Lucky Cement Limited [PSX: LUCK] is the flagship company of Yunus Brothers Group. Incorporated in 1993, Lucky cement is one of the biggest producers and chief exporters of cement in Pakistan with the production capacity of 15.3 MTPA. Lucky Cement Limited is the only cement manufacturer to have its own storage and loading terminal at Karachi port.
Pattern of Shareholding
As of June 30, 2024, LUCK has a total of 293 million shares outstanding which are held by 9640 shareholders. Directors, CEO, their spouse and minor children have the majority stake of 44.72 percent in the company followed by associated companies, undertakings and related parties holding 25.34 percent of its shares. Local general public accounts for 12.53 percent shares of LUCK while foreign general public holds 9.16 percent shares. Around 3.56 percent of the company’s shares are held by Mutual funds and 1.62 percent by Banks, DFIs and NBFIs. The remaining shares are held by other categories of shareholders.
Historical Performance (2019-24)
The topline of LUCK posted a skimpy growth in 2019 before it massively dipped in 2020. In the subsequent years, the net sales bagged staggering growth. Conversely, the company’s bottomline dipped in 2019, 2020 and 2023. Its margins drastically fell until 2020 followed by a rebound in 2021. LUCK’s margins registered decline for the next two years followed by a recovery in 2023. The detailed performance review of the period under consideration is given below.
The subdued 1 percent topline growth in 2019 was the result of 12.4 percent year-on-year decline in local sales volume which clocked in at 5.85 million tons. The company made no clinker sales locally in 2019. Export sales volume rebounded by 60.9 percent year-on-year in 2019 but couldn’t help the topline much as local sales contributed a significant 76.27 percent to the total sales volume of LUCK [see the graph of sales volume break-up]. In contrast to the local scenario, clinker sales were the key growth driver in the export market.Cost of sales mounted by 11.27 percent in 2019 on account of Pak Rupee depreciation coupled with increased prices of coal and other fuel prices as well as packing material. This translated into 17.51 percent year-on-year plunge in gross profit in 2019 with GP margin falling down from 35.66 percent in 2018 to 29.12 percent in 2019. Distribution cost surged by 36.96 percent in 2019 due to massive increase in logistics and related charges. Administrative expense escalated by 10.42 percent in 2019 due to higher payroll expense on account of inflationary pressure. Other income strengthened by 24.94 percent in 2019 mainly on account of dividend received from subsidiary companies. Other expense slid by 22.19 percent in 2019 due to lower provisioning for WWF and WPPF. LUCK recorded 19 percent decline in its operating profit in 2019 with OP margin slipping to 25.5 percent versus OP margin of 31.8 percent recorded in 2018. Until 2018, the company had no borrowings on its books and its activities were financed by internally generated cash flows. In 2019, LUCK utilized short-term financing lines which resulted in finance cost of Rs.24.93 million. Net profit eroded by 14 percent in 2019 to clock in at Rs.10490.23 million with EPS of Rs.32.44 versus EPS of Rs.37.72 recorded in 2018. NP margin also fell from 25.66 percent in 2018 to 21.84 percent in 2019.
2020 was even worse as Covid-19 related lockdowns and muted economic activity took their toll on the company’s sales volume which is also evident in 12.81 percent year-on year drop in topline in 2020. While local sales volume remained lackluster during the year, export sales continued to rise and grabbed 28 percent share in the total sales mix of LUCK versus 24 percent share recorded in the previous year. Despite thinner topline, cost of sales grew by 5.16 percent in 2020. This was the result of massive hike in gas price, elevated transportation cost, higher packing material prices and Pak Rupee depreciation. All these factors translated in 56.54 percent decline in LUCK’s gross profit in 2020 with its GP margin recording its lowest value of 14.51 percent. Distribution expense multiplied by 35.56 percent in 2020 on account of a massive hike in logistics, loading and other charges incurred during the year. Administrative charges inched down by 1.11 percent in 2020 due to lower payroll expense as well as lesser repair & maintenance charges incurred during the year. Other income plummeted by 1.72 percent in 2020 due to lesser gain from sale of electricity, sale of fixed assets and sale of scrap, the effect of which was greatly offset by higher dividend income. Other expense recorded 63.96 percent slide in 2020 due to lower profit related provisioning and donations. Despite keeping a check on its expenses, LUCK’s operating profit eroded by 67.37 percent in 2020 with OP margin hitting the lowest level of 9.54 percent. Finance cost mounted by 607.41 percent in 2020 due to increased utilization of working capital lines. LUCK’s net profit thinned down by 68.12 percent in 2020 to clock in at Rs.3343.93 million with EPS of Rs.10.34 and NP margin of 7.99 percent.
2021 was a major turnaround year for the company as its net sales rebounded by over 50 percent year-on-year. The local dispatches posted growth of 38.3 percent year-on-year while export volumes grew by 11.3 percent. The local volumetric growth came on the heels of improved demand in the local market due to spur in construction activities. Low cost housing schemes, construction of dams and reservoirs, economic recovery post Covid coming on the heels of low interest rate and also reallocation of liquidity to the local banks towards housing and construction sector stimulated the local sales volumes. The export volume grew as the company identified new international markets and product placement. The company also timely enhanced the production capacity of its north plant to take optimum benefit of vigorous demand.Higher sales volume coupled with upward price revision resulted in a whopping 211.94 percent increase in LUCK’s gross profit in 2021 with GP margin climbing up to 30.12 percent. Distribution expense mounted by 31.36 percent in 2021 due to higher logistics, distribution, loading and related charges incurred during the year. Administrative expense ticked up by 5.67 percent in 2021 due to higher payroll expense. A staggering 88.11 percent year-on-year increase in other income was primarily the result of hefty dividend received from subsidiary companies in 2021. Other expense, after registering a decline in the previous two year, multiplied by 299.36 percent in 2021, due to enormous provisioning done for WWF and WPPF. LUCK registered a substantial 333.53 percent rise in its operating profit in 2021 with OP margin jumping up to 27.53 percent. Finance cost hiked by 88.75 percent in 2021 despite monetary easing. This was the result of ITERF and LTFF facilities secured during the year for expansion and related projects. LUCK recorded 320.77 percent increase in its net profit which clocked in at Rs.14070.19 million with EPS of Rs.43.51 and NP margin of 22.35 percent.
