With a whopping 36 percent growth in the top-line, Attock cement’s 9MFY19 revenues are definitely above expectations. Unfortunately, all other major financial indicators are falling in line or behind—from gross margins, to finance costs and the bottom line. Being in the south has giving Attock (PSX: ACPL) the proximity to multiple markets via the port which has led to higher off-take, but escalating costs has the company beat, its net profits falling by nearly 25 percent in 9M (Q3: 17%, 1H: 29%). Investors have remained confident—the company’s stock price rose by 4 points post-announcement until the end of the day.
With DGKC’s entry in the south region, Attock has also added an expansion in the region which has given it greater capacity to export. In 9M, total dispatches in the south grew by 15 percent, while sea route exports grew by 31 percent, with more than 30 percent of all exports out of Pakistan going in the form of clinker. The growth can be associated to sea-born cement and clinker exports which have taken off owing to greater opportunities for Pakistani cement in West Africa, Bangladesh and Kenya, with potential demand coming from East Asia. Attock has about 25 percent share in the southern domestic markets and nearly 34 percent share in the export markets outgoing from the south. It is no wonder that the revenue growth has been so strong. However, while domestic prices have remained robust for south players, clinker fetches about $50 per ton less than prices retained from domestic markets. That’s a pretty significant difference.
Revenues could have gone higher had exports been in cement, not clinker and domestic markets were delivering more. Margins in 9M dropped to 22 percent which is below many expectations of 23-24 percent. Costs have remained high. South African coal prices have come under pressure globally which has boded well for importers. However, they averaged $94 per ton in the 9MFY19, against $91 per ton during 9MFY18—from that perspective coal prices were much better last year. However, between Jul-18 and Mar-19, prices slid by 35 percent landing at $78.8 per ton in Mar-19 against $106 in July. In the third quarter for the company, gross margins fell by 18 percent, against 35 percent drop in 1H.
Meanwhile, the rupee has depreciated by 13 percent between July-18 and Mar-19 and by 34 percent since July-17—importing costs have gone by month after month. On other expenses, indirect costs as a share of revenue grew to 10 percent in 9MFY19, against 8 percent during this period last year. Distribution costs more than doubled as exports have gone up, making it the ultimate double edged sword—higher off-take, but fetching lower prices and costing more in transport and freight!
Meanwhile, rising interest rates and expansion related borrowing has also increased finance costs. On the upside, drop in profits were cushioned by lower tax rate. Effective tax in 9M this fiscal was 19 percent against 30 percent last year. Yay for tax reversal, because they could have had it much worse.
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