Unrelentingly Lucky

Nothing, not even an economy knee-deep into multiple crises would put a dampener on Lucky Cement’s (PSX: LUCK) financial tenacity. During a year when large-scale manufacturing contracted about 10 percent, industry volumes shrank 16 percent and the company’s own sales dropped 19 percent, Lucky managed to give its shareholders a dividend payout of 42 percent, after a hiatus of 3 years, signalling and inspiring confidence in shareholders aplenty amid crumbling demand prospects. The company’s earnings for the year dropped 10 percent in the year.

But not for the lack of trying. Even when volumes were weakening as construction demand dried up across the country, strong and rising retention prices facilitated a revenue growth for LUCK of 18 percent. The estimated revenue per ton sold rose 45 percent during the year signifying the price increases. But the company’s cost per ton sold also rose, and it rose higher than revenue per ton sold at 47 percent. Coal that typically captures about 60 percent of the cost of sales and other fuels have been the culprit. Average coal prices were higher across the board, rupee was depreciating and freight was pricey. In the last quarter, some cost factors such as energy eased but the damage was done by then. As a result, margins were down to 27 percent—from 28 percent last year.

Even so, the company kept its overheads in check—10 percent of revenue—and faced only 1 percent in finance costs (as % of revenue) given its unleveraged position. Meanwhile, other income due to cash reserves and short-term investment amid rising interest rates supported the bottom-line—landing at 28 percent of before-tax earnings. This is lower than previous years when other income was massive, but still provided support to eventual earnings.

Lucky has expanded significantly over the last several expansion cycles in the cement industry. As a group, it has also reached out into new markets and new segments. In cement, the commissioning of the solar power plant, new production line and receding coal prices, potential revival in exports along with continued pricing power in the domestic market sets the right tone for Lucky, despite falling out of favor with domestic demand.