09 shows the most favorable result.715.716 FY10 0.

000 in FY08 to 25. (http://www. The issued share capital figured has remained unchanged over the three years under 60.000 in FY10.investopedia.00% Total debt to assets Total debt to equity Long term debt to equity Long term debt to Capital Employed FY08 FY09 FY10 Considering the chart above.00% 0. Capital expenditure of Rs. A greater proportion of equity provides a cushion and is seen as a measure of financial strength.cycle because the company must continue to service its debt regardless of how bad sales are.423.00% 30. Total equity increased from Rs.095.00% 50.655.3billion on Waste Heat Recovery Project was incurred.00% 10. Long term finance .00% 20.00% 70.00% 40.2.asp) We can use the following pie chart analysis to demonstrate Lucky Cement s total gearing structure for the three year period under review: FY08 Debt 46% Debt 39% Equity 54% FY09 Equity 61% Debt 35% FY10 Equity 66% 90. we see a trend which suggests improving debt management.00% 80. 18.

45 As evident from the chart above the interest cover ratio declined severely over FY08/09.86 per ton during this financial year. the company is not generating enough earnings (before interest and tax) to cover interest expense. This indicates why the ratio improves over FY09/10. from Rs. This cost was mainly reduced due to early repayment of high markup carrying long term loans and resorting to export refinance and Foreign Currency Import Finance (FCIF) facilities. In other words.18 million during this financial year.79 million.667. 2. the financing cost per ton also reduced from Rs. If it comes to less than 1 then there is a serious concern that company will face troubles while servicing its debts.569.has reduced by Rs.000 over FY09/10 which reflects reduced reliance on long term debt and hence relief from potential finance cost as well.641. . The FCIF is based on Libor and repayable in USD.97 million last year to Rs. The financing cost of Lucky Cement during FY10 was reduced by Rs. i. Resultantly. this ratio should not be 1.5 times or below.1. Interest cover 30 25 20 15 10 5 0 FY08 FY09 FY10 Interest cover Interest cover FY08 24. Ideally. This was due to the termination of an interest rate swap arrangement entered into by Lucky Cement in FY08.210 per ton to Rs.400. the Company is carrying certain exchange risk but the same is covered on the back of natural hedge of exports. Interest Cover This ratio represents the ease with which earnings of a company can cover interest piled on outstanding debts.236.27 FY09 5.e. therefore.83 FY10 7.

P/E ratio 15 10 5 0 FY08 FY09 FY10 P/E ratio Lucky Cement s P/E ratio shows a decline in FY09 and an uplift in FY10 indicating a future boost in investor confidence. the EPS of Lucky Cement increases in FY09 to Rs. A high P/E ratio implies that investors are expecting an earnings growth in future compared to companies with a lower P/E ratio and vice versa.70 per share in FY10. EPS 15 10 5 0 FY08 FY09 FY10 EPS EPS FY08 9.21 FY10 9.INVESTMENT RATIOS EPS and PE Ratios The Earnings per share ratio (EPS) is considered as one of the basic measures of a company s profitability and acts as a very important factor in determination of share price. A reduction in investor confidence is reflective here. .14. In line the trend of profit after tax.84 FY09 14.70 The Price earnings ratio represents a company s share price as a ratio of its EPS.21 per share and then falls down to 9.

Lucky Cement Company s performance is much better than that of DGK Cement Company.05% Clearly.43% 4.19 D=(B-C)÷C×100 Variance 95.81% 0. they still imply that DGK is in a better position to pay off current liabilities using it s current assets. The liquidity ratios of DGK are far more commendable than Lucky Cement s.COMPETITOR ANALYSIS Lucky Cement company with DG Khan cement company Lucky Cement vs.80% 14. Similarly the ROCE and ROE ratio comparison reveals that they are also greater incase of Lucky Cement by 207.90% 795.56% 12.12 14.10% greater than that of DGK.45% (40. 2.69% and 1320.71 0. from the comparison above. Though they are not at an ideal level i.31 11.88% 1.69% 70.10% 207.62% 1.45% respectively. .e.45 C DGK 16.82 1.34)% (41.96)% 30.80% 12.90% and 795.01 6.60 7.69% 1320. Dg Khan Cement A 2010 Ratios Gross profit margin Net Profit Margin Return On Capital Employed Return on Equity Current Ratio Acid Test Ratio Inventory Turnover Period (times) Debtor Turnover Period (days) Interest Coverage (times) B LUCKY 32.19 1. The quick ratio further emphasizes this fact.65 18.09% 526.50% 0. The gross profit margin and net profit margin of Lucky Cement are 95.

