LUCK Result Review FY08 (22082008)

Target Price: Rs100
Lucky Cement Limited (LUCK) has announced results for FY08 which is in line with our expectation, where company report a net profit of Rs2.68bn translating into EPS of Rs9.84 which is 5.1 percent higher than last year's earnings of Rs2.54bn (EPS Rs7.88). This growth is attribute to the impressive growth in export sales, tax reversal, reduction in financial charges as a result of interest rate swap all had a trickle down impact on the bottom line of the company.
20 percent growth in dispatches on the basis of huge growth in export
Company's top-line grew by 35.43 percent YoY due to both increases in volume by 19.75 percent and net retention by 15.68 percent. Domestic dispatches showed a decline of 6.38 percent, due to shift in focus towards export market. Whereas export dispatches depicted an enormous growth of 116.29 percent owing to hike in export requirements.
Interest rate swap agreement and PKR weakness against USD give benefit to bottom line.
The finance cost of the company was reduced substantially from Rs186 per ton last year to Rs23 per ton during FY08 due to interest rate hedging by swap agreements where company received 6-months KIBOR rates and pay 6-months LIBOR + spread semiannually. Due to the depreciation of Pak rupee company has realised exchange gain of Rs277.816mn on realisation of GDR proceeds and export which mitigate the exchange loss on the cross currency swap.
High fuel prices keeps gross margins under pressure…
Company's cost of goods sold per ton increased by 18.89 percent due to the higher fuel prices. However, gross margins of the company to stay around 25.73 percent in FY08 which as shrunk from 29 percent during similar period last year, largely flowing from high fuel prices, while this hike has not significantly affected the margins during this period owing primarily due to conversion of its plant from oil to gas, economies of scale and better export margins.
Outlook
Company planned to use wasted heat to produce electricity without using fuel after the installation of this system cheap electricity will be produced to the extent of 15MV at Karachi and 10MV at Pezu plant by waste heat. This will reduce the fuel cost by end of FY09. The company has also focused its efforts towards bringing the first 1.25mn ton production line of Karachi expansion project into operation by first quarter of CY09 to cater rising demand from Middle East, India, GCC and African countries on timely basis.