Lucky Cement surprises and impresses

While cement sector companies have posted mixed first quarter results, what do they all have in common? Answer: the result announcements have all defied expectations of market analysts. And Lucky Cements 1Q FY14 financials are a testament to the fact.
Lucky Cement (LUCK) surpassed predictions by posting net income growth of more than 26 percent compared to the corresponding period of last year. The growth in earning was recorded on the back of higher volumes as well as better margins on retention prices.
LUCKs total sales grew from 1.42 million tons in 1Q FY13 to 1.47 million tons in this quarter. This translated into 3.5 percent year-on-year growth in volumes, compared to an industry-wide growth of only 1.1 percent.
Interestingly, while industry domestic sales grew by 2.2 percent, LUCKs local dispatches saw decline of 1.1 percent, over last year. Funnier still, LUCKs export off-take grew by 10.6 percent when industry exports actually declined by 1.4 percent.
But, there is a catch: while LUCKs first quarter off-take is not in line with sector wide performance, it is actually the cement sector numbers which are not in line with the historical trend. Historically, the July to September quarter has been the weakest in terms of demand for cement, owing to monsoon, floods and more recently, with Ramzan season also falling in the same months.
Gross margin remained flattish, inching forward by 87 bps. Even though cement prices have risen by 11 percent, compared to the same period of the previous year, to Rs480 per bag, margins remained under pressure given the hike in gas tariff and transportation costs.
Operating margin increased by a massive 450 bps on the back of a year-on-year decline in distribution cost by 37 percent. Distribution cost surprisingly declined from Rs1.1 million to Rs696 thousand, falling from 12.5 percent of sales to 7.5 percent, despite an increase in export volume. Going forward, cement sector in general as well as LUCK is expected to grow in the rest of FY14 on the back of higher proportion of budget allocations towards PSDP by the Federal Government.

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LUCKY CEMENT LIMITED

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Rs (mn)                                      1QFY14     1QFY13        chg

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Turnover-net                                  9,332      8,852         5%

Cost of sales                                (5,168)    (4,979)        4%

Gross profit                                  4,164      3,873         8%

Distribution cost                              (696)    (1,105)      -37%

Administrative cost                            (279)      (140)       99%

Operating profit                              3,190      2,628        21%

Other income                                    221         87       156%

Profit before taxation                        3,229      2,560        26%

Taxation                                       (684)      (545)       25%

Profit after taxation                         2,546      2,014        26%

EPS (Rs)                                       7.87       6.23        26%

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Source: KSE notice

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