Attock Cement Pakistan Limited

Attock Cement Pakistan Limited (PSX: ACPL) was set up in 1981 as a public limited company. it started commercial production in 1988 and today has a production capacity of 3 million tons annually; it currently runs three manufacturing facilities.

Shareholding pattern

A little beyond 84 percent shares are categorized under “shareholders holding 10 percent or more”. This solely includes Pharaon Investment Group Limited Holding S.A.L. Attock Cement is a subsidiary of the latter. Close to 9 percent shares are held by “individuals” followed by 4 percent by the local public. The directors, CEO, their spouses, and minor children hold less than 1 percent shares in the company.

Historical operational performance

In the last seven years, Attock Cement’s topline has mostly seen a positive growth in its topline, except for FY20; however, profit margins have been on a gradual decline, particularly after FY17.

During FY17, the company registered an almost 6 percent growth in its sales revenue; volumetrically too, cement dispatches saw close to 6 percent rise year on year, at 2,082,582 metric tons in domestic and regional markets combined. Of this, 1,582,427 metric tons of cement were sold in the domestic market, registering an 11 percent rise, while the surplus was exported to destinations such as Sri Lanka, Yemen, India, etc. There was a very marginal rise in cost of production will little changes in other elements of the financial statement, therefore profitability remained flat for the year with net margin at 20.6 percent.

In FY18 topline growths stood at almost 12 percent. At the start of the second half of FY18, commercial production from Line 3 started and in the following six months, it produced 538,884 tons Clinker. By April 2018, Waste Heat Recovery System also started production that helped to reduce the power requirement. There was a nearly 20 percent increase in the total dispatches; cement dispatches registered a 10 percent rise; clinker export dispatches, that were nil in the previous year stood at 205,141 metric tons; cement exports were lower by 7.6 percent. This was due to better prices found in the local market as compared to export markets where there was greater competition.

Despite the rise in volumes, profit margins failed to continue to increase as cost of production rose to almost 71 percent of revenue, from 60 percent seen in FY17. This increase was attributed to several factors: fuel cost increase by 46 percent; average coal procurement cost increased from USD88 per ton C&F Karachi to USD102 per ton C&F Karachi; packing and raw material cost rose by 20 percent due to increase in royalty rates by the provincial government of Balochistan; and lastly paper bag prices also rose by 15 percent. In addition, support from other income was also significantly lower in the absence of gain on sale of open-ended mutual fund units and “others”. Thus, operating margin dropped to 20 percent.

In FY19, Attock Cement saw the highest sales revenue growth rate seen in almost a decade, at nearly 26 percent. Total dispatches saw a 28 percent increase; 7 percent increase in cement dispatches. During the year, export sales of cement grew by 28 percent for the company. “The net retention per ton of cement sold increased by Rs 198 per ton due to better sales mix and devaluation of PKR against US dollar which made positive impact on export proceeds realization”. Despite this, profit margin continued to contract as cost of production rose to 77 percent of revenue. Net average fuel cost increased by 23 percent. Although coal prices reduced in the international market, but its effect was offset by currency devaluation; packing material cost also increased by 39 percent due to rise in paper prices internationally. Distribution also inclined due to higher exports. Thus, net margin further fell to almost 10 percent, the lowest seen so far.

Sales revenue fell for the first time in seven years in FY20, by 11 percent. Total dispatches saw a decline of almost 9 percent; local dispatches of cement fell by 33 percent. This was attributed to increase in the number of players in the sector and northern brands entering the south market. This was further aggravated by the lock down imposed in response to the Covid-19 pandemic. Cement exports were also impacted due to market closure owing to Covid-19. Increase in cost of production was negligible keeping gross margins flat but distribution cost increased to almost 10 percent of revenue due to higher combined quantities of both, clinker, and cement. This resulted in contraction of the bottomline that nearly halved, while net margin fell to its lowest at 6 percent.

Quarterly results and future outlook

During the first quarter of FY21, topline registered a 5 percent increase year on year; total cement dispatches were lower by 7 percent; clinker dispatches- export was mainly responsible for the overall increase in dispatches as the former saw a 58 percent increase. This was also the reason for the topline growth. On the other hand, cost of production made up more than 81 percent of revenue as compared to 74 percent in 1QFY20. Although cost per ton was lower in 1QFY21, there was an increase in power cost due to tariff revision by K-Electric, that increased overall cost. Thus, profit margins were lower than that seen in the same period last year.

With the government’s initiatives to revive the economy and support the business sector, in addition to CPEC related projects, the company foresees growing cement consumption, but on the other hand, there exists excess capacities. So, while volumetric growth may be seen, it may not translate into higher profitability as well. There has been an improvement in price for clinker as the market for China has opened for Pakistani clinker. Moreover, given the tariff vulnerability, the company has begun a 20MW solar power project that would help to reduce its dependence on the national grid.