Lucky Cement Limited ($LUCK)

Hello, everyone. My name is Arsalan, and welcome to Lucky Cement's Analyst Briefing for 9-month FY '26. I have with me Director of Finance, Mr. Atif Kaludi. Now I would like to request Mr. Atif to start the briefing.

[Foreign Language] Welcome to our third quarter analyst meeting for financial year 2026. Starting with our group overview portfolio of companies -- Arsalan, next, please. Okay. So a couple of events were sharing this quarter. First of all, we announced some time back the addition of a expansion -- rather expansion of 1.6 million tonnes per annum at our Congo plant. So this will be a fully integrated cement manufacturing facility. We already have a similar scale plant over there, and I have been mentioning in the previous analyst briefings that, we were operating at more or less 100% capacity. So that justified an expansion at the -- I mean, this is the right time to do it to protect our -- not only our market share but also capitalize on the increasing market size which will basically add to our overall profitability and revenues of foreign cement operations. Then we added 15-megawatt of solar capacity to our Karachi plant. And this brings our solar capacity to 89.3 megawatt. So in addition to the 28.8 megawatt of wind project at our Karachi plant and 89.3 megawatt of solar. And then in addition, we have WHR. So in totality, the contribution of all renewable sources is now close to 56%, 57% in the overall energy mix, which not only makes it cost competitive, but also sustainable in terms of its impact and footprint on environment. Then we added a technology at our Karachi plant, because Karachi lines are relatively older than our Pezu location. So this technology basically helps us produce more clinker with the help of less coal. And we can also use coal of slightly inferior quality having things like sulfur in it. So which makes our cost to production more competitive. We've recently announced addition of GSE brand to our vehicle portfolio, along with Kia and Peugeot, 2 days back they rolled out of 4 new models was done, out of which prices of 3 have been announced and 1 will be announced very soon. And we look forward to a very good contribution coming from GSE to our revenue of Lucky Motors. [Foreign Language] Then coming to our core, because what we've been seeing in the first 9 months, the economy, the positive macros -- most of the leading indicators of the economy doing pretty good. So we were almost touching a double-digit growth in terms of our domestic sales volume had it not been for the cost and price escalation due to the Iran U.S. award, where this -- the increase that you are seeing would have been double digit. But so far, it is 9%, and we expect that the year is going to close somewhere closer to this percentage. Thank you. Next, Arsalan. So in terms of market share, if you see Lucky has maintained its market share more or less close to the level where it was in 2025. So we are at 15.6% in terms of our domestic market share, which is slightly lower. I think we lost it because of new capacities coming online. And I think the bigger hit we've seen is in the southern region where the competition is more pronounced and, I think, more intensified in the recent months. So our total volumes, domestic remained at 4.9 million tonnes versus 4.5 million tonnes in the same period last year. And industry volume remained at 31.6 million tonnes for 9 months versus -- sorry, 31.6 million tonnes versus 28.6 million tonnes last time. Arsalan. So export volumes have seemed to have taken a dip for Lucky versus increasing for industry. So what had happened was that in the previous 9 months, which is for FY 2025, we had taken a great jump of around 40% growth versus FY 2024 because not only the demand was in our favor, but also, we had some favorable level of inventory of clinker, which was exported. So we kind of achieved a very high number in FY 2025. So now what we are seeing in these 9 months is more of a, I would say, a sustainable number on which we will then see a gradual growth in the coming years. [Foreign Language] So our volume of exports for the 9-month FY '26 remains at 2.3 million tonnes per annum. Export destinations, Africa has again taken the biggest portion of it. And then the biggest location in Africa, taking the share is Cameroon followed by Madagascar -- and Arsalan, then it's followed by? Can you give me the other 2 names?

Kenya and Ghana.

