Overall cement dispatches to Afghanistan are expected to further rise as total cement sector exports to the war torn country increased by over 16 percent to 3.27 million tonnes recently. This would bode well for Lucky Cement and its cement exports are expected to increase especially with regards to Afghanistan as reconstruction activity continues.
Similarly, the company’s export dispatches are to increase in 4QFY11 owing to probable permission on the part of India to import the commodity from Pakistan while Lucky Cement is expected to attain benefit from sea route. However, Lucky Cement is also expected to export through Wagha-Attari route. It has been observed that Lucky Cement’s previous destinations are facing oversupply and sluggish growth except markets like Iraq and East Africa.
Gulshan D Ferozepurwalla at SCS trade said that Lucky Cement’s traditional forte is margins on exports. However, export markets had been in the grip of recession hence Lucky Cement is dependant on local demand. Overall, it is assumed that Lucky is to export two million tonnes during FY11 against 2.7 million tonnes reported in FY10 and supplies from its Pezu plant will capitalise on this latent demand, she added.
Lucky Cement had previously been an export margin player given its traditional market outreach through the dealings of its parent company of Younus Brothers. Lucky is also poised to reap benefits of an increase in margins on local dispatches albeit cost control through Waste Heat Recovery System at Pezu. Lucky Cement enjoys significant economies of scale and thus restricts its costs despite otherwise significantly high prices of coal and furnace oil, internationally.
Local dispatches are also expected to increase by 75 percent translating into a revenue jump of Rs 21.3 billion as against Rs 14.1 billion reported by the company last year. However, export dispatches to decrease by 26 percent thus revenues can come down to the level of Rs 10.3 billion from Rs 14.8 billion reported last year.
It is pertinent to note that cement sales have picked up in February and March 2011 given the increase in housing requirements, a time it is anticipated that Lucky Cement will garner a bigger chunk given its strong presence in both the Northern and Southern zone. Fuel and power constitute major chunk in cost of production roughly 63 percent in 9MFY11 which is anticipated to increase further as a result of soaring global coal prices and higher electricity tariffs. However, commencement of Waste Heat Recovery Project at Karachi Plant may abridge fuel and power cost in future.
The coal price index for March 2011 was $122.4 per tonne and is expected to hover in the range of $136-143 per tonne indicating hikes in future production expenditure. Reported total capacity of the industry is in the vicinity of 47.5 tonnes per annum during FY11 owing to an anticipated expansion undertaken by Fauji Cement (FCCL), a key northern zone player.
