39714282 Lucky Cement Report

10

Lucky Cement

Limited

Strategic Management Report

Khizra Jamal (4389)

Acknowledgements

We are grateful to Almighty Allah who gave us strength, knowledge and power to accomplish this comprehensive assignment.

We are deeply indebted to Sir Syed Mohsin Raza our mentor for this course, for his guidance and knowledge towards the accomplishment of this task.

We are thankful to Mr. Shoaib Tahir & Mr. Shahid Patel, Sr. Deputy Manager Accounts, Lucky Cement . Ltd, who shared his valuable information with us, essential for the creation of this report.

Executive Summary

The purpose of this report is to analyze the Strategic Management practices at a public sector organization along with in depth understanding of applying recommended strategic management processes. In this regard, we have chosen Lucky Cements Ltd, a leading cement manufacturing company, based in Pakistan. It is also listed in all major stock exchanges of the country.

After surveying and observing the management, particularly the strategic policies, practices and procedures at Lucky Cement, we have arrived at the written analysis following hereafter. As the requirement of the report, we have conducted a detailed study of the internal as well as external environment of the organization.

We developed IFE matrix and calculated a weighted score of 3.00 which shows company is effectively utilizing its strengths and trying to overcome its weaknesses. We also developed EFE matrix and calculated a weighted score of 2.55 which shows company’s strategies effectively take advantage of existing opportunities and threats in the industry. SPACE matrix shows that company is on Aggressive strategy. BCG matrix shows company in STAR quadrant. QSPM matrix shows that company is working on 2 different strategies i-e Market Development and Market Penetration. All other relevant matrices are also developed.

On the basis of above information, we have arrived on specific recommendations from strategic management’s viewpoint. We have supported our suggestions through strategic theories, matrices and exhibits, present in the report.

Introduction

History

Sponsored by well known “Yunus Brothers Group – one of the largest export houses of Pakistan”, Lucky Cement Limited is presently a 21,000 Tons per Day, dry process Cement Plant, located on main Indus Highway between D.I.Khan & Bannu in Pezu, Distt. Lakki Marwat, NWFP.

Lucky Cement came into existence in 1996 with a daily production capacity of 4200 Tons par day, currently is an omnipotent cement plant of Pakistan, and rated amongst the few best Plants in Asia with production facilities in Pezu (Production capacity: 13,000 Tons per day) as well as in Karachi (Production capacity: 8000 Tons per day) it has the tendency to become the hub of cement production in Asia.

In addition, Lucky Cement is aggressively pursuing to develop export markets for cement to export bulk loose cement from Pakistan to the Gulf Countries, African Markets, and Far East Region including Nepal & Sri Lanka.

It is the desire of Lucky Cement to put Pakistan on world map as a leading producer & exporter of loose cement in international market.

Lucky cement has made an investment of over US$ 8 Million to develop the infrastructure & logistics and is further developing a fleet of cement bulkers to carry loose cement from its Karachi Plant to the Ports.

For loading cement form the bulkers to vessels, Lucky Cement has a dedicated system for discharging cement directly from the bulkers to the vessels; at very fast discharge rates, reducing the vessels idle time in turn making the shipments timely as per the customer requirements.

Lucky Cement has also installed Jumbo Packers at its Karachi Plant to dispatch cement in one ton packing requirement.

All this and much more have made Lucky Cement the largest cement producer, with major emphasis on supply of superior quality cement to its consumers.

Critical Success Factors

Today Lucky Cement occupies a leading position in the cement industry. The company’s success may be attributed to its:

• Strong financial performance. • High quality products.

• Support by the Yunus Group.

Products

Lucky Cement aims at producing cement to suit every user. The following types of cement are available:

• Ordinary Portland Cement (OPC)

• Sulphate Resistant Cement (SRC)

• Slag Cement (SC)

Ordinary Portland Cement:

Ordinary Portland cement is available in darker shade as well as in light shades with different brand names to suit the requirements of users.

It is used in all general constructions especially in major prestigious projects where cement is to meet stringent quality requirements; it can be used in concrete mortars and grouts etc. Ordinary Portland cement is compatible/consumable with admixture/ retarders etc.

