Report on Financial Analysis of Lucky Cement Limited - Theory And Practice Of Financial Management

1. Theory & Practice of Financial Management
Report on Financial Analysis of Lucky Cement Limited
Project Members
Sana Asim - 23830
Kubra Akbar - 23531
Ayesha Khalid - 20231
Syed Azim Uddin – 20493
Abdul Aziz Afzal Siddiqui – 23465
Javeria Shakeel Zaman Khan – 23747
Submitted on 22nd December, 2019
Sir. Faraz Nasim

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Table of Contents
Executive Summary......................................................................................................................................3
Overview of the Cement Industry.................................................................................................................4
Organization overview and external environment....................................................................................4
Local and international markets................................................................................................................4
Quality assurance of products...................................................................................................................5
Diversification and wealth creation for its shareholders...........................................................................5
Core brands...............................................................................................................................................6
a) Continued activity under CPEC related projects: .................................................................................6
b) Increased focus on development spending by the government: ...........................................................6
c) Huge construction activities due to housing deficit:.............................................................................6
Analysis of Lucky Cement............................................................................................................................7
Comparative Industry Analysis.....................................................................................................................8
Analysis ......................................................................................................................................................10
Projected Statement of Financial Position ..................................................................................................11
Projected Statement of Profit and Loss Account ........................................................................................12

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Executive Summary
Lucky Cement complies with all the requirements set out in the Companies Act, 2017 and the
Listed Companies (Code of Corporate Governance) Regulations, 2017 with respect to the
composition, procedures and meetings in Lucky Cement. The purpose of this evaluation is to
ensure that the Lucky Cement’s overall performance and effectiveness is measured and
benchmarked against expectations in the context of objectives set for the Company. Areas where
improvements are required are duly considered and action plans are framed.
For the Purpose of Lucky Cement’s evaluation, a comprehensive criterion has been developed.
Lucky Cement has recently completed its annual self-evaluation for the year 2019 and it was
reported that the overall performance of the Lucky Cement measured based on approved criteria
for the year was satisfactory. The overall assessment as Satisfactory is based on an evaluation of
the following integral components, which have a direct bearing on Lucky Cement’s role in
achievement of Company’s objectives:
1. Diversity and Mix: The Lucky Cement members effectively bring the diversity to the Company
and constitute a mix of independent and non-executive directors. The non-executive and
independent directors were equally involved in all key matters and decisions of the Lucky Cement.
2. Engagement in strategic planning: Lucky Cement has a clear understanding of the stakeholders
(shareholders, customers, employees, vendors, Society at large) whom the Company serves.
Lucky Cement has a strategic vision of how the organization should be evolving over the next
three to five years. Further, the Lucky Cement has spent enough time on Strategy formulation, and
it has set annual goals and targets for the management in all major performance areas.
3. Diligence: The Lucky Cement diligently performed their duties and thoroughly reviewed,
discussed and approved Business Strategies, Corporate Objectives, plans, budgets, financial
statements and other reports. It received clear and succinct agendas and supporting written material
in enough time prior to Lucky Cement and committee meetings. Lucky Cement met frequently
enough to adequately discharge its responsibilities.
4. Monitoring of organization’s business activities: Lucky Cement remained updated with respect
to achievement of Company’s objectives, goals, strategies and financial performance through
regular presentations by the management, internal and external auditors and other independent
consultants. The Company provided appropriate direction and oversight on a timely basis.
5. Governance and Control Environment: The Lucky Cement has effectively set the tone-at-the-
top, by putting in place transparent and robust system of governance. This is reflected by setting
up an effective control environment, compliance with best practices of corporate governance and
by promoting ethical and fair behavior across the company.

