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Lucky: A Bet on Pakistan

Name: Lucky Cement Ltd. (LUCK)

Market Capitalization: PKR 170.04 Billion

Price: PKR 525.84/share (July 19, 2020)

52 Week Range: 305.00 - 583.00

P/E: 33.13

Div. Yield: 2.47%


Company Profile


Lucky Cement Limited (the Company) was incorporated in Pakistan on September 18, 1993. The Company has also issued Global Depository Receipts (GDRs) which are listed and traded on the Professional Securities Market of the London Stock Exchange. The principal activity of the Company is manufacturing and marketing of cement. The company ranks in the top 10 largest market cap equities on PSX.


Strengths:

  • Lucky cement is a true conglomerate with diversified business interests thereby providing immediate portfolio diversification. Non-cement operations contribute approximately 60% to top line and 50% to bottom line of consolidated income statement (for nine months ended March 31, 2020).

  • Major non-cement operations in the consolidated business include:

  • Kia Lucky Motors Pakistan Ltd: 71.55% ownership (Auto assembly)

  • ICI Pakistan Ltd (PSX listed): 55% ownership (Chemicals)

  • Lucky Electric Power Company Ltd: 100% ownership (Energy)

  • Yunus Energy Ltd: 20% ownership (Energy)

  • Cirin Pharmaceutical (Pvt) Ltd: wholly owned by ICI (Healthcare)

  • NutriCo Morinaga (Private) Limited: 51% owned by ICI (Food)

  • Exports make up approx. 30% of total sales. The company has recorded a 10% increase in exports YoY and controls 26% of total cement exports from Pakistan. This increase in export sales has mitigated the impact of decreasing local sales (YoY).

  • The company has geographically diversified its cement operations. Locally, the company caters to both the North & South regions with production facilities in Karachi (Sindh) & Pezu (KPK). Internationally, the company has entered into a joint venture agreement (50% equity ownership) for operating a fully integrated cement manufacturing unit in the Democratic Republic of Congo. As well, the company has entered into joint venture agreements (50% equity ownership) for operating a cement grinding unit in Basra, Iraq and for constructing a fully integrated cement manufacturing unit in Samawah, Iraq.

  • In the medium term, the company and industry will be direct beneficiaries of the infrastructure projects outlined under China-Pakistan Economic Corridor (CPEC) and Prime Minister's low-cost Naya Pakistan Housing Programme.

  • In its cement operations, the company is in the enviable position of holding almost no long term debt to finance its assets.

Risks:

  • In its core cement operations, the company is losing domestic market share. While the cement industry grew domestic sales by 3.8%, Lucky Cement experienced a 8.2% decline. Additionally, the cost structure for export cement is higher than local sales due to higher distribution and sales costs causing an adverse impact to profitability.

  • The auto industry in the country has been badly hit over the past year with some assemblers reporting a 60% decrease in sales year over year. Kia Motors entry in this challenging market maybe a further blow to the consolidated company's profitability.





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