Elixir Securities Limited - Elixir Insight.

Karachi -- December 05, 2018 (PPI-OT)

Lucky Cement Limited - Consolidating the Conglomerate

With its ongoing expansions, contribution from local cement operations to LUCK's Consolidated Earnings is projected to come down from 80% in FY18 to 58% by FY22. We are thus switching to publishing consolidated financials from now on; our Jun-19 PT however remains unchanged at PKR625/share, as our valuations had already been reflecting LUCK's ventures in other businesses.

With a 5 year CAGR of 18%, LUCK offers an enticing growth story mainly driven by its power venture i.e. LEPCL which will contribute around 25% to LUCK's consolidated earnings from FY22.

In addition, LUCK also offers exceptional diversification as it also operates in consumer markets through ICI and thus safeguards itself against weak cement dynamics which dominates its profitability.

We continue to flag our liking for LUCK that stands out from its peers due to 1) leverage free domestic cement operations and 2) lowest cost cement production. Beyond domestic Cements, other ventures account for almost 40% of the Valuation where we particularly like the investment in Lucky Electric Power - an area that we feel the market has not completely appreciated so far.

Consolidating the Financials: With its ongoing expansions in Automobiles, Power, Chemicals, Pharmaceuticals, Nutraceuticals and overseas Cement Operations, Lucky Cement Limited (LUCK) is all set to become one of the leading Conglomerate in Pakistan. In fact, contribution of local cement operations to the Company's Consolidated Earnings is projected to come down from 80% in FY18 to 58% by FY22. Similarly, local cement operations which contributed 45% to the total revenue in FY18 will only be accounting for 27% of the pie by FY22.

We have thus consolidated the financials of all the businesses and will be laying out the projections on Consolidated Statements from now on. Note that our Jun-19 Target Price for the stock remains unchanged at PKR625/share, as our valuations had already been reflecting LUCK's ventures in other businesses. We maintain our BUY call on the stock and re-emphasize that the Company should not be viewed as a pure cement play as the profitability contribution (EPS impact: PKR24 in FY22) from Lucky Electric Power will alone allow the group to post 5 year CAGR of 18% (FY18-23) - a feat unmatched by other Cement Players due to weak sector dynamics.

Domestic Cement Operations to Remain Depressed During FY19: We expect local cement operations of the company to remain depressed on the back of 1) slowdown in economy, 2) high cost of imported coal, 3) interest rate lift off making house financing more expensive...