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RESEARCH REPORT ON
CEMENT SECTOR
FOCUSING
LUCKY CEMENT LTD

Research Analyst
Saturday M. Faisal Panawala
May 31 ‘08 Cell: 0321-2956003
fpanawala@hotmail.com
Content

Particulars Page No.

01 Overview – Cement Sector

ƒ Future Outlook – Sales & Growth…………......... 1
ƒ Hike in Cost……………………………………... 1
ƒ Export Demand & Expansions………………….. 1
ƒ Final Word…………………………………......... 2

02 Lucky Cement Limited

ƒ Expansions…………………………………......... 3
ƒ Exports…………………………………………... 3
ƒ Operation Results………………………………... 3
ƒ LUCK Highlights………………………………... 3
ƒ GDR Issue of US$ 109.3mn…………………….. 3
ƒ Recommendation………………………………... 4

03 Pivot Analysis……………………………………… 5

This report has been prepared by Sample Securities (Pvt) Ltd – (SSPL) and is provided for information
purposes only. As a result, investors should consider this report as a single factor in making their
investment decisions with out undue reliance on this report and the company accepts no responsibility
whatsoever for any direct or indirect consequential loss arising from any use of this report or its
contents. The views expressed are of research department & do not necessarily reflect those of SSPL
directors.
 Pakistan’s Cement Sector Analysis Sample Securities (Pvt) Ltd

Synopsis
Industry Overview Sector P/E 11.5
Capacity in tones 37mn
Future Outlook – Sales & Growth Local demand 30.4mn
The robust growth of 32% cement demand both in domestics Export demand 7mn
and export markets during FY ‘07, continued as cumulative 9M FY ’08
dispatches for 10 months FY ’08 showed an increase of 25%. Production in tones 21.9mn
Total domestic consumption grew by 1% YoY while exports 9M FY ‘ 08 Growth
grew by whopping 157% YoY. in % 24.79%
Domestic 8.68%
Hike in Cost Export 140.24%
The industry debt to asset ratio is 60%, the recent volatility in No. of Companies 22
interest rates is likely to affect the finance cost significantly.
However companies including DGKC, LUCK & MLCF have
entered into interest swap agreements linked to Libor. Production Output
On the other hand coal prices in Intl’ markets have reached to
US $142/ton during Feb ‘08 which were US $80 last year, 21%
increasing cost by PKR 32 per 50kg bag and oil prices LUCK
soaring at US $133/barrel have increased the cost of DGKC
production. 12% MLCL
59% OTHERS

Hike in Prices 8%
The price increase of PKR 40-45 per 50kg bag during the
year, due to impact of rising coal & fuel prices, have been According to FY ’06-07
passed on to consumers which indicates margins are expected
to remain intact in the short term.

Cement Sector MKT CAP PKR 118.66bn

Cement Sector MKT CAP US$ 2,221mn
Cement Sector Weightage in KSE 100 3.02%
Capacity Utilization 90%

Cement Sector FY’07A FY’08E FY’09E

PAT Growth -32% 19% 28%
EV/ton US$ mn $ 147 $ 93 $ 89
EV/EBITDA x 11.2 6.5 4.9
ROE 14% 13% 16%
Source: FCEL report on cement sector

Export Demand & Expansions

Local cement dispatches registered 7% growth at 20.6mn tons
during 11months FY ’08. Demands from Mid Eastern &
African countries gave significant boost to production which
stood at about 24m tons in FY ’07 and export revenues stood
at $23m in Jan ’08. The upward trend in cement demand is
likely to continue for years to come as UAE finds it cost
effective to import cement from Pakistan.

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 Pakistan’s Cement Sector Analysis Sample Securities (Pvt) Ltd

Export avenue also includes India & South Africa besides

Afghanistan & UAE. India now with demand deficit with 8mn
tones, which is partially fulfilled by Pakistani cement.
Year wise Industry Growth
Year wise Industry Dispatches
40%
35% 36%
30% 32% 30
25% M. Tons
25
20% 20%
15% 20
10% 12% 15
5% 10
0%
5
2004 2005 2006 2007 2008 2009
0
2005 2006 2007 2008
Source: LCL Annual Accounts FY ‘06-07

Final Word
The increase in demand coupled with rising coal & fuel prices
and construction season at its peak, it is expected local prices
to increase by 5% by end of FY ’08. However regional
demand shows promise till FY ’10-11.

