March 2 (Bloomberg) -- Lucky Cement Ltd., Pakistan’s biggest producer of the building material, will post a record profit this year as demand for new homes in the South Asian nation offsets sluggish government spending.
“We lack housing, we lack infrastructure, the population is growing and there is a lot of potential on the domestic side,” Abid Muhammad Ganatra, director of finance, said in an interview at his Karachi office yesterday. “It will be a record profit this year. No doubt about that.”
Prime Minister Yousuf Raza Gilani’s government has cut spending on roads and bridges to curb a budget gap that may rise to as much as 7 percent of gross domestic product in the year ending June, according to the International Monetary Fund. Even so, domestic demand for cement increased 8 percent in the six months ended Dec. 31, Ganatra said, adding usage could rise to 30 million tons in the next two years from 24 million.
Net income at Lucky Cement rose to 1.51 billion rupees ($16.6 million) in the three months ended Dec. 31 from 733.9 million rupees a year earlier, the company reported last month. Lucky had a record annual profit of 4.59 billion rupees in the 12 months ended June 30, 2009.
The company’s shares rose 4.3 percent, most in over four months, to 102.98 rupees, the highest since June 26, 2008 at the 4:30 p.m. local time close on the Karachi Stock Exchange. The stock has surged 37 percent this year, compared with the 16 percent rally in the benchmark KSE100 Index.
“The company has many advantages compared with others and has utilized them quite well,” said Habib-ur-Rehman, who manages stocks and bonds worth 8.2 billion rupees at Atlas Asset Management Ltd. in Karachi. “They took a timely decision on expansion and that is paying off now.”
Lucky Cement increased its production capacity to 7.75 million tons in 2009, from 1.2 million tons at the start in 1996.
More Pakistanis are building houses as overseas residents send more money home and the fastest inflation in Asia after Vietnam increases farmers’ income, said Ganatra, 46, who has been with the company since 1994. Pakistan’s population of 196 million people is growing at an annual rate of 2.1 percent, according to the government.
Pakistan’s so-called inward remittances rose 34 percent in January to $1.1 billion, pushing payments for the first seven months of the fiscal year 21 percent higher from a year ago, according to central bank data.
Lucky will begin construction of a cement factory in Congo by June through a joint venture with local company Groupe Rawji as the African nation seeks to rebuild infrastructure destroyed in more than a decade of war. The plant, which will have a capacity to produce 1.2 million tons a year, will be completed by the end of 2014, Ganatra said.
“We are looking for investment opportunities abroad because we want to diversify our risk from Pakistan,” he said. “We are also looking in Iraq and Sri Lanka, mainly in cement but also power generation.”
Pakistan’s local cement sales rose 7 percent in the first seven months of the financial year ending June 30, while overseas sales fell 3.6 percent from a year earlier, according to the All Pakistan Cement Manufacturers Association.
Lucky ships cement to Africa, Iraq, Afghanistan and Sri Lanka and plans to increase exports to India as trade ties improve. Pakistan exports 800,000 tons of cement a year to India, which has an annual demand of 250 million tons, he said.
The nuclear-armed rivals agreed last year to broaden the number of goods that can be traded between the countries and to grant more business visas as they move to normalize economic ties. They vowed to dismantle tariffs on about 8,000 items by the end of this year, with all restrictions being lifted by 2013.
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