Attock Cement

Attock Cement Pakistan Ltd is a cement producer and a publicly-traded company on the Karachi Stock Exchange. ACPL specialises in the manufacture of falcon brand cement, and its products include Ordinary Portland Cement, Sulphate Resistant Cement and Portland Blast Furnace Slag Cement. The cement industry in Pakistan is divided into the North and South Zones; Attock is located in the South Zone with a manufacturing plant in Tehsil Hub, Balochistan.
The operational capacity of Attock Cement is 1.7 million tons of Clinker and 1.7 million tons of Cement, leading it to be a mid-sized operation in the country. The Company is a member of the Pharaon Group of companies, an international group invested in the manufacturing and power generation industries in Pakistan.
In the past years, the cement industry was operating with depressed margins. Cost of sales increased exponentially on the heels of the high prices of gas and fuel, as energy comprises more than 50 percent of the production cost of cement. Electricity tariffs increased at an annualised rate of 9.5 percent, diesel by nearly 2,000 percent, and furnace oil by 28.32 percent as opposed to cement prices increasing by 6.28 percent.
The excess capacity present in the market led to most cement manufacturers absorbing the increased costs, hurting their bottom lines. The recent increase in prices across the board for cement gave these cement manufacturers some much needed respite.
Additionally, a decrease in Sales Tax and Federal Excise Duty of 1 percent (FED) along with a complete removal of the 2.5 percent Special Excise Duty (SED) within the government's budget 2011-2012 reduced the burden on the manufacturers. Though, initially expected by analysts to pass this tax exemption to consumers, the cement producers chose not to augment their bottom lines further.
PROFITABILITY The performance of Attock Cement for the 1HFY12 has been a cause célèbre for the Company. Courtesy of record prices for cement, gross margins grew nearly 10 percentage points to 25.1 percent from 15.6 percent for 1HFY11. Although administrative and distribution costs grew by 9 percent and 16 percent respectively over the corresponding period, Attock's proximity to the port of Karachi allowed the company to keep them low relative to the increment in gross profit. The operating result therefore more than doubled from 8.2 percent in 1HFY11 to 16.9 percent in 1HFY12.
The absence of debt also helped keeping the finance costs negligible for Attock Cement; the Company's finance costs for the period amounted to 0.13 percent of net sales, as opposed to 12 percent, 6.75 percent, 11 percent and 17 percent for Kohat, Cherat, D G Khan and Maple Leaf, respectively. The profit after taxation of the Company increased by 54 percent over 1HFY11, and the net margin increased by nearly 5 percentage points from 6.2 percent to 11.1 percent this year.
Even between FY11 and FY10, the cement manufacturer performed relatively well. Market conditions were worse back then, as prices were low across the board. Despite that, Attock Cement posted the highest ever net sales in its history, increasing 10 percent over the previous fiscal year.
The cost of sales was the area where Attock took the hit in FY11, as it increased by 16 percent over the previous period. Gross margins declined by more than 5 percentage points as a result, from 25.5 percent in FY10 to 20.2 percent in FY11. All this cascaded down into profit after taxation decline by nearly 50 percent, and net margins reducing to 8 percent in FY11 from 13.3 percent in the corresponding period.
The operational performance for the plants has been nothing short of superb. In an industry which operates at 76 percent of capacity, Attock's plants were operating at full capacity for FY11. Indeed, one of its plants operated at 105 percent of its production capacity.
This underscores the Company's ability to spread costs effectively, augment retention and capitalise on the utilisation of production machinery. With the absence of any debt within the Company so far, expansion in the future does not seem an ominous prospect.
LEVERAGE In an industry where players have accumulated much debt over the course of expanding production, Attock Cement stands out. Its debt to equity ratio is 0, as all of its financing is done through equity. This is in stark contrast to other cement manufacturers such as Cherat, D G Khan, Kohat and Maple Leaf. This also brightens the future outlook for expansion for Attock, as the Company will be able to manage debt without running into issues should the need arise.
LIQUIDITY Between 2010 and 2011, the liquidity position of Attock declined. From a current ratio of 2.6, it decreased to 1.7. However, this is still much better than the current ratio of other players in the industry, who have ratios below 1. Despite the reduction, it does not seem that Attock will be running into liquidity problems any time soon.

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ATTOCK CEMENT

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(Rs mn)                1HFY12    1HFY11    chg      FY11    FY10    chg

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Net sales              4,552     3,786     20%    8,554   7,668     12%

Cost of sales          3,408     3,196      7%    6,823   5,710     19%

Gross profit           1,143       590     94%    1,731   1,958    -12%

Gross margin              25%       16%              20%     26%

Distribution cost        259       235     10%      513     467     10%

Other operating income    49        68    -28%      104     262    -60%

Operating profit         769       310    148%    1,059   1,466    -28%

Operating margin          17%        8%              12%     19%

PAT                      507       235    116%      684   1,017    -33%

Net margin                11%        6%               8%     13%

EPS (Rs)                5.86      2.72             7.90   11.74

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