Attock reverting

Though not nearly as close to the peaks of FY17 and FY18, the small cement manufacturer Attock Cement (PSX: ACPL) is in the direction of growth if volumetric sales and revenues are anything to go by. Where the cement maker loses is high cost of fuel, increased level of overheads whilst maintaining a low-margin sales mix.

Estimated volumes grew by 10 percent which translated to a 15 percent growth in revenues—which is something to be proud of. By this measure, revenue per ton sold grew by 4 percent in FY21 year on year (this is an estimated number based on estimated cement offtake). But almost in contrast with the Southern cement king—Lucky—cost per ton sold grew for Attock. While Lucky has managed to do well in terms of cost because of a multitude of factors including economies of scale, better inventory management, energy efficiency, Attock being a small player has not been as Lucky—the proper noun, not the adjective—because luck has little to do with it. However, this was also expected.

Coal which is a major fuel for cement manufacturers and contribute significantly to the costs of production has been on fire in the international market. Prices have spiralled out of control. Pakistani cement manufacturers import coal heavily from several sources, South Africa being a dominant one. South African coal prices have grown by 169 percent between July-21 and Apr-20. Assuming a one-month lag, Pakistani coal importers paid 10 percent more per ton this year on average. Those cement manufacturers that may have bought coal for 2 months in advance might have benefited a little which comes down to inventory management.

Meanwhile, container shortages and supply-side shocks in the global markets may have contributed to higher freight as well. This adequately explains Attock’s slightly reduced margins compared to last year despite a strong top-line growth.

Other factor of note is that Attock is a major exporter, specifically of clinker. Last year, according to the company’s annual report, cement plus clinker exports stood at 57 percent of total volumetric sales—where clinker dominated the total exports. This year, estimated volumes show that exports were 54 percent of total offtake. Clinker probably continues to dominate the total share in exports which we know is priced below cement in global markets being an intermediatory product. Retention for the cement maker has increased as we highlighted earlier which means Attock’s sales mix has improved, even if slightly.

Overheads are 14 percent of revenue during FY21 (FY20: 13%) which is pretty high but also expected. The company is a major exporter which naturally makes its distribution expenditure a major burden pressing on the bottom-line.

The domestic market is becoming very attractive due to the many demand factors working toward it (NPHP and PM’s construction package, high development spending, hydro power projects etc.) High demand also bodes well for prices that cement makers will fetch in the fiscal year. The direction right now for Attock is upward.