Lucky break!

Demand in the cement industry has taken a rather unexpected turn amid the economic quagmire the country has been slipping into, and nothing, not even peak cement prices could dissuade offtake to rebound this year-thus far. Granted, it is compared to the mess of a year that was FY23. Up 24 percent, cement offtake across the industry provided a big boost in the first quarter of FY24. For market leader Lucky Cement (PSX: LUCK), the volumetric revival was even more perceptible—offtake up 35 percent in 1QFY24.

The company’s market share grew from roughly 16 percent in 1QFY23 to 18 percent in the first quarter of the current fiscal year strengthening its foothold in both north and south markets. Meanwhile, the company’s exports rose 25 percent, benefitting from a decline in coal prices and rupee depreciation. There isn’t any bad news for Lucky, which is pretty routine for a company like Lucky that plays phenomenal against odds. Last year too, despite a decline in sales of 19 percent (FY23 full year), the company turned over standalone earnings (before-tax) of Rs21 billion, same as FY22.

In 1QFY24, revenues surged 49 percent year on year, as volumes improved and the company did remarkably well on retention. Average revenue per ton sold—as it happens—grew 10 percent. The company’s margins improved to 37 percent as coal costs remained subdued. The company uses a mix of imported and local coal with a ratio of 60:40 and was able to procure at optimal costs. Margins are up from 31 percent last year, closer to margins during FY18. However, the company believes that rising coal prices may bring down margins in the coming quarters. As it stands, the costs of sales per ton sold remained constant in 1QFY24, as it was in the first quarter last year.

At the same time, Lucky’s overheads dropped to 8 percent of revenue versus 9 percent in 1QFY23. Together with a boost from other income—30 percent of before-tax earnings—the company’s profits rose a whopping 80 percent in 1QFY24 post-tax. While higher coal prices may put a dampener on margins in the coming months, given the company’s investment in renewable energy sources, it should be able to keep costs at least in line with the retention.