If the history of stock prices has taught us anything, it’s that companies with aggressive expansion plans always perform well. Lucky Cement, the top cement manufacturer in Pakistan, has chalked out a plan to diversify by acquiring Kia Motors in Pakistan, a South Korean car manufacturer and expanding their core business by taking over Dewan Cement, part of Yousuf Dewan Companies (YDC), formerly known as Dewan Group.
The stock price of Lucky has surged after the company announced its ambitious plans. However, the only thing that matters is what lies ahead? With every merger or acquisition deal comes certain risks, but Lucky has a history of making sound business decisions, thus mitigating much of the risk inherent in such market moves, thereby proving beneficial for investors.
The question is how beneficial would it be to invest in Lucky right now? For investors, we would say the benefits are numerous.
- When the company rolled out the plan to buy Dewan Cement and Kia Motors, its share prices rose by 1 percent. Therefore, it is safe to assume that once the top cement manufacturer of Pakistan properly implements the plan on ground, investors will start to reap the benefits. Although, it is too early to provide some fact-based figures, it is highly likely that the share prices would increase further in coming months.
- The acquisition of Dewan Cement will increase Lucky’s production capacity as well as its market share in the cement industry, strengthening its grip on Pakistan’s cement market, while adding millions in revenue.
- Moreover, the Government of Pakistan earlier this year decided to offer special incentives to international car manufacturers in order to attract more investment and increase competition in the automotive industry. The acquisition of KIA Motors, at a time when incentives for new entrants in the industry are under consideration, will greatly benefit this early mover.
Taking into account the fact that only 180,000 vehicles (including locally produced and imported vehicles) were sold during the fiscal year of 2014-2015 and KIA’s spotty history in the country, we can say that Lucky Cement may have to face some difficulties initially, which can be overcome by offering different variants of vehicles at lower prices than the market average.
Soon after the cement manufacturer revealed its plans, its share price jumped to Rs. 856.08, closing at Rs. 815.32 yesterday. Stock prices perform on the basis of speculations and anticipations, and currently all are favoring Lucky Cement. Therefore, the prospect of investing in Lucky is very bright for investors. However, we recommend investors to consider the above, and conduct their own research when considering an investment in Lucky Cement.