Lucky Cement Limited (LUCK) Q2 FY2026 Earnings Call Transcript & Summary

[Foreign Language] Welcome to Lucky Cement Analyst briefing of First Half FY '26. My name is Arsalan, and I will be moderating the Zoom session. I have with me Executive Director of Finance, Mr. Atif Kaludi. He will brief you about some remarks about Lucky Cement. So I would like to request Mr. Atif sahab, to please start the briefing.

[Foreign Language], everyone, and thank you for joining our analyst briefing. I'll take you through the results and other updates and outlook for the outgoing quarter, second quarter 2026. So a quick recap of the portfolio of our companies and the majority brands that we are looking after. Arsalan, next slide, please. Okay. So I think the biggest highlight of the outgoing quarter is the increase in cement demand versus previous years. So we can see that cement industry overall and primarily, domestic is the more important portion. So the domestic demand has grown by around 12.5% this year. And naturally, Lucky Cement being one of the largest capacity holders in the country was the beneficiary of this. And as a result, our first half FY 2026 sales was 3.36 million tonnes versus 2.98 million tonnes in the comparable period last year. Then continuing our strategy of adding renewable energy to the power mix that we have. We've added another -- rather we plan to add another 15 megawatt of solar capacity to the energy consumption mix that we have. And post which our total solar capacity will rise to 89.3 megawatts. And we already have a 28.8-megawatt wind power project at our Karachi project. Just give me a second, I just need to fix something on the laptop. I hope I can be heard. So overall, if you look at the power mix of Lucky Cement, approximately 56% to 57% of our energy is coming from renewable sources, which primarily includes this 89.3 megawatt from solar, 28.8 megawatts from wind and then balance is coming from our waste heat recovery units. Waste heat recovery is basically, it gathers the surplus heat from the kiln and the power generation segments of the plant and it uses that heat to generate electricity. Then we announced an expansion of a fully integrated cement manufacturing plant of 1.6 million tonnes in Congo. And as part of our PSX notice, you can see the total capacity that we [Foreign Language] now have within Pakistan in Congo and in Iraq as well. Then we constantly look towards avenues of increasing efficiencies and within the manufacturing process, which could either enhance our productivity or bring down our cost of production because cement is -- has a highly competitive landscape with surplus capacity in the country, we need to make sure that our cost remains at the lower end of the curve. And hence, our both Karachi and Pezu plants remain competitive. So this technology by the name of UC3, we've bought this technology. We've implemented it on 2 of our cement lines in Karachi. They costed around PKR 3.5 billion for 2 lines. It was successfully implemented. What it does is that it reduces your coal consumption. It gives you higher clinker per tonne of coal that is going in. And plus it gives you flexibility to use slightly lower spec coal, which has a high sulfur content. So if you're able to do that, that means your overall equation becomes suitable for the cost of production. So if you use high sulfur coal, high sulfur coal is -- it costs lower. And with that low costing coal, you can produce more clinker. So these kind of projects have a payback of around 5 to 7 years, depending on what is the quality of coal that you're getting and how much clinker you are able to produce and sell. So we've done it on 2 lines in Karachi, and we plan to do the same for the 2 lines. So you'll see the full impact of this [Foreign Language] starting next year. Arsalan, next slide, please. So what I mentioned was that the industry local sales volume is 21.2 million tonnes this time around versus 18.6 million tonnes of demand last time. And domestic demand is very important for the cement industry because exports is always a second priority after domestic because exports market is because of the freight, your margins are even, in fact, in fact, significantly lower than that you're able to get in the local. So despite reaching this level, the cement utilization levels of the industry's capacity remain at a historic low, but at least they are -- it looks that the worst is now over. So similarly, so if you just see our market share on the previous slide, Arsalan. So the market share has more or less remained the same. There's a drop of 0.1%, which is due to different competitive forces and demand and supply dynamics. So exports, if you recall, last year, our exports had significantly jumped in volume terms. So last year, our export market share was 32.5%. And so we had grabbed a huge quantum in terms of market share and volumes of the export market. So now what has happened is that the remaining players who have access to export markets have also caught up. So this time around, our exports have naturally, they have not increased as much as they did last year. So in fact, this time around, our exports are slightly lower at 1.5 million tonnes versus 1.8 million tonnes last time. And part of the reason also is the Afghan border closure, which has had an impact of around 100,000 tonnes on us. So the export destinations, Africa remains our key export market, followed by Afghanistan is not there for now, followed by Brazil, Sri Lanka and the U.S. So gross profit and all other profitability indicators are [Foreign Language] pointing up. Other income, you see a huge jump. That is mainly because of dividend during these first 6 months coming from Lucky Electric, which was not there in the first 6 months of FY 2025. And that dividend came in the latter half. So this is, I would say, a timing difference, which you are seeing in other income. Apart from that, PKR 6 billion, all the delta is attributable to the increase in partly the financial income that is being generated on the surplus cash and short-term investments that we have and then the impact of all the efficiencies that we've added into the system, just like I mentioned, UC3. And apart from all of that, because our fixed cost base is designed around 15.3 million tonnes of capacity. So the more you're able to sell through that capacity, the higher will be your gross profit and GP percentages. So like I said, this time around, our domestic sales was 12.5% higher, so which has resulted into an increase into our gross profitability to PKR 25.5 billion. So if you look at our -- the breakdown of consolidated profitability, apart from cement segment, most of the sectors have performed in a stable manner, except for, I would say, LCI, which has faced some challenges in Soda Ash and Polyester segment due to the adverse tariff regime. And the drop in gross profitability that you're seeing over here is also because of Lucky Electric because, the tariff for the IPPs, it is structured in a way that your debt component as you keep repaying your debt, as the debt component reduces, your revenue also reduces. So it appears that the GP has gone down. In fact, it has actually remained on the positive side. But because of Lucky Electric's tariff, it appears that it has gone down. But it has no impact on the bottom line because the financial charges also go down. So outlook overall, for cement, you're seeing that we have seen a growth of 12.5%. We -- in the remaining 6 months of the year, we have two Eids and Ramzans, and partly June will be the monsoon season in this year. So maybe that growth percentage slightly reduces, but we still expect that even if the growth percentage is in a single digit for the overall year, it should be around 8% to 9%. Chemicals, I said that the main challenge is at the moment in Soda Ash and Polyester, but the other segments, [Foreign Language], including Animal Health and Pharma are doing well. And all other segments have a kind of a stable outlook for the remaining medium term. So that's it from my side. Arsalan, now we can take the questions.

