Pakistan Aluminum Beverage Cans Limited

Pakistan Aluminum Beverage Cans Limited (PSX: PABC) was incorporated in Pakistan as a public unlisted company in 2014. It was listed on the stock exchange in 2021. The company is engaged in the manufacturing and sale of aluminum cans. The company began its commercial production in 2017 and by 2022; it had achieved yearly output of 950 million cans.

Pattern of Shareholding

As of December 31, 2022, PABC has a total of 361.108 million shares outstanding which are held by 3457 shareholders. Sponsors, Directors, CEO, their spouse and minor children have the majority stake of 55.61 percent in the company followed by Soorty Enterprises (Private) Limited, an associated company of PABC holding 20 percent of its shares. Local general public accounts for 10.07 percent of the outstanding shares of PABC while Banks, DFIs and NBFIs hold 4.24 percent of its shares. Around 3.44 percent of the company’s shares are held by Insurance companies with the remaining ownership being distributed among other categories of shareholders.

Financial Performance (2019-22)

PABC’s topline and bottomline have been making robust strides since 2019. Its margins also rode a steep upward journey until 2021 and then dropped in the subsequent year. The detailed performance review of each of the years under consideration is given below.

In 2020, PABC’s topline grew by 5.72 percent year-on-year. This was on account of improved sales volume as well as revised pricing strategy. PABC produced 444.34 million cans in 2020, up 6 percent year-on-year. This translated into capacity utilization of 63.5 percent in 2020 versus 59.81 percent in the previous year. Cost of sales diminished by 5.16 percent in 2020 which was primarily the consequence of lower rent, rates and taxes as well as reduced travelling, conveyance & lodging charges on account of COVID-19. This translated into 43.59 percent bigger gross profit recorded by the company in 2020 with GP margin rising up from 22.33 percent in 2019 to 30.32 percent in 2020. Administrative expense slid by 7.08 percent in 2020 on account of lower legal & professional charges, travelling charges as well as vehicle rentals. Lower freight charges incurred during the year resulted in 12.09 percent lower distribution expense in 2020. Higher profit related provisioning, exchange loss and impairment loss inflated other expense by 739.57 percent in 2020. Conversely, other income slid by 71.54 percent in 2020 as PABC earned exchange gain in 2019 which turned into exchange loss in 2020. Operating profit mounted by 32.94 percent in 2020 with OP margin rising up to 22.05 percent from 17.54 percent in 2019. Finance cost slumped by 26.74 percent in 2020 due to monetary easing as well as significantly lower short-term borrowings outstanding. PABC’s net profit enlarged by 314.09 percent in 2020 to clock in at Rs.610.655 million with EPS of Rs.1.69 versus Rs.0.45 reported in the previous year. NP margin also rose from 3.07 percent in 2019 to a whopping 12.01 percent in 2020.

2021 witnessed PABC’s topline climbing up by 42.21 percent. This was on account of resumption of HORECA industry, educational institutions and offices resulting in improved demand of canned beverages during the year. In accordance with the demand revival, the company increased its production capacity from 700 million cans to 950 million cans per year. PABC utilized 58.79 percent of its capacity in 2021 by producing 558.565 million cans, up 26 percent year-on-year. Improved sales volume, both in domestic and export markets as well as upward revision in pricing resulted in 66.40 percent appreciation in PABC’s gross profit with GP margin reaching its optimum value of 35.48 percent in 2021. Higher GP margin was also the result of the company’s efforts to reduce its cost of sales. One such effort was the installation of solar panels to curb the rising energy cost. Administrative expense surged by 36.5 percent in 2021 which was the consequence of higher payroll expense as number of employees increased from 123 in 2020 to 132 in 2021. Furthermore, higher utility expense and legal & professional charges also pumped up the administrative expense during the year. Distribution expense also multiplied by 23.11 percent in 2021 as a result of higher freight charges. Higher profit related provisioning, loss incurred on derivative instruments and expense on IPO drove up other expense by 161.66 percent in 2021. Other income also amplified by 173 percent in 2021 on account of higher profit on TDRs and saving deposits as well as exchange gain earned on the back of robust export sales. Operating profit rebounded by 64.89 percent in 2021 with OP margin clocking in at 25.57 percent. Finance cost shrank by 34.47 percent in 2021 due to lower discount rate. This was despite increased short-term borrowings particularly in the category of export refinance facility. Net profit climbed up by 158.18 percent in 2021 to clock in at Rs.1576.587 million with EPS of Rs.4.37. NP margin also progressed to 21.81 percent in 2021.

