Must

In: Business and Management

Submitted By zohaibmir91
Words 3830
Pages 16
Pakistan Construction & Materials: Lucky Cement



19 December 2014
Target Price: PKR 596 Current Price: PKR 477
Stock Data
Price (PKR/Share) Reuters LUKC.KA Bloomberg LUCK PA 477 Website www.lucky-cement.com 513.8 /278.4 2% 154 1,534 269 2.8

Lucky Cement Limited
Company Report

Growing on all fronts!
We initiate coverage on Lucky Cement Limited (LUCK) with a target price of PKR596/sh, offering an upside of 25%. Our conviction for the scrip stems from i) growing cement demand in the country (5 year CAGR of 4%), ii) expanding footprint beyond national borders (Congo and Iraq), iii) increasing margins backed by cost efficiencies, iv) accumulating cash reserves, v) diversification into low risk power business and vi) growing profitability of subsidiary ICI. Factoring in the mentioned factors, our 3yr earnings (consolidated) CAGR for the company settles at 15%. Additionally, mounting cash reserves will result in continued funding of investments through internal cash generation, making a strong case for multiple expansion via continued scrip re-rating. Given a strong track record and management efficacy, LUCK stands out as a preferred long term play –BUY! Expanding beyond borders: Given limited space in the local industry, LUCK has opted to expand aboard specifically in Africa to benefit from higher demand and margins in the region. This is expected to add significantly to the bottomline of company given ~80%-100% higher margins compared to Pakistan. As per the management, Congo and Iraq offer margins of USD80-100/ton and USD15-20/ton while we have assumed utilization levels of 80% and 100%, respectively for the countries. We expect the Basra plant to add PKR673mn (PKR2.08/sh) from FY15 whereas Congo’s earnings are expected to be realized from FY17 onwards with an estimated impact of PKR2,272mn (PKR7.0/sh). Cost efficiencies to support margins: Despite being the most…...

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