Lucky Core Industries Limited (PSX: LCI) was incorporated in Pakistan as a public limited company as Khewra Soda Ash Company in 1953. In 1966, after a year of acquisition of Fuller Paints Limited, the company changed its name to ICI Pakistan Manufacturers Limited. Later Imperial Chemicals (Private) Limited was also merged into the company. In 2012, Lucky Holdings Limited acquired the majority shareholding of the company from AkzoNobel and became the holding company of LCI. The company changed its name from ICI Pakistan Limited to Lucky Core Industries Limited in December 2022. The company undertook other major acquisitions of Cirin Pharmaceuticals Limited, Wyeth Pakistan Limited, and Pfizer Pakistan Limited in the subsequent years. The company is engaged in five diverse businesses i.e. Soda Ash, Polyester, Chemicals & Agri Sciences, Pharmaceutical,s and Animal Health.
Pattern of Shareholding
As of June 30, 2024, LCI has a total of 92.359 million shares outstanding which are held by 9231 shareholders. Associated companies, undertakings, and related parties are the major shareholders of LCI with an 81.54 percent stake. Within this category, Lucky Cement Limited tops the list, holding 55 percent shares of LCI. The local general public holds 7.22 percent shares of LCI followed by insurance companies accounting for 5.96 percent shares. Banks, DFIs, and NBFIs hold 2.04 percent shares while Modarabas and Mutual funds have 1.01 percent shareholding of LCI. The remaining shares are held by other categories of shareholders.
Financial Performance (2019-24)
With the exception of 2020, LCI’s topline grew in all the years under consideration. Conversely, its bottom line posted a plunge in 2019 and 2024. LCI’s margins shrank in 2019. In the subsequent two years, the margins took an upward flight followed by a downtick in 2022. In 2023, while gross margin further shed off its value, operating and net margins significantly improved. In 2024, gross and operating margins strengthened while net margins eroded. The detailed performance review of the period under consideration is given below.
In 2019, LCI’s topline grew by 18.78 percent year-on-year to clock in at Rs. 58,328.85 million. This primarily came on the heels of the Soda Ash and Polyester business. Soda Ash business grew by 32 percent year-on-year in 2019 on account of high demand from the glass, silicate, and paper industry which was met by 75 KTPA Light Ash expansions while a considerable increase in Polyester Staple Fiber (PSF) prices during the year buttressed the Polyester business which grew by 30 percent year-on-year. The chemicals and Agri Science business also grew by 4 percent year-on-year while the pharmaceuticals and animal health business met a 5 percent decline in sales in 2019 on the back of restrictions on the import and marketing of rbST injections during the year. Cost of sales grew by 20.53 percent year-on-year in 2020 on account of inflation, Pak Rupee depreciation, and a surge in the prices of raw materials across business segments. Gross profit grew by 10.49 percent year-on-year, however, GP margin inched down from 17.4 percent in 2018 to 16.2 percent in 2019. Distribution and administrative expenses grew by 7.49 percent and 11.51 percent respectively in 2019 mainly on account of a rise in outward freight and handling expenses and payroll expenses respectively during the year. As the company expanded its operations during the year, the number of employees grew from 1663 in 2018 to 1729 in 2019. Other expenses slid by 10.37 percent year-on-year due to lesser provisioning done for WPPF as well as a high base effect produced by the impairment of fixed assets booked in the prior year. Other income was slashed by 34.8 percent year-on-year in 2019 on account of a substantial drop in dividend income from associate companies. Operating profit grew by 7.43 percent year-on-year in 2019, however, OP margin inched down from 9.61 percent in 2018 to 8.70 percent in 2019. LCI’s financial cost posted a massive jump of 126.86 percent in 2019 which was the result of a high discount rate coupled with a rise in the company’s liabilities due to conversion of Usance LCs to sight in order to avoid exchange losses. Yet exchange loss grew by 1.56 percent in 2019. The bottom line dived by 24.67 percent year-on-year in 2019 to clock in at Rs.2304.91 million with an NP margin of 3.95 percent versus an NP margin of 6.23 percent posted in 2018. EPS also fell from Rs.33.13 in 2018 to Rs.24.96 in 2019.
