Lucky cement plans to set up units abroad: Company to supply up to 49MW electricity to HESCO

LAHORE –– The Lucky Cement has planned to set up units in foreign markets to increase its export particularly to Sri Lanka, besides minimizing the cost, sources said.

According to them, the company has also made an agreement with HESCO, to supply 20MW of electricity, which could be improved to 49MW, enabling the company to earn a revenue of Rs 608 million. The company would be a major beneficiary of the FIFA World Cup in Qatar to take place in 2022 with cement demand to augment after 2012 till 2019.

The latest data reveals, the company’s local sale will increase by 75 percent in FY11 on the basis of its performance in southern zone. It is expected the total capacity would increase to 71.5 percent in FY11 from 61 percent reported last year with total installed capacity of the industry being 44 million tons and operational capacity of 39 million tons approximately.

The company’s cost reduction would continue to take place as LUCK is also in the course of building Refused Derived Fuel (RDF) plant, which will replace around 40 percent of the coal used in the Karachi plant with wood, used tires and rice husk, and will incur only minor maintenance cost, as stated by LUCK’s management. Furthermore, it would leave LUCK with surplus capacity of about 75 MW to 80MW which would give it room for additional expansions.

LUCK is also attractive given the fact that it is one of the premier dividend payers in the cement industry.

LUCK’s 3QFY11 financial depict an interesting picture of how the company’s sales mix has changed. Exports contributed only 29% to the company’s gross sales in 3QFY11, down significantly from its share of 46% in the same period last year. The key reasons behind the drop in share of exports were higher retention prices fetched in the local market and growing demand from private construction sector particularly in the South where LUCK holds 56% market share.

Additionally, excess capacity in the region led to a drop in export prices for cement during the last quarter which made the domestic market more attractive. However, an uptrend in coal prices resulted in a slight decline in its gross margin to 32% in 3QFY10 compared to 35% in 2QFY11. Going forward, inventory availability till Jun11 with sustainable cement prices would lead to an improvement in profitability in 4QFY11.

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