Lucky Cement Limited (LUCK) Q1 FY2026 Earnings Call Transcript & Summary

[Foreign Language,], everyone. Welcome to Lucky Cement Analyst Briefing for First Quarter FY '26. My name is Arsalan, and I will be moderating the Zoom session. I have with me the Executive Director of Finance, Mr. Atif Kaludi. I would like to request him to brief you about the company's last quarter performance and future outlook.

Thank you, Arsalan, and thank you, everyone, for joining our analyst briefing. I hope everybody can hear me clearly. If there are any problems, you can please let Arsalan know. So [Foreign Language], this time around, there has been some delay on our part for holding the analyst briefing, but we thought that we should at least do it before at least the quarter ends and the next one becomes due. So thank you for your patience, and we'll directly start on the agenda today. So Arsalan, how many people do we have with us? Everybody has joined?

We have right now 81 participants in this room.

Okay. Okay. So people can keep joining in because I think the registration was 100-plus, but let's take a start. So like every time we share with you our portfolio of companies in the group, starting from cement, autos, power, mining, electronics and chemicals. We've added the Pfizer portfolio 2 years back. Now we've officially added the logo over here. So this is a picture of our complete portfolio plan. Arsalan, please next slide. Okay. So during the quarter, we made an announcement at PSX; we were adding 1.31 million tonnes per annum line in Congo. And as part of that announcement, we also summarized our international and domestic capacities' total that we will have after that addition. So this -- the COD target was mentioned in the announcement. In addition to that, a 0.65 million tonne cement grinding mill project also commenced its commercial operations in November 2025. So that has added to our cement grinding capacity in Samawah, Iraq. Then talking about our other business ventures, NRL, is our National Resources Limited, is our JV between 3 big conglomerates of Pakistan: Liberty, Lucky and Fatima. So we each own 33% in that, and we are exploring for copper and gold and other similar metals in the Chagai district. We have been allocated leases by the provincial government, and work is in progress. We have -- time to time, we keep making announcements about the technical discoveries. So, so far, we are seeing good results in the targeted areas, but I would like to emphasize that we are yet very far from announcing a bankable discovery because there could be gold and copper that is present, but we need to determine that, that is available in commercially feasible quantities. Until the time -- we don't know that, that has happened. That project is not bankable. So clearly, we are not there yet, but we feel that, so far, we are moving in the right direction. Then talking about our flagship business, which is the cement operations. The second quarter also continued its momentum, and domestic sales volume have increased [Foreign Language] by 18%, and not only for the industry, but also for our local cement operations in both Pezu and Karachi. In addition to that, we have undertaken some, I would say, energy efficiency projects. We've added battery capacity during the first 6 months. That has come online. Then we have added some technology, which is called UC3, which basically reduces your coal and power consumption at our Karachi plant. So that makes our processes and cost more efficient. Next, please. So overall industry volumes stood at -- for the second quarter at 9.6 million tonnes per annum versus 8.3 million tonnes in last comparable quarter. So the domestic demand has definitely increased and Lucky got its due share. And we -- our domestic sales volume were 1.6 million tonnes versus 1.4 million tonnes last time. And the good thing was that our market share also improved from 16.5% last time to 16.9% this time. Next, please. So as far as exports are concerned, actually, exports, we had already gained a lot of traction in FY 2025. So our volumes had significantly jumped in FY 2025 versus FY 2024. So this time around -- obviously, you can't keep on increasing your market share. So this time around, our, I would say, market share has, in fact, slightly gone down because the overall exports from industry have increased from 2.1 million to 2.6 million tonnes, out of which our share remained at 0.8 million tonnes. And Arsalan, if you can go on the next slide, our main export destination remains Africa with U.S. being a new addition, Sri Lanka quite slightly reducing because of their domestic and pricing issues, and Brazil is another addition. Afghanistan obviously was there. It was always a small part of the pie. But because of the border closures and related issues, the sale from second quarter onwards has -- obviously, that has taken a big hit, which we will see in the second quarter results. Next, please. So continuing our previous trajectory of financial performance, [Foreign Language], our revenue numbers, profitability numbers, they continue to grow in high double-digit numbers. Our profit after tax, if I talk about stand-alone number for first quarter, it was PKR 14.6 billion versus PKR 6.6 billion in the comparable quarter. So that's a significant increase. Partially, that was because of volume and partially because of improved cement pricing and margins. So on the consolidated front, also the figures appear to be -- in terms of profit after tax, the figure of the quarter is PKR 23.6 billion versus PKR 19.8 billion last time, which is a 19% increase. The gross profit appears to have decreased in percentage terms. Now that is because of -- you need to understand the -- how the tariff formula works for these IPPs. So this relates to our Lucky Electric. So because the reimbursement of debt component in revenue that has reduced, and the cost has also reduced, so on a bottom line basis, that does not have any impact, but it appears as if our gross profit has increased, which is why you're not seeing any significant impact on profit after tax, but you're seeing a decrease in gross profit on a consolidated level. So outlook, I think we will take it in the Q&A session. But overall, because the macros this year in terms of the interest rates, the inflation, exchange rate, crude oil prices, they remain very favorable for almost all sectors in which we are operating and even in which we are not operating. So most of the sectors are performing well [Foreign Language] as compared to 2025. So outlook, I would take it into the Q&A. But our overall outlook seems very positive as compared to where we were standing 6 months ago.

