Attock Cement

Attock Cement Pakistan Limited (ACPL) is a public limited company that has been listed on the country's main bourse since 2002, although its presence in the country dates back considerably having been set up in 1981. As its name suggests, the company's primary business is the production and distribution of cement. The company emerged as a result of a joint venture between Pakistan and Saudi Arabia with an initial capital outlay of Rs1.5 billion including a foreign exchange component of USD45 million. The company is a part of the Pharaon Group of companies that also has other interests within the country including oil and gas, power and real estate sectors.
The company is a major cement player within the south region due to its proximity to Karachi. The main manufacturing facility is situated at Hub, District Lasbela of Balochistan. At inception, the manufacturing plant had a capacity of 2,000 tons per day of clinker. Subsequent enhancements and modernization have beefed up production capacity significantly over the years, now having reached 1,710,100 metric tons of clinker per year. The company markets its output under the brand name, Falcon which is well recognized within the domestic as well as regional markets.
Some of the major domestic projects that the company has been a part of include the construction of HUBCO Power Company, various Bahria Complex projects, Jinnah International Airport, Lyari Expressway and MCB Tower. Besides, the Falcon brand is well acclaimed in Oman, Qatar, Yemen, India, Sri Lanka, United Arab Emirates and many other markets in the Middle East and Africa.
Industrial overview
The domestic cement industry has had an impressive run over the past 18 months and the record sales that were recorded during FY14 have continued in the current fiscal with virtually all major manufacturers in the country posting top line growth in 1HFY15.
Ironically, exports of cement from the country have not been much to write home about during this period. Yet domestic demand is strengthening over successive months, with demand emanating from both the public and private sectors. Despite the fact that the overall quantum of exports has dropped off late, the cement manufacturers within the south region, particularly Attock Cement have continued to register increases in sales abroad to complement higher domestic demand.
Deleveraging is another industry wide trend that has emerged in recent months. Many cement manufacturers had taken on debt for expansion activities and often for setting up captive power plants. Those debts have been drawn down by most players in the sector as is evident from the latest result announcements. Whatever financial costs remain on their books is also expected to drop on account of the central bank's expected dovish stance in terms of monetary policy in coming months.
The sector has also seen prices of key inputs like coal and furnace oil (in case of those using furnace oil-based power plants) drops sharply, thus enabling beefier gross margins. The remainder of the current fiscal is expected to bring a smooth ride for the sector on account of higher PSDP disbursements for major infrastructure development projects, lower interest rates, spur in domestic private sector demand and relatively low input prices.
Financial performance 1HFY15
As discussed above, the cumulative export tally for cement sector has taken a dip since end-FY13. But undeterred by the sector-wide trend, Attock Cement has continued to enjoy demand from overseas in addition to the higher domestic sales. Resultantly, the company has seen its share in cement exports climb to ten percent in 1HFY15, from about eight percent in the same period of the previous fiscal. Distribution costs as a percentage of the top line increased in the outgoing period, but that is natural considering that export consignments typically bring an added transportation cost component given the greater distance to the export destination.
Given the depressed international oil prices, continuing with relatively higher exports should become more favourable for the company through the rest of this fiscal. The company had earlier announced its intent to set up a cement grinding unit with capacity of 3,000 tons per day in collaboration with Al Keetan Trading and Commercial Agencies Limited, indicating that diversifying into international markets remains an integral part of the company's growth strategy. That plant is expected to commence production in FY16, providing a supplementary income stream for the company.
At the same time, higher expected disbursements from the Public Sector Development Program are expected to spur domestic demand as well, thus providing further avenues for sales within the country. The particular interest to the company would be large-scale infrastructure projects such as the Karachi-Lahore Motorway and other projects within the southern region. Having said that, so far such projects have not benefited ACPL and others in the southern region as much as their counterparts upcountry as projects have been concentrated outside of Sindh and Baluchistan.
The international oil price scenario will prove beneficial to the company's cost of production too; coupled with cheaper coal prices. During 1HFY15, the company's gross margins fattened; even before the impact of oil and coal prices. According to market analysts, that improvement is largely due to improvements to the manufacturing infrastructure of ACPL. In the previous fiscal, the company upgraded its cement grinding mill which led to higher energy efficiency in that process.
The company plans to establish a cement grinding facility in Iraq, as mentioned above. The other project in the pipeline is the setting up of a 40MW captive power plant that is expected to be completed by FY18. The down cycle in domestic interest rates may be just what the doctor ordered for the company and finance costs may trend lower despite ACPL's appetite for debt.

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Attock Cement

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Rs (mn)                     1HFY14    1HFY15       chg

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Sales                         5917      6369      7.6%

Cost of goods sold            4276      4372      2.2%

Gross profit                  1641      1997     21.7%

Gross margin                   28%       31%

Distribution cost              385       544     41.2%

Administrative expenses        151       174     15.3%

Other operating expenses        83       102     22.9%

Finance cost                    12        15     28.5%

PAT                            871      1025     17.7%

Net margin                     15%       16%

EPS (Rs)                      7.61      8.95     17.6%

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