Lucky Cement plans to start new company to manufacture, assemble Kia vehicles

After successfully venturing into chemicals and power sectors and with the aim to diversify the business, Lucky Cement, the Pakistan''s largest cement manufacturer has decided to set up an associated company to undertake the manufacturing, assembling, marketing, distribution, sales, after sales service, import and export of all types of Kia Motor vehicles, with a proposed equity investment of up to Rs 12 billion.
The company has also decided initiation of due diligence of north plant of Dewan Cement located in Hattar, District Haripur and capacity expansion of the grinding plant in Basra, Iraq from current 0.87 million tons to 1.74 million tons. The board of directors of Lucky Cement, in its meeting held on Thursday at Karachi, authorised the company to make an investment in the form of equity for an amount up to Rs 12 billion divided into 1,200 million ordinary shares of Rs 10 each in the proposed associated project company to be set up and established in Pakistan.
The proposed company shall inter alia undertake the manufacturing, assembling, marketing, distribution, sale, after-sales service, import and export of all types of Kia Motor vehicles, parts and accessories under the license from Kia Motors Corporation, subject to approval of shareholders of the company. For this, approval will be sought from shareholders and the Extra-Ordinary General Meeting of the Company (EOGM) for the same has been scheduled for December 30, 2016 at the company''s registered office situated at factory premises Pezu, District Lakki Marwat, KPK.
In view of the company''s cement expansion plans in Pakistan, the company is also considering to initiate due diligence exercise to evaluate potential acquisition of north plant of Dewan Cement Limited located in Hattar, District Haripur, KPK, with cement production capacity of 1.134 million tons per annum. Moreover, in view of the company''s cement expansion plans in Iraq, the company has decided together with its Joint Venture partner to increase its existing cement grinding capacity from 0.871 million tons to 1.742 million tons per annum. This expansion shall be financed by internally generated cash-flows of the existing grinding unit.
"We believe that this move will further diversify the revenue line of LUCK and strengthen the profits considering robust autos demand outlook in Pakistan," an analyst at Insight Securities said. At present, Pakistan is witnessing growing demand for auto cars and the auto makers have generated average ROE 27 percent in last 3 years. An analyst at Topline Securities said that Pakistan''s car penetration of 13 vehicles per thousand persons (significantly lower than the regional average of 162), strong potential for automobile growth due to higher disposable income and low interest rate environment and Lucky''s hands-on expertise to manage diversified businesses, provide a lucrative opportunity to the company to exploit growing local automobile industry.
Dewan Cement Limited north plant is located in Hattar with a total capacity of 1.1 million tons which operated at 67 percent capacity utilisation in FY16. Just to mention, Lucky Cement has already announced capacity expansion of 2.3 million tons in north and 1.3 million tons in south. "We believe that acquisition of Dewan Cement would help Lucky gain more market share in north amid rising capacities." Since Lucky Cement is currently operating at near to full capacity utilisation, acquisition of Dewan Cement would help the company to jack up its dispatches until the new plants come online. The capacity expansion plan in Iraq is mainly an outcome of successful operation of initial plant and the robust demand outlook. Grinding plant of Iraq started its commercial operation in 2014 and the profits from the project stood at Rs 812 million in FY2016.