Thank you, sir. So if you have any questions, please type in the chat box. I will read them out.

So I think the first question has -- I've seen it, and I would like to address it first, which is not -- which did not eventually become a part of our group, which was the bidding for PIA. So basically, I'm getting 2 questions from analysts and investors that why did we stop at a certain price and why did we not keep on bidding. So as you all know that any investment is only good if it is at a good price. So -- and I'm not saying that the other consortium has not made the right decision by buying it at that price. Every investor in a company has a certain risk appetite of how much it wants to invest in any sector and what is the amount of investment we felt that was necessary for a PIA and what was our risk appetite and how much capital would we like to allocate to the aviation sector, not only as Lucky Cement, but as a consortium as a whole because I believe you all now know that Lucky was a part of a consortium with other investors. So it was the, I think, an overall decision to not bid beyond a certain level. So we finally backed off and wish the other winning consortium, best of luck on that. Arsalan, now next.

I have received one question via chat. Lucky has over PKR 111 billion net cash. Any plan to diversify to some other businesses as cash pile would continue to go up?

So I mean, the cash pile basically gives you an opportunity to go for investments, for example, like we were working on PIA, which did not eventually come through. But the benefit of cash pile is that it gives you the opportunity to go for new investments. It also acts as a contingency buffer for tough times. [Foreign Language], we are not in tough times right now, but a certain amount of cash is always required in the business. So just like PIA, we've already made announcement of our Congo expansion, although cash over here will not be utilized, but still we are continuing to invest. So just like PIA, we have a pipeline of opportunities that we keep studying. And soon, [Foreign Language], we will be looking at more projects, and we'll be able to share more details with you in the coming quarters. But I don't have any active project as such at the moment, which I could mention to you.

Sir, I have another question. When is Lucky Electric expected to transition to 100% Thar coal?

So Thar coal, I think we've already announced that that's a part in our annual report. Arsalan, you can check there. I think we've said that by the end of calendar year 2026, if I'm not wrong, we would be able to get there or whatever the period was announced, what I recall, it was last quarter of calendar year 2026.

Is Lucky Electric using PIBTL for coal import?

Yes, yes, because that's the only place from where you can import coal.

What is the total demand in DRC?

So Arsalan, maybe you can share that later on with the person, because that's a market share number. I don't recall offhand.

Okay, sir. Lucky ranking in North has come down after acquisition of...

