Lucky Cement is planning to acquire a plant abroad and is also weighing potential options for organic growth (given the amount of free cash flows available). One of the preferred destinations could be SriLanka. This was disclosed by the management of Lucky Cement in the analysts briefing sponsored by Arif Habib Limited (AHL). Lucky is also attractive given the fact that it is one of the premier dividend payers in the cement industry. The signing of an agreement with HESCO has allowed Lucky to supply 20MW of electricity (could be improved to 49MW) and earn a revenue of Rs 608 million (tax effects may reduce the figure accordingly).
Similarly, Lucky is expected to be a major beneficiary of the FIFA World Cup in Qatar (to take place in 2022), with cement demand to augment after 2012. Lucky enjoys economies of scale and can, therefore, thrive in the midst of economic and political turmoil. Lucky is the lowest cost producer wherein cost per tonne is nearly Rs 2,922 as against industry numbers of Rs 3,374. Moreover, Lucky’s expansion cost per tonne is also lowest vis-à-vis industry i.e. Rs 5,100 per tonne as against Rs 10,625 per tonne of the industry.
Lucky is one of the good players, thriving on demand from southern region wherein company executive stated that the recent production line, unveiling in northern zone, is also creating glut like situation and also affecting price. The lack of funds allocated vide Public Sector Development Program (PSDP) is cited as one of the prime reasons behind sluggish demand in northern zone (where there is nearly 82 percent of the country’s installed capacity). However, Lucky flourishes from increased southern demand and its traditional proximity to sea routes, in addition to presence of borders like Wakhan in the Balochistan.
The company CEO sounds bullish on the final quarter sales, given latent demand from premier market Afghanistan and recent overtures with India regarding resumption of cement supplies. “We have already estimated overall exports to touch two million tonnes in FY11 as against 2.7 million tonnes in FY10, given infrastructural developments emanating from Afghanistan, East African countries and SriLanka,” said Gulshan D Ferozepurwalla at SCS trade.
He was optimistic on developments in SriLanka. Lucky’s primary markets used to be exports to GCC countries three years ago, where 80 percent of its export turnover was consumed but with the advent of financial turmoil; supplies were diverted towards newer destinations such as Iraq, South Africa and now Sri Lanka. Lucky is also expected to benefit from the export of commodities to India, as it is clearly faced with cement shortages.
Lucky Cement planning to acquire a plant abroad
