Atlas Battery Limited

Atlas Battery Limited (PSX: ATBA) was set up as a public limited company in 1996. Three years later, in 1969, it signed a technical collaboration agreement with Japan Storage Battery Co. Limited, Japan (now, GS Yuasa Corporation). It sells batteries under the brand name “AGS”. As the name suggests, the company’s main business is to manufacture and sell automotive and motorcycle batteries and allied products.

Shareholding pattern

As at June 30, 2021, over 77 percent shares are with the associated companies, undertakings and related parties. Within this, nearly 59 percent shares are held by Shirazi Investments (Private) Limited. Over 18 percent shares are with the local general public, while the remaining over 4 percent shares is with the rest of the shareholder categories.

Historical operational performance

Atlas Batteries has mostly seen a growing topline, with the exception of FY16, FY19 and FY20. Profit margins, however, decreased between FY16 and FY19, before improving again until FY21.

The company witnessed revenue growth rate in single digits for the first time in FY18 as revenue grew by 6.8 percent, crossing Rs18 billion. The company’s demand primarily comes from automotive sector or for UPS and generators in the incidence of load shedding. But as new power plants were set up, load shedding decreased as did the demand for alternative sources of energy. However, some demand was coming through reduction in solar panel costs increasing usage in off-grid areas particularly. But the higher revenue could not be translated into higher profitability as cost of production increased to 89 percent of revenue, up from previous year’s 82.7 percent. Thus, gross margin reduced to 10.9 percent. This also reflected in the net margin that was recorded at a significantly lower 3.2 percent.

Revenue registered the biggest contraction in FY19 as it fell by over 30 percent. This was attributed to the contraction seen in the automotive industry that had an adverse impact on the battery industry. The automotive industry itself was affected by the high cost of production, high interest rates and currency devaluation, thus reducing demand. As a result, gross margin shrunk to an all time low of 2 percent. Despite the significant contribution by other income towards the bottomline, the company incurred a loss of Rs 593 million.

The downward trajectory of revenue continued in FY20 as it fell by nearly 2 percent. Majority of this was concentrated in the last quarter due to the outbreak of the Covid-19 pandemic that resulted in strict lockdowns. While cost of production also declined in value terms, as a share in revenue, it still made over 90 percent. However, at nearly 93 percent, it was lower than last year’s almost 98 percent. Therefore, gross margin improved to 7 percent. With further expenses incurred and an increase in finance expense, the company posted a loss of Rs 327 million, lower than that seen in last year.

In FY21, revenue registered a growth of 59 percent, to post an all-time high topline of nearly Rs 20 billion. While this was largely attributed to the overall increase in the market size, the company is significantly affected by the trends in the automotive sector. The latter saw immense growth after having slumped for the last few years. In addition, the incidences of power shortages also increased that generated a demand for heavy and medium sized batteries. Simultaneously there was demand for solar panels coming from off grid areas that also increased demand for batteries. With the increase in volumes, costs was absorbed better as evident from a higher gross margin of 11.4 percent. This also trickled to the bottomline that was further supported by a decline in finance expense. Thus, net margin was recorded at 4.5 percent for the year.

Quarterly results and future outlook

Revenue in the first quarter of FY22 was higher by over 19 percent year on year. This was due to an increase in demand of batteries in the replacement market. But the higher revenue could not be translated into a higher profitability as cost of production increased to nearly 90 percent of revenue, compared to 88 percent in the same period last year. Therefore, gross margin also declined year on year to 10.2 percent. This also reflected in the net margin that was recorded at a lower 2.9 percent versus almost 5 percent in 1QFY21.

With notable currency devaluation and surge in prices, maintaining or curtailing the cost of doing business will remain a challenge for the business. Secondly, the inflationary pressure will also affect the purchasing power of the consumers.

Therefore, profitability in the forthcoming quarters will be difficult. Additionally, the onset of Omicron and its repercussions brings further uncertainty. On the other hand, the company has made investments to improve 5S, HSE, information technology and engineering and development that would enhance business efficiency.