Atlas Battery Limited

Atlas Battery Limited (PSX: ATBA) was incorporated in Pakistan as a public limited company in 1966. The company manufactures and sells automotive, motorcycle batteries and energy storage batteries and allied products. Shirazi Investments (Private) Limited is the holding company of ATBA holding 58.86 percent of its shares. The company has signed a technical collaboration with Japan Storage Battery Co. Limited for the production and sale of Japanese batteries in Pakistan. ATBA also boasts itself to be the first battery manufacturer to launch branded distilled water and hybrid battery.

Pattern of Shareholding

As of June 30, 2023, the company has 35.017 million shares outstanding which are held by 2682 shareholders. Associated companies, undertakings and related parties form the largest shareholder category holding 77.44 percent of ATBA’s shares. This is followed by local general public having 18.54 percent stake in the company. Joint stock companies account for 2.14 percent of ATBA’s shares. Public sector companies and corporations own 1.38 percent shares. The remaining shares are held by other categories of shareholders.

Historical Performance (2018-22)

ATBA’s topline took a dip in 2019 and 2020 but rebounded in the subsequent years. Its bottomline also stayed in the negative zone in 2019 and 2020 followed by a staggering turnaround in 2021. In 2022, ATBA’s bottomline took a plunge only to come back stronger in the next year. Its margins also followed a comparable route as its bottomline (see the graph of profitability ratios). The detailed performance review of each of the years under consideration is given below.

A sneak into the financial statements reveal that 2019 was a challenging year for ATBA. The bottomline showed an uglier picture with tighter margins and operating losses. The reason for the desolate performance in 2019 was slowdown in automobile industry due to high cost of production, depreciation of Pak Rupee and higher interest rate during the year. Sale of locally manufactured cars, tractors, trucks and buses as well as motorcycles and three-wheelers, all registered a decline in 2019, the shocks of which were felt in the sale of automotive parts and accessories including batteries. Another reason for the sluggish demand of batteries in 2019 was the increased power generation which reduced the load shedding and the demand of medium and heavy batteries used in UPS. The result was a 30 percent year-on-year drop in the topline with GP margin standing at 2.1 percent in 2019 versus 10.9 percent in 2018. Gross profit also dwindled by 87 percent year-on-year in 2019. During the year, gain on the disposal of operating fixed assets resulted in a massive rise of 421 percent in ATBA’s other income. Distribution expense slid by 17 percent year-on-year on account of lesser advertisement & promotional activities as well as lower freight & forwarding charges on account of thinner sales volume in 2019. Administrative cost shrank by 10 percent in 2019 primarily due to lesser rent & rates as well as smallercharitable contributions. Other expense also registered a massive 73 percent decline in 2019 on account of no fair value loss incurred on investments, no loss incurred on disposal of fixed assets as well as lower profit-related provisioning booked during the year. All these factors couldn’t prevent the company from making operating losses worth Rs.211.57 million in 2019 versus operating profit of Rs.949.94 million in 2018. Finance cost also magnified owing to enhanced running finance utilization along with rising interest rate. ATBA posted net loss of Rs.592.46 million with loss per share of Rs.24.32 as against EPS of Rs.24.24 in 2018.

In 2020, ATBA’s topline further shrank by 2 percent year-on-year. This was due to subdued growth in the automobile industry on account of COVID-19. Moreover, lockdown of industries and businesses had created excess unutilized power capacity which reduced the demand of UPS batteries. The company worked on the cost-cutting measures which resulted in a rise 230 percent rise gross profit with GP margin climbing up to 7 percent in 2020. The operating expenses were also kept in check during the year. This resulted in ATBA making operating profit worth Rs. 204.48 million in 2020 with OP margin of 1.6 percent. The high finance cost due to increased working capital didn’t let operating profit to translate into a positive bottomline. However, the net loss of Rs.327.10 million along with loss per share of Rs.13.43 was 45 percent lesser when compared to that of 2019.

2021 was characterized by a stable macroeconomic environment the effects of COVID-19 began to subside. The automobile industry also rebounded owing to low interest rate which augmented the purchasing power of customers; consequently, the demand of automobile recoiled, producing demand for automotive battery. As businesses and industries started operating in full swing after the lockdown period, there was a widespread power deficiency, resulting in the improved demand of UPS batteries. Moreover, a significant boost in the sales of solar panels in the off-grid areas further buttressed the demand of medium and small batteries. Improved sales volume and prices drove up ATBA’s topline by 59 percent year-on-year in 2021. This coupled with cost control measures resulted in gross profit multiplying by 160 percent in 2021 with GP margin mounting 11.4 percent – the highest mark since 2018. Distribution expense enlarged by 34 percent year-on-year in 2021 as the company undertook widespread advertisement and sales promotion drives during the year. Furthermore, improved sales volume resulted in greater freight & forwarding charges incurred during the year. ATBA’s workforce grew from 296 employees in 2020 to 337 employees in 2021, resulting in higher payroll expense. This pushed up the administrative expense by 41 percent in 2021. However, operating expenses as a proportion of sales remained intact. Other income rose by 56 percent as a result of dividend income, interest income, scrap sales as well as exchange gain. However, this was nullified by 136 percent rise in other expense as the company did increased profit-related provisioning. All these factors culminated into 552 percent bugger operating profit posted by the company in 2021 with OP margin reaching 6.7 percent. Finance cost which had been on the rise since 2018 gave some respite in 2021 owing to low discount rate. ATBA registered net profit of Rs. 895.97 million in 2021 with EPS of Rs. 31.98. NP margin of 4.5 percent achieved by the company in 2021 was the highest since 2018.