Kenya and Ghana. So it's Cameroon, Madagascar, Kenya and Ghana, most of you are very interested in the exact export destination. So here, we are sharing that. 74% of our export has gone to African countries. So the [Foreign Language] the growth in stand-alone figures is coming primarily out of the increase in domestic volumes. And I've always said that domestic volumes contribute much more than the impact of volume of exports. So you're seeing a net increase of 34% in our profit after tax number. And a big reason for this was not only the core income from cement increased, but also the dividend income increased because of Lucky Electric are giving us 2 dividends -- 2 interim dividends this year, PKR 6 billion plus PKR 6 billion, which is PKR 12 billion versus in the previous years, we have been only getting a PKR 6 billion each year from them. So this year, their cash flows allowed to disburse more. So they've done that, resulting in a growth of 34% in the PAT number. Consolidated, I would say, first of all, the red arrows in the GP and OP are, I think, primarily because LCI has faced some challenges in sales of soda ash and polyester because of competition being phased from dumped products from China. And that has happened because of reduced duty rates for the competing imports. So that has challenged the margins on soda ash and polyester. Other than that, all business of LCI are doing pretty well. Apart from that, the drop in GP also has something to do with the way IPP accounting is done, because as we have repaid Lucky Electric's debt partially, so they are getting less reimbursement of debt, which is resulting in a lower revenue and lower financial charges on the P&L. So on a net basis, they may be slightly better off. But on a gross profit basis, it appears that the consolidated GP has gone down. Then apart from that, in international operations, our Iraq numbers took a dip in the third quarter because of the U.S. and Iran situation. The economy of Iraq was not doing well because their reliance is on export of crude. And they were not able to export it because of the closure of Strait of Hormuz. And apart from that, they also had a change in the political setup, which is now stable. So we should [Foreign Language] see things normalizing in Iraq very soon. So outlook, in general, while for example, Lucky Electric is primarily dependent on the offtake of power from it. So apart from Lucky Electric, I think all our businesses will continue to track how our country's economy is doing. And mainly -- so it will track how our economy is doing. And so -- and then let's -- I think, Arsalan, we can take the remaining in the Q&A. Because I think, outlook people will have a lot of Q&A to cover.

So I'll be taking questions via chat box. I have received some questions. First question is, what is the current utilization level of all 3 foreign plants?

Yes. So normally, up until 2Q, all 3 foreign plants were utilized 95% plus. It was only in Q3 that 1 of our locations in Iraq, utilization dropped and the cost and revenue were kind of -- they pressurized the margin, which is why we saw a drop in profitability of international operations.

Why there was a dip in other income during quarter-on-quarter?

Quarter-on-quarter as in 3Q versus 2Q?

Yes, sir.

So okay. So I mean, if you exclude the dividend, the dip was mainly because we have the cash portfolio that we have is divided into money market mutual funds and a portion of it is also invested into equity mutual funds. We don't take direct exposure to equity, but exposure has been taken through mutual funds. And because of the -- I think, you can say the dip in stock market resulting in a deepen NAV of those mutual funds we had to book an accounting loss which has been mostly recovered in the subsequent period.

What is the reason for falling LCI earnings and when soda ash business back to normal?

So the drop in LCI earning has been because of competing imports of both, as I mentioned earlier, soda ash and polyester, because of favorable duty rates for imports. And we are leasing with the government to not only correct this anomaly, but we are also planning to file -- or that has already been filed. The antidumping action to be taken against these imports.

Is Lucky Cement looking to restructure or reclassify into holding company rather than just a cement company?

So practically, what we are doing is that Lucky Cement has 2 functions. We are an operating company as well as a holding company. But legally, we don't want to touch that at the moment because that complicates the flow of dividends between entities and that is subject to change at any given point in time in Pakistan, so we don't want to touch the structure.

So what's the current coal price? And how much is the inland freight transporting to Pezu plant?

So the inland freight from south to north is around PKR 8,000 to PKR 10,000, depending on demand, supply and seasonality, how much volume of transport is available. PKR 8,000 to PKR 10,000 per tonne of coal. And as far as the coal is concerned, we are now relying on a mix of imported coal coming from the Karachi port and local coal coming from the northern areas. So -- and this keeps changing every now and then depending on the changing dynamics. So the average cost of coal local and imported for both our plants is currently around PKR 40,000.

Sir, how much improvement in gold required per tonne we can expect from UC3?

So there is an improvement of, I think, around you can say 5% to 6% in coal consumption for the Karachi plant. Sorry, Arsalan, maybe I didn't hear you.

What's the management's latest outlook on domestic cement demand for FY '27, especially considering expected PSDP and infrastructure spending?

FY '27.

Yes. For the next year.

