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Lucky Cement: High quarterly Profit on back of Increased Market Share, cost efficiency

October 31, 2023

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In 1QFY2024, Lucky Cement reported unconsolidated earnings of PkR 22.1 per share, marking a substantial 1.7x quarter-on-quarter (QoQ) increase. This notable uptick can be attributed to several key factors, including the absence of the super tax’s retrospective impact, healthier gross margins, and elevated other income compared to the preceding quarter (4QFY23).

Management has shed light on the remarkable improvement in gross margins during the previous quarter, explaining that it was a one-off occurrence resulting from the company’s favorable procurement of coal inventory at competitive rates. However, they cautioned that this margin trend is not expected to persist in 2QFY24 due to the recent increase in coal prices.

On the consolidated front, earnings surged to PkR 56.5 per share, marking a substantial 50% QoQ increase. This increase was primarily driven by robust earnings from LEPCL (Lucky Electric Power Company Limited) and improved profitability from foreign operations in Iraq and the Democratic Republic of Congo. These overseas operations benefited from strong cement demand and higher retention prices.

The company’s market share in the local cement market demonstrated a significant improvement, climbing to 17.5% in 1QFY24, compared to 14.8% in the same period last year. This boost was attributed to the addition of 3.15 million tons per annum (TPA) of capacity. Additionally, exports saw an increase, thanks to the decline in coal prices, which made exports a more economically viable option.

The company’s coal mix for the previous quarter remained at 60% imported coal for the South plant and 40% local and Afghan coal for the North plant. Currently, cement prices stand at approximately PkR 1,150 per bag in the north and slightly under PkR 1,100 per bag in the south. Looking ahead, the management anticipates a 5% annual growth in cement sales numbers for FY24.

The company has made significant investments in renewable power projects, with approximately 103MW in capacity, including completed and ongoing solar and wind projects. The total capital expenditure (CAPEX) for all these projects amounts to around PkR 20 billion, with PkR 8.0 billion already incurred. The wind power project alone costs PkR 10.0 billion. Post-commencement of all renewable solar projects, the mix of renewables (Solar, Wind & WHR) in power is expected to reach approximately 40-45%.

Despite anticipating a decrease in profitability for local cement operations and automobiles due to rising costs and demand challenges, the chemical segment, power, and foreign operations are expected to continue yielding similar results. On the power front, LEPCL currently faces a receivables delay of 3-3.5 months. Management remains optimistic about improvements in the circular debt situation following recent reforms in the energy sector and aims to maintain a 100% availability factor moving forward.