Lucky Cement Limited (LCL), the largest manufacturer and premier exporter of quality cement, is sponsored by ‘Yonus Brothers Groups.’ The company entered into the commercial business with a production capacity of only 1.2 million tons per annum. Today, the company is producing 25,000 tons of dry cement per day and has a production capacity of 7.75 million tons per annum. Lucky Cement, being Pakistan’s first cement company to export sizable quantities of dry cement, has grown substantially and is expanding its operations related to production to different strategic locations to cater to cement demand in southern regions effectively.
As per today (FY13), Lucky Cement has managed to increase its production by 3.6% as compared to the prior year. The company has made investments in acquisition of ICI Pakistan; is currently in a process of negotiation of terms and conditions of a Joint Venture investment in Cement plan in DR Congo etc. Hence, it is undertaking expansion and is diversifying while expanding.
FINANCIAL ANALYSIS OF LUCKY CEMENT LIMITED
Sales Revenue increase by 13.47% in FY 13 from the prior year. Out of this total increase, growth in net sales revenue, 1.4% was due to increase in volume while the remaining was due to net retention. The reason for this increase was the increased prices of cement. The cement prices increased by 79% in last three years. Above this, most of the increase was due to local sales rather than exports. Cost of sales increased compared to prior fiscal year (2010). However, if sales to CGS ratio is looked at, the ratio fell from 1.9 in FY12 to 1.7 in FY13. The prime reason for this is the fall in the price of raw materials and increase in the prices of final product. This ratio, however, was lower in FY11 as compared to both following fiscal years. The reason for this ratio to be as low as 1.5 was the same as FY 2013; international coal prices fell to $ 75 per ton showing a 48% fall from the price of, in June 2010, $ 145 per ton. Overall, CGS increased by only 1% year on year while the company’s gross margin increased by 44% and 38% in FY13 and FY 12 respectively. Company’s profit after tax also in FY13. The profit after tax amounted to be Rs. 3,970.40 million, Rs. 6,782.42 million
and Rs. 10,002.72 million in FY11, FY12 and FY13 respectively; increase in cement prices and decrease in the cost of raw materials as compared to prior year, were two factors which played a significant part in the sharp increase in profit after tax in FY13. In FY11, depression in profit after tax was mainly because of decrease in demand of exports and in local market mainly due to flood. Although the local prices of cement did increase, the international prices remained fairly under pressure. Profit from operations increased over the three year period amounting to be RS 5161.31 million in FY11, Rs. 9010.42 million in FY12 and Rs. 13060.9 million in FY13; 74% increase from the prior year in FY12 and increase of 50% from the prior year in FY13. The increasing profitability of the company is also highlighted by ROE ratio and EPS. ROE increased by 3.3% in FY13 while EPS reached Rs. 30.04 in FY13 which grew by 43.25%. Liquidity
The company being in its expansion and diversification phase because of which the current ratio trend has been volatile; the ratio stood at 0.88 in FY11, 2.64 in FY12 and in FY13 it stands at 3.38. The reason for this was the decline in current asset by more than 66% in FY12 while in FY13, the increase can be justified by the 36% increase in current assets. The company recently acquired ICI and is still in process of expansion and diversification. Debt Management
Due to the expansion and diversification plans of the company, the increase in short term debt has increased. The management policy of LCL stands different from all others; they depend more on short term debt rather than long term. The company has managed to decrease its D/E ratio from 0.07 in FY10 to 0.01 in FY13 which also has a trickledown effect on company’s profits; EPS also grew by 43.25%. Operational Efficiency
Company, being in its expansion and diversification phase, has managed to increase its assets by 23.5% in FY13. However, the asset turnover has fluctuated over last 2 years (FY11 and FY12) and the highest was experiences in FY12 which was 0.82. The company has also showed in efficiency in working cycle management with inventory turnover increasing by 18% in FY11. Market Value
The increasing profitability over the last years is shown in through the EPS of the company which was Rs. 20.97 in FY12 and this increased to 30.04 in FY13. The reason for this are not only the exogenous factors, but also the company’s expansion, diversification and debt management. The reduction in long term debt has contributed to the increase in profitability. The P/E ratio also increased to 6.98 in FY13 which was an effect of increase in average market price of the company’s share which stands at Rs. 210 in FY13. Future Prospects
The consumption of cement is likely to increase in the country after the Government’s allocation of funds to Public Sectors. With the anticipated increased in energy costs and weakening Pak Rupee against US dollars bring a lot of challenges. To overcome the challenge of energy costs, the company plans upon installing a Waste Heat Recovery plant in Pezu and Karachi with each plant producing 5 MW of power. This development will give company’s earning a further boost and will increase profitability which can be passed on to the shareholders.
Cite this Lucky cement financial analysis
Lucky cement financial analysis. (2016, Nov 01). Retrieved from https://graduateway.com/lucky-cement-financial-analysis/