February 04, 2021 (MLN): Lucky Cement Limited (LUCK) conducted its analyst briefing session yesterday where the management discussed Company’s latest financial performance as well as a future roadmap.
To recall, the company witnessed a massive growth in its consolidated net profits by 3.2 times YoY to Rs 12.44 billion during 1HFY21 against Rs 3.92 billion reported in the same period last year.
The increase in net profits was mainly attributable to an increase in net profitability of the cement segment and automobile business.
During 1HFY21, LUCK’s market share in the North increased to 12.8% as compared to 9% in 1HFY20. The jump was due to the additional capacity of 2.8mn tons at Pezu (online since January 2020). However, the market share in the South declined to 31.4% in 1H vs. 34.9% SPLY. This was because of the commencement of Power Cement’s new capacity which took away LUCK’s share.
Discussing the company’s business expansion, LUCK recently announced to enhance its cement production capacity at its Pezu Plant by 3.15 million tons per annum. The management intends to finance the project through the TERF and LTFF facility being provided by the State Bank of Pakistan (SBP). However, the total project cost is yet to be finalized after the conclusion of negotiations with the suppliers/contractors. The expansion will also include a 10-12MW WHR plant.
According to the key takeaways of the briefing covered by Intermarket Securities, the management stated that LUCK has maintained a decent payout policy, except for last year due to the investment outlay for Lucky Electric Power Company Limited (LEPCL). As the 660 MW coal-based power generation plant is near completion, LUCK will resume dividends. This is also the reason why it has planned to raise debt for the new plant –at subsidized rates under various facilities offered by the SBP.
The management expected that the domestic cement demand is likely to grow by 10% YoY in FY21 with 6-7 % growth in the South and a higher quantum in the North.
After the recent increases in North cement prices, retention prices are hovering around PKR6,000-6,500/ton at present. Export clinker is in the range of US$28-30/ton while cement prices are over US$40/ton (excluding Afghanistan which is US$34/ton). Commenting on the export front, the management said that the company continues to identify South Africa, Madagascar, Bangladesh, Afghanistan and China as key export markets.
The company claimed that Kia Lucky Motors (KIA) made a significant contribution to the consolidated net profits as it has been operating on a double shift capacity of 50,000 units since Jan’21 and has a backlog of orders for about 2-3 months, Arif Habib research highlighted.
Regarding the agreement with govt, the management updated that since most IPPs have agreed to tariff rationalization, LUCK too has had informal talks with the government, but nothing concrete has been finalized yet, the report revealed.
On the international business front, the new fully integrated cement manufacturing facility in Iraq is expected to come online within 10-15 days, which is running on trial operations as of now.
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