Lucky Cement Limited 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. The company has achieved greater heights over the years in terms of expanding its business operations. Lucky Cement now has two production facilities at the strategic location of Karachi to meet the demand of the Southern region and Pezu, KPK to cater to the northern region. Besides, the company has its liaison offices in Islamabad, Quetta, D.I Khan, Multan, Lahore, and Peshawar. The export market of Lucky cement includes the Far East, Middle East, Africa, and South& Central Asia.

Lucky Cement Limited is the only cement manufacturer to have its own storage and loading terminal at Karachi port and is the first company to export large quantities of loose cement. The company boasts to be the pioneer of Waste Heat Recovery and Reduced Derived Fuel and Tyre Derived Fuel in Pakistan. It also has a captive power plant producing 180MW of electricity which not only meets the needs of the company but also contributes to the national grid. Besides, the personal fleet of bulkers and trailers of Lucky Cement allows it to ensure efficient delivery across the country.

Pattern of Shareholding

As per the FY22 annual report of Lucky Cement, it has 323 million shares outstanding which are held by over 11000 shareholders. Directors, CEO, their spouse and minor children hold the majority stake of 40.5 percent in the company’s shareholding. This is followed by associated companies, undertakings and related parties owning 22.96 percent of the outstanding share capital of the bank. Local general public have a stake of 15.78 percent in the company while foreign public possess 7.47 percent. Other significant shareholders include Mutual funds holding 4.28 percent of the company’s shares, Banking Financial Institutions with a share of 3.42 percent, and insurance companies with s share of 3.1 percent. The remaining shares are held by other shareholders including NIT and ICP, Modarbas, etc.

Historical Performance (FY18-FY22)

The top line of Lucky Cement Limited posted a skimpy year-on-year growth of 1 percent in FY19 before it massively dipped by 13 percent year-on-year in FY20. Thereafter, the net sales bagged enormous growth of 51 percent year-on-year in FY21 and 29 percent year-on-year in FY22.

The subdued topline growth in FY19 came on the heels of a 12.4 percent year-on-year decline in local sales volume to clock in at 5.85 million tons which were only cement sales as the company made no clinker sales locally in FY19. Export sales volume rebounded by 60.9 percent year-on-year in FY19 but couldn’t help the topline much. In contrast to the local scenario, clinker sales were the key growth driver in the export market.

FY20 was even worse as Covid-19-related lockdowns and muted economic activity took a toll on the company’s sales volume which is evident in a 13 percent year-on-year drop in topline in FY20. Yet the company was able to post a positive bottom line in FY20 due to its operational efficiency which kept the expenses in check and also because of a sizeable increase in the share of profit from joint ventures and associates.

FY21 was a major turnaround year for the company as the net sales rebounded by over 50 percent year-on-year. The local dispatches posted a volumetric 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 a spur in construction activities. Low-cost housing schemes, construction of dams and reservoirs, and economic recovery post-Covid coming on the heels of low-interest rates and also reallocation of liquidity to the local banks towards the 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. Low finance costs owing to a decline in the policy rate also contributed to bottom-line growth in FY21. All these factors coupled with strong “other income”, particularly dividends lent a hand to help EPS grow by 3.2 times in FY21.

FY22 was a difficult year for the cement industry as a rise in fuel and commodity prices owing to the Russia-Ukraine conflict, multiple hikes in policy rates, and the Pak rupee depreciation increased the cost while the economic downturn suppressed the demand. Floods in the southern region of the country also contributed to subdued demand. Although the company registered a 3.6 percent year-on-year drop in local sales and a 25.5 percent year-on-year drop in export sales during FY22. However, the high price of cement helped Lucky Cement Limited attain a topline growth of 29 percent year-on-year in FY22. Hence, we can say that the growth in FY22 was led by price as against volume-driven growth in FY21.

In FY22, the company also contained its sales and distribution cost which decreased as a percentage of sales. The other income head also performed quite well in FY22 on account of foreign exchange differences in the translation of foreign operations. The company also earned hefty technical fee from foreign operations i.e. NYA Congo and higher financial income on short-term investments. Consequently, EPS grew by 8.7 percent year-on-year despite low demand.

Financial Performance, 1QFY23

1QFY23 seems like a repeat telecast of FY22. The macroeconomic challenges that suppressed the sector last year showed no signs of relief even in 1QFY23. On a consolidated basis, the increase in revenue is mainly led by the launch of Lucky Electric Power Company Limited and the mobile phone manufacturing by Lucky Motor Corporation. Moreover, the foreign joint venture cement production plants of Lucky Cement Limited in Iraq and Congo also played an impressive role in keeping the bottom line buoyant. Polyester, Soda Ash businesses also performed well during 1QFY23.

With multiple rate hikes, the finance cost ballooned resulting in a year-on-year dip of 16 percent in the profit before tax during 1QFY23. Then the implication of super tax added further insult to the injury resulting in an EPS decline of 18 percent year-on-year in 1QFY23.

Future Outlook

With high interest rate, PKR depreciation, high inflation in the local market as well as commodity super cycle owing to Russia-Ukraine conflict, economic slowdown is sure to prolong in FY23. However, with high cement prices and the commencement of the flood rehabilitation drive by the government, the topline of the company is anticipated to show a rosy picture. Yet, high construction cost will keep the private sector shy from undertaking development activities.

While the high cost of production can be mitigated by operation efficiency, finance cost and taxation will give no breathing space to the bottomline.