Sulphate Resistant Cement:

Sulphate resistant Cement’s best quality is to provide effective and long lasting strength against Sulphate attacks and is very suitable for constructions near sea shores as well as for canals linings. It provides very effective protection against alkali attacks.

Slag Cement:

Slag cement, has been incorporated into concrete projects for over a century to improve durability and reduce life cycle costs. Among its measurable benefits in concrete are better workability and finish ability, higher compressive and flexural strengths, and improved resistance to aggressive chemicals. Sulphate resistant Cement’s best quality is to provide effective and long lasting strength against Sulphate attacks and is very suitable for constructions near sea shores as well as for canals linings. It provides very effective protection against alkali attacks.

Company Performance

Market Share for Exports

Luck Cement is an established company and it is considered as one of the top most entities in the cement industry. To keep pace with the competitors, they have recently done expansion and opened new plants in Lakki Marwat, N.W.F.P and Noorabad Karachi. Currently they are in close competition with D.G Khan Cement, Pakland Cement and Falcon Cement. However, due to their capability of handling large orders in short duration, they have an edge over their competitors.

TOP FIVE EXPORTERS

DURING FINANCIAL YEAR 2006-2007

Cherat 274,601 T Bestway 249,239 T DG Khan 173,513 T Kohat Cement 153,433 T Lucky Cement 1,456,900 T

As presented in the above illustration, Lucky cement is the leading exporter of cement having a share of more than 60%.

TOP FIVE EXPORTERS

DURING FINANCIAL YEAR 2006-2007

S.No. COMPANY

PROPORTIONATE APCMA

CAPACITY FOR 12 MONTHS JUL 06-JUN 07 (TONS)

EXPORTS FROM JUL 06-JUN 07 (TONS) % OF EXPORTS TO CAPACITY 1 Lucky Cement 5,551,9 88 1,456,9 00 26% 2 Cherat Cement 1,018,5 00 274,60 1 27% 3 Bestway Cement 1,228,5 00 249,23 9 20% 4 D.G Cement 2,110,5 00 173,51 3 8% 5 Kohat Cement 567, 000 153,43 3 27%

Vision & Mission

Vision

Our vision is to supply cement globally at ease, simultaneously publicizing our brand worldwide and identifying our social responsibility by engaging in a number of social welfare activities, for the benefit of poor and needy people.

Mission

We are an industrial organization with a big capital base, using state of the art technology in manufacturing and marketing of cement globally. Our strength lies in the continuous value addition of the Company through sound investments in sustainable areas for customers, employees and shareholders. With no compromise on quality and a vital role to play in social responsibilities we seek innovative answers to complex problems.

Evaluation Matrix of Mission Statement

S. No. Components Availability 1 Customer YES

2 Product / Service YES 3 Markets YES 4 Technology YES 5 Concern for Survival, Growth &

Profitability YES 6 Philosophy NO 7 Self Concept YES

8 Concern for public image NO 9 Concern for employees YES

Proposed Vision

To transform Lucky Cement Ltd into a model cement manufacturing company engaged in nation building through most efficient utilization of resources and optimally benefiting all stake holders while enjoying public respect and goodwill in local and international market.

Proposed Mission

Our mission is to be perceived by our customers as providing highest quality of cement, using state of the art technology and retaining personnel of exceptional ability. Moreover, Lucky Cement while maintaining its leading position aims to build up on its present state of profitability with a view to ensuring optimum returns to the shareholders with maximum care for global environment.

Organizational Structure

Strategic Management Report 12

Chairman Executive Director Chief Executive Director Marketing Director Operations General Manager-GR & A DGM Procurement Director PG Director Finance DGM Coordination Technical Director GM Unit 1 GM Unit 2 GM Unit 3 GM Marketing

Board of Directors

Mr. Muhammad Yunus Tabba (Chairman/Director) Mr. Muhammad Ali Tabba (Chief Executive)

