For a firm facing depressed demand at home amidst rising cost pressures, Lucky Cement Limited, the countrys largest cement maker, managed to fare quite well in 2010, as lower finance cost helped offset the decline in manufacturing profits.
Depressed cement prices in the local market exerted great pressure on companys topline, which fell by 7 percent to Rs24 billion in FY10. Massive cut in development expenditure and excess cement capacity at home ignited a price war during the last fiscal year - pushing average retail prices lower by 17 percent to around Rs3700 per ton.
On top of that, prices in international market also followed the downward trend amid growing capacity expansion in neighbouring countries. The FOB price of cement in international market slid to an average $47 per ton in FY10 from $59 per ton in FY09, according to the FBS.
Though Lucky felt the pinch, its presence in both southern and northern market has been helping its managers combat the crisis relatively better than many of its competitors through increasing sales volume.
The firms domestic sales surged by 26.3 percent to 3.12 million tons in FY10, while its proximity to sea port helped tap the export market in the face of lower F.O.B prices. Consequently, Luckys total volumetric sales grew by 12.3 percent to 6.63 million tons.
In keeping with turnover growth and higher transportation cost, the companys distribution cost surged to Rs3.44 billion against Rs2.42 billion last year. The firms saving grace came in the form of early retirement of long-term loan carrying high markup and in turn adoption of low cost financing methods which helped shave financing cost by more than half to Rs569 million.
With long-term borrowings retired, Luckys managers have plenty of room to boost their shareholders value. Though, flooding in major parts of the country has disrupted cement supply, Lucky remains largely unscathed.
Moreover, the firms presence in both upper and lower parts of the country can help supply cement for reconstruction and infrastructural development purposes across the country. Lastly, if the cement industry manages to get the inland subsidy extended into FY11, Lucky would continue reaping the benefits going forward.