Yes, FY '27. So as long as, if you keep this Iran-U.S. war aside, we were easily touching a double-digit growth this year, and we could have touched a high single digit next year on a sustainable basis. This trend could have continued given that the economy has started picking up. But now if I talk about whatever has happened, I think we -- the economy will see an impact of the increase in cost and inflation and interest rates with a lag. So I mean, this year should end around where it is right now, 8% to 9%. And maybe next year, the growth will be hampered and depending on how long this tensions continue between U.S. and Iran. So I mean, we could see maybe a more modest number of growth, like around 5% next year.

Is the company still prioritizing export market? Or will focus shift from local dispatches if the activity improves?

So always, for any industry, big industry in Pakistan, local is always a priority because local market gives you a better price in comparison to exports. So for cement, at least, I can say that local will always remain a priority and whatever is plus from the local that is exported because exports give you a lot less margins, although exports are precious foreign exchange for the country. But the way demand and pricing works is that priority is always given to locally.

From where the company is sourcing coal?

From where the company is sourcing coal, it's mainly coming from Tanzania in form of imports and local coal in the northern -- from the northern mines in Pakistan.

What was the volumetric decline in Iraq during March quarter and outlook for fourth quarter?

Volumetric decline, I can't give you an exact number. But I mean, decline was quite significant.

The domestic sales growth has also showed down and likely to remain in single digit...

I should -- the second part of the question you asked, we see those volumes rapidly normalizing in the fourth quarter. [Foreign Language]

The domestic sales growth has also declined and likely to remain in single digit in FY '26 versus earlier expectation of double-digit. Can you inform what percentage growth you are expecting for FY '27 domestic sales? I think this has already been answered.

Yes. We already answered this.

What's the outstanding overdue receivable balance of Lucky Electric?

Lucky Electric receivable normally hovers around 4 to 5 months of overdues. The situation, I wouldn't say that the situation is very comfortable. But the overdue balances, I think, are being managed at the -- at a certain level. And I think we are just surviving with those overdue receivables. But the situation, I wouldn't say that it is very comfortable.

What's the outlook on autos after launch of GSE versus competition with other Chinese brands?

Yes. So I think we've made -- LMC has made a very right move at the right point in time. Entry of a Chinese EV through LMC was long awaited. And we've introduced the right lineup at the right time. [Foreign Language] So you'll see the results very soon with us. [Foreign Language]

What is the current situation of Afghan border?

Afghan border continues to remain closed. There's no stuff coming in or going out. But it has, I would say, we -- at least Lucky Cement has not felt a lot of pinch, because we were not relying on the Afghan border for our exports, because we have the option of Karachi port and the volumes -- for us, from Afghanistan region were around maximum 20,000 to 25,000 tonnes per month in good times. So losing that volume of exports and converting that to domestic has not done as much harm. But yes, I mean, in terms of coal availability, 1 option that was there, that has closed down, but I think the local mines are catching up with the demand.

Sir, what are your plans for further diversification?

So at any given point in time, we are looking at multiple opportunities. Privatization, there are a lot of new projects being showcased under privatization. So let's see what we come up with next. But I mean, there's -- I can't say that there's anything that is on a very high probability of happening right now. But evaluation is ongoing for several options.

So what are the current retentions for local and exports?

So exports would be clinker and cement an average of $40 for our Karachi plant. $40 is basically on an FOB basis. So whatever the freight is that the buyer has to pay, so we get a netback of $40. And normally, our export range is around 200,000 to 250,000 tonnes per month from Karachi plant. And it is normally the mix is like 60% or 65% clinker and the balance is cement. So a weighted average basis, the price is $40. And for retention on the local, if I average both the North and South, we are currently -- Q3 was the 15,500. This was PKR 500 higher versus the prior quarter.

So what's the current rate of grid electricity? And how much company is utilizing that?

So the current rate of grid electricity, because of the fuel surcharge and the MDI, so we see different rates for both our plants, but on an average what I have seen is that we are being charged somewhere around PKR 33 to PKR 35 per unit for electricity at both the plants.

Any outlook on EV policy going forward in the upcoming budget?