Mr. Muhammad Sohail Tabba Mr. Imran Yunus Tabba

Mr. Javed Yunus Tabba Mrs. Rahila Aleem

Miss Mariam Razzak

Mr. Muhammad Abdul Samad (NIT) Executive Director

Mr. Abdur Razzaq Thaplawala

Company Secretary & General Manager Finance Mr. Muhammad Abid Ganatra

ACA, ACMA, ACIS Audit Committee

Mr. Muhammad Yunus Tabba Mr. Muhammad Ali Tabba Mr. Imran Yunus Tabba Mr. Javed Yunus Tabba Miss Mariam Razzak Statutory Auditors

Internal Factor Evaluation

(IFE) Matrix

STRENGTHS OF LUCKY CEMENT 1. Strong Financial Position. 2. High Product Quality. 3. High Pay scale.

4. Highest Export Share. 5. Support by Yunus Group

WEAKNESSES OF LUCKY CEMENT

1. Low Advertising and Less Exposure. 2. Low Gratuity and PF funds.

3. Increasing General & Administrative Expenses.

STRENGTHS WEIGHT RATING WEIGHTED _SCORE Strong Financial Position 0.15 4 0.60

High Product Quality 0.15 4 0.60 High Pay scale 0.10 3 0.30 Highest Export Share 0.20 3 0.60 Support by Yunus Group 0.10 2 0.20

WEAKNESSES WEIGHT RATING WEIGHTED _SCORE Low Advertising & Less

Exposure 0.10 3 0.30 Low Gratuity and PF

funds 0.10 2 0.20 Increasing General &

Administrative Exp. 0.10 2 0.20 TOTAL 1.00 3.00

External Factor Evaluation

(EFE) Matrix

Opportunities of lucky cement

1. Upcoming national building projects. 2. Demand for cement in Gulf region

3. Less freight charges for export of cement

4. Expansion in cement industry due to house building loans by banks.

5. Advancements in technology.

Threats of lucky cement

3. Alliance Opposition. 4. Labor Union Problems.

opportunities

weig

_ht

ratin

_g

weighted

_score

Upcoming national building

projects 0.20 3 0.60

Demand for cement in Gulf

region 0.15 2 0.30

Less freight charges for

cement export 0.10 3 0.30

Expansion in cement industry due to house

building loans by banks 0.10 4 0.40

threats

weig

_ht

ratin

_g

weighted

_score

Government Regulations on

Slots 0.20 2 0.40

Price Competition 0.10 3 0.30

TOTAL 1.00 2.55

Competitor Analysis

Major competitors of Lucky Cement constitute of:

1. DG Khan Cement ltd. 2. Pioneer Cement Ltd. 3. Pakistan Cement. 4. Bestway CHK Cement Ltd. 5. Mapleleaf Cement ltd. 6. Attock Cement Ltd. 7. Fauji Cement ltd.

Actual dispatches from July 2009 ~ June 2010 (in tons)

S/No Company Local Export Total

1 Lucky Cement 3,183,063 1,456,900 4,639,963 2 D.G Khan Cement Ltd. 2,214,004 153,433 2,367,437 3 Pioneer Cement Ltd. 1,136,9 56 131,985 1,268,9 41 4 Pakistan Cement 1,283,568 75,856 1,359,424 5 BestwayCement Ltd. CHK 1,032,048 54,762 1,086,810 6 Mapleleaf Cement Ltd. 1,347,5 76 45,239 1,392,8 15 7 Attock Cement Ltd. 1,187,571 117,191 1,304,762 8 A.C Nzp. Cement Ltd. 1,069,272 101,270 1,170,542 9 Bestway Cement Ltd. 913,8 98 249,239 1,163,1 37 10 Fauji Cement Ltd. 990,829 152,208 1,143,037

TOTAL DESPATCHES BY TOP 10 COMPANIES DURING FINANCIAL YEAR 2006-2007 4639963 2367437 1268941 1359424 1086810 1392815 _1304762 1170542 1163137 1143037 0 500000 1000000 1500000 2000000 2500000 3000000 3500000 4000000 4500000 5000000 Lucky Cement Pezu+Khi D.G Khan Cement Ltd. Pioneer Cement Ltd. Pakistan Cement Bestway CHK Cement Ltd. Mapleleaf Cement Ltd. Attock Cement Ltd. A.C Nzp. Cement Ltd. Bestway Cement Ltd. Fauji Cement Ltd. All Values in Tons

As illustrated in above graph, followed by D.G Khan Cement and Pioneer Cement, Lucky cement carries the highest dispatch rate i.e.: 13% of overall industry.

