Lucky Cement (LUCK) has posted unconsolidated NPAT of PKR2.2bn (EPS: PKR6.89) for 1QFY21, up 2.3x yoy and 5.4x qoq, and better than our projected EPS pf PKR5.61. Higher than expected gross margins and other income are the major variances. Gross Margins increased by 12ppt yoy and 11ppt qoq to 28% in 1QFY21 (that of CHCC rose 29ppt qoq). On a consolidated basis, in 1QFY21 LUCK reported a bottom-line of PKR4.9bn (EPS: PKR13.45), up 3.4x yoy This was due to (i) better profitability from holding companies and JVs, and, (ii) massive earnings growth from their auto venture, KLM.
1QFY21 Key result highlights (Unconsolidated):
Net revenues increased by 49% yoy to PKR14.3bn mainly on account of (i) increase in domestic cement sales by 48% yoy and exports by 50% yoy, and (ii) better domestic retention prices evidently due to lower discounts and reduction in FED by PKR25/bag. Domestic retention prices have increased by 11% yoy to PKR318/bag (as per our estimates).
LUCK gross margins were up 12ppt yoy to 28% in 1QFY21. This is mainly due to (i) better retention prices amid lower discounts and FED, (ii) decline in international energy prices, and (iii) ease off in axle load and reduced transportation costs.
Other income declined by 35% yoy to PKR0.6bn in 1QFY21. Lower cash balance amid investment in coal based power plant and steep decline in interest rates have reduced interest income.
The company has posted finance cost of PKR68mn in 1QFY21 as compared to PKR20mn in the same quarter last year. Short term borrowing has led to higher finance cost.
Other line items include: (i) effective tax rate of 17% vs. 6% in 1QFY20, and (ii) distribution expenses higher by 39%yoy to PKR1.36bn because of higher clinker and cement exports than that same period last year.
This is an encouraging result, where LUCK (unconsolidated) has done much better than DGKC (GM up 3ppt qoq; loss in 1Q) – the two are the only ones present in both regions. And LUCK’s GM improvement is somewhat similar to pure-North producers. According to LUCK’s total capacity its market share should be 17.6%, but during 1QFY21 LUCK had a market share of 15.4%. We believe that LUCK’s share will increase from 2QFY21 onwards due to massive local demand and reduced competition from North producers in the South market. Its ongoing investment in 660MW coal based power plant is progressing as per schedule, where the CoD is expected by March 2021. Higher local demand along with increase in local cement prices and market share will help to maximize profits in the remainder of FY21, in our view. Thus, we reiterate our Buy stance on the scrip with a TP of June 2021 is PKR750/sh. (Intermarket Securities Limited)