So if you have any questions, please type in the chat box. I have received the first question. When is 15-megawatt solar plant expected to come online? And what's the...

Arsalan, do you have the expected completion date with you?

Yes, sir, it's Feb...

Feb 2026?

7. No. No. March, 2026. It's March 2026. And the CapEx is around PKR 1.2 billion. What's your exposure on super tax -- and your view on it?

Sorry. Sorry. Arsalan, say that again.

What's your exposure on super tax and what are your views?

So super tax, first of all, please understand that the super tax order that has come from the FCC, it is a short order. And we await the detailed order to see that what were the exact basis of the decision. And obviously, based on that, we will assess the chances of success in a review at the same forum. At the moment, it seems that the decision on all grounds, whether it's on final tax, normal tax and all the grounds around retrospectivity that we have taken have all been decided against the taxpayers. But I mean, we are still continuing to do our homework on -- and then we await the detailed order post which we will have discussions with our legal counsels.

What are your views on cement prices, particularly in North? Will the prices in North catch up with the South?

So if you see for the last 3 years, because of the demand-supply dynamics, and competition, you will see both periods where South prices have been better than North and vice versa. So I mean, it is difficult to say the exact trajectory where the prices will remain in the foreseeable future. But I feel that currently because there is good demand that has come in, so the prices should remain at the current levels.

Does management expect volume increase to offset price...

I just got a question, and I think it's important for people to know that now Afghan coal was not coming in because of the border closure plus Afghan coal being a higher quality coal had already become very expensive. So most of us were not buying Afghan coal. Then, now, local coal supply has almost finished. So now we all are relying on imported coal. So obviously, Karachi, for the Karachi plant, we don't incur any freight cost, but for supply to our North plant from Karachi, we are incurring freight anywhere from PKR 8,000 to PKR 10,000 per tonne.

Does management expect volumes to offset pricing pressure?

Say that again, Arsalan. Management expects to...

Volume increase to offset pricing pressure?

Volume increase to exert pricing pressure?

To offset pricing pressure.

