Karachi, September 07, 2023 (PPI-OT): LCI: Diversified conglomerate with consistent payouts

Lucky Core Industries Limited (LCI) offers a well-diversified exposure to industries ranging from food, agriculture, chemicals, glass, healthcare and textiles.

LCI conducted its Corporate Briefing yesterday to discuss FY23 results and outlook. On a consolidated basis, bottomline for FY23 EPS stood at Rs190.15, 2.1x YoY higher. The increase was primarily attributable to profit from discontinued operations (NutriCo Morinaga Pvt) of Rs10bn which mainly includes gain and re-measurement reported during 3QFY23 (Rs109/share before tax).

Despite economic challenges in the past year, LCI showed resilience on back of operational excellence and investments in new projects. With macroeconomic issues expected to persist during FY24, management will continue to focus on cost efficiencies to address demand pressures.

Economic slowdown impacted business in FY23

Lucky Core Industries Limited (LCI) offers a well-diversified exposure to industries ranging from food, agriculture, chemicals, glass, healthcare and textiles. The company conducted its Corporate Briefing yesterday to discuss FY23 results and outlook. On a consolidated basis, bottom-line for FY23 EPS stood at Rs190.15, 2.1x YoY higher. The increase was primarily attributable to profit from discontinued operations (NutriCo Morinaga Pvt) of Rs10bn which mainly includes gain and re-measurement reported during 3QFY23 (Rs109/share before tax). During 4QFY23, LCI posted a consolidated LPS of Rs47.6 owing to a one-time higher tax charged on the discontinued segment. LCI announced a final DPS of Rs33 taking full year DPS to Rs43.

Management apprised that while import-driven segments were impacted by macroeconomic challenges, cost optimization remained key focus in the outgoing year.

Soda Ash business on a growing trajectory

LCI is the market leader in Soda Ash segment with a total production capacity of 560K tons/annum, with a significant addition of 210K tons/annum capacity in the last five years. LCI has in principle received approval from Board of Directors for additional capacity expansion of 200K tons/annum. Installation of additional coal fired boiler to support this expansion is also a part of plan.

The Soda Ash plant’s strategic geographical location in proximity to the Khewra salt mines ensures convenient access to essential raw materials such as salt and limestone. Notably, in FY'23, the company achieved its highest-ever export sales, reaching 63K TPA, underscoring its success in the international market. Due to continued investment in capacity expansion, energy efficiency projects and focus on exports, the Soda Ash segment’s EBITDA posted 60% YoY growth in FY23.

Polyester segment struggles with lower demand

LCI is the second largest domestic player in the polyester market with a production capacity of 122k tons at full capacity utilization. The outgoing year was difficult for the textile sector as a result of which LCI’s Polyester business struggled with reduced demand in its downstream industry coupled with higher costs. Operating profit for the segment during FY23 clocked in at Rs3bn, 16% YoY lower due to aforesaid lower demand and reduction in energy subsidy by the Government for the textile sector.

Cost hikes impact the Pharmaceutical business

LCI’s Pharma business has been facing challenges on the profitability front due to\ cost increments. Multiple strategic initiatives including internalization of the cardiology portfolio, new product launches including life cycle management and resource optimization initiatives were implemented during the outgoing year. Management believes that challenges are likely to persist for the segment in FY24 due to the ongoing PKR depreciation and inflation scenario.

Animal health, Chemicals and Agri sciences businesses

LCI has a 12% market share in the livestock market whereas in the poultry market it has a market share of 11%. The Animal health business segment showed a 23% YoY increase in operating profits during FY23. LCI has planned an investment of up to Rs633mn for setting up a green field veterinary medicine manufacturing facility.

Management shared that the Chemicals and Agri sciences businesses are on track where effective cost management and strong performance in the oil seeds segment led to a 29% YoY increase in operating profit during FY23.

Delay in LOTCHEM stake acquisition and project with TGL

LCI's planned acquisition of a significant 75% shareholding in Lotte Chemicals (LOTCHEM), the sole producer of PTA - a primary raw material for Polyester Fibre (PSF) production - is facing some delay. LCI is currently awaiting approval from the Competition Commission of Pakistan (CCP). LCI is actively engaged in establishing a Greenfield project for 1,000tpd float glass, a collaborative effort within a joint venture alongside TGL. The company has already taken initial steps by providing an advance payment for land acquisition. As per the management, while some challenges on the LC front have led to certain delays, it is essential to note that it remains committed to advancing this venture.