2022 was a difficult year for the cement industry as rise in fuel and commodity prices owing to Russia-Ukraine conflict, multiple hikes in policy rates and Pak rupee depreciation increased LUCK’s cost of sales by 33.10 percent while economic downturn suppressed the demand. Floods in the southern region of the country also contributed to subdued demand. Although the company registered 3.6 percent year-on-year drop in local sales and 25.5 percent year-on-year drop in export sales during 2022. However, high price of cement helped Lucky Cement Limited attain a top line growth of 28.84 percent in 2022. Hence, it can be said that the growth in 2022 was led by price as against volume driven growth in 2021. Gross profit grew by 18.97 percent in 2022, however, GP margin tapered off to 27.81 percent. Distribution expense slid by 1.95 percent in 2022 due to decline in logistics and other distribution charges owing to curtailed sales volume. Administrative expense mounted by 20.3 percent in 2022 due to higher payroll expense incurred during the year due to higher dividend from mutual funds and other investments as well as fee for technical services received during the year from Nyumba Ya Akiba S.A [NYA], related party. Higher profit related provisioning resulted in 22.51 percent spike in other expense in 2022. LUCK recorded 25.92 percent increased in its operating profit in 2022, however, its OP margin slightly decreased to 26.9 percent. Finance cost escalated by 18.51 percent in 2022 due to monetary tightening coupled with increase in long-term financing to fund long-term projects. LUCK’s net profit ticked up by 8.73 percent to clock in at Rs.15298.62 million with EPS of Rs. 47.31 and NP margin of 18.87 percent.
The macroeconomic challenges that suppressed the sector last year gave no respite in 2023. While LUCK recorded year-on-year topline growth of 18.17 percent in 2023, dispatches posted decline – both locally and internationally [see the graph of sales volume break-up]. Lackluster local sales was on account of subdued construction and infrastructure related activities on the back of elevated inflation level, soaring discount rate, political instability, devastating floods, wavering investor confidence and curtailed PSDP outlay. In export markets, Pakistani companies couldn’t compete owing to persistently high prices of coal, furnace oil, diesel and other imported inputs which were further exacerbated by Pak Rupee depreciation. Cost of sales mounted by 19.18 percent in 2023, resulting in 15.56 percent higher gross profit. GP margin slightly ticked down to clock in at 27.19 percent. 11.8 percent higher distribution expense incurred in 2023 was the consequence of inflationary pressure, elevated fuel price and higher sea freight. Administrative expense multiplied by 20.72 percent in 2023 primarily on account of hefty payroll expense which was due to workforce expansion from 2543 employees in 2022 to 2626 employees in 2023 and also because of inflation. No fee received for technical services and lesser dividend from subsidiaries squeezed LUCK’s other income by 18.14 percent in 2023. Despite slide, other income was huge enough to absorb 32.24 percent higher other expense incurred by the company in 2023 on the back of business development and technical fee paid as well as generous donations and scholarships extended during the year. LUCK recorded a paltry 3.2 percent uptick in its operating profit in 2023 with OP margin slipping to 23.49 percent. Finance cost surged by 196.5 percent in 2023 due to higher discount rate and increased borrowings. Net profit declined by 10.28 percent to clock in at Rs.13725.81 million in 2023 with EPS of Rs.43.06 and NP margin of 14.32 percent.
LUCK recorded 20.34 percent year-on-year enhancement in net sales in 2024. This was on account of a rebound in both local and export sales. During the year, the company added a new production line in Pezu. Moreover, incorporation of renewable energy projects such as wind and power to its production lines, stable value of local currency and steady freight cost greatly increased the export viability of LUCK in 2024, resulting in 56 percent surge in export dispatches in 2024. Cost of sales grew by 9.67 percent in 2024 which resulted in 48.9 percent year-on-year growth in gross profit with GP margin climbing up to 33.65 percent. Distribution expense spiked by 45.94 percent in 2024 due to higher export volumes; elevated fuel cost, higher sea freight as well as implementation of axle load. 18.36 percent year-on-year hike in administrative expense in 2024 was the effect of workforce expansion to 2680 employees. Other income posted an enormous growth of 174 percent in 2024 due to hefty dividend income from subsidiaries, mutual funds and other investments. Other expense inched up by 1.39 percent in 2024 due to higher profit related provisioning. LUCK’s operating profit strengthened by 90.86 percent in 2024 with OP margin jumping up to its highest level of 37.26 percent. Finance cost surged by 35.17 percent owing to higher discount rate. LUCK recorded 104.77 percent taller net profit to the tune of Rs.28106.54 million in 2024 with EPS of Rs.94.54 and NP margin of 24.37 percent.
Future Outlook
Local demand scenario appears to be gloomy due to rising construction cost. However, the viability of export sales by altering coal mix and energy mix will continue to bring profitable results for the company. The company has kept a tight lid on its cost and is able to pass on its effect to its customers, resulting in improved margins. LUCK’s intelligent investment decisions are also bearing fruit by driving up its other income which is conveniently covering its overheads and finance cost.
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