Lucky Cement Limited (LUCK) announced the financial result for 1QFY23 today whereby unconsolidated earnings arrived at PKR 3,852mn (EPS: PKR 11.91) against PKR 3,284mn (EPS: PKR 10.15) last year and PKR 3,990mn (EPS: PKR 12.34) in 4QFY22.
· During 1QFY23, sales arrived at PKR 19.7bn (+17% YoY), as a result of over 65% jump in local retention prices which countered the impact of a 30% YoY decline in offtake to 1,577k tons given monsoon rains and flooding across the country. Albeit, on a QoQ basis revenue underwent a dip of 11% amid 22% decline in dispatches (4QFY22: 2,013k tons) while higher prices could not completely absorb the impact; particularly in South where LUCK offered discount.
· The gross margins in 1QFY23 settled at 30.6% vis-à-vis 27.3% in SPLY owed to strong retentions which offset the impact of volumetric decline, jump in coal prices, higher energy tariff, and PKR depreciation. However, gross margins compressed from 38.6% in 4QFY22 whereby the company had utilized its low-cost Afghan coal inventory, and price pass this time remained inadequate to absorb the impact of aforementioned cost pressures.
· Other income grew by 37% YoY to PKR 2bn owed to dividend income from Lucky Motor Corporation (PKR 0.7bn) and ICI (PKR 0.8bn), coupled with augmented markup income on short term investments.
· Finance cost arrived at PKR 253mn during the quarter under review, up by 3x YoY / 2x QoQ, attributable to augmented borrowing and higher interest rates.
· The company booked effective taxation at 28% in 1QFY23 vs. 24% in SPLY. This quarter the company also recognized super tax to the tune of 4%.
· Consolidated profit remained lower than last year for the quarter at PKR 16.85/share vs. PKR 20.57/share in 1QFY22 since i) ICI booked a re-measurement gain last year on acquisition of NutriCo Pakistan Limited (PKR 1.8bn), and ii) operational challenges / teething issues faced by the company’s newly commenced 660 MW coal power plant (LECPL), with availability at just 78.4%.
· The company’s brownfield cement expansion of 3.15mn tons at Pezu remains on track to achieve COD by Dec’22.
· Despite lower plant availability of Lucky Electric Power Company Limited in the outgoing quarter, the management remains committed to resolve the teething issues, which should improve the profitability in upcoming quarters.
· The company recently announced a buyback of 10mn shares and this will be completed at spot prices prevailing between 29th Sep’22 and 27th Mar’23.
· A 34MW solar power project is set to be commissioned at Pezu in 2QFY23. While LUCK has also planned a 25.3MW solar power project at its Karachi plant, whereby the company awaits permission of the SBP to establish a Letter of Credit (LC).
· Demand in Iraq and Congo remained robust despite global challenges. The company’s subsidiary in Najmat-Al-Samawah (Iraq) has switched to natural gas from furnace oil to fire its kiln, which is expected to improve its profitability going forward.
· Outlook for the automobile sector continues to appear challenging. However, the management believes that its balanced product portfolio and lean cost structure will allow Lucky Motor Corporation to manage in these challenging times.
· For the Polyster, Soda Ash and Chemical segment, the management views a threat to demand in upcoming quarters emanating from high inflationary pressure, uncertain business climate, monetary tightening, augmented energy costs and withdrawal of subsidies.
Courtesy – AHL Research