So I think the question is coming from the understanding that because we are expanding in DRC, there has to be more market share there to capture. So just to give clarity on that. So all [Foreign Language] -- all of our foreign cement operations are operating at 90% plus capacity in all 3 locations, whether it's Congo or Samawah, Basra, Iraq. So which is why -- be the -- actually, in fact, the expansion in Congo was long overdue because we felt that if we don't expand now, we'll start losing market share. So once the expansion comes online, we'll definitely be utilizing a significant portion of that capacity.

Sir, I have another question. Lucky ranking in North has come down after acquisition of PIOC by Maple Leaf. What are your thoughts? And are you considering any acquisition or expansion plan?

So I think we -- if the players are consolidating, for example, Fauji Cement, and Fauji Cement has acquired Attock Cement and if Maple has acquired Pioneer Cement, I think this is a consolidation that has happened and a change that has happened, I think maybe I've not seen in the last couple of years. So if such changes happen, the consolidation for -- by the industry, I see it positively because it will bring in synergies for those players and I think make the market more competitive. But I don't see any reason that why should we be any concerned about this consolidation. If at all, the -- if there is demand, which we cannot fulfill based on our available capacity, that would be the most likely trigger for expansion. At the moment, there's surplus capacity in North. So we are not seeing any addition to that capacity right now.

Is Lucky still considering to venture with any new Chinese vehicle manufacturer?

For those of our segments, which are related to -- which are more consumer oriented, I would say that let the consumers be the first one to find that out first through the official channels, and you will get to know about that as soon as that is decided.

What is the company's view on increasing competition in the auto sector?

Sorry, Arsalan, say that again.

What is the company's view on increasing competition in the auto sector?

So whenever you undertake whether in cement, chemicals, any segment, there could be good times where you don't have competition. But I don't think ever since Lucky Motors started, there were -- any period, there were always competing forces, whether you talk about in auto sector or mobile sector or even cement sector. So we are prepared to compete. And how you compete is not only by the range, there is a lot of -- there are a lot of variables on how you compete. You compete on your strength of your brand, you compete on your cost basis, you compete on the speed at which you can give services to customers. So for example, Lucky Motors has the largest dealership network in Pakistan. So that's another edge we have. So I think we are competing, and we will continue to compete.

How much expected investment in the mining sector is required?

So mining sector investment depends upon mainly 2, 3 factors, what are the results of bankable feasibility study, what is the kind and specs of gold and copper that is available. That will decide the scale of the project. But clearly, these investments are huge. I mean they could range from anywhere from $500 million plus to $1 billion or more. So that's difficult to say, but it is going to be at least $500 million. But that is obviously going to be shared between the 3 JV partners and maybe if we bring in a foreign investor, and then there will be a combination of debt equity. So the impact on one 1 JV partner is going to be -- in terms of cash outlay, it's going to be much smaller.

Sir, what is the current retention, current coal cost, local growth expectation for FY '26?

So the current retention average is around -- if I just average North, South because you can do the split -- is around PKR 15,200 average for Lucky. The current coal cost is around -- averaging around PKR 34,000 on a company basis because our equation has now shifted towards imported coal because of the lack of availability of Afghan coal, the local coal has become expensive. The international coal prices are favorable, ranging between $95 to $100 a tonne. And then even if I include the transportation from the South -- Karachi South port to our North plant, still it is feasible. We [Foreign Language] will not see a huge cost increase, although there will be some cost increase, but it is still sustainable because of the soft -- I wouldn't say soft gold prices, but I would say more of a flattish coal prices. So that has been -- the closure of Afghan borders and unavailability and high pricing of local coal has been, I would say, largely mitigated by availability of international coal. And going forward, while -- during the outgoing quarter, our South plant was entirely relying on international coal, and our North plant was on a mix of Afghan and local coal. Going forward, we will be using international coal for -- imported coal for both the locations. So on the power mix, I answered the question before it comes. So renewables continue to give us 50% of the energy that we require. And in renewable, I mean it is wind, solar and the waste heat recovery units, they continue to give us 50%. And the balance 50% in the outgoing quarter, it was fulfilled through mostly furnace oil, but then furnace oil became kind of very expensive because of the levy. So as of right now, the actual levy on the furnace oil is more than the price of furnace oil itself. So furnace oil is now clearly not feasible. So we are using whatever the available sources are in form of grid or other thermal sources that are available to fulfill our generation needs, and we are doing pretty good on that front [Foreign Language].

