Lucky Cement’s net profit jumps to Rs4.94bn in Q1 2024

April 29, 2024 (MLN): Lucky Cement Limited (PSX: LUCK) reported a profit after tax of Rs4.94 billion [EPS: Rs16.85] in the first quarter of 2024, up 23.3% YoY as compared to a profit of Rs4.01bn [EPS: Rs12.66] in the same period last year (SPLY).

Going by the unconsolidated results made available by the company on the Pakistan Stock Exchange today, revenue increased by 10.0% YoY to Rs27.52bn as compared to Rs25.01bn in SPLY.

The cost of sales also rose by 5.7% YoY but was lesser than proportionate to sales increase, which improved the gross profit by 22.6% YoY to Rs7.93bn in Q1 2024.

The gross margins rose to 28.82% as compared to 25.87% in SPLY due to the company's constant focus on cost, operational efficiencies, and significant investment in renewable energy initiatives over the years.

During the review quarter, other income surged by 84.1% YoY to stand at Rs2.87bn in Q1 2024 as compared to Rs1.56bn in SPLY.

On the expense side, the company observed a rise in administrative expenses by 20.8% YoY and other expenses by 61.0% YoY to clock in at Rs546.72m and Rs789.38m respectively during the review period.

The company’s finance cost went up by 2.1x YoY and stood at Rs389.11m as compared to Rs185.23m in SPLY, mainly due to higher interest rates.

On the tax front, the company paid a higher tax worth Rs2.24bn against the Rs1.63bn paid in the corresponding period of last year, depicting a rise of 36.9% YoY.

The economic performance of Pakistan during the current financial year has shown a blend of both positive and negative indicators, reflecting a complex and unclear situation, the company said.

Challenges such as balance of payment crisis, high inflation, and interest rates, along with low foreign exchange reserves, have presented a bleak outlook.

At the same time, stability on the political front has been beneficial. The positive sentiments have however eroded considerably due to the continuous adjustments in power and gas tariffs to comply with the IMF program, which have impacted businesses in Pakistan severely as they are buying utilities at the highest prices in the region.

This has significantly increased the challenges being faced by industries engaged in exports.

Nonetheless, the government's measures to counter smuggling and illegal currency outflows have played a crucial role in stabilizing the exchange rate, resulting in positive outcomes.

The formation of federal and provincial governments has brought a degree of stability to the political landscape, thereby reducing uncertainty and restoring investors' confidence, and paving the way for improved economic conditions and potential foreign direct investment in targeted sectors.

Lucky Cement said that it is proactively implementing measures to mitigate the impact of the aforementioned challenges on its operations and financial performance.

Despite the prevailing economic headwinds, it remains committed to maintaining a strong focus on cost optimization, risk management, and innovation to deliver sustainable value to its stakeholders, the company said.

"As we navigate through these challenging times, we remain optimistic about the long-term prospects of our businesses and our ability to adapt to evolving market conditions," it added.

Amount in thousand except for EPS

Nine Months FY24 Performance

During the nine months period under review, Lucky Cement's overall gross revenue increased by 26.3% vs SPLY.

The local sales revenue increased by 23% (Rs100bn vs Rs81.4bn) and export sales revenue increased by 55% (Rs15.6bn vs Rs10.1bn).

During the nine months under review, the cost of sales increased by 12% to Rs57.65bn as compared to Rs51.35bn in the SPLY.

The major reason for this increase was higher production and sales volume compared to SPLY.

The gross profit margin of Lucky Cement for 9MFY24 was 34% compared to 27% in the SPLY.

The company's constant focus on cost, operational efficiencies, and significant investment in renewable energy initiatives over the years has led to an increase in margins.

Lucky Cement achieved a profit before tax of Rs27.8bn during 9MFY24 as compared to Rs15.7bn reported during the SPLY.

Accordingly, an after-tax profit of Rs18.6bn was achieved during the nine months under review as compared to Rs11.1bn reported during the SPLY.

Cement Industry and Lucky Cement's Performance

During the first nine months of FY24, the local cement demand in Pakistan witnessed a marginal decline of 3.7% YoY, totaling 29.41 million tons, compared to 30.56m tons in the same period last year (SPLY).

Conversely, exports saw a significant surge of 68%, reaching 5.10m tons during the 9MFY24, up from 3.04m tons in the SPLY.

Consequently, the overall industry volume grew by 2.7%, reaching 34.52m tons in the review period, compared to 33.59m tons previously.

This increase in sales volumes is mainly attributable to the enhanced viability of exports.

In comparison to the broader cement industry, Lucky Cement experienced an 18.1% increase in overall sales volume, reaching 6.43m tons, compared to 5.44m tons in SPLY.

Local sales volume grew by 8.7%, reaching 4.98m tons during 9M FY24, compared to 4.58m tons previously.

Additionally, export volumes surged by 68%, totaling 1.45m tons during the review period, up from 0.86m tons in SPLY.

Outlook

There is a notable emphasis on economic stability and growth by the new government.

As the current financial year approaches its end, challenges arise with the conclusion of an ongoing IMF program and negotiations for a new, long- term program.

This requires careful fiscal consolidation and reform management.

Timely development of a balanced and growth-oriented budget for FY25 is crucial for maintaining economic stability and securing approval for a new IMF program, the company said.

Additionally, recent inflation trends showing a decline have led to positive real interest rates for the first time in three years, suggesting potential for a cut in interest rates in the near term.

During 9MFY24, domestic cement demand experienced a decline, attributed to high inflation, elevated interest rates, and political uncertainty.

However, with some political stability post the general elections, the company stated that there is optimism for increased government focus on the economy, based on which it anticipates an increase in cement demand in the medium term.

Nevertheless, seasonal factors are anticipated to affect demand in the last quarter of the current financial year.

Lucky Cement's management remains proactive in enhancing manufacturing efficiency and investing in renewable energy, it said.

"This strategic approach not only aims to reduce production costs but also aligns with our commitment to contributing to a more sustainable future," it added.

Strong demand is anticipated for international cement operations and the companies are well-positioned to benefit from increased utilization of existing operational lines in the forthcoming financial periods.

Moreover, the addition of a new clinker line, with a capacity of 1.82 MTPA, in Samawah, Iraq, will greatly enhance the operational efficiencies of Lucky Cement's business.

This strategic move plays a crucial role in achieving self-reliance in terms of clinker availability within Iraq.

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