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 Lucky Cement Ltd Sample Securities (Pvt) Ltd

Lucky Cement Overview Synopsis

Symbol LUCK
Expansion Shares O/S local 263mn
Expansion of 2.5mn MT is expected in two phases. One GDR Issue 60mn
plant of 1.25mn MT is expected to be operational by Dec GDR US$ 109.3mn
08, while other plants announcement is expected soon. Mkt Cap (PKR) 33.43bn
LUCK is also converting its power plants from furnace oil Mkt Cap (US$) 484.5mn
to a mix of furnace & gas. This will increase margins as Current Price 103.5
energy costs make up of 65% of total cost of sales. Average Price 112.09
Average Volume 10.94mn
Exports Index Weightage % 0.84
LUCK is the market leader & has 21% of the total market
share. LUCK sales comprise of 44% exports & 56% local Exchange Rate PKR 69
sales and similar mix is expected to continue. Recently a Market Share 21.57%
memorandum of understanding (MOU) with Noor Ratio Analysis FY ’06-07
Financial Investment Company for supply of 0.5mn MT of Gross Profit to Sales 29.35%
Clinker per year for a period of 5 years, guaranteeing 8- Net Profit to Sales 20.34%
10% utilization at current capacity & 7-8% of post
Acid test ratio 0.85:1
expansion. Company’s edge over export makes it unique,
relative to its peers. ROE 27.23%
Book Value per share Rs. 35.51
Operating Results (Rupees in million except EPS)
Description 9M FY ’07-08 FY ‘ 06-07 9M Growth FY ‘06-07 Growth
Sales Revenue 11,865 12,522 32.14% 55.48%
Gross Profit 3,121 3,675 23.72% 23.32%
Operating Profit 2,300 3,066 6.64% 10.68
Profit After Tax 2,014 2,547 49.74% 31.56%
EPS 7.65 9.67 49.71% 31.56%
Source: LCL 3rd QTR Accounts FY ‘07-08

LUCK Highlights Price Target PKR 135.00 – “BUY”

Description FY ‘07 FY ‘08E FY ‘09E FY ‘10E
Net Sales (PKR in mn) 12,522 18,800 20,900 21,300
EBITDA (PKR in mn) 4,410 4,600 6,400 7,100
Net Profit (PKR in mn) 2,547 2,900 4,100 3,900
EPS 9.67 11.05 15.70 15.10
P/E 14.3 15.2 9.3 9.1
ROE 27.2 24.4 26.5 21.2
Source: Company reports, JP Morgan estimates. All data based on prices as of March 28 ‘08

GDR Issue of US$ 109.3mn

Additional raising of capital worth US$ 109.3mn through issue of 15mn Global Depository
Receipts (GDR’s), each representing 4 ordinary shares of LUCK has now been completed.
The raised capital is used to payoff the costly debt and up to 55%-60% short & long terms
have been paid off. This has significantly reduced the financing burden.

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 Lucky Cement Ltd Sample Securities (Pvt) Ltd

Synopsis
WACC 16.8%
Beta 1.18
Risk Free Rate 12%
Equity Risk Premium 6.0%
Req Return by investor 17.5%
Target Price 135
Reiterate Buy
Source: JP Morgan estimates

Recommendation
High margins of exports are expected to boost sales & growth to increase prices. Key risks to
our price target are:
a) Changes in coal prices
b) Expansion
c) Fall in price
d) Local & foreign growth

Due to positive long term earnings as result of export of cement and the recent downturn in
stock price, the current valuation is very attractive and we strongly reiterate “Buy”
recommendation

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 Pakistan’s Cement Sector Analysis Sample Securities (Pvt) Ltd

Pivot Analysis 30th May ‘08

Script Close Strategy S3 S2 S1 Pivot R1 R2 R3 Upper Lower RSI

LUCK 103.5 BUY 94.17 96.45 99.98 102.26 105.79 108.07 111.60 111.60 108.68 26.9

BUY ON
MLCF 12.90 WEAKNESS 12.07 12.27 12.59 12.79 13.11 13.31 13.63 13.55 12.26 17.5

PCCL 7.10 BUY 5.62 5.93 6.52 6.83 7.42 7.73 8.32 8.10 6.10 28.9

DGKC 69.24 BUY 67.53 68.17 68.71 69.35 69.89 70.53 71.07 72.70 65.78 15.4
Source: KASB Research & RSI based on 14 days from SC Securities (Pvt) Ltd

S3 = Third Support S2 = Second Support S1 = First Support

R3 = Third Resistance R2 = Second Resistance R1 = First Resistance

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