KARACHI, Aug 29: On Thursday, Lucky Cement Limited unveiled financial results for the year ended June 30, 2003, posting net profit at Rs228 million. The board also recommended cash dividend at 7.5 per cent — the same as paid last year and the year before.

The company had disbursed its maiden dividend in 2001, after seven blank years, following its listing at the KSE in 1994. In percentage terms, the dividend looks modest. But being a 100-per cent equity-based project — the company holds a colossal sum of Rs2,450 million in paid-up capital — it entails considerably large cash disbursement. The sum of Rs184 million that the board has allocated for dividend, works out to 81 per cent of the FY03 taxed profit. At the current market price of Lucky stock at Rs23.45, the cash yield comes to just about three per cent. On the latest earning per share (eps) of Re0.93, the stock is trading on price-to-earnings (p/e) multiple of 25x.

Stock strategists are holding up varying views on the Lucky share at current price. The recommendations range from ‘Buy’ (First Capital Equities) — to ‘Hold’ (KASB) — to ‘Sell’ (Capital One Equities). Cement stocks have generally done well this year; the share in Lucky has jumped 113 per cent, from its January 1, price of Rs11 to Rs23.45 currently, outperforming the “best performing market in the world”, which has since risen by 66 per cent.

Lucky Cement reported 11 per cent drop in after tax profit to Rs228 million for the year ended June 30, 2003, from Rs295 million a year ago. Mohammad Fawad Khan, analyst at First Capital said that the primary reason for this decline in net income was the decrease in retention price from Rs2,511 per ton to Rs1,986 per ton. Lucky Cement also recorded deferred taxation to the tune of Rs16 million and prior year taxes of Rs87 million, relating to tax losses carried forward.

Khalid Iqbal Siddiqui, cement sector analyst at InvestCap, says that shorn of prior years’ and deferred taxation, on current year’s operations, Lucky Cement has managed to earn profit of Rs332 million. The effective tax rate stood at a high 34 per cent, compared to three per cent last year. At the pre-tax level, the company recorded 16 per cent increase to Rs343 million, from Rs305 million. Analyst at InvestCap observes that profits could have been even higher had there not been a cartel break up during FY03. Due to the price war, Lucky’s gross margin fell from 22 to 20 per cent, but the timely coal conversion rescued the results. Analyst Wajahat Ali of Taurus Securities points out that in spite of the price war in 2003, which lasted for more than six months, Lucky was able to increase its sales by 11 per cent to Rs2,190 million, from Rs1,977 million in 2002, through higher sales volume.

Sales volume was up by approximately 46 per cent. The company was able to pull down operating expenses by 13 per cent to Rs58 million, from Rs66 million. But more noticeable feature of the FY03 accounts was the financial charges, which stood almost halved to Rs29 million, from Rs53 million. Analyst at Taurus pointed out that the company had paid off the remaining balance of Rs64 million on its long-term loans during the year.

According to analysts at First Capital, the company was able to dispatch a total of 1,039 tons cement, which was 40 per cent higher than last year’s dispatches. Sarwat Fatima, analyst at KASB, stated that the decrease in net earnings would have been greater had the company not merged with Lucky Power. The analyst believed that Lucky could witness 100 per cent growth in its bottom line due to improved margins as a result of cement price recovery and expected growth in cement demand.

Humaira Zaheer, analyst at Capital One Equities, observed that although the future of Lucky Cement looked bright and there were certainly well built positives arising from Budget FY04 plus the revival of the cement cartel, but at its current price of Rs23.45, Lucky Cement was highly inflated and was trading at a premium from its long-term fair value of Rs13.50. Incidentally, analyst at First Capital said that Lucky was still at 12 per cent discount to their fair value estimate of Rs26.20.