Earnings Report /
Pakistan

Lucky Cement: 1QFY23 Review - Core performance remains strong

  • LUCK has posted an unconsolidated NPAT of PKR3.8bn (EPS: PKR11.91) for 1QFY23, up 17% YoY.

  • On a consolidated basis, LUCK has reported net profits of PKR5.4bn (EPS: PKR16.85), down 18% YoY.

  • GMs increased by 3.3ppt YoY but declined 8.0ppt QoQ to 30.6%, much higher than our expectation of 23%.

Intermarket Securities
27 October 2022

Lucky Cement (LUCK) has posted an unconsolidated NPAT of PKR3.8bn (EPS: PKR11.91) for 1QFY23, up 17% YoY but down 3% QoQ.  Earnings have come in higher than our projected EPS of PKR9.88. Major deviation stemmed from higher-than-expected GMs and other income amid dividend received from LMCL.

On a consolidated basis, LUCK has reported net profits of PKR5.4bn (EPS: PKR16.85), down 18% YoY. The earnings in 1QFY23 have come in lower-than our expected EPS of PKR20.69. Lower contribution from the automobile division amid depressed volumes and the power division due to plant teething issue, have dragged consolidated earnings for the quarter.

1QFY23 Result Highlights (unconsolidated):

  • Net sales have increased by 17% YoY, but are down 11% QoQ to PKR19.7bn, with the YoY growth majorly attributed to higher cement prices. The topline came in lower than our expectation of PKR21.3bn amid lower-than-expected exports.

  • Gross margins increased by 3.3ppt YoY but declined 8.0ppt QoQ to 30.6%, much higher than our expectation of 23%. This is due to lower exports (which do not offer competitive margins) and better inventory management, coupled with lower-than-expected realized coal prices.

  • Other income has clocked in at PKR2.0bn, up 37% YoY and 94% QoQ, amid dividend income from invested companies. We expected other income of PKR1.3bn, an unexpected dividend of PKR0.7bn from LMCL led to the deviation. 

  • Among other line items: (i) effective tax rate has clocked in at 28% vs. 24% in SPLY, due to the imposition of super tax in FY23 budget, and (ii) distribution expenses have increased by 35% YoY to PKR1.4bn, despite the decline in exports by 43% YoY. Higher transportation expense led to the higher cost, in our view.

LUCK's 1Q consolidated earnings have depicted a reduction in profitability - majorly due to massive decline in automobile volumes and lower utilization level in the Power division amid teething issues. However, the core business has posted strong margins and earnings amid increased retention prices and reduced coal prices. Going forward, further cooling down of coal prices and demand growth, coupled with commissioning of new expansion in Dec’22 is likely to boost earnings further. On a consolidated basis, LEPCL’s contribution and strong expected profitability from the chemical and international businesses are likely to ensure that LUCK posts solid growth in the medium term. We reiterate our Buy stance on the stock with a TP of PKR898/sh.