Lucky Cement increases stake in joint venture with Kia Motors

Adds investment of Rs2b; CEO positive on future outlook of auto industry

KARACHI: Buoyed by returns and growth of the auto sector, Lucky Cement announced on Monday to increase investment in its joint venture with South Korean carmaker Kia Motor Co by Rs2 billion.

Its total investment in Kia Lucky Motors Pakistan Limited will now be Rs14 billion.

The announcement was made by Lucky Cement as it announced quarterly results for July-September, and interestingly comes as the government slapped 15% regulatory duty on the import of all used and new cars, which was a decade-long demand of Japanese car assemblers in Pakistan.

The duty also protects three non-Japanese car assemblers that are in the process of setting up assembly lines in the country. Kia is one of the three. “We are increasing our stake in the company,” Lucky Cement CEO Muhammad Ali Tabba told The Express Tribune.

“The increase in investment is being made keeping in view promising growth outlook in the [car making] industry,” he said.

He said Kia vehicles would give more options and choices to consumers.

In a notification to the Pakistan Stock Exchange on Monday, Lucky Cement Director Finance/CFO Irfan Chawala said the “company be and is hereby authorised to increase the equity investment to be made in the...associated company, Kia Lucky Motors Pakistan Limited...by Rs2 billion to an amount up to Rs14 billion.”



The new car company would manufacture, assemble, market, distribute, sell, offer after-sales service, import and export all types of Kia motor vehicles, parts and accessories in Pakistan under licence from Kia Motors Corporation, he said.

New wind power project

Meanwhile, Lucky Cement, part of the Yunus Brothers Group, also announced to increase investment in a wind power project.

“Lucky Cement...in addition to the proposed equity investment in Yunus Wind Power Limited is also in the process of evaluating to make equity investment up to Rs720 million for development of an additional 50 megawatts Wind Farm, jointly with other Group Companies through acquisition of an existing project company subject to the approval of the board and shareholders of the Company,” Chawala said in another announcement.

Tabba added they may get the new power project approved at the Extraordinary General Meeting (EOGM) before the board of directors does so.

The likely EOGM approval would immediately allow the company to apply for a power tariff.

Company’s profit up 3% to Rs4.16 billion

Lucky Cement’s consolidated profit improved 3% to Rs4.16 billion in the quarter ended September 30 mainly due to increased sales and other income, according to a bourse filing on Monday.

The company had booked a profit of Rs4.04 billion in the same quarter last year.

Earnings per share increased to Rs11.90 from Rs11.69.

Board of directors of the company surprisingly recommended a cash dividend of Rs5 per share. The dividend will be paid to the shareholders whose names appear in the register of members on November 20, 2017.

Its share price hit the lower limit of 5%, or dropped Rs26.85, to Rs510.26 with a volume of 242,600 shares on Monday.

The company’s sales increased 15% to Rs22.58 billion from Rs12.81 billion.

Topline Securities said half the growth in sales came from its subsidiary ICI Pakistan. “ICI sales grew to Rs11.4 billion, up 23% year-on-year primarily owing to higher revenues from polyester, life sciences and chemicals and science businesses which were up 31%, 29% and 25%, respectively,” according to the brokerage house. Other income increased 40% to Rs1.22 billion from Rs873.91 million.

The income from other than core business surged “on the back of higher income from deposits with Islamic banks and other financial institutions and 89% year-on-year growth in Luck’s equity accounted investments, primarily owing to contribution from its Congo plant which started commercial production from December 2016,” the brokerage house added.



Commenting on the surprise announcement of cash dividend, it said, this was to comply with 40% payout law (if not paid can lead to 7.5% tax on undistributed profits) introduced by the government in Finance Act 2017.

The company has challenged the imposition of 7.5% tax on undistributed profits in Sindh High Court (SHC), which is still pending.

It maintained that sales from cement operations were up 6% in the quarter thanks to 24% year-on-year growth in local dispatches to around 1.5 million tons.

Consolidated gross margins shrank by 8 percentage points to 27% mainly owing to a considerable decline in margins from cement operations, down 14 percentage points to 37%. “We flag price competition, higher than anticipated decline in exports, unanticipated increase in gas and coal prices, delay in installation of 660MW coal power plant and delay in commencement of Lucky’s upcoming capacities as key risks for the company,” it said.

Published in The Express Tribune, October 31^st, 2017.

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