Equity Analysis /
Pakistan

Lucky Cement: 2QFY22 analyst briefing takeaways

  • LUCK is currently holding 80-90 days’ worth of inventory of coal. Presently, the carrying cost of coal is c.US$150/ton.

  • In LUCK’s international cement businesses in Iraq and DR Congo, EBITDA declined by c.14.5% and 15% yoy

  • Samsung mobile and Peugeot has started assembling in Pakistan under LMCL

Intermarket Securities
31 January 2022

Lucky Cement (LUCK) posted unconsolidated NPAT of PKR2.5bn (EPS: PKR7.70) for 2QFY22, up 8% yoy but down 24% qoq. On a consolidated basis, LUCK reported net profits of PKR6.5bn (EPS: PKR20.09), up 8% yoy.

Key highlights of 2QFY22

  • During 1HFY22, LUCK posted consolidated revenue of PKR123.4bn, up 29% yoy. This was majorly attributed to (i) higher local cement prices, (ii) surge in revenue of Chemical business by 53% yoy, and (iii) 12% yoy increase in the topline of Automobile business.

  • On operating level, LUCK’s cement business posted profits of PKR6.2bn in 1HFY22 vs. PKR5.3bn in 1HFY21. The operating profits of Lucky Motor Corporation and ICI increased to PKR3.9bn and PKR6.8bn in 1HFY22, up 10% and 90% yoy, respectively.

  • During the start of 2Q, LUCK’s North cement plant was getting 20-30% of total gas requirement for its captive power plant (CPP). Since the start of gas curtailment in both North and South regions for CPP, LUCK’s North plant has been running on furnace oil. The management expects the issue to be resolved by the end of February.

  • The company is currently holding 80-90 days’ worth of inventory of coal. At present, the carrying cost of coal is c.US$150/ton. This is likely to hurt cement gross margins further in 3QFY22 (which fell 6.6ppt yoy), in our view.

  • During 1HFY22, LUCK’s market share in the North broadly remained flat at 12.4% from 12.8% in 1HFY21. However, the market share in the South declined to c.30% in 1HFY22 vs. 31.4% in SPLY; the decline was because of operations of few lines which were not operational in 1HFY21.

  • In LUCK’s international cement businesses in Iraq and DR Congo, EBITDA declined by c.14.5% and 15% yoy, respectively, in 1HFY22. Increase in international coal prices and freight were the major reasons behind decline in margins.

  • This quarter proved to be eventful for Lucky Motor Corporation, as it started assembling Samsung mobile phones at its premises. On top of this, Peugeot has formally started its operations and launched 2008 model in January 2022.

Outlook for 2HFY22

  • The management believes that cement demand is likely to increase in the medium term. This is majorly due to multiple incentives announced by the government, coupled with private sector led demand. However, the local demand saw a slowdown in 2QFY22 due to massive increase in overall construction cost.

  • The gross margins of core cement business are likely to slowdown in 2HFY22 owing to elevated international coal and energy prices. However, to offset this impact LUCK’s North plant is running 10-12% on Afghanistan imported coal, which is relatively cheaper than South African imported coal.

  • Lucky Electric Power plant has started trial run and is expected to come online by the mid of February 2022. All issues including NTDC and transmission line have been resolved. Management also guided that the plant will run on both local Thar coal and imported coal in the near term.

On Lucky Motor Corporation, the management guided that the issue of semi-conductor chips has improved. However, increase in FED and taxes in the mini budget have elevated car prices. This, coupled with the increase in interest rates, pose a threat to demand going forward. But the management believes that Kia models and recent inclusion of Peugeot are likely to keep the gross margins of LMCL around healthy levels in 2HFY22.