So as far as the budget is concerned, groups like us and companies have given a lot of recommendations to their respective association, for example, we use Pakistan business counsel to give our proposals. There have been a lot of positive conversation going on, but the challenge is not -- I'm not specifically talking about any segment or sector or a policy on a particular product. But in general, I think the overall budget proposals, there is a question of IMF's Nord on the respective proposals, because of the reasons you already know. So I think we'll have to wait and see till first week of June on what exactly comes out after that filter is applied.

What's the progress on NRL business?

NRL exploration activities are progressing as per plan. Apart from the -- some hiccups phase due to security issues, which I believe are a part of operating in that region. So we are progressing as per plan.

Lucky Electric dividend will sustain or it can increase more?

So I think this time around, Lucky Electric was able to give this extra dividend because the previous dividend that they were giving was not matching their earnings. And this time around, I think this dividend that they gave had basically compounded for the last year or 18 months or so. So it is difficult to say that it is sustainable, but -- and another factor -- a big factor of Lucky Electric paying tiny dividends is issue of secular debt and whether Lucky Electric gets paid on time or not.

Do you expect any reduction in FED or royalty in upcoming budget?

I mean, I have no indication as to why anybody would think whether the FED would decrease or any number in Pakistan would decrease.

How much of the current coal inventory do you have?

So we normally maintain a comfortable position of around 60 days for -- of coal for both the locations. And then, we [Foreign Language] continue to maintain that. And in addition to coal inventory, then also have clinker inventory. So that also hovers around between 30 to 45 days. So assuming that, let's say, if our coal supply stops today, we can easily continue operating a plant for another 3 months.

Will you continue to export to U.S. market and what growth you are expecting over the next 2 years?

So U.S. was a new market, and it wasn't a very high-volume market. And so we have a reliance on a variety of markets, although the pricing of U.S. market was good, but at the moment, we are mainly relying on African markets.

How much is the company targeting sales from [indiscernible] in the next upcoming 1 year?

[Foreign Language] We can answer that question at the end of the quarter.

Please maintain fuel mix and power mix for current quarter and 9 months.

Sorry, Arsalan, can you say that again?

Can you please mention fuel mix and power mix for the current quarter and 9 months?

Fuel mix and power mix. So I mean, aren't both the same things?

Yes, it's the same question, I guess.

Okay. So I mean, you can say that on a company basis, because now it keeps wearing on the season, if it's a high wind, high sun season, so you get more renewable and vice versa. So now the quarter that we are in right now, that's a high wind, high sunlight season, so the renewable will be at its peak. But on an average, we should be getting around 55% of renewable energy coming from, like I said, wind, solar and wastage recovery.

So company cash is piling up day-by-day. So what are your plans, like reinvestment, buyback, dividends or any other preferences?

So let's wait for the year-end meeting. Maybe we have some projects to share with the analysts at that point in time.

Do you see any opportunity for Lucky in construction post end of U.S. Iran war?

I can't say no or yes, because I still have to see any specific opportunity come to us in that regard.

Do you see any further consolidation in the cement sector?

Not that I know of. No. Okay, Arsalan, so if we can take maybe 1 or 2 last questions because I think now the questions are of repetitive nature.

When Lucky Electric is expected to get coal from SECMC?

So at the moment, Lucky Electric, [Foreign Language] is already getting 40% to 50% local coal. And this would, [Foreign Language] within the start of the next financial year we should be able to move to local coal fully. In the first quarter of FY '27.

Sir, do you see any growth in mobile phone and assembly business?

Arsalan, can you hear me?

Yes, sir. Do you see any growth in mobile phone and assembly business?

Yes. So apart from the impact of U.S. Iran war on inflation, high interest rates, we are seeing the mobile phone as well as automobile industries, volumes growing for the last 2 years now. So yes, that momentum should continue.

When do you expect Afghan border to reopen?

Very difficult to say. No idea.

Do you have any plan to share numbers on [indiscernible]

No.

Can you please repeat local retention and export clinker retention?

Local retention average PKR 15,500 and average clinker and cement $40 a tonne. Okay. I think Arsalan we've covered most of the things. And thank you, everyone, for attending the meeting. It was good to host you and answer -- try to answer most of the questions you had. And [Foreign Language] look forward to meeting at our annual analyst briefing again. [Foreign Language]

[Foreign Language]