LAFARGE SURMA CEMENT LIMITED

LAFARGE SURMA CEMENT LIMITED
DSE: LAFSURCEML
BLOOMBERG: LAFCEM:BD
Company Overview
Company Fundamentals
Lafarge Surma Cement Limited, the only cross border
commercial venture between Bangladesh and India, was
incorporated in Bangladesh November 11, 1997. The Company
is engaged in manufacturing and marketing of cement and
clinker in the local market. It started its production under the
brand name of “Supercrete” since 2006.
Market Cap (BDT mn)
The company’s key revenue contributor is the sales of gray
cement, which made 75% contribution in 2013 and rest 25%
revenue originated from sales of cement clinker.
The firm had utilized its entire installed capacity of Grey
Cement (1.20 mn MT) and Cement Clinker (1.15 mn MT) and
the capacity utilization stood at 101% in and 112% in year 2013.
The firm is already meeting about 8% of the total cement
market and 10% of total clinker demand of the country.
To conduct its operation, it extracts and processes the basic
raw materials limestone from its own quarry in Meghalaya,
India. The raw materials are transported through a 17-km crossborder conveyor belt from the quarry to the plant. Other key
raw materials are Clay, Gypsum, Iron Ore, Sand, slag etc.
The Company ensured backward linkage with its two
subsidiaries registered in India – Lum Mawshun Minarals Pvt.
Ltd. (74%) which obtains land rights and mining leases and
Lafarge Umiam Mining Pvt. Ltd.(100%)
which supplies
limestone and shale from mines to cement plant situated in
Bangladesh.
128,099.5
5.3%
Market weight
1,161.4
No. of Share Outstanding (in mn)
34.1%
Free-float Shares
11,614.0
Paid-up Capital (BDT mn)
3-month Average Turnover (BDT mn)
100.9
3-month Return
-3.0%
Current Price (BDT)
114.6
46.2 - 145.4
52-week price range (BDT)
34.7
Sector’s Forward P/E
2011
2012
2013
2014
(9M Ann)
Financial Information (BDT mn):
Sales
6,098
10,640
11,330
11,119
207
3,336
3,986
3,675
Profit After Tax
(2,188)
1,853
2,546
2,820
Assets
18,559
18,523
19,027
20,183
Long Term Debt
3,999
1,698
1,883
2,028
Equity
6,452
8,381
11,045
12,596
-/-
-/-
-/-
-/-
Operating Profit
Dividend (C/B)%
The Firm enlisted in DSE & CSE in year 2003. Around 70% of
shares are held by Sponsors whereas rests 30% are held by
General Investors.
Margin:
Gross Profit
9.2%
39.4%
41.5%
38.7%
Industry Overview
Operating Profit
3.4%
31.4%
35.2%
33.1%
Cement industry of Bangladesh is running with over capacity.
Against 15 mn MT annual local demand, there exists around 25
mn MT production facility. Currently, cement consumption per
capita in the country is roughly 83 kg per year, where India’s
per capita consumption is 174 kg and global average
consumption of cement stands at around 500 kg. At present, 29
local companies grabbed almost 75% of market share whereas
rests are captured by 5 foreign companies. According to
Bangladesh Cement Manufacturers Association (BCMA), in
2012, top 10 firms held almost 81% of market share, with
leading position seized by Shah Cement (15.91%) followed by
Heidelberg Cement (9.76%) and Meghna Cement (8.08%).
Pretax Profit
-37.5%
23.6%
28.4%
31.5%
Net Profit
-35.9%
17.4%
22.5%
25.3%
7.8%
74.5%
6.5%
-1.9%
Bangladesh has no source of cement clinker which makes it one
of the largest importers of clinker and limestone in the world by
importing an estimated 10 mn - 15 mn MT from India, Thailand,
Indonesia, the Philippines and China annually. So profitability of
the sector largely depends on uninterrupted import facility and
favorable foreign exchange condition.
Over capacity of production in this sector uncovered the export
opportunity in 2003. Bangladesh exports 15,000-20,000 MT
cement a month to India – only exporting country. However, in
2012-13 fiscal, export plunged 57.82% on y-o-y basis due to
devaluation of Rupee against USD and appreciation of BDT
against USD simultaneously. Recently, this situation almost
halted the cement export of Bangladesh as import became
costlier than local purchase for India.
1
Growth:
Sales
Gross Profit
-2.9%
647.6%
12.3%
-8.5%
Operating Profit
46.6%
1512.5%
19.5%
-7.8%
Net Profit
33.5%
-184.7%
37.4%
10.4%
ROA
-12.0%
10.0%
13.6%
14.3%
ROE
-47.5%
25.0%
26.2%
23.8%
Debt Ratio
52.6%
37.0%
19.3%
15.3%
Debt-Equity
151.4%
81.7%
33.2%
24.6%
0.1
4.0
5.2
13.7
Price/Earnings
58.6)
69.1
50.3
45.6
Price/BV
19.9
15.3
11.6
10.2
EPS (BDT)
(1.9)
1.6
2.2
2.4
5.6
7.2
9.5
10.8
Profitability:
Leverage:
Int. Coverage
Valuation:
NAVPS (BDT)
*As per latest corporate declaration
March 19, 2015
Investment Positives




