Lucky Cement (LUCK) has posted an unconsolidated net earnings of Rs2.97 billion (EPS: Rs9.18) for first quarter of the current financial year (1QFY16) as compared to Rs2.67 billion (EPS: Rs8.25) for the same period last year, up by 11%YoY.
In this regard, additional generation from WHRP along with falling coal prices have reduced cost of sales by 8%YoY, outweighing 1%YoY decline in revenues (due to 2.7%YoY lower dispatches). Subsequently, gross margin improved by 390bps YoY to 46.0% for 1QFY16.
Following its peers (DGKC, ACPL and CHCC), LUCK has also announced an expansion of 2.3 million tons per annum (tpa) cement plant in Punjab. Estimated around US$200 million, this plant is likely to be of Chinese origin and scheduled to commence operations by FY18. This will take LUCK’s total capacity to 10 million tpa, making it the largest cement manufacturer in terms of plant capacity.
The cement sector has reacted sharply to the expansion news by the company on concerns of possible initiation of a price war. Disregarding any such concerns on industry’s price consensus, experts believe this breakdown in the stock price should be taken as an opportunity to accumulate.
Investment outlook seems fully supported by: 1) strong growth in local dispatches, 2) heavy capital-committed projects in the pipeline by various players and 3) lower probability of LUCK is not likely to initiate a price war itself.