Competitive Profile Matrix

(CPM)

critical

success

factor

weig

ht

rati

ng

scor

e

rati

ng

scor

e

rati

ng

scor

e

Advertising 0.20 3 0.60 4 0.80 2 0.40 Product Quality 0.10 4 0.40 3 0.30 3 0.30 Price Competitiv eness 0.10 4 0.40 4 0.40 4 0.40 Manageme nt 0.10 4 0.40 3 0.30 4 0.40

Financial Position 0.15 4 0.45 2 0.30 2 0.30 Customer loyalty 0.10 3 0.30 2 0.20 3 0.30 Global Expansion 0.20 1 0.20 1 0.20 1 0.20 Market Share 0.05 3 0.15 2 0.10 2 0.10 TOTAL 1.00 2.90 2.60 2.40

TOWS Matrix

Through the following TWOS Matrix, we are suggesting Lucky Cement for the adoption of certain strategies, leading to the best use of their strengths in industrial opportunities and avoidance of unforeseen events happening due to the internal weaknesses, having industrial external negative impacts.

strengths-S

1. Financially strong

2. High product

quality.

3. High Pay scale

4. Highest export share 5. Support by Yunus group

weaknesses-W

1. Low advertising and less exposure

2. Low Gratuity and PF funds 3. Increasing general and administrative expenses

o

pportunities-O

SO

strategies

WO strategies

1. Can build up exposure and better brand image

1. Upcoming national building projects

2. Demand for cement in gulf region.

3. Less freight charges for export of cement.

4. Expansion in cement industry.

1. New factory setup in NWFP. (S1,O1) 2. Increased exports to Gulf region (S1,S2,O2) through right promotional mix. (W1,O1,O2)

2. Can diversify in Gulf region. (W1,O2)

threats-

T

ST

strategies

WT strategies

1. Reduce general and administrative expenses to coupe with narrow competition. (W3,T2)

2. Should consider

employee perks to avoid hassles of labor unions. (W2, T3)

Space Matrix

Financial Strengths

Rating

Increase in net sales revenue 4 Continuous increase in stock value (Rs. 130/-) 6 Increased earning per share (Rs. 2.1 per share) 5

TOTAL 15

Industry Strengths

Rating

Increasing competition in construction

sector 4

Increasing domestic demand for cement i.e.: 92% 5

Enhancements in the budget for Annual Development Plan by 34% (Rs. 202 b)

Increasing growth rate 3

TOTAL 17

Environmental Stability

Rating

Allowance of subsidized cement imports and lesser rebates on export -4 Cut throat competition has created instability -3 Currency rate difference has given much loss -3 Increasing rate of inflation -4 Rapid technological change -3

TOTAL -17

Competitive Advantage

Rating

Strong distribution network -2 High quality products -3 Highest export share -4 Market development in Gulf countries -2 Govt projects as DGP Army -3

TOTAL -14

Conclusion

Environmental Stability Average is -17/5= 3.40 Industry Strengths Average is +17/4= 4.25 Competitive Advantage Average is -14/5= 2.80 Financial Strengths Average is +15/3= 5.00 Directional Vector Coordinates

X axis: (CA + IS) = -2.80 + 4.25 = 1.45 Y axis: (ES + FS) = -3.40 + 5.00 = 1.60

Lucky

cement should be

in aggressive strategies

FS

ES

It implies that company is staying at close to their basic competency. The industry is growing and the company is financially stable, with profound competitive advantage.

They are in Market penetration (through aggressive selling) and market development (new factories being set and exports to Gulf region.

Boston Consulting Group

(BCG) Matrix

Lucky Cement is a STAR organization having a high market share of more than 16%. As the company is now focusing on increasing its exports to foreign countries, particularly Gulf, therefore the share of the company in overall exports of the cement industry is increased to 47%. Since the cement industry is Pakistan is on boom with Government investments in construction projects and lower setup cost as compared to past, the industry is going through an obvious growth. All these signs ensure Lucky Cement to be a STAR organization.