2022 was another encouraging year in a row where topline took a 25 percent year-on-year flight on the back of improved volumes, better sales mix and prices. Demand for heavy and medium sized batteries for UPS, solar and generatorsremained vigorous during the year. However, increase in the cost of sales mainly due to elevated prices of raw materials in the global market, declining value of Pak Rupee, high indigenous inflation and energy cost didn’t allow ATBA to translate the effect of healthy topline into an encouraging GP margin which eventually dipped to 10.9 percent despite 19 percent rise in gross profit. Distribution expense hiked by 24 percent year-on-year in 2022 on account of increased freight & forwarding due to higher sales volume and escalated prices of POL products. Increased advertising and promotion budget also contributed towards higher distribution expense incurred by ATBA in 2022. Administrative expense also swelled by 18 percent due to enhancement in the workforce which stood at 346 employees along with adjustment of minimum wage rate in line with soaring inflation. Higher exchange loss drove other expense up by 32 percent in 2022. Other income also declined by 31 percent year-on-year in 2022 on account of negligible dividend and interest income made during the year. ATBA’s operating profit expanded by 15 percent in 2022, however, OP margin fell to 6.1 percent. 181 percent higher finance cost incurred by the company in 2022 was the consequence of a higher discount rate. Net profit declined by 23 percent year-on-year in 2022 to clock in at Rs.689.44 million with EPS of Rs.19.69 and NP margin of 2.8 percent.

With a 67 percent year-on-year escalation in its topline, ATBA closed 2023 on an upbeat note. With load shedding and power outrages rampant in both rural and urban areas, the demand for batteries grew manifold which to a great extent nullified the lower demand from the automobile industry. Encouraging demand in the replacement market coupled with better prices resulted in 137 percent year-on-year growth in ATBA’s gross profit in 2023 with its GP margin reaching its optimum level of 15.4 percent. Distribution cost surged by 73 percent year-on-year in 2023 on account of rigorous advertising and sales promotion drives conducted by the company coupled with higher freight & forwarding charges on the back of improved sales volume and higher petroleum prices. Administrative expenses also surged by 64 percent in 2023 mainly on account of higher payroll expenses. ATBA’s workforce stood at 352 employees in 2023 versus 346 employees in the previous year. Increased profit-related provisioning and exchange loss drove up other expenses by 219 percent in 2023. Other income was also magnified by 108 percent in 2023 due to higher dividend income and scrap sales made during the year. Operating profit increased by 178 percent in 2023 with OP margin climbing up to 10.2 percent. Finance cost soared by 41 percent year-on-year in 2023 with the gearing ratio reaching its highest level of 41 percent versus 16 percent in the previous year (see the graph of gearing ratio & finance cost). During the year, the company made significant borrowings under running finance, demand finance, and letters of credit to meet its working capital requirements. Besides, ATBA also borrowed Rs.750 million under the diminishing Musharaka arrangement to finance BMR. The bottom line also took a hit from the super tax imposed during the year but still managed to build up by 219 percent in 2023 to clock in at Rs.2201.24 million with EPS of Rs.62.86 and NP margin of 5.3 percent.

Recent Performance (1QFY24)

During 1QFY24, ATBA’s sales surged by 21 percent year-on-year which was mainly on account of upward price revision as demand remained low on account of seasonality factor. High cost of sales due to inflationary pressure resulted in ATBA’s GP margin marching down to 13 percent in 1QFY24 versus 14.1 percent during the same period last year. Distribution and administrative expenses surged by 40 percent and 48 percent respectively during the period owing to unprecedented level of inflation. Lower profit-related provisioning might have resulted in 28 percent thinner other expenses incurred during the period. Other income registered a 16 percent year-on-year rise during the period. All these factors trickled down to produce a 2 percent year-on-year rise in ATBA’s operating profit during 1QFY24 with its OP margin falling down to 8 percent from 9.4 percent during the same period last year. Increased borrowings coupled with a high discount rate inflated finance costs by 565 percent in 1QFY24, resulting in a 46 percent year-on-year dip in the company’s net profit which stood at Rs.262.88 million with EPS of Rs.7.51 versus EPS of Rs.13.98 during the same period last year. NP margin also fell from 5.8 percent in 1QFY23 to 2.6 percent in 1QFY24.

Future Prospects

As the automobile industry is suffering from crippling growth owing to a massive decline in the purchasing power of customers, high-interest rates,s and restricted imports of CKD units, this will produce a ripple effect on the demand for automotive batteries; however, rampant power outrage will continue to keep the demand of heavy and medium-sized batteries upbeat. Moreover, the growing trend of solar panel installation will also bode well for the demand for batteries. Hence, the demand for ATBA products is expected to remain buoyant in the coming times. Moreover, capex allocated for Health, safety& security, production processes, IT as well as R&D may result in operational efficiency and translate into enhanced bottom line and margins.