Attock Cement-Impressive

For Attock Cement, the year certainly came to a close on an impressive note, with the Company posting a 49 percent increase in net profits for FY13. However, the Firms top-line which increased by 8 percent year on year was largely spurred on by the sky-rocketing local cement prices, which have climbed by nearly 9 percent during FY13, reaching Rs438 per 50-kg bag.
During the year, ACPLs local and export dispatches showed a skewered trend, with the former showing 2 percent year-on-year growth and the latter sliding by 6 percent year on year to 0.48mn tons. Total dispatches thus slid by 0.5 percent year on year, taking the Companys capacity utilisation to 103 percent for the year.
According to the analysts, the lower export sales can be explained away with the Firms increased inclination to sell in the local market as the price competitiveness on the international front puts it at a disadvantage.
Additionally, with the Firms plants already working above capacity, shifting focus away from export dispatches towards the local market is going to be a short-term strategy to cater to the local cement appetite-which is expected to remain on the up on account of the formidable PSDP spending by the Federal Government-added Farid Aliani of BMA Capital in a telephonic conversation with BR Research.
A greater focus on the local demand will also help the Firms margins. It is important to note that ACPLs margins this year have been under constant pressure despite the free falling coal prices which have shed nearly 20 percent year on year.
A big reason has been the electricity costs, which rose unexpectedly in the second half of FY13 on account of fuel adjustment charges set forth by NEPRA. This managed to offset some of the positives from the coal trend and gross margins for ACPL rose by only 4 ppt to 31 percent by the close of the 4th quarter.
Additionally, since the plant is highly dependent on the national grid for its electricity needs, the power tariff hike expected onward from August will very likely dampen ACPLs earnings going forward. But, analysts note that cement manufacturers will likely pass through the impact of the power tariff hike and raise cement prices further in anticipation.
On the whole, the good times have certainly been rolling for the cement sector as the industrys fortunes ride high on the wave of high margins amidst a backdrop of an easing monetary policy, and the battering that the international coal prices have taken. This coupled with lower effective tax rate of 20 percent and a lower than anticipated selling and distribution charge also helped further the cause for Attock during the year.
Going forward, ACPL has its sights all set on expanding into another Waste Heat Recovery Plant which will further augment the Firms margins. The Firms alternate fuel plant running on rubber derived also came online in July and the cost savings of up to 2 to 4 percent are expected to show up in the firms earnings starting from FY14.

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Attock Cement Pakistan

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Rs (mn)                                FY12        FY13         chg

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Sales                                10,504      11,508         10%

Cost of sales                         7,691       7,973          4%

Gross profit                          2,812       3,535         26%

Gross profit margin                   26.8%       30.7%       4 ppt

Distribution expense                    571         578          1%

Administrative expenses                 222         263         18%

NPAT                                  1,437       2,136         49%

EPS (Rs)                              14.43       21.45           -

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