Finance

Lucky’s overseas operations witness a mixed quarter

Karachi, October 28, 2022: Lucky group’s foreign Joint Ventures showed an increase in sales but showed a decline at the EBITDA level due to higher costs of production. In its Corporate Briefing session held yesterday, the management revealed that the fully integrated facility at Samawah showed the most decline in EBITDA of 45% YoY.

However, volumes in Samawah and Congo rose by 31% and 25% YoY, respectively. On the other hand, grinding facility at Basra depicted a 13% YoY decline in volumes.

The management is hopeful that the foreign ventures will show improved profitability on back of some decisions regarding the power mix.

Market share in the core cement business to expand

The company’s market share in the core cement business is to expand post its newest plant (+26% of existing capacity) expected to commence operations within a month’s time, giving LUCK an edge over peers.

It is to be noted that the company posted 1QFY23 EPS of Rs 11.9, up 17% YoY as the company’s margins witnessed improvement owing to higher retention prices.

On a consolidated level, the company posted 1QFY23 earnings of Rs16.8/share, -18% YoY. No dividend was announced alongside 1QFY23 results.

Diversified coal avenues tapped to reduce costs

During 1QFY23, the company reported a decline at the gross level on a QoQ basis mainly due to normalization of inventory cost of coal.

To recall, the company had used South African coal during the June quarter with an average cost of Rs 35,000/ton, which is 10%-12% lower than peers, resulting in exceptional gross level performance.

The management shared that it used 80% Afghan coal and 20% local coal at Pezu during 1QFY23 while at the South plant it used Indonesian and South African coal of a lower Gross Calorific Value (GCV).

The blend resulted in offsetting impact of other high fuel costs. The current weighted average cost of coal as per management is around Rs50-52k/ton, while Afghan coal is used on a Just-in-time basis.

Efforts to control other energy costs

Subject to gas unavailability, the company uses furnace oil as an alternate fuel source, which is expensive as compared to gas.

As a backup, the company has 0.5mn tons clinker inventory available for grinding, which is likely to keep operations uninterrupted.

Moreover, LUCK expects its upcoming Solar power project of 34MW at Pezu to commence operations during the ongoing quarter while it has also announced another Solar project in South with a capacity of 25.3MW. These projects would contribute to margin expansion to a certain extent.

Rebound in volumes on cards

The management expects FY23 volumes to decline by 10% YoY, reflecting expectations of rebound in the coming months on pent up demand and kick start of flood rehabilitation projects. To recall, 1QFY23 volumes reported a 25% YoY decline.

LEPCL issues to resolve

Lucky electric Power Company (LEPCL) faced some issues and the plant was unavailable for around 15-20 days.

The management however expects LEPCL teething issues to resolve in the coming months. The company plans to use a mix of local and imported coal for the time being after which it plans to shift completely to local coal.

To recall, the 660MW plant had also faced delays due to impediments in getting connected to the grid last year.

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