To no ones surprise, Pakistans largest cement manufacturers saw its bottom line shrink by 23 percent to Rs 1.46 billion during the first half of the fiscal year.
As the industry witnessed a decline in sales on account of supply disruptions caused by the devastating July floods, along with tepid local demand and declining exports, Luckys dispatches for the period also fell by around 12 percent to 2.8 million tons.
Fortunately, presence in the southern market helped Lucky escape the consequences of supply disruptions and instead saw a whopping 13 percent jump in domestic sales volumes against a drop of around 8 percent suffered by the industry during the period.
But the company took a blow from a drastic drop in exports, which plunged by 30 percent to 1.29 million tons, while the industrys export slid by around 17 percent during the period. Behind the weak exports was growing capacity expansion in neighboring countries amid tepid construction activities.
"The local sales revenue increased by 32.8 percent because of a 13.2 percent increase in volume and 17.3 percent increase in prices on the back of increase in production cost," according to the company notice released yesterday.
However, margins didn benefit from the impact of higher prices due to higher cost per ton of cement that surged by around 20 percent. Production costs increased due to higher fuel cost and inflation, reducing the gross profit margin by around 440 bps to 33 percent. While, distribution cost was on the higher side due to higher sea freights.
Despite the lower profit, the outlook is not all dreary for the largest cement manufacturer. The market expects local demand to improve from March on the heels of better agriculture income from Rabi crop. Similarly, the companys presence in African markets will continue to support its exports.
With Lucky in a better position to save on transportation cost, along with successful implementation of Waste Heat Recovery Projects at both of its plants and improving logistics systems, the company will continue to outperform industry margins.
Lucky Cement
Rs (mn) 1HFY11 1HF10 chg
Sales 12,027 12,116 -1%
Cost of sales 8,060 7,591 6%
Gross profit 3,967 4,525 -12%
Gross margin 33% 37% -12%
Distribution cost 1,815 1,726 5%
Finance cost 294 297 -1%
Other charges 119 164 -27%
Profit 1,460 1,907 -23%
Source: KSE notice
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