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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.
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.
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.
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%).
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
Market Cap (BDT mn)
Market weight
No. of Share Outstanding (in mn)
Free-float Shares
Paid-up Capital (BDT mn)
3-month Average Turnover (BDT mn)
3-month Return
Current Price (BDT)
52-week price range (BDT)
Sector’s Forward P/E
2011 2012
Financial Information (BDT mn):
Sales 6,098 10,640
DSE:
B
LOOMBERG
:
128,099.5
5.3%
1,161.4
34.1%
11,614.0
100.9
-3.0%
114.6
46.2 - 145.4
34.7
2013
11,330
2014
(9M Ann)
11,119
Operating Profit
Profit After Tax
Assets
Long Term Debt
Equity
Dividend (C/B)%
207
(2,188)
18,559
3,999
6,452
-/-
3,336
1,853
18,523
1,698
8,381
-/-
3,986
2,546
19,027
1,883
11,045
-/-
3,675
2,820
20,183
2,028
12,596
-/-
Margin:
Gross Profit
Operating Profit
Pretax Profit
Net Profit
Growth:
Sales
Gross Profit
Operating Profit
Net Profit
Profitability:
ROA
ROE
Leverage:
Debt Ratio
Debt-Equity
9.2%
3.4%
-37.5%
-35.9%
7.8% 74.5%
-2.9% 647.6%
46.6% 1512.5%
33.5% -184.7%
-12.0%
-47.5%
39.4%
31.4%
23.6%
17.4%
10.0%
25.0%
52.6%
151.4%
37.0%
81.7%
Int. Coverage
Valuation:
0.1 4.0
Price/Earnings
Price/BV
58.6)
19.9
EPS (BDT) (1.9)
NAVPS (BDT) 5.6
*As per latest corporate declaration
69.1
15.3
1.6
7.2
41.5%
35.2%
28.4%
22.5%
6.5%
12.3%
19.5%
37.4%
13.6%
26.2%
19.3%
33.2%
5.2
50.3
11.6
2.2
9.5
38.7%
33.1%
31.5%
25.3%
-1.9%
-8.5%
-7.8%
10.4%
14.3%
23.8%
15.3%
24.6%
13.7
45.6
10.2
2.4
10.8
March 19, 2015

 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.
 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.
ILSL Research Team:
Name
Rezwana Nasreen
Towhidul Islam
Md. Tanvir Islam
Mohammad Asrarul Haque
For any Queries: research@ilslbd.com
Designation
Head of Research
Research Analyst
Research Analyst
Jr. Research Analyst
Quarterly (3 Months) Restated EPS (in BDT)
0.97
0.54
0.67 0.61 0.61
0.40
0.13
0.53 0.53 0.60
0.31 0.31
Q1 Q2 Q3
2012
Q4 Q1 Q2 Q3
2013
Q4 Q1
Pricing Based on Relative Valuation:
Sector Forward P/E
Sector Trailing P/E
Market Forward P/E
Market Trailing P/E
Sector P/B
Multiple
34.7
31.1
16.5
17.1
5.6
Q2 Q3
2014
Q4
Value
49.7
36.1
27.3
53.2
150
Last 5 Year's Price Movement (BDT)
100
50
0
Feb-10 Feb-11
Feb-12 Feb-13 Feb-14 Feb-15
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
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