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Pakistan

Lucky Cement: 4QFY22 review – Higher-than-expected margins lead to earnings beat

  • LUCK has posted an unconsolidated NPAT of PKR4.0bn (EPS: PKR12.34) for 4QFY22, higher than our projected EPS of PKR6.50

  • On a consolidated basis, LUCK has reported net profits of PKR8.8bn (EPS: PKR27.15), up 90% YoY

  • Gross margins increased by a sharp 11.7ppt YoY and 16.5ppt QoQ to c.38.6%, higher than our expectation of 31%

Intermarket Securities
7 August 2022

Lucky Cement (LUCK) has posted an unconsolidated NPAT of PKR4.0bn (EPS: PKR12.34) for 4QFY22, down 28% QoQ.  This takes FY22 NPAT to PKR15.3bn (EPS: (PKR47.31) up 9% YoY. The result has come in much higher than our projected EPS of PKR6.50. Major deviation stemmed from higher-than-expected GMs and reversal in other expenses.

On a consolidated basis, LUCK has reported net profits of PKR8.8bn (EPS: PKR27.15), up 90% YoY. The earnings in 4QFY22 have come higher than our expected EPS of PKR18.52. Higher earnings from LMCL, LEPCL and international cement businesses have majorly led to the deviation..

4QFY22 Result Highlights:

  • Despite the decline in total sales volumes by 14% QoQ/YoY, net revenue has increased by 40% YoY and 4% QoQ to PKR22.2bn, majorly attributed to higher cement prices. Topline came in lower than our expectation of PKR23.5bn.

  • Gross margins increased by a sharp 11.7ppt YoY and 16.5ppt QoQ to c.38.6%, higher than our expectation of 31%. The QoQ increase in margins is due to the higher quantity of coal available at lower than forecasted prices. Moreover, the company had a decent quantity of coal available from last quarter.

  • Other income has clocked in at PKR1.03bn, up 56% YoY, but down 75% QoQ, amid an absence of dividend income from invested companies. We expected other income of PKR500mn. 

  • Among other line items: (i) effective tax rate has clocked in at 45% vs 25% in SPLY, this is due to one-off super tax implication and (ii) Distribution expenses have increased by 10% YoY to PKR1.1bn, this is even after a decline in exports by 54% YoY. Higher transportation expense led to higher cost, in our view.

LUCK's 4Q consolidated earnings have shown decent growth – majorly due to massive growth in invested companies and commissioning of Lucky Power (LEPCL), coupled with this decent earnings growth posted by core business. Going forward, higher coal prices and slower demand growth and commissioning of the new expansion will reduce gross margins and earnings. But, LEPCL's contribution and strong profitability expected to float from chemical and international businesses will help LUCK to post sustainable consolidated earnings in the coming quarters. We maintain our Buy rating on the stock with a TP of PKR898/sh.