Lucky Cement 1HYFY17: solid as ever

Lucky Cement (PSX: LUCK) announced its result for the second quarter of financial year 2017. The earnings per share of the company clocked in at Rs21.78 up 13 percent compared to the same period last year. The sales of the company grew by 7 percent as capacity utilization increased. Clinker sales to Fauji cement also helped in bolstering up the top line.

On the margins side, Lucky continues to show improvement. The gross margins of the company for the reported period stood at 50 percent up 3 percent, while net margins went up to 30 percent. These kinds of margins are unheard of in the cement business anywhere in the world. Because of these margins Lucky continues to generate significant cash flow which is then used to diversify into other businesses.

With its result, the company also informed its shareholders that 1.25 million tons per annum expansion at Karachi (South) cement plant will come online by the end of 2017. At the Pezu plant, waste heat recovery (WHR) unit of 10 MW is in testing phase and will become operation by the end of January 2017.

Luckys joint venture in a cement plant in DR Congo of 1.18 million tons per annum has also become operational in December 2016. While capacity expansion at Iraqs grinding unit is expected to come online by August 2017.

The company is still seeking approval from authorities to set-up a cement plant in Punjab and expects to start construction by mid of 2017.

On the coal-power investment front, the company has changed its plan from imported coal to local coal. Currently, the company is finalizing coal supply agreement with Sindh Engro Coal Mining Company (SECMC).

Looking forward, the domestic demand of cement will keep all cement companies interested. Expansions are being announced left right and centre, but the demand outlook is very strong. Cement players will also keep an eye on the potential sale of Dewan Cement Hattar plant as that would give the buyer a strategic advantage in terms of location. Lucky has a lot of cash on its balance sheet which could be utilized for this acquisition.