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On performing the ratio analysis of Lucky Cement, we have concluded that compared to its
competitors, it has been able to achieve good results, however, they have been facing an issue of
idle inventory. Their sales volumes have increased, however, there is a decrease in gross profit
due to increase in direct costs. Share capital reserves have also increased due to rise in
undistributed profits.
Due to the overall market conditions, there is a decrease in the company’s performance as
compared to previous years, however, it still portrays a favorable condition as compared to
industry averages.
Overview of the Cement Industry
The cement industry is important for the economy. Besides making a direct contribution of 7.5
percent to large-scale manufacturing, the industry influences growth in the allied segments (e.g.,
steel, chemicals, wood, etc.). At present, there are 24 manufacturing units operating in the country
with a total installed annual capacity of 49.4 million tons. The industry operates in two separate
zones - North and South - with Northern Zone representing around 80 percent of the total
production capacity and sales. The manufacturers in the South Zone have more room for revenue
diversification as they can tap several export markets (via sea). The export potential for
manufacturers in the Northern Zone, however, is limited to Afghanistan and India only.
Organization overview and external environment
In Pakistan, Lucky Cement has evolved into a premium cement manufacturer delivering consistent
quality, providing unmatched customer satisfaction, utilizing state-of-the-art vertical and
horizontal grinding technology, and most importantly, benefiting from low production costs.
Lucky Cement is one of the largest cement producers in the domestic cement industry with
production capacity of 9.35 MTPA and over two decades of cement manufacturing experience in
Pakistan at its plants in Pezu and Karachi. Moreover, the Company now has an international
production footprint in Democratic Republic of Congo and Republic of Iraq.
Local and international markets
In the last 26 years, Lucky Cement has grown in leaps and bounds. Within the country, they have
developed a distribution network that allows their domestically produced cement to be made easily
available in every part of the country. For quick delivery of cement and for best possible customer
service, Lucky Cement has dedicated warehouses located near all key markets. From the port of
Karachi to the picturesque valley of Kashmir; from the upcoming spectacular Gwadar city project
to the highlands of Gilgit-Baltistan – Lucky Cement is everywhere!
Internationally too, Lucky Cement has made significant strides. They have acquired OPC-53
Grade certification from Bureau of Indian Standards (BIS), enabling the Company to offer

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additional variety to the Indian market. Further, with a high demand for their brands in the Sri
Lankan market, Lucky Cement recently opened its regional office in Colombo. East African
markets remain the stronghold of the Company and a major source for foreign exchange earnings
for the country. Lucky cement has export destinations such as Far East, Middle East, Africa and
South and Central Asia.
Quality assurance of products
Lucky Cement’s product portfolio complies with a range of standards, depending upon the
geographical territory where it is sold. Advanced technology such as Distributed Control System
(DCS), Programmable Logic Controllers (PLCs) and on-line X-Ray analyzers are used to ensure
that product quality is consistent. Having one of the best-equipped laboratories, with facilities for
analysis of fuel and raw material, they ensure that the market is supplied with high quality products.
The following international bureaus of standards have accredited Lucky Cement over the years:
- Bureau of Indian Standards
- Kenya Bureau of Standards
- Sri Lankan Standard Institute
- Standards Organization of Nigeria
- South African Bureau of Standards
- Tanzania Bureau of Standards
- Philippine National Standards
- CE Marking
Furthermore, their products are also in compliance with EN-197-2:2014 conformity evaluation. A
conformity mark “CE” is embossed on the packaging of Lucky Cement’s international products,
a prerequisite for exporting cement to European Union markets.
Diversification and wealth creation for its shareholders
After having a strong footprint in cement manufacturing industry in Pakistan, Iraq and DR of
Congo, Lucky Cement has evolved into a conglomerate having strategic investments in diversified
industries such as Chemicals, Automobiles and Power. ICI Pakistan Limited which is a subsidiary
of the Company is in the business of Soda Ash, Polyester, Life Sciences and Chemicals. Whereas,
Kia Lucky Motors has recently commenced its commercial operations of assembling, marketing
and distribution and sales of Kia vehicles, parts and accessories in Pakistan in collaboration with
Kia Motors Corporation, South Korea. Lucky Electric Power Company Limited is in the process
of setting up 660 MW Super Critical Power Project using Thar Lignite. Besides these, the
Company has also made investment in renewable energy, where its associated company, Yunus
Energy Limited has developed a 50 MW Wind Power Project with these diversifications, the
Company will not only create value for its shareholders but will also stand out as a progressive
Pakistani conglomerate promoting the growth of industrialization in Pakistan.

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Core brands
The Research and Development (R&D) team is driven by its customers’ needs and to cater to their
requirements, they have developed a product range which focuses on every type of construction in
the country. Whether it is the Southern region of Sindh & Balochistan or the Northern region of
Pakistan including Punjab, KPK and Gilgit Baltistan, they have brands for each section of the
Country with respect to its climatic conditions.
Variations of Ordinary Portland Cement (OPC), Sulphate Resistant Cement (SRC) and Composite
Cement are manufactured to meet the wide range of needs of the customers.
Lucky Cement (Regular) and Lucky Gold (OPC) both the brands are specially developed to cater
the needs of the customers in the North region of Pakistan.
Sulphate Resistant Cement (SRC) the brand is developed specially for use along shorelines and
canal linings, Lucky SRC is a national brand.
Lucky Star (OPC) and Raj Cement (Composite cement) both the brands are specially developed to
cater the needs of the customers in the Southern Region of Pakistan.
Block Cement the brand is developed specially for block makers with quick setting time, Block
Cement is a product that sells primarily in the block segment of the country and is a national brand.
The factors behind this extraordinary expansionary drive in cement industry mainly include:
a) Continued activity under CPEC related projects: The prospect of growing cement
demand is stemming from CPEC related project which include construction of an integrated road
infrastructure; modernization of railways; and development of Gwadar city, seaport and airport.
Moreover, the development of special economic zones across the country may also sustain demand
for cement going forward.
b) Increased focus on development spending by the government: The demand for
cement is also likely to remain high as government has planned numerous mega projects. In this
regard, the mega water and power sector projects include: Dasu, Diamer Bhasha5 and Bunji
multipurpose projects; and major rehabilitation and expansion of Mangla, Tarbela and Warsak
power stations. In addition, large highway and motorway projects (which are outside the ambit of
CPEC) have been initiated by the government.
c) Huge construction activities due to housing deficit: The demand pressures may
continue going forward due to persistent housing shortages (bridging this gap would require huge
quantity of cement and related construction materials). The room for growth is evident from the
fact that per capita cement consumption in Pakistan is the lowest amongst regional economies.