This award represents their: a) brand popularity b) product availability c) quality and consistency. Same cannot be said for debtor collection period as DGK s debtors are likely to pay back approximately 5 days earlier than those of Lucky Cement s. SWOT ANALYSIS Strengths  Current market leader in terms of both capacity and sales.  Lucky Cement became the first Pakistani cement company to receive a certification for exports from the Bureau of Indian Standards (BIS). (Annual Report 2010)  Good brand image. Lucky Cement was declared as the Brand of the Year-2009 in category of cement. (Annual Report 2010)  Strong dealer network comprising of 200 dealers located at strategic positions throughout the country has enabled the creation of an impressive distribution system to even remote areas of the country.Lucky cement is doing better when it comes to inventory turnover as their ratio exceeds that of DGK by 30. Interest coverage at Lucky Cement is 526.05% greater than that at DGK implying that Lucky Cement would find it much easier to cover finance costs with its profit before interest and tax as opposed to DGK who can only cover it about once. as seen in comparison above. Dominates both local and export market. . (Annual Report 2010)  Loose cement storage and ship loading terminal facilitates deliveries to customers in a timely manner. (Annual Report 2010)  Expanding in a timely manner. when countries like Iran. (Annual Report 2010)  Received Annual Environment Excellence Award from the National Forum for Environment and Health (NFEH) as recognition for their pro environment initiatives including the installation of the Waste Heat Recovery Plant at its production facilities and active support for the President of Pakistan s Forestation Program aimed at promoting a cleaner environment. Egypt and India were facing a shortage. Lucky Cement s decision to expand in Southern Pakistan enabled it to exploit booming construction activities in the Middle East. (Annual report 2010)  Recipient of National CSR excellence award as recognition for participation in social work. Thus the inventory cycle is circulating more rapidly at Lucky Cement. Also reduces idle time.69%. This could also explain the variance in their current ratios.

 Karachi serves as an ideal location to manage exports from due to the availability of During the first quarter of the upcoming financial year. It left no room for keeping the prices unchanged. ( according to All Pakistan Cement Manufacturers Association (APCMA.  Increase in prices of petroleum products and coal in the international market.html)  Reduced reliance on debt as a source of finance. (Annual Report 2010) Opportunities  Cement demand many rise when reconstruction is started to restore the infrastructure in certain parts of country destroyed due to  Reconstruction of dams damaged during flood and construction of new ones. Moreover. Weaknesses  Deteriorating liquidity position of the company as suggested by the current and quick ratios. this year s monsoons and floods are likely to dampen cement demand in some parts of the country. in the wake of reconstruction activities in the flood-affected areas.  Availability of cheap labour in Pakistan. (http://www.  The devastating floods have caused a greater decline in cement consumption and have badly affected the country s exports in July. (Annual Report 2010)  Government expenditure on infrastructure shall lead to an increase in cement demand.(http://sify.thenews. price of cement paper bags has risen to Rs 450 per ton from Rs 300 of last year. analyst said.asp?page=2010\08\18\story_18-82010_pg5_2)  There are still a lot of areas affected by the 2005 earthquake that still require attention due to backlog on construction work (Annual Report 2010)  Cement demand from local market may increase in fiscal year 2010-2011. .  Pressure on prices due to over capacity in the cement industry poses as a challenge.

especially for Lucky Cement since its major focus is on exports.  Depreciating Pakistani currency can pose as a serious threat to export income.  Possible rise in oil and coal prices in the future  Increased competition  Deteriorating relations with India and heavy regulations on exports to India can pose to be a threat. The prevailing political conditions in Pakistan leave little scope for investment in the country and hence less demand for construction work.Threats  Political uncertainty in Pakistan. Conclusion and Future Prospects .  Frequent bombings in the country suicide attacks suppress investment even more.

APPENDICES APPENDIX 1: BALANCE SHEET Statement of Financial Position. as at June 30 2010 2009 (Rupees in 000) 2008 ASSETS NON-CURRENT ASSETS .

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