It seems like the stellar performance of the cement sector in FY12 is being carried along into the new fiscal year. At least that is what the industry dynamics and results of major companies in the sector allude towards.
Lucky Cement, the mega player in the cement industry, posted a PAT in1QFY13 that was 34 percent more than what it earned in the same period last year.
Bearing in mind that the fiscal year gone by with its phenomenal performance for the cement sector lays out a high base year for the current one, the improvement in profitability is noteworthy.
This improved profitability was riding on the back of improved revenues for the company, helped mainly by an increase in domestic retention prices of cement. In terms of volume, domestic sales rose by 5 percent on a year-on-year basis, and the overall domestic sales revenues was up by 25 percent on the same analogy.
On the other hand, export sales registered a decrease in terms of volume of 9 percent in 1QFY13 relative to the same period last year. This was because of the companys strategic inclination towards domestic sales rather than exports.
Yet, because of better export prices in international markets, overall export revenues surged by 9 percent. The net increase in the Companys top line tallied at 18 percent on a year-on-year basis in 1QFY13.
In contrast, the cost of sales rose by 9 percent, and helped by the decrease in global coal prices, Luckys gross margins for the quarter under review improved by 5 percentage points relative to the same quarter in the previous year, while the net margin rose by 3 percentage points on a similar comparison.
Lucky is a name to reckon with when it comes to diversification, and the companys acquisition of ICI Pakistan is worth mentioning as it reflects on the companys long-term plans to enter into other lines of businesses.
As for the mode of financing of the transaction, with a healthy leverage position and handsome cash flow generation capacity - Rs10.14 billion generated in FY12, and cash and bank balances of Rs3.3 billion as at the end of 1QFY13 - it appears likely that the acquisition will be paid from internal sources.
The last annual report of Lucky Cement for FY12 says, "The financing of this transaction has been planned in a manner to carry minimal debt on the books of your company without compromising on its future growth prospects."
Other ongoing projects of the company include the supply of power to HESCO (started on 1 July 2012), plant and machinery provision finalized for the joint venture projects of the cement plant in DR Congo and cement grinding facility in Iraq.
At the same time, Lucky has also made headway into a 50MW wind power plant, having obtained the power generation license and tariff approval from the concerned authorities.
Going forward, the substantial PSDP allocation for this years budget and expectations of actual deployment since the current year is an election year; mean that the company is set to shine more in the domestic front. While export sales might pose a challenge, exports to Afghanistan and African markets are likely to stay up.
Lucky Cement P&L
Rs in mn 1QFY13 1QFY12 Y/Y chg
Net sales 8,852 7,496 18%
cost of sales 4,979 4,581 9%
gross profit 3,873 2,915 33%
Gross margin 44% 39% 13%
Distribution costs 1,105 922 20%
PAT 2,014 1,506 34%
Net margin 23% 20% 13%
EPS (Rs) 6.23 4.66