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Morning Briefing for October 01, 2012 – Standard Capital

Karachi, October 01, 2012 (PPI-OT): Lafarge Pakistan Cement to show better earnings in CY12

Lafarge Pakistan Cement healed from vulnerable condition of loss where it achieved to gain PAT of Rs.498 million (EPS Re 0.38/sh) in 1HCY12 as against Rs. -17 million (EPS: 0.013/sh) in the corresponding period last year.

According to Standard Capital, LPCL, a French brand, with presence world over is regaining its hold on adjoining Northern Zone as well as cross border opportunities. However, it receives resistance from adjoining Gurgory based plant of DG Khan Cement in similar vicinity.

Lafarge parent company to charge licensing, intellectual property rights fee

Recently, the foreign parents have decided to charge licensing and intellectual property rights charge along with technical expertise fee which they had been providing since acquisition of stakes couple of years back. Standard Capital has calculated the total impact of this fee which would not be more than Re0.05/sh on KASB Securities Limited’s CY12 EPS target of Re 0.80/sh and hence Standard Capital sees good LPCL operations in running.

Thrust on local dispatches during 1HCY12

During 1HCY12, the company managed to sell 6 million tons of cement in the local market as compared to 5.8 million tons. Exports on the other hand declined to 2.3 million tons from 2.6 million tons for the same period last year which is evidenced in overall growth of 30% in terms of revenue. As for industry, the industry dispatches improved by 3.1% which stood at 17.2 million tons whereas local dispatches rose 9.7% to 13 million tons; however, exports registered 13.6% negative growth by sliding from 4.8 million tons to 4.1 million tons.

Operations glowed in 1HCY12

LPCL operations glowed with increased top line numbers, eventhough, manufacturing cost grown by 14% which is not in line with revenue which indicates that company continued its focus on cost optimization with 24% alternative fuel usage that saved Rs. 201 million during 1HCY12. To further probe this out, Standard Capital takes a look at sales markup (% of profit charged on cost) where it grew from 126% in 1CHY11 to 145% in 1CHY12 indicating increase in margins where GP margin also grown from 21% to 30%. Delving further into financials, Standard Capital founds that deferred tax assets rose by 6.6% which is reflected in P and L where deferred tax asset is realized in the form of income. Moreover liquidity position of the company is telling the pay off story where it shows improving where current ratio of 0.89x was seen(calculated as per 1CHY12 results) as against 0.70x as per 1HCY11 whereas quick ratio is also hiked up from 0.41x to 0.53x.

LPCL (Rs.000’) 1HCY12 1HCY11 Chg.
Sales

4,784,812

3,684,991

30%

COGS

3,297,008

2,904,699

14%

Gross Profit

1,487,804

780,292

91%

Dist. Cost

115,625

103,333

12%

Admin Exp.

272,600

221,614

26%

 

1,093,579

455,345

140%

Finance Cost

604,662

481,565

26%

Other Opr. Inc

4,522

24,118

-81%

 

493,437

-2,102

-23575%

Other Exp.

3,559

-100%

PBT

493 237

-5,661

-8816%

Tax

5,479

11,878

-54%

PAT

498,916

-17,539

31%

EPS

0.38

-0.013

-3023%

Valuation

LPCL comes into limelight as well with CY12PE of 7.2x which is quite therefore Standard Capital takes BUY stance.

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