LAFARGE SURMA CEMENT LIMITED
Company Overview
Company Fundamentals
Lafarge Surma Cement Limited – the only cross border
commercial venture between Bangladesh and India – was
incorporated on November 11, 1997. The Company is engaged
in manufacturing and marketing of cement and clinker in the
local market. 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 cross-border conveyor belt from the quarry to the plant.
It started its production under the brand name of “Supercrete”
since 2006. As per 2012 Annual Report, the firm had utilized its
entire installed capacity of Grey Cement (1.20 mn MT) and
Cement Clinker (1.15 mn MT) which was 73.75% and 42.17% in
year 2011. The firm is already meeting about 8% of the total
cement market and 10% of total clinker demand of the country.
Market Cap (BDT mn)
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 supply 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.
Industry Overview
56,558.9j
2.5%
Market weight
1,161.4
No. of Share Outstanding (in mn)
30.0%
Free-float Shares
11,614.0
Paid-up Capital (BDT mn)
85.5
3-month Average Turnover (BDT mn)
3-month Return
55%
Current Price (BDT)
48.7
28.4-49.7
52-week price range (BDT)
20.2
Sector’s Forward P/E
2010
2011
2012
2013
(9M Ann)
Financial Information (BDT mn):
5,655
6,098
10,640
11,008
Operating Profit
(1,115)
207
3,336
4,033
Profit After Tax
(1,620)
(2,188)
1,853
1,897
Assets
17,915
18,559
18,523
18,617
Long Term Debt
4,961
3,999
1,698
2,167
Equity
2,768
6,452
8,381
9,913
-/-
-/-
-/-
-/-
10.2%
9.2%
39.4%
42.5%
Operating Profit
-19.7%
3.4%
31.4%
36.6%
Pretax Profit
-32.4%
-37.5%
23.6%
27.9%
Net Profit
-28.6%
-35.9%
17.4%
17.2%
Sales
-25.0%
7.8%
74.5%
3.5%
Gross Profit
-80.0%
-3.0%
647.6%
11.7%
Operating Profit
-146.7%
-118.5%
1512.5%
20.9%
Net Profit
-262.7%
35.1%
-184.7%
2.3%
Sales
Dividend (C/B)%
Margin:
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%).
Gross Profit
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.
ROA
-9.2%
-12.0%
10.0%
10.2%
ROE
-45.0%
-47.5%
25.0%
20.7%
Debt Ratio
72.8%
52.6%
37.0%
23.5%
Debt-Equity
471.2%
151.4%
81.7%
44.1%
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.
Int. Coverage
(1.5)
0.1
4.0
3.9
Price/Earnings
N/A
N/A
20.6
21.8**
Price/BV
11.8
(1.4)
6.0
(1.9)
5.3
1.6
3.5*
2.2*
4.8
4.4
6.2
9.5*
1
Growth:
Profitability:
Leverage:
Valuation:
Restated EPS (BDT)
NAVPS (BDT)
*As per latest corporate declaration for the year ended 2013
March 20, 2014
Investment Positives



Quarterly (3 Months) Restated EPS (BDT)
On 10 March 2013, the Company had signed a three year
agreement with Madina Cement Industries Ltd.
According to the agreement Madina Cement Industries
will produce Portland Composite Cement exclusively for
Lafarge Surma which will be marketed under the brand
name of “Powercete” along with the existing brand
“Supercrete”. This indicates increasing demand of firm’s
product and higher expected revenue.
The firm reduced its huge accumulated loss of BDT 534
crore to only BDT 94 crore. Specifically, in Q4 2013, it
registered remarkable profit of BDT 112.3 crore.
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.

0.53
0.53
0.60
0.40
0.31
0.31
0.13
Q1
Q2
Q3
Q4
Q1
2012
Q2
Q3
Q4
2013
Last 5 Year's Price Movement (BDT)
90
80
70
60
50
40
30
Investment Negatives

0.97
20
As per 2013 corporate declaration, the Company has
accumulated loss of around BDT 94 crore and therefore
declared no dividend. As a result, the firm remained as “Z”
category in the bourses.
The Company has already utilized its existing production
capacity fully; therefore, it has to go for contractmanufacturing (i.e., outsource the finished-goods from
other manufacturers) which will naturally be more costly
than own production.
Pricing Based on Relative Valuation:
Sector Forward P/E
19.9
Value
(BDT)
43.6
Sector Trailing P/E
26.5
42.3
Market Forward P/E
17.4
38.1
Market Trailing P/E
17.8
28.4
3.8
36.1
Multiple
Sector P/B
10
0
Mar-09
Mar-10
Mar-11
Mar-12
Mar-13
Mar-14
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). The situation is, however, gradually
improving in recent times. The Company has reported
phenomenal performance in Q4 of 2013 (BDT 112.3 crore)
which helped to reduce its existing accumulated loss to BDT
94.5 crore. As on date, 14-days RSI and 14 MFI of the Company
were 64.70 and 78.50 respectively.
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
Designation
Head of Research
Research Analyst
Research Analyst
For any Queries: research@ilslbd.com
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investors based on the information herein.
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March 20, 2014