In 2020, LCI’s net turnover plummeted by 8.11 percent year-on-year to clock in at Rs. 53,598.54 million. This was due to a decline in revenues from all the segments except Animal Health Business. This was on account of the country-wide lockdown of the non-essential industry in the later part of the year which resulted in reduced demand. Moreover, the decline in petrochemical prices and Soda Ash prices as well as supply chain disruptions also affected the overall business during the year. Cost of sales also inched down by 11.94 percent year-on-year in 2020 due to stringent cost control measures and a revised product mix. This translated into an 11.69 percent rise in gross profit in 2020 with GP margin climbing up to 19.70 percent. During the earlier part of the year, the company expanded its Dense Ash plant by 70,000 tons per annum which resulted in growth in human resource count to 1995 in 2020. This raised the payroll expense. This coupled with higher outward freight and handling charges were the main factors behind 6.91 percent and 11.27 percent growth in distribution and administrative expenses respectively in 2020. Other expenses also rose by 22.30 percent year-on-year in 2020 on account of higher provisioning done for WWF and WPPF. Massive growth in dividend income from associated companies drove other income up by 133.71 percent in 2020. Operating profit expanded by 24 percent year-on-year in 2020 with OP margin moving up to 11.74 percent. Finance cost multiplied by 9.55 percent in 2020 due to higher discount rates for most part of the year. Exchange loss slightly dipped during the year. Best cost control measures and handsome dividend income resulted in bottom line growth of 34.32 percent year-on-year in 2020 despite constricted turnover. Net profit settled at Rs.3095.858 million in 2020 with an NP margin of 5.8 percent. EPS grew to Rs.33.52 in 2020.
In 2021, LCI mustered 16.83 percent year-on-year growth in its net revenues which clocked in at Rs. 62,617.97 million. This came on the back of growth across all five business segments. Animal Health Business managed to top the list with 31 percent higher sales on account of a revival in demand from both poultry and livestock segments. Pharmaceutical attained 27 percent growth in revenues on account of new and timely product launches and higher toll income. The polyester business also witnessed a 22 percent rise in revenues on account of revived demand from the textile industry. Moreover, the increase in cotton prices due to supply chain disruptions from the US and China also proved to be a good omen for the Polyester business in 2021. Cost of sales grew by 12.15 percent year-on-year in 2021 which drove the gross profit up by 35.92 percent year-on-year in 2021. GP margin also surged to 22.9 percent – the highest ever posted by the company. Distribution and administrative expenses posted a 22.59 percent and 19.81 percent spike respectively in 2021 due to higher payroll expenses on account of inflation, higher advertisement and publicity charges as well as outward freight and handling charges. Other expenses posted a steep 90.83 percent rise in 2021 on the back of increased provisioning for WWF and WPPF. Higher profit on deposit accounts, higher scrap sales, and higher dividends from subsidiaries were offset by lower dividends from associate companies resulting in a paltry 5 percent increase in other income in 2021. Operating profit grew by 39.34 percent year-on-year in 2021 with OP margin escalating to 14 percent. Better cash generation across the business segments resulted in lower borrowings for working capital requirements. This coupled with monetary easing during the year translated into a 62.77 percent fall in finance cost in 2021. Unlike other years, LCI made an exchange gain of Rs.55.98 million during 2021 due to a stronger Pak Rupee. The bottom line boasted a staggering 92.50 percent year-on-year growth in 2021 to clock in at Rs.5959.446 million with an NP margin of 9.52 percent. EPS also ascended to Rs.64.52 in 2021.
