We reiterate our liking for Lucky Cement (LUCK) on expectation of stable cement prices, lower coal prices and expected rise in local demand on higher utilization of PSDP. We maintain positive stance for the sector and Lucky particularly with December end 2015 target price of Rs 499.84/share provide upside potential of 25%.

Earnings likely to jump 19% in FY15
Due to higher cement prices, we expect the earnings of the company to reach Rs 13.48 billion (EPS: Rs 41.69) in FY15 depicting growth of 19% in FY14. It should be noted that company earned a profit after tax of Rs 11.34 billion (EPS: Rs 35.08) in FY14. The presence in the region of the country and nearness to sea are the advantages for the company. This is primarily expected due to higher retention prices.

Strong pricing scenario would uphold higher margin
Gross profit likely to surge by 16% to Rs 21.63 billion versus Rs 18.69 billion due to higher cement prices. Average cement prices of lucky likely to increase by 11% to Rs 485/bag in FY15 versus Rs 436/bag in FY14. Similarly, retention price is expected to surge by 6% to Rs 7,022/ton versus Rs 6,838/ton in FY14. Thus margin to improve to 46% from 43.4% recorded in FY14.

Local dispatches to remain higher
Due to expected increase in local cement demand following the likely higher allocation to PSDP, we believe that the cement dispatches of Lucky Cement would rise by 4% during FY15 to 6.87 million tons as compared to 6.62 million tons in FY14. Local dispatches likely to swell by 5.3% to 4.35 million tons compared to 4.13 million tons in FY14. Similarly, export volume is expected to increase by 1.3% to 2.52 million tons versus 2.49 million tons in FY14. We expect net revenue of the company in FY15 is likely to touch Rs 47.07 billion which is 9.3% more when compared to net revenue of Rs 43.08 billion in FY14.

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Azee Research