Lucky Cement plans to undertake expansion of 3.15mn tons at its Pezu plant (North)

During 3QFY21, Lucky Cement Limited (LUCK) posted unconsolidated earnings of PKR 7,146mn (EPS: PKR 22.10), up by a significant 7x YoY / 3x QoQ amid recognition of dividend income (primarily from Lucky Motors Corporation). Whereas during 9MFY21, profitability clocked-in at PKR 11,688mn (EPS: PKR 36.14), up by 4x YoY.

Result Highlights:

· Company’s topline witnessed a surge of 52% YoY to PKR 17.0bn in 3QFY21 amid 23% growth in total dispatches (2,609k tons vs. 2,125k tons) as well as significant turnaround in company’s retention prices. Similarly, during 9MFY21 revenue depicted a growth of 45% YoY due to aforementioned reasons (offtake rose by 31% YoY to 7,606k tons tagged with improved retention).

· Gross margin underwent a significant jump to 35.9% during 3QFY21 (3QFY20: 11.6%) largely led by strong topline growth, lower coal prices, as well as improved efficiencies from the new line. On a QoQ basis too margin accretion remained noteworthy (+677bps), aided by augmented dispatches (+2% QoQ), price hike in North and PKR appreciation which offset the impact of higher coal prices. In 9MFY21, gross margins arrived at 31.2% vis-à-vis 13.9% in SPLY due to reasons aforementioned.

· Other income exceeded expectations during the quarter under review, depicting a massive increase of 3x YoY / 19x QoQ to PKR 4,349bn led by recognition of dividend income (PKR 1.02bn from ICI, PKR 0.06bn by Younus Energy and PKR 2.85bn by Lucky Motors Corporation).

· LUCK booked effective taxation at 14% in 3QFY21 (3QFY20: 7%).

Other Announcements:

· The company plans to undertake expansion of 3.15mn tons at its Pezu plant (North) whereby LUCK has commenced project activities and targets COD for Dec’22 (1HFY23).

· 660MW coal power plant: To recall, with the outbreak of COVID-19, the Central Power Purchasing Agency (CPPA) had sent a Force Majeure Event (FME) notice to LUCK only to recommence work on establishing the interconnection activities in Oct’20. Albeit, LUCKs legal counsel had not accepted the FME notice by CPPA as it concurs that the aforementioned delay as per PPA is due to NTDC’s inability to resolve right of way issues with PQA, FOTCO, Pakistan Steel and Board of Revenue Sindh. That said, LUCK with the support of its contractor, has achieved completion status of ~97.5% by the end of the ongoing quarter and also arranged a temporary back feed power from a 132Kv K-Electric grid, so as to commence testing and commissioning. While the company is also following up with the CPPA and NTDC for the earliest availability of an interconnection facility, which is critical for the plant COD (mid of 1QFY22).

· 1.2mn tons Greenfield clicker facility in the city of Samawah, Iraq completed trial production and commenced operations on 10TH Mar’21.

Recommendation: Our Dec’21 target price is set at PKR 1,359/share, we recommend BUY.

Courtesy – AHL Research

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