April 30, 2010

CROSBY
SECURITIES The Vantage Point

LUCK: Result Review for 9moFY10 Pershotam Lal

pershotam.lal@crosby.com 021 - 35615861 - 66 Ext. 542

For 3QFY10, LUCK reported a PAT of PKR 653mn (EPS: PKR 2.02) below our expectations, as compared
to PKR 1,134mn (EPS: PKR 3.51) in the corresponding period last year, portraying a huge decline of 42%
YoY. While on a nine month basis, the company has earned PKR 2,561mn (EPS: PKR 7.92) against PKR
Market Share
3,075mn (EPS: PKR 9.50) last year. This depressing bottomline is witnessed on account of lower cement 3QFY09 3QFY10
Source: Company Notice & CSPL Research
prices in local as well as international market and surge in energy cost which squeezed the profit margins 120.0%
of the company.
100.0%

Prices, the reason behind depressed topline 80.0%

Due to stiff competition amongst local cement manufacturers and lower cement prices, sales revenue of
60.0%
the company declined by 5.7% YoY to PKR 5,911mn in 3QFY10. Local cement prices have declined by
27.53% YoY, whereas export prices are down by 12.9% YoY. Cement prices are gradually improving and 40.0%

currently hover in the range of PKR 275-290/bag after touching the bottom of ~PKR 200/bag during the 20.0%
9moFY10.
0.0%
Local Total Export Bagged- Loose- Clinker- Total
Higher volumes provided some cushion to topline Export Export Export
Total sales volumes of the company reported a growth of 17.1 % YoY in 9moFY10 with sales volumes of
4.86mntn against 4.15mntn in the same period last year. The robust growth of 24% was witnessed in local
sales whereas export sales reported a growth of 12% YoY. During the 3QFY10, exports volume contributed
47% to the total dispatches of the company as compared to 61% in 3QFY09 and 57% in 2QFY10, which
negatively impacted the topline of the company.
Local market share improved in 3QFY10 by ~100bps
The company's market share has slightly declined to 19.3% in 3QFY10 from 20.7% in the same period last
year. The local market share of the company has improved by 100bps to 13.9% whereas export share has
remained unchanged during the period under review.
P&L Statement (PKR mn) 3QFY09 3QFY10 YoY Chg
Net sales 6,700 5,911 -12%
COGS 4,473 4,148 -7% Cost efficiency measures help the company to sustain margins
Gross Profit 2,227 1,763 -21% An abnormal jump in cost of production in the cement industry was witnessed during the period owing
Distribution costs 649 824 27% to surge in energy prices, which even forced most of the manufacturers to shut down their plants. Energy
Admin Expenses 35 68 90% cost contributes more than 60% to total cost. In that difficult period, LUCK took the timely measure of
Operating Profits 1,543 872 -44%
cost savings which resulted in decline in cost of production by 2% YoY in rupee term, whereas it decreased
Finance Cost 173 120 -30%
Other charges 96 53 -45% by 16.5% YoY on per ton basis despite the increasing coal prices trend. However, due to lower export and
Profit before tax 1,276 699 -45% higher local volumes, GP margin of the company has declined by 200bps to 35% in 9moFY10. While
Taxation 142 46 (0) comparing with previous quarter, the company's GP margin has declined significantly to 30% in 3QFY10
Profit after taxation 1,134 653 -42% from 37% in 2QFY10.
EPS 3.51 2.02 -42%
GP margin 33% 30%
Higher distribution cost
Source: Company Financials & CSPL Research
Distribution cost of the company has increased on the back of increase in export volumes, surge in inland
and ocean freight charges because of higher oil prices.

Lower finance cost and other expenses…

P&L Statement (PKR mn) 9mFY09 9mFY10 YoY Chg During the period, LUCK replaced its LTL of PKR 4.3bn carrying high mark-up rate with new loan of
Net sales 19,107 18,027 -6% PKR 2.19bn from SBP under export LTFF scheme at lower mark up rate, which resulted in reduction in
COGS 11,996 11,739 -2% finance cost by 58% YoY to PKR 418mn in 9moFY10. Moreover, other expenses of the company also
Gross Profit 7,111 6,287 -12% declined by 71% to PKR 2,878mn.
Distribution costs 1,749 2,550 46%
Admin Expenses 120 226 88%
Operating Profits 5,242 3,512 -33% What's ahead….
Finance Cost 998 418 -58% Going forward, we expect better earnings as the company has recently finalized Waste Heat Recovery
Other charges 758 217 -71% System at Southern plant and started operating it. This will further save electricity cost and allow the
Profit before tax 3,489 2,878 -18% company to sell the excess electricity to KESC. Moreover, cement prices are also gradually improving
Taxation 416 317 -24%
Profit after taxation 3,072 2,561 -17% owing to seasonal increased in local demands. The GoP has recently granted an Inland Freight Subsidy
EPS 9.50 7.92 -17% of 35% on exports via sea route from Mar 25'10 to Jun'10. This will further cut distribution cost and allow
GP margin 37% 35% the company to export more and earn better margins. At the current market price the scrip is trading at
Source: Company Financials & CSPL Research P/E of 7.1x and offering 20% upside potential to our Jun'10 target price of PKR 90/share, BUY!

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