In 2022, PABC’s topline boasted staggering 95.76 percent growth. This was the result of improved sales volume as the company expanded in both domestic and international markets. Production volume stood at 744.89 million cans in 2022, up 33 percent year-on-year, culminating into capacity utilization of 78.41 percent. Cost of sales surged by 102.04 percent in 2022 due to rising commodity prices as a result of Russia-Ukraine crisis as well as Pak Rupee depreciation. Higher cost couldn’t be fully reflected in PABC’s product pricing, resulting in GP margin inching down to 33.41 percent in 2022. Administrative expense registered 66.52 percent spike in 2022 on account of higher payroll expense as workforce expanded by 30 employees during the year which took the tally to 162. Higher utility expense also contributed towards higher administrative expense in 2022. Distribution expense hiked by a whopping 377.81 percent in 2022 which was primarily the consequence of amplified freight & other logistics charges. Higher profit related provisioning, exchange loss and provision for slow moving stores & spares drove up other expense by 22.37 percent in 2022. Other income strengthened by 380.15 percent in 2022 on the back of higher interest income as well as insurance claim received during the year. Operating profit picked up by 91.49 percent in 2022, however, OP margin slightly eroded to clock in at 25.01 percent. Higher discount rate inflated finance cost by 47.38 percent in 2022. PABC operates in Faisalabad special economic zone and hence was exempted from taxation on the basis of minimum tax liability for ten years from the start of its commercial operations. However, during the year, the exemption was withdrawn through Finance Act, 2022. This resulted in a steep 7922.48 percent in PABC’s tax expense during the year. This diluted the bottomline growth recorded by the company in 2022. PABC net profit grew by 71.42 percent in 2022 to clock in at Rs.2702.612 million with EPS of Rs.7.48 and NP margin of 19.10 percent.

Recent Performance (9MCY23)

PABC started off CY23 on a vigorous note with 52 percent year-on-year growth in its topline in 9MCY23. This came on the back of higher export sales as well as Pak Rupee depreciation. Conversely, local sales struggled during the year as inflationary pressure resulted in reduced consumption on canned beverages. Higher export sales improved PABC’s GP margin from 34.11 percent in 9MCY22 to 39.15 percent in 9MCY23. Unprecedented level of inflation and elevated capacity utilization heighten administrative expense by 83 percent in 9MCY23. Distribution expense registered 218 percent spike during the period due to improved export volumes, culminating into higher freight charges and export surcharges. Other expense mounted by 42 percent year-on-year in 9MCY23 which might be the result of profit related provisioning. Other income improved by 137 percent during the period which is supposedly due to higher interest income on the back of unprecedented level of discount rate during 9MCY23. Other income might also include exchange gain as the company made tremendous export sales during the period by expanding its geographical reach. All these factors translated into 68 percent bigger operating profit recorded by PABC in 9MCY23 with OP margin of 30.13 percent, up from 27.29 percent recorded during the same period last year. Finance cost spiraled by 54 percent during the period under consideration on the back of high discount rate and increased short-term borrowings. Net profit rose by 70 percent year-on-year in 9MCY23 to clock in at Rs.4196.809 million with EPS of Rs.11.62, up from 6.83 in 9MCY22. NP margin also improved from 22.74 percent in 9MCY22 to 25.37 percent in 9MCY23.

Future Outlook

While PABC’s domestic sales will continue to grapple against economic and political headwinds which have greatly squeezed the purchasing power of consumers, PABC will ace export sales as it is increasingly tapping new markets and new customers. Stable local currency have the tendency to squeeze PABC’s margins, it will also reduce the company’s cost of sales. Decline in global commodity prices will also prove to be a good omen for PABC.