2022 witnessed the highest year-on-year growth of 38.89 percent in LCI’s topline which was recorded at Rs.86,972.18 million. While all the business segments registered robust sales growth during the year, the Polyester and Soda Ash businesses were the star performers with 51 percent and 50 percent year-on-year growth in net turnover respectively in 2022. The polyester business grew on the back of strong demand from the textile industry while the Soda Ash business banked on export market expansion as well as domestic demand recovery. The cost of sales grew by 41.61 percent year-on-year on the back of the Pak Rupee depreciation coupled with the commodity super cycle prevailing in the international market on account of the Russia-Ukraine crisis. Higher energy charges further fuelled the cost hike. This translated into GP margin descending to 21.41 percent in 2022 from its all-time high of 22.91 percent in 2021. Distribution expense grew by 20.10 percent year-on-year due to higher sales volume, better advertising budget, increase in fuel prices, mounting sea freight charges, and unavailability of vessels. Administrative expenses grew marginally by 4.51 percent in 2022 despite inflationary pressure and an increase in employee headcount from 2030 in 2021 to 2182 in 2022. Other expenses tumbled by 11 percent in 2022 due to lower provisioning done for WWF and WPPF. No dividend from associate and subsidiary companies pushed other income down by 62.56 percent year-on-year in 2022. Operating profit grew by 31.91 percent in 2022, but OP margin dipped to 13.3 percent. Finance cost increased by 38.10 percent year-on-year in 2022 on the back of record record-high discount rate coupled with increased borrowings for working capital requirements and capital expenditure projects in Soda Ash and Polyester businesses. The company also incurred an exchange loss worth Rs.545.03 million in 2022 as against the exchange gain recorded in the previous year. The imposition of a super tax further dampened the bottom line growth to 4.85 percent in 2022. LCI’s net profit stood at Rs.6,248.587 million in 2022 with an NP margin of 7.18 percent. EPS slightly grew to Rs.67.66 in 2022.
In 2023, LCI’s topline grew by 25.89 percent year-on-year to clock in at Rs.109,486.11 million. The growth was led by the Soda Ash business on account of 135,000 tons per annum expansion in the Soda Ash project undertaken during the year. Other segments also posted healthy revenues in 2023. Upward revision in prices also buttressed the topline in 2023. The cost of sales grew by 27.52 percent year-on-year in 2023 on account of fluctuations in global commodity prices, Pak Rupee depreciation, and import restrictions. GP margin slumped to 20.40 percent in 2023. Distribution and administrative charges surged by 6.92 percent and 24.51 percent respectively in 2023 due to higher freight charges on account of fuel price hike as well as greater sales volume. Moreover, expansion in production capacity also resulted in increased human resource requirements which drove up the payroll expense. Inflation also came into play to push the operating expenses up. Other expenses rose by 42.15 percent year-on-year in 2023 due to higher profit-related provisioning. Other income posted a huge 449.40 percent growth in 2023 on account of hefty dividend income earned from Lucky Core PowerGen Limited, a wholly owned subsidiary of LCI. Moreover, the company also earned dividend income from short-term investments made from sales proceeds of the divestment of NutriCo Morinaga (Private) Limited (NMPL) shares. This pushed LCI’s operating profit up by 37.61 percent in 2023 with OP margin jumping up to 14.53 percent – the highest since 2018. The company made an exchange loss of Rs.964.51 million in 2023 due to Pak Rupee depreciation. Furthermore, finance costs multiplied by 251.31 percent in 2023 due to higher discount rates and increased borrowings to manage working capital requirements. However, these were offset by a gain worth Rs.9842.15 million on the sale of its stake in NutriCo Morinaga Private Limited (NMPL) which constituted 26.5 percent of the total issued and paid-up share capital of NMPL. Consequently, net profit grew by 120.4 percent year-on-year in 2023 to clock in at Rs.13,772.409 million with an NP margin of 12.58 percent – the highest since 2018. EPS also climbed up to Rs.149.12 in 2023.
In 2024, LCI’s net sales grew by 10 percent year-on-year to clock in at Rs.120,460.33 million. This was on account of higher export volumes of Soda Ash as it was the first year after the commissioning of the 135,000 tons per annum expansion project. The company exported 155,789 tons of Soda Ash during the year. Net sales of Pharmaceuticals, Chemicals & Agri sciences, and Soda Ash posted year-on-year growth of 33 percent, 17 percent, and 15 percent respectively. Conversely, the Animal Health and Polyester business remained at the last year’s level. Unprecedented level of inflation, Pak Rupee depreciation, and elevated energy cost resulted in a 7.33 percent higher cost of sales in 2024, however, improved sales mix, cost optimization, and one-off price adjustment provided to the industry in July 2023 resulted in 20.53 percent higher gross profit in 2024 with GP margin climbing up to 22.34 percent. Distribution expense multiplied by 37 percent in 2024 due to higher salaries of the sales force as well as elevated outward freight and handling charges due to robust export sales. Administrative expense ticked up by 4.75 percent due to higher payroll expense which was the result of inflationary pressure as well as workforce expansion from 2184 employees in 2023 to 2227 employees in 2024. Other expenses ticked up by 3.51 percent in 2024 mainly on account of higher profit-related provisioning and donations. However, it was offset by 74.58 percent higher other income recorded by LCI in 2024 on the back of vigorous dividend income from investment in mutual funds. Operating profit built up by 25.18 percent year-on-year in 2024 with OP margin climbing up to its highest level of 16.54 percent. Finance costs mounted by 22.81 percent in 2024 due to an elevated discount rate which was partially offset by lower borrowings during the year. The gearing ratio fell from 14.10 percent in 2023 to 0.56 percent in 2024. The plunge in gearing ratio was not only because of lesser outstanding borrowings but also because of higher cash & bank balances, increased short-term investments, and a massive increase in capital reserves as the management transferred Rs. 18,000 million from revenue reserves to capital reserves. LCI recorded an exchange gain of Rs.117.06 million in 2024 as the Pak Rupee appreciated by 3 percent against the US Dollar. In the previous year, LCI recorded a tremendous gain of Rs.9842.15 million from the sale of its stake in NMPL. The absence of this income in 2024 translated into a 19.11 percent dip in net profit. LCI’s net profit was recorded at Rs.11,140.217 million in 2024 with EPS of Rs.120.62 and NP margin of 9.25 percent. Barring the impact of the gain on the sale of investment in NMPL, LCI’s net profit would have been higher in 2024 versus last year.