Quarterly (3 Months) Restated EPS (in BDT)
The company has contract manufacturing with Madina
Cement Industries Ltd. and Metrocem Cement Ltd.
According to the agreement both of the local
manufacturers produce Portland Composite Cement
exclusively for Lafarge Surma which is marketed under
the brand name of “Powercete” and "DURACRETE" along
with the Lafarge’s own brand “Supercrete”. These
measures indicate increasing sales of the company’s
product and higher expected revenue.
Currently, Lafarge can import up to 2 million Mt
Limestone, the main raw materials for clinker, from India.
However, the company has applied to the Indian
government to increase the limit up to 5 million MT. After
obtaining the approval the company will go for expanding
its existing capacity.
The firm has recovered its huge accumulated loss and
specifically, as per the latest corporate declaration, in 2014
the Company has reported consolidated income of BDT
2,819.80 million, consolidated EPS of Tk. 2.43 as against
BDT 2,546.10 million, consolidated EPS of Tk. 2.19
respectively. The company declared a total of 10% cash
dividend in 2014 and is yet to upgrade to “A” category
from existing “Z” category.
The Company enjoyed, on an average, around 40% gross
profit margin; whereas other players in the industry can
avail gross profit margin up to 15% - 20%. The reason is
the firm has competitive edge in getting raw materials
through its own resources while others have to import the
raw materials from abroad.
Investment Negatives


The proposed merger of two global cement giant, Lafarge
and Holcim, is in a dispute with reference to the Holcim’s
proposal to change the agreed one-for-one share
exchange ratio to 0.875 Holcim shares for each of Lafarge,
which makes the future of the merger uncertain.
The Company has already utilized its existing production
capacity fully; therefore, to increase production and sales,
it has to go for contract-manufacturing (i.e., outsource the
finished-goods from other manufacturers), which will
naturally be more costly than own production.
0.97
0.53
0.40
0.53
0.60
0.54
0.31
0.31
Q2
Q3
0.67
0.61
0.61
Q2
Q3
Q4
0.13
Q1
Q2
Q3
Q4
2012
Q1
Q4
Q1
2013
2014
Pricing Based on Relative Valuation:
Sector Forward P/E
34.7
Value
(BDT)
76.1
Sector Trailing P/E
31.1
49.7
Market Forward P/E
16.5
36.1
Market Trailing P/E
17.1
27.3
5.6
53.2
Multiple
Sector P/B
150
Last 5 Year's Price Movement (BDT)
100
50
0
Feb-10
Feb-11
Feb-12
Feb-13
Feb-14
Feb-15
Concluding Remark
Lafarge Surma Cement Ltd. is one of largest foreign
investments in Bangladesh (USD 280 mn). The firm suffered
from losses due to operational interruption from April 2010 to
August 2011; as India's High Court halted mining limestone
from Meghalaya because of environmental concerns. This issue
was resolved under some conditions by India's Supreme Court’s
verdict. During that time, the Company experienced huge
losses (BDT 534 crore). However, the Company has reported
phenomenal performance in recent years which helped to
overcome its accumulated loss and distribute dividend to the
shareholders.
Source: Annual Reports, Lafarge Surma’s website, the Financial Express, the Daily Star, ILSL Research
ILSL Research Team:
Name
Rezwana Nasreen
Towhidul Islam
Md. Tanvir Islam
Mohammad Asrarul Haque
Designation
Head of Research
Research Analyst
Research Analyst
Jr. Research Analyst
For any Queries: research@ilslbd.com
Disclaimer: This document has been prepared by International Leasing Securities Limited (ILSL) for information only of its clients on the basis of the publicly available information in the market and own research. This
document has been prepared for information purpose only and does not solicit any action based on the material contained herein and should not be construed as an offer or solicitation to buy or sell or subscribe to any
security. Neither ILSL nor any of its directors, shareholders, member of the management or employee represents or warrants expressly or impliedly that the information or data of the sources used in the documents are
genuine, accurate, complete, authentic and correct. However all reasonable care has been taken to ensure the accuracy of the contents of this document. ILSL will not take any responsibility for any decisions made by
investors based on the information herein.
2
March 19, 2015