Lucky: Shining bright

With ghosts of economic slowdown-past comfortably behind it, Lucky (PSX: LUCK) is back with a bang boasting a financial statement rivalling peak profitability years (FY17 and FY18 come to mind) and actually surpassing revenue numbers of those periods. A number of factors have contributed to this revival, mainly strong growth in demand, better pricing and higher fixed costs absorption that has put Lucky head and shoulders ahead of its peers within the industry. Not that it was ever lagging behind during low periods for the industry.

Demand has been robust for Lucky, total sales including clinker growing 31 percent that led to a top-line growth of 50 percent. By that measure, the company was able to improve retention by 15 percent (this is an estimated number for revenue per ton sold). Both local and export sales grew—38 percent and 11 percent respectively and the company contributed about 17 percent (FY16: 16%) to total industry cement offtake to markets domestically and abroad. This is close to FY17 and FY18 level market share. Though domestic markets dominated the sales mix for Lucky, the clinker exporter was able to grow its export share (in total sales) from 15 percent during FY17 to 24 percent in FY21 (FY20: 28%).

With the new production line running in the north zone, Lucky was able to expand its market penetration, optimizing its sales-price dynamics to its advantage. In the coming months, as Naya Pakistan Housing related work gathers steam and multiple infrastructure and hydropower projects pick up in the north-zone, Lucky is strategically placed to capture the growing pie. This was also the rationale behind the company’s plans to enhance capacity at its Pezu plant with an additional 3.15 million tons. This expansion is expected to complete by Dec-22.

Meanwhile, despite coal prices spiralling out of control, Lucky managed to reduce its cost per ton sold by an estimated 6 percent during the fiscal year. Gross margins as a result have doubled from 15 percent to 30 percent, a testament to the company’s improving plant efficiencies and economies of scale, and likely prudent inventory management.

Lucky also supplemented its profits through ‘other income’ that contributed to 42 percent of its profits for the fiscal year. Finance costs are close to insignificant (less than 1% of revenue) as the company maintains very low debt levels. Overheads including distribution and administrative expenses however are considerably high but being managed. In FY21, they stood at 12 percent of revenue compared to 13 percent last year.

The year to come will be dominated by domestic market dynamics with improved pricing as demand catapults. There is a medium to low risk on price competition in the north zone but that would come once the industry expands in unison. Much of the new plants are expected to come online next year or later so capacity utilization so far will only increase in the coming year which is good news for pricing in times of robust demand.

The company should focus on inventory planning for imported coal (international coal prices are going to simmer down in the last quarter of the calendar year), while maintaining a healthy sales mix to maximize margins. With its footprint in both the zones, the rewards for Lucky are high.