Sir, what is your expectation for FY '26 local sales growth?

So I've just seen the 6 months number, Arsalan, correct me...

It's 13%.

It's 13%, right, for South and North combined, right? So I feel that even if things were to slow down, now [Foreign Language], we should end the year not below 9%. It should be at least 9% to 10% growth. And then this would be a very good sign because over the last several years, we are seeing a negative growth, and this will [Foreign Language] be the first year where we will see a growth number after a lot of negative growth years.

Sir, is company benefiting from grid incremental power consumption that government has recently issued?

Yes. So because previously, we were not using electricity. So company is benefiting from that, I would say, subsidized -- or not subsidized -- the new power package, I would say.

There are so many repetition of the questions. What is the coal transportation cost from South plant to North plant?

So I mean it is -- I mean, not from the South plant, but in fact, South port to the North plant, so it ranges from PKR 8,000 to PKR 10,000 a tonne.

Was acquisition of Rafhan under consideration by Lucky Group?

I have no idea.

Why are the prices in KPK lower versus Punjab?

Sorry, prices of?

Prices of KPK are lower versus Punjab.

You mean prices of cement?

Yes.

Competitive forces, I mean, if you have a more competition in the North, the geographical locations where plants are situated, how far they are from the domestic market. So I mean, it's a competitive environment. This situation keeps flipping every now and then. So at the moment, yes. Yes, the prices in North are softer because of -- and then there are various factors because if the cost of production of the North players is lower because of some reason, because of availability of cheaper coal or anything, that automatically gets reflected into pricing. So I would say it's a combination of competitive forces, the geographical dispersion of how the plants and demand is located and the cost structures of different manufacturers.

Sir, do you have any other acquisition plan for pharma portfolio?

So again, I mean, these are the questions, I mean, you know that we cannot share a lot of information because as long as things are under study, I mean, it would be actually harmful for the investors, shareholders to share any information. But at any point in time, we have these new ventures team in every vertical. Some people are looking at, let's say, pharma opportunities, somebody would be looking at auto opportunities like -- so if -- where I'm sitting, my team would be looking at cement or opportunities which would make sense at a holdco or a group level. So there are -- at any given point in time, there are various opportunities in the pipeline that are in study, and they can be shared once they reach at a certain level of maturity.

Would you be interested in any other privatization projects announced by the government?

I mean it all depends on the quality of the asset that is offered, the pricing, the terms. So I mean, because we took part in PIA privatization, so that means that we don't have a problem with privatization itself, but it will entirely depend upon the kind of asset and the kind of returns, kind of growth, the regulatory environment, especially that, that particular asset class has to offer.

Can you shed some light on margins of Samsung and Lucky Motor -- Kia vehicles?

So I mean, whatever the results you're seeing in the outgoing quarters, so I mean, we feel that the margins would be sustained given that obviously adjusted for any excessive competition that we see. So I feel that this would remain stable in the remaining 2 quarters.

Sir, If you collaborate with any Chinese player, will you be able to use existing dealership networks for these Chinese cars?

Again, I mean, that's a detail you guys will have to wait for it to come because I mean, there could be a lot of dynamics. So it's not plug and play.

What's the cost of electricity per kilowatt?

So electricity now, the bill that we are getting is around -- weighted average cost is around PKR 32 for our power. And this is weighted for the existing power plus the new incentive package that we are getting. It's around PKR 32.5.

I guess I don't have any other questions in the chat box.

Okay. Thank you all for attending, and I look forward to meeting you at our next meeting [Foreign Language].

Thank you. [Foreign Language].