God helps those who help themselves, and Lucky Cements managers seem to have a firm belief in the notion.
The firm just bucked an industry-wide trend that saw sales dropping due to heavy monsoon, supply disruptions caused by floods, the Ramadan factor and increased competition in the overseas market.
The quarter ended September saw Luckys domestic sales volume rise by 2.4 percent, against a drop of 16 percent suffered by the overall cement industry. Similarly, while the industrys exports slid by 21 percent during the period, those of Lucky fell by 18 percent. However, Luckys exports would have actually fallen by 22 percent had it not been for the timely decision to sell 37,000-plus tons of clinker.
Looking ahead, things appear smooth for the cement giant. Despite a bad first quarter, industry players see total domestic cement sales at last years level of 23.5 million tons. This means substantial sales are in the offing on the back of post-flood reconstruction of houses, water lining and other infrastructure.
Prices, on the other hand, are also seen rising from current levels on account of both cost-push and demand-pull factors. That, and the fact that Lucky is going to get even more cost efficient from next quarter onwards, should mean better margins for the firm.
Aiming to cushion against rising coal prices - that form a bulk of Luckys cost of production - the firm has already locked-in its coal inventory for the next six months. And if international coal prices ease in the short term, company sources say they will pile up the stock again before coal resumes its long-term northbound journey.
Moreover, the cement maker has just rolled out the Waste Heat Recovery project of its Pezu plant located in the countrys north, and its experience from the Karachi plant suggests that its gas consumption (for power production) will be reduced by 25 percent.
In turn, this means that Lucky would be able to play on price competitiveness in Afghanistan. Pakistan sold about 3 million tons of cement to Afghanistan in the last fiscal year, and this year it is expected to export about 4 million tons.
These changing dynamics are confirmed by the companys financial picture that shows that the worst is over. Though the firms key profitability ratios are still lower than what it was in the first quarter of FY10, it appears that it bottomed out in the quarter ending June 2010.
And given its plans to tap the lucrative African market, while gaining cost efficiencies at the same time, Lucky should be able to increase its profitability even more; the only glitch being the delay in coal supply from Thar.
The progress on Thar coal by Oracle Coal Fields has been slower than expected; initially Oracle was expected to start supplying coal to Lucky by the end of FY11, but now it could be delayed by a year, according to industry sources. How exactly will it affect Luckys plans, is perhaps another story.
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Lucky P&L Change
Rs (mn) 1QFY11 YoY QoQ
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Revenue 5584 -7.6% -14%
Cost of sales 3852 1.2% -20%
Gross profit 1732 -22.5% 2%
Distribution cost 688.3 1.2% -22%
Admin expenses 58.5 33.0% -25%
Operating profit 985.1 -34.7% 35%
Finance cost 144 -7.3% -5%
Profit after tax 727 -34.1% 26%
EPS (Rs) 2.25 - -
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Source: KSE notice