Lucky Cement Limited

Lucky Cement Limited (PSX: LUCK) was established under the Companies Ordinance, 1984 (now Companies Act, 2017) in 1993. It manufactures and sells cement at its production facilities located in District Lakki Marwat, Khyber Pakhtunkhwa and Main Super Highway in Karachi.

**Shareholding pattern**

As at June 30, 2022, about 40.5 percent shares are owned by the directors, CEO, their spouses and minor children. Within this category, the directors and spouses own over 19 percent shares while the sponsors own over 18 percent. Close to 23 percent shares are held under the associated companies, undertakings and related parties, followed by almost 16 percent owned by the local general public. About 7.4 percent shares are with the foreign general public, while the remaining over 13 percent shares are with the rest of the shareholder categories.

Historical operational performance

Over the years, the company has mostly seen a growing topline, while profit margins in the last six years have been on a declining trend between FY17 to FY20, before they inclined in FY21 and remained stable in FY22.

In FY18, topline registered a growth of 4 percent to cross Rs 47 billion in value terms. This growth rate was the highest seen since FY14. Most of this growth was associated to a rise in local sales that saw a 9.4 percent increase in sales volumes. However, cost of production rose to consume over 64 percent of revenue compared to last year’s 53.4 percent that caused gross margin to shrink to 35.7 percent from 46.6 percent seen in FY17. This was attributed to a rise in coal prices, packing material prices and fuel prices. However, the decrease in net margin was not as pronounced as it was recorded at 25.7 percent versus nearly 30 percent in FY17, due to significant other income of Rs 2. 6 billion compared to almost 2 billion in FY17. Additionally, taxation expense was also lower that contributed to the bottomline.

Revenue growth in FY19 was marginal at 1 percent. The industry trend was also similar at saw a volumetric growth of 1.9 percent. Contrary to the previous year, export sales witnessed a growth of 37.4 percent while local sales grew by 2.2 percent. In terms of volumes, sales were lower by 1.8 percent for the company. Overall local sales were lower by 12 percent attributed to a slowdown, whereas it was the sales of clinker that largely contributed to the topline. Export sales, on the other hand, grew by 61 percent in terms of volumes. Production cost, however, consumed a larger share in revenue at nearly 71 percent of revenue that brought down gross margin to 29 percent for the year. This was attributed to currency devaluation coupled with an increase in prices of inputs. Net margin was recorded at a relatively lower 21.8 percent as it continued to receive support from other income.

After increasing continuously for nearly a decade, revenue in FY20 contracted by 12.8 percent. Volumetrically, local sales were lower by 7.6 percent while export sales saw a growth of 19 percent. The industry also followed a similar trend as local sales reduced by 2 percent while export sales exhibited a growth of 20 percent. During the period, production cost escalated to an all-time high of 85.5 percent due to increases in gas price, transportation cost and packing material prices. As a result, gross margin was also recorded at its lowest of 14.5 percent, while net margin slumped to 8 percent.

Revenue recovered in FY21 as it grew by over 50 percent to reach close to Rs 63 billion during theyear. Local sales were up by 38.3 percent in terms of volumes, while export sales posted a growth of 11.3 percent. This was a result of demand recovery as lockdowns eased a few months after the first outbreak of the Covid-19 pandemic in the country. Coupled with this, the government also encouraged construction that boosted demand for cement, while exports grew on the back of identifying new markets. Additionally, other income grew to nearly Rs 6 billion that also contributed to the bottomline. Thus, net margin was recorded at a considerably higher 22.35 percent.

Recent results and future outlook

Revenue in FY22 was higher by almost 29 percent to reach an all-time high of Rs 81 billion in value terms. However, volumes were lower by 8.9 percent. Local sales volumes were lower by 3.6 percent while export sales volumes fell by 25 percent. The latter was attributed to unfavourable prices due to consistently high coal prices and high shipping freights. The rise in selling prices that largely contributed to the topline growth, could not offset the rise in input prices. As a result, gross margin reduced to 27.8 percent. Net margin, however, reduced more relative to gross margin, at 18.8 percent due to significantly higher taxation expense.

Given the political uncertainty and ballooning current account deficit, FY23 is expected to be a rather challenging year for the country. Consistency in policies and stability in the economy as well as politics in necessary to improve exports of the country and counter the rising current account deficit and its impact of currency fluctuations.