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Lucky Cement (LUCK): 2QFY19 EPS Rs8.8, -30% YoY (-4% QoQ); (In-line with expectations)

• LUCK reported 2QFY19 consolidated earnings of Rs2.8bn (EPS Rs8.8), down 30% YoY, which was broadly in line with street consensus.
• Net sales were up 19% YoY during the outgoing quarter thanks to 25% YoY higher revenues from its subsidiary ICI Pakistan (contributes more than 50% to LUCK’s consolidated sales).
• Cement segment sales were up 12% YoY, mainly on the back of significant increase in exports (+138%), led by clinker sales to regional countries.
• Local sales were down 7% YoY in 2QFY19, as construction activities were affected by slowdown in overall economy (we anticipate real GDP growth to clock in at 3-4% in FY19 vs. 5.8% in FY18).
• Consolidated gross margins contracted by 8ppts to 21% YoY during the outgoing quarter as higher energy prices and inflationary pressure increased input costs. Resultantly, cement margins shrank by 10ppt to 30% while ICI’s margins contracted by 8ppts to 21%.
• Other income fell by 21% YoY in 2QFY19. We believe that this was due to a loss in one of LUCK’s equity-accounted investments. 

We flag 1) price weakening, 2) lower than anticipated local demand, 3) unanticipated increase in gas and coal prices, 4) delay in its upcoming ventures as key risk for the company.