In Focus: LUCK Result Preview FY08 (21082008)

LUCK, one of the giant of Pakistan’s cement universe, is scheduled to announce its financial results for the FY08. It is expected that LUCK will report a net profit of Rs2.68bn translating into EPS of Rs8.28 which would be 5.1 percent higher than last year’s reported earnings of Rs2.54bn (EPS Rs7.88). This growth is on the back of increasing price levels and volumetric growth on the export front which is mainly led by the high cement demand in neighboring India & the UAE.
Growth in top-line on the basis of huge growth in export dispatches
LUCK’s top-line is also expected to grow by 37.6 percent y-o-y due to better export prices backed by 20 percent increase in total dispatches. Domestic dispatches showed a decline of 10 percent, due to shift in focus towards export market. Whereas export dispatches depicted an enormous growth of 85 percent owing to hike in export requirements.
Increasing local prices and PKRs weakness against USD give benefit to falling retention prices.
We expect LUCK’s retention prices will increase from Rs2,699/ton to Rs3,089/ton. due to increase in cement prices at domestic market on the back of high fuel costs. The sector will be negatively effected by decrease in Rupee USD parity as coal imports are based on the USD. Such change will however boost export earnings of Luck and is expected to increase retention price.
High fuel prices keeps gross margins under pressure…
LUCK’s cost of goods sold is anticipated to grow by 44 percent due to the higher fuel prices. However we expect gross margins of the company to stay around 26 percent in FY08 which as shrunk from 29 percent during similar period last year, largely flowing from high fuel prices, however 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.
Low financial charges and tax reversal support the net margin
The financial charges of the company are expected to remain 47 percent lower over the same period of previous year due to interest rate swap transaction. It is expected to reduce the financial charges to Rs451mn. Furthermore, the deferred tax provision amounting to Rs444.6mn was reversed during the during 9M08 out of total provision of Rs1,515.5mn, which supported the net margin.
Outlook
The company focused its efforts towards bringing the first 1.25mn ton production line of Karachi expansion project into operation by Dec 2008 to cater rising demand from Middle East, India, GCC and African countries on timely basis. However at local front demand and prices are expected to come down due to the approaching low demand Ramazan season.