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Analysis of Lucky Cement
Financial Ratios UoM FY2017 FY2018 FY2019
Profitability Ratios
Gross Profit Ratio Percent 46.62 35.66 29.12
Net Profit Ratio Percent 29.97 25.66 21.84
ROE Percent 17.17 13.99 11.17
Liquidity Ratios
Current Ratio Times 4.48 : 1 2.82 : 1 1.42 : 1
Acid Test Ratio Times 3.67 : 1 2.12 : 1 0.95 : 1
Activity Ratios
Inventory Turnover Times 3.05 3.22 3.15
No. of days in inventory Days 119.67 113.35 115.87
Account Receivable Turnover Times 24.27 23.73 21.42
No. of days in receivable Days 15.04 15.38 17.04
Accounts Payable Turnover Times 2.74 2.73 2.11
No. of days in payable Days 133.21 133.7 172.99
Total Asset Turnover Times 0.52 0.47 0.43
Investment Ratios
EPS Rupees 42.34 37.72 32.44
PE Ratio Times 19.75 13.47 11.73
Leverage Ratios
Debt to equity Times 0.00 : 1 0.00 : 1 0.00 : 1
Debt to asset Times 0.19 : 1 0.18 : 1 0.20 : 1
- The gross profit and the net profit have been at a decline, the reasons of which can be
analyzed by further ratio analysis.
- The decrease leaves the company still in a favorable condition, it can say that the assets
weren’t utilized properly and are now being utilized more efficiently but that isn’t
inventory. Cash is one element that is being utilized properly.

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- It can be clearly seen that Inventory of the company has been increasing and the inventory
is not being utilized properly leaving it idle which can be further analyzed in inventory
turnover and asset turnover ratios.
- The inventory turnover has decreased from previous year, but the company is still making
more sales than 2017, the impact of which can be seen in turnover in days. This indicates
that the company has been keeping idle inventory.
- The account receivable turnover ratio shows that Lucky’s credit control has been inefficient
for the past years, which is why the company has been taking more days in recovering its
credit.
- The ideal situation is to collect money as soon as possible and to pay back in as much time
as you can. Although Lucky Cement has been inefficient in collecting its receivables, but
the payback period has been increasing. This may be an issue for companies with less
credibility but not for Lucky cement.
- The company has been making less progress in converting its inventory to sales that
indicates idle inventory. This can also be seen by Asset turnover ratio.
- As the company has been making less profits, it has reported a decline in EPS, this decrease
is due to increase in cost of sales and slow down of sales.
- Due to low EPS and company’s declining performance, investors interest has also been
decreasing to buy the share which can be seen by low PE ratio.
- The companies can be seen acquiring more debts to finance its assets.

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Comparative Industry Analysis
Financial Ratios
Lucky DG Khan Maple Fauji
Industry
Average *
FY2019 FY2019 FY2019 FY2019 FY2019
Profitability Ratios
Gross Profit Ratio 29.12% 13.24% 18.91% 26% 19.38%
Net Profit Ratio 21.84% 3.97% 5.63% 14% 7.73%
ROE 11.17% 2.81% 4.80% 14% 7.20%
Liquidity Ratios
Current Ratio 1.42 2.81 1.00 1.51 1.77
Acid Test Ratio 0.92 0.87 0.37 1.26 0.83
Activity Ratios
Inventory Turnover 3.15 10.91 14.38 16.39 13.89
No. of days in inventory 115.87 33.45 25.38 22.27 27.03
Account Receivable Turnover 21.42 33.99 13.63 21.96 23.19
No. of days in receivable 17.04 10.74 26.78 16.62 18.05
Accounts Payable Turnover 2.11 10.78 7.78 16.31 11.62
No. of days in payable 172.99 33.86 46.90 22.38 34.38
Total Asset Turnover 0.43 0.32 0.39 0.72 0.48
Investment Ratios
EPS 32.44 3.67 2.47 2.05 2.73
PE Ratio 11.73 15.39 9.68 7.62 10.90
Leverage Ratios
Debt to equity - 58% 60% 39% 52%
Debt to asset 20% 44% 54% 15% 38%
* Industry average is calculated by taking average of the 3 companies (DG Khan Cement,
Maple Leaf Cement & Fauji Cement)