QSPM matrix

KEY FACTORS WEIGHT AS TAS AS TAS

Opportunities

Upcoming national building projects 0.15 4 0.60 3 0.45

Demand for cement in Gulf region 0.25 3 0.75 3 0.75

Less freight charges for export of cement _{0.10 4 0.40 2 0.20} Expansion in cement industry due to house

building loans by banks 0.10 4 0.40 3 0.30

THREATS

Government Regulations on Slots _{0.10 3 0.30 2 0.20}

Price Competition _{0.15 2 0.30 3 0.45}

Alliance Opposition 0.15 2 0.30 3 0.45

Fluctuating Currency rates 0.10 - - -

-1.00

Strengths

Strong Financial Position 0.15 4 0.60 3 0.45

High Product Quality 0.15 4 .60 4 0.60

High Pay Scale 0.15 4 .60 4 0.60

Highest Export Share 0.15 4 .60 3 0.45

WEAKNESSES

Low Advertising & Less Exposure 0.05 3 0.15 3 0.15

Low Gratuity & PF Funds 0.10 2 0.20 2 0.20

Increasing General & Administrative Exp. 0.05 4 0.20 2 0.10 Organization Culture and Code of Ethics 0.15 - - - -Staff strength is low as compare to

operations 0.05 - - -

-sum total attractiveness

score

1.00 6.00 5.35

Recommendations

•

Recommended Strategies:

After conducting thorough research study and keeping in view the external and internal environment of the company, whiz a whiz the changing industry needs, we suggest Lucky Cement Pvt. Ltd. to go for these strategies:

1.

Market Penetration:

Market penetration is one of the four main growth strategies. Market penetration occurs when a company enters/penetrates a market with current products. The best way to achieve this is by gaining competitors' customers (part of their market share). Other ways include attracting non-users of your product or convincing current clients to use more of your product/service (by advertising etc).

Currently construction and cement industry is at its peak. Especially after the earthquake, a number of reconstruction projects have been initiated by the government. Moreover, keeping in view the rising trend of house financing through banks and investment in estate and property, we will recommend Lucky Cement to go for market penetration.

Currently the prices of Lucky Cement’s products are not as competitive as they are supposed to be. By cutting down the cost, especially administrative expenses, the company can cut off the prices, adding up to well verse sales in return.

A market development strategy not only targets non-buying

customers in currently targeted segments but it also targets new customers in new segments.

During last 5 years, the demand for cement has drastically increased in Gulf region. In order to cater to the increasing demand and to develop new markets, Lucky Cement should increase chunk of its exports towards Gulf region, hence developing a market in a new geographical segment.

Secondly, in order to support its distribution network, Lucky Cement should also develop its market in Azad Kashmir region, where it is not fully present and can benefit through paced construction programs especially in the earthquake affected areas.

•

General Recommendations:

1. Lucky Cement, despite of being the industry leader, still has not captured the mind share and brand image as its competitor Falcon Cement. The reason being lack of publicity and advertisement. Lucky Cement should concentrate on the consumer market through better promotional mix programs.

2. Although the pay scale of employees currently working with Lucky Cement is quite high, especially in comparison with its competing cement manufacturing organizations, still the turnout rate is very high. The reason being low gratuities and benefits after retirement due to which most of the employees quit before the forecasted time. In order to retain its valuable Human Resource, Lucky Cement should pay attention towards this area.

3. Lucky Cement needs to implement contingency planning.

Currently its role is a STAR in the market but in future it is likely to be exposed to new entrants, weakening its current market position. In order to cope with the future constraints, contingency plans should be concentrated on.

Bibliography:

• Strategic Management (Concept and Cases) by, Fred R. David “Tenth Edition”

• Annual Report 2006-07, Lucky Cement Ltd

• All Pakistan Cement Manufacturing Association Manual Third Quarter, 2007.

• www.lucky-cement.com

• http://www.cpp.org.pk

• www.pakistaneconomist.com

• www.dgcement.com