Attock Cement Pakistan Limited (ACPL)

Background Attock Cement was established in 1981 as a result of a joint venture with an initial capital outlay of Rs 1.5 billion including a foreign exchange component of $45 million. The company started commercial production in 1988 with a plant capacity of 2,000 tons per day of clinker (approx. 0.6 million tons annually). It has since been beefing up its capacity with addition and modernization. The company's plant is located in Hub Baluchistan currently with a production capacity of 1.8 million tons per annum which comes about to 4 percent of the current market size. Attock is a prominent supplier to markets in the South.
The company is part of the Pharaon Group (holding 84 percent of the company's shares for the year ending in June 2016). The group has vast investments in diversified fields such as cement, oil & gas, power generation and information technology. The company also has several subsidiaries including Pakistan Oilfields Limited set up in 1950, Attock Refinery that was established in 1922, Attock Petroleum Limited that was established jointly by the Pharaon Investment Group Limited Holding (PIGL) and Attock Oil Group of Companies (AOC) in 1995. In 2005, the company also took over National Refinery Limited (NRL).
Operational and financial performance Attock cement is one of very few cement companies who have been utilizing their plant capacities to the maximum. The company has sold 1.8 million to 1.9 million tons during FY10 and FY16 with a strong boost in the latter year even though exports share fell from 39 percent to 27 percent between FY15 and FY16.
Even so, Attock being in the south has had a particular cost advantage in reaching out to export markets via sea compared to suppliers with manufacturing facilities located in the north. However, the anti-dumping duty imposed by South Africa has made Pakistani cement much more expensive which has reduced exports overall for the cement industry and Attock is no different.
The company has attempted to reduce its cost-in fact, cost per ton has come down from Rs 4,617 to Rs 4,228 as per our calculations. The company earlier overhauled its cement mill and installed Variable Frequency Drives (VFDs) on its key motors, which contributed positively in the reduction of overall power cost. The finalization of its 40MW of coal fired power plant had slowed down earlier in 2015 due to water shortages in the Hub dam which supplies water not only for plant operations but for the entire Lasbella District and also for a larger part of Karachi. Once the water situation improves, it will further bring down energy costs.
Lower costs contributed too much improved margins-40 percent in FY16 against 34 percent in FY15 though much of it is also a function of premium pricing that Attock enjoys. Strong market presence has allowed the company to continue charging higher and still maintain maximum capacity utilization. Lower transportation costs due to diesel prices allowed the company to enter the upper Sindh and lower Punjab markets which were previously untapped.
The company boosted a net profit margin of 21 percent in FY16, up from 17 percent the previous year, closing off fiscal 2016 with a bottom line of Rs 2.9 billion, and a swift jump in its earnings per share.
Recent operations: expansions, new projects and financials. Though the company is due to release its latest FY17 results in a few days, if the 9MFY17 financials are any indictor, Attock continues to maintain its strong upward trajectory with revenues growing by 9 percent. This was brought by a growth in dispatches by 7 percent despite a 10 percent fall in exports. Production cost decreased due to lower input costs and high efficiency in the company's plants. High inventory for coal allowed the company to shield itself from the jump in coal prices. The company has also been substituting the pricier exports onto local markets, even those far flung in Upper Sindh and Punjab helped by lower transportation prices.
Much like the rest of the sector, Attock is also expanding its capacity to cater to the growth in local demand which the sector is certain will outdo any fall in exports. The company's new production line of 1.2 million tons at its existing site is now in the final stages of infrastructure and installation. The contract was signed with finalizing a contract with Hefei Cement Research Institute China for a capital outlay of $120 million. The plant might start commercial production by December 2017 which will remain one of the first of new plants coming online in the sector.
Attock also entered in a joint venture agreement with Al Geetan Commercial Agencies in Iraq to form a limited liability company in Iraq. This company would have a cement grinding plant with a capacity of 900,000 tons per annum. Attock holds 60 percent share of the company and expected investment totals $24million. The civil work at the project site has already started.
The company's 40MW of coal-fired power plant is currently on a halt due to shortage of water in the Hub dam but once the plants kicks off, the plant would power the factory as well as sell off surplus power to K-electric.
Opportunities and threats On expansion, Attock Cement which is currently running over its production capacity, would be able to maintain its existing capacity share in the market despite the market size increasing substantially. The trouble comes when the capacity is too much compared to the growth in demand. Though local demand contributed not only by infrastructure growth and housing is expected to increase by 10 percent year on year, there is the matter of falling exports.
Since exports have become more expensive for cement suppliers here at home-mostly in Afghanistan and some African countries-the manufacturers have been adjusting their sales mix accordingly. Players in the South are many with lower demand compared to the cement demand in the north. As a result, they have been sending cement to the North as well to meet the demand in those growing markets. But as expansions happen, particularly in the South, competition here will grow much more than the players operating in the North and market share will suffer.
The opportunity here remains in the export sector where companies like Attock who are near the port should not let any opportunity go by. They should beef up efforts in marketing to regional and Gulf countries and expand their reach which will eventually help in the long run as diversifying the sales mix can only help in reducing risk. There is no shortage of uncertainty in the Pakistani economy-the demand that players are foreseeing may or may not materialize.
If all things go as the industry has planned, Attock Cement is not behind any other. It is expanding its capacity; it has maintained high efficiency in its plant to optimize utilization and cut down on costs and it is making investments in power projects as well as international markets like Iraq.

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9MFY17                                      Attock Cement

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Rs (mn)                             9MFY17      9MFY16     YoY

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Sales                            11,242.43   10,314.71      9%

Cost of Sales                     6,668.27    6,343.36      5%

Gross Profit                      4,574.16    3,971.35     15%

Administrative & selling expense    337.67      355.67     -5%

Distribution costs                  744.87      750.81     -1%

Other operating expenses            253.90      213.01     19%

Finance cost                         18.28       15.74     16%

Other income                        127.49      239.63    -47%

Profit before tax                 3,346.74    2,878.78     16%

Taxation                          1,108.30      781.85     42%

Net profit for the period         2,238.44    2,093.91      7%

Dispatches (mn tons)                  1.58        1.47      7%

Annual capacity (mn tons)             1.71 (4%)

Earnings per share (Rs)              19.55       18.28      7%

GP margin                              41%         39%

NP margin                              20%         20%

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Source: PSX notice

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Shareholding Pattern June 2016         Shares        %

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Banks, DFIs, NBFIs etc.             5,097,710     4.45

Others:

Institutions                        6,027,376     5.26

Individuals                         5,149,966      4.5

Shareholders holding 5% or more:

Pharaon Investment Group Limited   96,271,949    84.06

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