Recent Performance (1HFY25)
During the first quarter of FY25, LCI recorded a 3.4 percent year-on-year uptick in its topline which clocked in at Rs.62,272.28 million. During 1HFY25, the net turnover of pharmaceutical and polyester businesses posted a healthy growth of 80 percent and 13 percent respectively. Conversely, Soda Ash, Animal Health as well as Chemicals & Agribusiness posted a decline of 17 percent, 14 percent, and 6 percent respectively in their net sales. During the period under consideration, LCI undertook an asset acquisition with Pfizer Pakistan Limited and other entities of the same group. Under this transaction, LCI acquired a manufacturing facility, selected products, and associated trademarks from Pfizer group entities. This transaction coupled with an improved sales mix, price adjustment of non-essential medicines, and stability of the Pak Rupee gave a considerable boost to LCI’s pharmaceutical business in 1HFY25. The polyester business also performed quite well during the period as elevated global freight costs made imported PSF very expensive for the domestic industry. Due to a standstill in the construction activities in the country, the Soda Ash segment couldn’t perform well. The other two segments i.e. Animal Health and Chemical & Agribusiness also witnessed frail performance on the back of weak purchasing power of consumers. Cost of sales inched up by 1.39 percent in 1HFY25, resulting in a 10.87 percent improvement in gross profit. GP margin also strengthened from 21.27 percent in 1HFY24 to 22.80 percent in 1HFY25. Selling & distribution expenses grew by 5.55 percent in 1HFY25 due to rising global freight charges. This was despite lower export volumes registered in 1HFY25. Administrative expenses shrank by 5.28 percent in 1HFY25 probably due to lower payroll expense. Increased profit-related provisioning drove up other expenses by 47.2 percent in 1HFY25. However, it was conveniently offset by 26 percent greater other income recorded in 1HFY25. This was due to greater returns recognized from investment in mutual funds. LCI recorded 16.38 percent growth in its operating profit in 1HFY25 with OP margin clocking in at 17.79 percent versus OP margin of 15.80 percent recorded in 1HFY24. Finance cost dipped by 34.59 percent in 1HFY25 on the back of monetary easing which resulted in a 900 bps decline in policy rate during the period. The company recorded an exchange loss of Rs.10.52 million in 1HFY25 versus an exchange gain of Rs.122.57 million recorded during the same period last year due to lower export sales. LCI also registered a gain on a bargain purchase worth Rs.172.18 million in 1HFY25 which pertained to an acquisition transaction with Pfizer Pakistan Limited. LCI’s net profit mounted by 23.38 percent to clock in at Rs.6218.333 million in 1HFY25. This translated into EPS of Rs.67.33 in 1HFY25 versus EPS of Rs.54.57 recorded in 1HFY24. NP margin picked up from 8.37 percent in 1HFY24 to 10 percent in 1HFY25.
Future Outlook
While the company will continue to leverage its well-diversified business portfolio and strong balance sheet. LCI keeps on undertaking expansions and identifying new revenue streams which along with cost optimization, reduction in policy rate, and stability in Pak Rupee will enable it to register robust financial performance in the future.
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