LUCK’s Core Improvement to Uplift Valuation

A Bullish Upgrade

JS Global is upgrading its stock rating for LUCK to Buy from a previous Hold. We are raising our Sum-of-the-Parts (SoTP) based Target Price (TP) from Rs480/sh to Rs570/sh, implying a 17% upside from the current market price.

The central thesis for this positive revision is a stronger contribution and an improved outlook for LUCK‘s core cement operations, which are now poised for enhanced profitability and growth.

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The New Valuation at a Glance

The upgraded valuation is underpinned by several key financial metric adjustments and a more favorable market outlook. These core drivers highlight the improved investment case for LUCK.

• Target Price Increase: The target price has been raised to Rs570/sh from a previous Rs480/sh.
• Core Cement Contribution: The valuation of core cement operations has increased to Rs286/sh, now accounting for 50% of the SoTP valuation, up from its previous contribution of Rs214/sh (45%).
• Favorable Risk Assumption: The valuation model now incorporates a lower risk-free rate assumption, reduced from 12% to 11%.
• Attractive Multiples: The stock is trading at attractive P/E multiples of 7.8x and 6.7x based on our consolidated EPS forecasts of Rs62.8 for FY26E and Rs72.2 for FY27F, respectively.

Drivers of Core Cement Improvement

The enhanced valuation is rooted in specific, positive changes within LUCK’s standalone cement business, which have led to a more optimistic earnings forecast.

Strengthening Margins

Standalone earnings are driven by stronger margins, which are expected to average approximately 38% (supported by a 39.2% margin in 1QFY26A). This improvement is attributed to four key factors:

• Softer international coal prices, which reduce input costs.
• Improved export margins resulting from a strategic shift from selling clinker to higher-priced cement exports.
• Lower grid tariffs, with the company benefiting from an average rate of Rs32.5kwh.
• Improved other income, driven by higher cash balances on the balance sheet.

Robust Domestic Demand

Our domestic cement demand forecasts have been revised upward to 11% for FY26E (from 8%) and 8% for FY27F (from 6%). This outlook is reinforced by management, which expects at least 9-10% demand growth in FY26, driven by improving macroeconomic conditions.

Upward Revision in Earnings Forecasts

As a direct result of these positive operational and market trends, the standalone earnings forecasts for LUCK have been increased by 8% for FY26E and 6% for FY27F.

A Diversified and Resilient Portfolio

While the core cement business is the primary upgrade driver, LUCK‘s diversified holdings provide substantial stability, contributing the remaining 50% (Rs284/sh) to the valuation. The breakdown of this portfolio is as follows:

Strategic Outlook and Management Commentary

Recent updates from LUCK‘s management provide qualitative insight into the company’s strategic direction and operational discipline.

Strategic Expansion and Capital Discipline

Management noted that a “long overdue” 1.31mtpa capacity expansion in Congo is moving forward. This strategic investment is driven by the fact that LUCK‘s overseas operations are already running at over 90% capacity. In a demonstration of capital discipline, the company also confirmed it did not proceed with its bid for Pakistan International Airlines (PIA), as management concluded that the “valuation did not align with their risk appetite.”

Furthermore, management highlighted that its subsidiary, Lucky Electric Power Company Ltd (LEPCL), is expected to benefit from the availability of indigenous Thar coal by the end of December 2026, which should improve its merit order and utilization. The company also noted a potential mining venture that may require over US$500mn in CapEx if reserves are confirmed, with the investment shared among partners.

Navigating Market Headwinds

The company anticipates minimal impact from the recent Afghan border closure. This resilience is supported by two key factors: exports to Afghanistan account for only 8-9% of total exports, and international coal prices remain soft at around US$95–100/ton on a landed basis, which helps maintain an average coal cost of approximately Rs34k/ton and mitigates pressure on input costs.

A Compelling Case for Growth

JS Global’s “Buy” rating for LUCK is backed by fundamental improvements in its core cement business, which are driving stronger margins and higher earnings forecasts. This core strength, combined with a valuable diversified portfolio and management’s demonstrated capital discipline, creates a compelling investment case and fully underpins the company’s uplifted valuation.

⚠️ This post reflects the author’s personal opinion and is for informational purposes only. It does not constitute financial advice. Investing involves risk and should be done independently. Read full disclaimer →