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Analysis
- Gross profit & Net profit ratios of Lucky cement are higher in comparison to industry
averages. This shows that Lucky has been able to control its operating expenses.
- A high ROE is showing high returns on investment, as compared to industry averages.
- Lucky cement has a low current ratio as compared to the industry average as the financials
reports shows increase in current assets & current liabilities.
- Lucky cement has a favorable quick ratio, which shows that they’ve ability to pay off their
current liabilities without selling any long-term assets.
- Lucky cement has the lowest inventory turnover i.e. 3.15 times as compared to industry
averages, which shows that they’re unable to sell their inventories on time.
- Lucky cement has a favorable receivable turnover i.e. 21.42 times, which shows that
they’re efficient to collect their receivables.
- Lucky Cement has the lowest payable turnover i.e. 2.11 times, which shows that they’re
unable to make timely payments.
- Total assets turnover ratio is favorable as compared to the industry averages, showing
efficient use of assets.
- Earnings per share is exorbitantly high for Lucky cement as compared to industry averages,
showing high returns due to high volumes of sales.
- Price earnings ratio is favorable as compared to industry averages, showing high
performance of the company.
- Debt to asset ratio is favorable as compared to industry averages, showing 20% of their
assets are being financed by debt.
- Debt to equity ratio is zero, showing their debt is financed by equity. Therefore, an increase
in equity is equal to an increase in debt.

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Projected Statement of Financial Position (Amounts is in Rs. 000’)
NON-CURRENT ASSETS 2019 2020
Property, plant and equipment 57,276,184 60,000,000
Intangible assets 18,152 5,988
57,294,336 60,005,988
Long-term investments 34,313,588 47,132,567
Long-term loans and advances 99,316 108,397
Long-term deposits 3,175 3,175
91,710,415 107,250,127
CURRENT ASSETS
Stores and spares 6,809,724 6,158,073
Stock-in-trade 4,253,020 6,467,784
Trade debts 2,058,719 1,748,145
Loans and advances 686,525 1,208,482
Trade deposits and short-term prepayments 74,223 81,523
Accrued return 113,869 90,748
Other receivables 2,130,907 3,463,113
Tax refunds due from the Government 538,812 538,812
Short term investments 1,055,754 1,100,000
Cash and bank balances 15,657,246 13,759,345
33,378,799 34,616,024
TOTAL ASSETS 125,089,214 141,866,150
Share Capital 3,233,750 3,233,750
Reserves 91,084,667 99,796,824
94,318,417 103,002,097
NON-CURRENT LIABILITIES
Long-term deposits 90,264 86,315
Deferred liabilities 7,102,483 6,909,705
7,192,747 6,995,994
CURRENT LIABILITIES
Trade and other payables 19,195,617 28,082,583
Short term borrowing 2,900,000 2,723,816
Unclaimed dividend 53,953 60,714
Unpaid dividend 91,119 100,080
Taxation - net 1,337,361 900,865
23,578,050 31,868,058
30,770,797 41,835,879
TOTAL EQUITY AND LIABILITIES 125,089,214 141,866,150

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Projected Statement of Profit and Loss Account (Amount is in Rs. 000’)
2019 2020
Gross sales 67,547,938 67,719,733
Less: Sales tax and federal excise duty 18,523,888 18,179,200
Rebates and commission 1,002,651 1,047,477
19,526,539 19,223,016
Net sales 48,021,399 48,505,914
Cost of sales (34,037,568) (37,874,474)
Gross profit 13,983,831 11,535,121
Distribution cost (2,728,809) (3,737,300)
Administrative expenses (1,227,872) (1,383,887)
Other expenses (1,047,617) (815,156)
Other income 3,241,682 4,050,201
Profit before taxation 12,221,215 9,879,060
Taxation -
Current (2,140,079) (1,507,755)
Deferred 409,093 1,442,460
Net (1,730,986) (1,025,585)
Profit after taxation 10,490,229 9,022,226
Gain / (loss) on remeasurements of post-retirement
benefit obligation 80,166 (43,060)
Deferred tax thereon (21,645) 11,626
58,521 (31,433)
at fair value through other comprehensive income (11,947) (13,599)
Deferred tax thereon 1,792 2,040
Total (10,155) (11,558)
48,366 (19,846)
Total comprehensive income for the year 10,538,595 9,194,470
EPS 32.44 32.16

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Appendices
Lucky Cement
Share Price Trends

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Fauji Cement

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D G Khan Cement

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Maple Leaf Cement