So I mean, if there is demand, but there is capacity also. So like I said, prices -- I expect the prices to remain stable or gradually increase over a period because of inflationary impacts. But overall, I feel that the prices should remain stable.

What -- retention in North, retention in South, export retention, current coal price?

Okay. So if I were to tell you the current domestic retentions. As you know, South is higher than North because of the competitive landscape. So the average retention currently is around PKR 15,400 for North and South. For, coal. Coal, our cost average is around PKR 34,000 for both the plants. Clinker exports is around $33 to $34 a tonne and bagged cement exports is around $45 to $46 a tonne.

What are your views on recent acquisition and expansion?

So I can see a question. Can you quantify the possible cash flow stemming from the super tax case? This is coming from Mr. [Wadi Zaman]. So [Wadi], if you see our balance sheet, [Foreign Language]. And I've always mentioned when you -- people ask that the surplus cash, will it be distributed for dividend and what is the surplus cash there for? So I always specify that it is for future growth. It is obviously partially, it is for dividend, but it is also there for contingencies. So I mean, we have adequate amount of cash reserves for any such contingencies, if eventually they become payable. And we don't foresee that this -- regardless of the extent of the impact of this decision, we should have any problem. So I think the situation in our case, at least [Foreign Language] is very manageable.

How is -- we are planning to navigate recent surge in competition?

I mean autos, mobiles, these consumer spaces are -- they are all about competition. And I think one cannot expect to be in a landscape where you see a lack of competition, especially with so many brands and Chinese models coming in. So I think [Foreign Language], we will live up to the expectation of our customers and investors.

What are your views on recent acquisition in cement sector?

I mean -- so I mean, I'm not sure how will it impact the overall cement demand and supply dynamics because this is just consolidation, right? I mean, so the surplus capacities instead of somebody putting a surplus capacity, if somebody is acquiring another plant, I see this consolidation as being overall positive for the cement sector.

After the PIA bid, do you plan to bid on upcoming privatization?

Arsalan, sorry, say that again.

After the PIA bid, do you also plan to bid on the upcoming privatization...

Yes. So I mean we continue to explore investment opportunities within Pakistan into the private space and as well as what the government has in store for privatization. So obviously, privatization is a part of our agenda. And depending on how feasible these projects are, how do they fit in our overall portfolio of investments. So we continue to explore all these options that are available.

Are there any pressure on sea freight on imported...

Not very recently. Not very recently.

What is the impact of PKR 4.04 reduction in grid rate for industry?

So this announcement has come in on Friday. Notification is awaited. But -- so let's see. Let's see. I mean, specifically given -- you see, like I said that if, let's say, 50% of our energy needs are met through renewable, right? And balance is coming from grid. So one can imagine that this [PKR 4.4] reduction may not have a significant impact, had we been entirely operating on grid.

How is the demand...

I got a question about the lower effective tax rate this time around. So the tax rate this time around is lower because the overall tax provision includes certain estimations and recording of deferred taxes, which are eventually payable in the future. So from time to time, your estimation changes slightly. And because of that slight change, you may have seen a reduction in our effective tax rate. And another reason of our tax rate being lower is that certain portion of our income are taxed at a lower rate. For example, our dividend income is taxed at a lower tax rate or the surplus investment income is taxed at a lower rate. So if the proportion of those income streams is higher, the overall tax rate appears to have reduced. Do you have plan on implementing UC3 on all of your cement plants? So because our Karachi cement lines are old and they are less efficient, so which is why we've taken this step first on the Karachi plant. And we'll see if there will be any value addition at our North project. But at the moment, we don't have any plans for our North plant. So will ESG reporting and implementation -- according to SECP will need to be done would impact -- sorry, it says that -- so basically, the question is that, will ESG reporting and implementation impact any cost efficiency? No, it's only reporting. And because we are already compliant with the Pakistan standards and in fact, in some cases, we are compliant with foreign standards also. So we don't see a challenge. This is only reporting requirement that is increasing. So I mean, partnership with any Chinese automobile manufacturer? You have to wait for this news to come in. And if it comes, you will be in [Foreign Language] the first ones to find out. So Arsalan, do you have any more questions?

No, sir. We don't have any more questions. That was the last question.

Okay. Okay. So I think we are done.

Thank you, sir. [Foreign Language]

Okay. Thank you, everyone, for joining. [Foreign Language].