Luckys payout has come as pleasant surprise

Full year net profits of Lucky Cement jumped by 72 percent during the fiscal year ending June 2009, as soaring export revenues shielded the firm from falling domestic sales. The company reported Rs 14.21 earning per share while surprising investors with its full-year dividend of Rs 4 per share - its highest ever payout.
The payout - which comes to the industry as "pleasant" surprise - was well received by the market, with stock price rising nearly 4 percent to Rs 77.60 by the session close. Luckys sales revenue during the period surged by 55 percent, led by 29 percent increase in export volume, which stood at 3.4 million tons. Export revenues that accounted for 58 percent of total sales volume, were also aided by the depreciating value of the Pakistani rupee which fell 20 percent during FY09.
Higher overseas sales helped the firm to mitigate the impact of worsening domestic operations, which saw sales plunging 14 percent after the government slashed its public sector development programme in fiscal year 2009. As a result, the firms gross margins rose sharply to 37 percent from 26 percent last year.
Margins were also supported by substantial reduction in coal price during the period, which dropped from its peak of around $160 per ton in June-08 to an average of $94.4 per ton in FY09. Luckys finance cost went up by almost 10 times owing to higher interest rates paid on capital expenditure coupled with a one time cost incurred for the elimination of interest rate swap agreement.
Despite the likely decline in borrowing costs, Luckys finance cost will continue squeezing its bottom-line profits in the years to come, given its loan repayments due until 2012-13. The firm had taken a loan to expand its plant operations in Karachi by 1.25 million tons per annum.
This, together with likely fall in domestic sales due to shrinking PSDP, might keep pressure on the company, but Lucky will still keep its chin up. The company has recently shown its intentions to penetrate further in international markets, notably Africa - which is potentially easy and effective to cater. Higher export targets will keep the firm protected from dampening local demand. And, going forward, even when global cement demand falls, Lucky will be able to maintain its margins due to weak currency and low cost of manufacturing.

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LUCK P&L

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RS (MN)                      CY09       CY08     ()%

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Sales                      26,330     16,958        55%

COGS                       16,519     12,601        31%

Gross profit                9,811      4,357       125%

Gross Margin                  37%        26%        45%

Operating profit            7,217      3,076       135%

Finance cost                1,237        127       876%

PBT                         5,177      2,307       124%

Taxation                      580      (371)        nm*

PAT                         4,597      2,678        72%

EPS(Rs)                     14.21       9.84        44%

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