Lucky plans to buy Kia Motors Pakistan, Dewan Cement; eyes expansion in Iraq

KARACHI: The country’s top cement manufacturer Lucky Cement said on Thursday it would buy South Korean carmaker Kia Motors in Pakistan and also announced two planned investments, including an offshore, in its core business.

Karachi-based Lucky Cement is planning to invest Rs12 billion to set up a new company to start manufacturing and assembling of Kia vehicles. The new venture will also market and sell, besides import and export of all types of Kia vehicles, parts and accessories. 

The company’s board took these decisions at a meeting held earlier in the day. 

A notice issued to the Pakistan Stock Exchange said Lucky will also initiate due diligence of Dewan cement, located in Hattar (North) and a grinding plant in Basra, Iraq.  The company’s capacity will increase to 1.74 million tons from the current 870,000 tons, it said.

Hattar plant has a total capacity of 1.1 million tons and it operated at 67 percent capacity utilisation in the last fiscal year of 2015/16.

The company had already announced capacity expansion of 2.3 million tons in the northern region and 1.3 million tons in the southern region.

Analysts said since the company is currently operating at near to full capacity utilization, acquisition of Dewan Cement will help the company to jack up its dispatches.

The government is seeking to accelerate growth to more than five percent during the current fiscal year. The $46 billion China-Pakistan Economic Corridor projects, envisaging developments of roads, ports, power plants and dams, already boosted infrastructure spending and cement demand in the country.

“An approval will be sought from shareholders and EOGM (extra ordinary general meeting) at a meeting scheduled on December 30,” it added.

Analysts said the company, after successfully venturing into chemicals and power sectors, will explore growing local automobile industry on higher disposable income and low interest rate environment.

“We believe that this move will further diversify the revenue line of Lucky and strengthen the profits considering robust auto demand outlook in Pakistan,” said an analyst at Insight Securities. “At present, Pakistan is witnessing a growth in demand of auto cars.”

The analyst said the country’s automakers generated an average return on equity of 27 percent in the last three years.

Analysts said newly-approved auto policy, skewed in favour of new entrants, offers lower duties to foreign car manufacturers as an incentive to set up plants. Currently, three Japanese auto companies monopolises the country’s automobile sector.

The government, in March, approved the automotive development policy 2016-21 after around three years of delay. The policy encourages new manufacturers to enter the market, while promoting the latest technologies.

French auto maker Renault SA is also eyeing a car assembling plant in Pakistan by 2018. The company has entered into negotiations with Ghandhara and Dubai-based Al Futtaim Groups to develop the Renault brand in Pakistan, including a manufacturing plant on the Gandhara site in Karachi.

Industry officials said European car maker Volkswagen, and some Chinese investors, have also expressed their interest in starting manufacturing in the country.

The notice to the PSX said the company also decided to expand the capacity of its grinding plant in Iraq to 1.74 million tons from current 0.87 million tons. 

Grinding plant of Iraq started its commercial operation in 2014 and the profits from the project stood at Rs812 million in the last fiscal year.   

Analysts said Lucky will finance capacity enhancement in Iraq through internally generated cash-flows from the existing grinding unit.