Earnings Report /
Pakistan

Lucky Cement: 3QFY20 review: In line with expectations; pricing indiscipline hurts bottom line

  • Lucky Cement (LUCK) has posted an unconsolidated NPAT of PKR999mn (EPS: PKR3.09) for 3QFY20, down 64% yoy but up 2% qoq

  • On a consolidated basis, LUCK reported a bottom-line of PKR2.36bn (EPS: PKR6.0), down 34% yoy

  • The net revenue declined by 11%yoy to PKR11.2bn, while booked gross margins of 12%, down by 19ppt yoy

Intermarket Securities
24 April 2020

Lucky Cement (LUCK) has posted an unconsolidated NPAT of PKR999mn (EPS: PKR3.09) for 3QFY20, down 64% yoy but up 2% qoq, in-line with our projected NPAT of PKR981mn (EPS: PKR2.89). This takes 9M EPS to PKR9.08, down 65% yoy. Though the GMs of 12% in 3Q are the highest among all cement results so far, they are the lowest by LUCK in recent times. On a consolidated basis, LUCK reported a bottom-line of PKR2.36bn (EPS: PKR6.0), down 34% yoy This was due to (i) dismal core cement operations, and, (ii) potential losses on its JVs.

3QFY20 Key result highlights (Unconsolidated)

The net revenue declined by 11%yoy to PKR11.2bn mainly on account of (i) lower regional cement and clinker export prices and (ii) lower domestic retention prices amid pricing indiscipline among producers. Domestic retention prices have dropped by 9% yoy to PKR303/bag (as per our estimates). 

The company booked gross margins of 12%, down by 19ppt yoy. The decline in GM is mainly led by lower retention prices in both (i) the domestic market amid price cuts and fierce competition, and (ii) the regional exports arena (lower cement and clinker prices). Moreover, the build-up in cost pressures, emanating from higher gas tariffs, also dragged margins.

Other line items include: (i) effective tax rate of just 7%, amid capex on the power plant and Pezu expansion, (ii) other income increased by 72% yoy to PKR1.28bn due to higher cash balances and dividend income from subsidiaries mainly from ICI, and (iii) PKR1.03bn of distribution expenses (up 43% yoy) on account of higher clinker exports.

Commercial operations of the brownfield expansion of 2.8mn tons in Pezu commenced in December 2019. This has enhanced LUCK’s capacity to 12.2mn tpa with capacity-based market share of 17% (LUCK has become the largest cement manufacturer in Pakistan). Moreover, its ongoing investment in 660MW coal based power plant is moving as per schedule where CoD is expected by March 2021. Though LUCK needs the lowest cement price to break even within our cement universe and can withstand retention prices even below PKR280/bag, we believe pricing consensus is important for healthy EBITDA generation to comfortably fund equity injection in LEPCL. This is also important at a time when some of its investment i.e. DR Congo ops is a drag on earnings.