Pakistan Cables Limited

Pakistan Cables Limited (PSX: PCAL) was set up through a joint venture with British insulated Callener’s Cable (BICC), UK in 1953 as a private limited company. Two years later, in 1955, it was converted into a public limited company. The company manufactures copper rods, wires, cables and conductors, aluminium extrusion profiles and PVC compounds. Some of the company’s clients are The Aga Khan University Hospital, Abbott, Marriott, Novartis, GSK, Unilever, and Nestle.

Shareholding pattern

As at June 30, 2021, over 21 percent shares are held under the associated companies, undertakings and related parties. This category includes International Industries Limited and Shirazi Investments (Private) Limited. The directors, CEO, their spouses and minor children hold almost 18 percent shares, followed by nearly 34 percent under the category “shareholders holding 5 percent or more voting rights”. The general public owns close to 24 percent shares while the remaining roughly 3 percent shares are with the rest of the shareholder categories.

Historical operational performance

The company has largely seen a growing topline through the years, except for in FY16 and FY20 when it contracted by 1.5 percent and 6.4 percent, respectively. Profit margins, on the other hand, declined between FY17 and FY20, before rising again in FY21.

In FY18, revenue grew by 18.3 percent to reach Rs 9.5 billion in value terms. However, due to cost of production increasing to 88 percent of revenue compared to over 84 percent in FY17, gross margin fell to 11.9 percent versus 15.7 percent in FY17. The rise in production cost was attributed to currency devaluation that increased the price of inputs and copper prices. The burden of the increased production cost could not be passed on to the consumers completely. With finance expense also rising as a share in revenue due to higher working capital requirements resulting in higher borrowing, net margin also decreased 3.2 percent for the year.

Growth in FY19 was relatively subdued at 1.5 percent. This was partly attributed to a general slowdown in residential and industrial activity. Currency devaluation increased the value of the company’s product but it could not be benefitted from, as high inflation and interest rates had an adverse impact on disposable incomes. Thus, gross margin was stable at 11.8 percent. Finance expense continued to consume a larger share in revenue causing net margin to eventually reduce to 1.3 percent.

Revenue in FY20 contracted by 6.4 percent due to a halt in operations following the outbreak of the Covid-19 pandemic. Majority of the revenue loss happened in the last quarter of the year which is when the lockdown was imposed. As a result, gross margin fell to its lowest of 9.5 percent. This also reflected in the net margin that was recorded at a negative 1 percent. Finance expense escalated to consume 3 percent of revenue, leading the company to post a loss for the first time of Rs 92 million.

In FY21, the company witnessed the highest increase in revenue by almost 45 percent to reach Rs 13 billion in value terms. This was attributed to a volumetric growth in sales, while segment-wise, all the segments of wire and cable business saw a strong sales performance. In addition, the company also adjusted its selling prices according to the rise in prices of copper. Thus, gross margin was recorded at 11.6 percent. In addition, the company also received higher than usual other income earned largely due to insurance claim received against business interruption, among other factors. Moreover, owing to lower interest rates, finance expense also decreased as a share in revenue. Thus, the company posted a net margin of 4.2 percent and an all-time high bottomline of Rs 554 million.

Quarterly results and future outlook

Revenue in the first quarter of FY22 more than doubled year on year due to better market dynamics as compared to that seen in the same period last year when business activities had only started to resume gradually when lockdowns eased with a decrease in cost of production as a share in revenue at almost 87 percent, compared to almost 93 percent in 1QFY21, profitability improved significantly. This is seen by a net margin of 4.3 percent in 1QFY22 compared to net loss of Rs 37 million in 1QFY21.

The second quarter also saw higher revenue year on year, by 55.6 percent. This was attributed to an increase in both, prices and volumes. This, in turn, was a result of an increase in metal prices globally and rupee depreciation. The higher revenue also trickled to the bottomline as net margin was also better year on year at over 5 percent compared to 3.5 percent in 2QFY21.

Revenue in the third quarter was higher by over 53 percent year on year. This was a result of increase in activity in the construction sector, combined with industrial and infrastructure related demand. While gross margin was more or less stable year on year, net margin was lower at 4.7 percent compared to 6.1 percent in 3QFY21, due to a reduction in other income that halved in value terms from Rs 102 million in 3QFY21 to Rs 41 million in the current period. Topline in 9MFY22 has already exceeded that in FY21, however, it is the rising cost of inputs, availability of raw materials and economic and political uncertainty that creates inconsistency in policies that pose a challenge for the company.