Morning Pulse Aug 19, 2010

CEMENT SECTOR
LUCK – FY10 detailed accounts analysis…
Synopsis… Analyst:
Lucky Cement Limited (LUCK) has announced its FY10 results recently. The Sarfraz Abbasi
company has reordered Profit After Tax (PAT) of PRs3,317m (EPS PRs9.70), sarfraz.abbasi@atlascapital.com.pk
showing a decline of 31.74% against corresponding period of last year when (+92-21)-111-226-100 (Ext.403)
company recorded PAT of PRs4,596m and EPS of PRs14.21. In today’s report
we present detailed analysis of company accounts for FY10. Market Data
Top line witnessed decline owing to low retention prices …
Pakistan Research

During the period under review, Top line of the company witnessed decline Market Snapshot
of 6.92%, despite of sound volumetric growth of 12.30% Y-o-Y basis. Sales Index Chg %
registered at PRs24,902m against PRs26,330m during the corresponding KSE 30 9610.83 167.98 1.78
KSE 100 9677.89 140.76 1.48
period of the last year. Decline in monetary sales is mainly attributed to
KSE ALL 6768.28 96.35 1.44
prevailing lower prices both in local and export markets. Cement prices
remained depressed throughout FY10, except 4Q/FY10 when prices started Key Data
picking up from PRs265 per bag to PRs310 per bag. Increase in prices during Market Cap(PRs bn) 21.10
the final quarter helped top line in sailing on safe surface. During the year, Shares Outstanding (m) 323.75
Bloomberg LUCK.PA
company’s local dispatches improved by 26% to 3,119m tons against 2,496m
12M Avg. Volume (m) 2.90
tons against same period of last year. On the other hand, export dispatches
witnessed a meager growth of 2% to 3,510m tons against 2,469m tons in last 12MLUCK's relative performance vs KSE
year. 138%
Lo c a l a n d Ex p o rt Sa le s c o n trib u tio n in to ta l
V o lu m a tric Sa le s 116%

L o c a l sa le s E xp o rt Sa le s 94%
100%
72% LUCK KSE-100
80%
50%
60%
Aug-09

Apr-10

Aug-10
Oct-09

Feb-10
Sep-09

Nov-09

Dec-09

Jan-10

Jun-10
Mar-10

May-10

Jul-10
40%

20%
LUCK Production Capacity Utilization (FY06-FY10)
0%
Production Capacity Utilzation
FY 0 4 FY 0 5 FY 0 6 FY 0 7 FY 0 8 FY 0 9 FY 1 0
7.00 100%
So ur c e: C o mp any A c c o unt s , A t las R es eac h
5.25 80%
Cost of Sales remain unchanged yet had an impact…
Millions

3.50 60%
During the period under review, Cost of Sales witnessed no major change as
COGS was recorded PRs16,530m against PRs16,519m during the same 1.75 40%

period of last year. Power cost which was 71% of COGS last year stood 62% 0.00 20%
this year because of lower energy costs. Average Per ton coal prices FY06 FY07 FY08 FY09 FY10
remained at US$115 much lower than average per ton coal prices of US$160
during the corresponding period of last year. In addition to this, both, north
and south zone captive plants are being run on natural gas which enabled
company in restricting significant portion of COGS. Atlas Capital Markets (Pvt.) Ltd
B-209, Park Towers, Clifton, Karachi
High distribution and admin cost – a nightmare… Equity Research: Equity Sales:
Distribution and administrative costs together recorded PRs3,736m during the Tel: 92 (21) 5376125 Tel: 92 (21) 5368261-8
Fax: 92 (21) 5376126 Fax: 92 (21) 5376122
year, showing a massive upsurge of 44.05% against PRs2,594m against
Money Market: Corporate Finance:
corresponding period of last year. Drastic upsurge in distribution and
Tel: 92 (21) 5376128 Tel: 92 (21) 5824991
administrative costs were incurred mainly due to increase in transportation Fax: 92 (21) 5376129 Fax: 92 (21) 5376122
charges. Freight charges within country went up owing the rising fuel prices. Financial Products Distribution:
On the other hand, sea freights have also seen an upsurge which boosted Tel: 92 (21) 5376125
distribution cost drastically. However, relief in distribution and administrative Fax: 92 (21) 5376126
costs was expected through payment of Inland Freight subsidy of PRs135.7m, Atlas Research is available on Bloomberg and
which could not be materialized as the payments are pending with TDAP. Thomson Financial

Disclaimer: All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time
of publishing. However, in view of the natural scope for human and/or mechanical error, either at source or during production, Atlas Capital Markets (Pvt.)
Limited accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the publication. All
information is provided without warranty and Atlas Capital Markets (Pvt.) Limited makes no representation of warranty of any kind as to the accuracy or
completeness of any information hereto contained.
 ATLAS CAPITAL MARKETS (PVT.) LIMITED MORNING PULSE
Immense reduction in debt led to lower financial charges…
Financial charges during the year witnessed significant decline of 53.99% to
PRs569m as against PRs1,237m during the corresponding period of the last
year. Company paid back major portion of its long term debt which paved
the way for significant decline in financial charges. Long term debt after
payment of PRs2,641m recorded at PRs1,658m against PRs4,300m last year.

Profitability Performance – Bottom witnessed decline…

Immense pressure on top line during the year proved to be a key reason of
shrinking profit margins. Consequently, bottom line witnessed significant
decline of 31.74% Y-o-Y basis. Company recorded PAT of PRs3,137m (EPS
PRs9.70) as against last year’s PAT of PRs4,596m and EPS of PRs14.21.
Pakistan Research

PRs (m) FY09A FY10A Chg

Net Sales 26,330 24,509 -7%
Cost of Sales 16,519 16,530 0.07%
Gross Profit 9,811 7,979 -19%
Distribution & Admin Exp 2,594 3,736 44%
Operating profit 7,217 4,243 -41%
Financail Charges 1,237 569 -54%
Profit Before Tax 5,177 3,418 -34%
Taxation 580 280 -52%
Profit After Tax 4,596 3,137 -32%
EPS 14.21 9.70 -32%
Source: Company Accounts, Atlas Reseach

Going Forward…
We expect local dispatches to witness robust growth during the 1H/FY11 due
to brisk reconstruction activities in country post floods and Increase in
retention prices in both Local and export markets which started picking up
during the 4Q/FY10, still have an ample room for improvement as the prices
have seen a top of PRs360-370 per bag during the FY09. We maintain our
target price of PRs90 on scrip based on our DCF based valuation. We
recommend BUY stance on scrip as it is offering an upside potential of 37%
from its current trading levels.