Lucky Cement proved ‘Lucky’ (03112008)

Lucky cement showed a surprisingly positive result for 1Q09 where company's earnings sharply rose by 31.8 percent to Rs2.98 per share due to the diving gross margins on the back of higher local cement prices and increased export revenues resulting from significant devaluation in Pak rupee against US dollar.
Luck earnings derived by higher retention prices with
controlled cost
Luck's 1Q09 earning were driven by 13.1 percent expansion in gross margins as the company has managed to sustain higher cement prices. Net retention prices increased by 73 percent YoY to (Rs231.33/bag) in 1Q09 on the back of 73 percent increase in local prices and 53 percent increase in export price in rupee term given that the Pak Rupee devalue against US$ in the last year by 30 percent. On the other hand, cost of production went up by a significantly lower amount, rising by only 40 percent YoY. During QoQ retention prices sharply increased by 49 percent while cost of good sold per ton increased by 16 percent as coal prices reduced by 43 percent from its peak in Jul 08, which has put off the pressure on cost.
10 percent decline in dispatches reflected the weak local demand dynamics
During the 1Q09 overall cement dispatches declined by 10 percent, driven by 23 percent declined in local dispatches due to worsening law and order situation in North, coupled with weak demand which affected the supply of cement in local market. While export provided some relief to the company and up by 8 percent in 1Q09 increased the export revenue. Going forward, we expect further deterioration in company's total sale volume as local demand is likely to post a decline and export of the company will also start to cool down in 3Q09 as regional capacities are expected to come online.
Other expenses, finance and distribution cost showed massive upsurge
Other operating expenses of the company showed massive upsurge by 778 percent as company booked heavy exchange losses on US$ loan swapped. However, company has swapped out of this agreement in mid of this quarter. Distribution cost of the company also showed a huge increase of 100 percent on the account of export expenses on the transportation of the cement. Financial charges of the company were also up by 108 percent on the back of increase in short term borrowing to Rs 5.88bn from Rs 3.09 bn in 1Q08