Pakistan Cables Limited

Pakistan Cables Limited (PCAL) is part of the renowned Chinoy Group of Companies, which owns International Industries Limited (INIL) as well as International Steel Limited (ISL). It has become one of the leading cable manufacturers in Pakistan and was set up in 1953 a joint venture with British Insulated Calendar Cable (BICC).
The company saw an investment by General Cable Corporation, one of the largest cable manufacturers in the world in 2010. GCC acquired a 24.6 percent stake through its subsidiary GK Technologies Inc., USA in PCAL. PCAL's product range includes cables and wires, copper rods, ALUMEX as well as PVC compound. In the cables and wires segment, it manufactures telephone, intercom, coaxial, wires for the automobile industry as well as other types of special cables.
PCAL set up its PVC compound manufacturing facility in 2008, which manufactures high quality electric cable grade PVC compound. Combined with its copper rod manufacturing facility, this has allowed PCAL to achieve vertical integration for its two major raw material inputs. Pakistan Cables is ISO 9001:2008, ISO 14001:2004 and OHSAS 18001:2007 certified company. The company also has its cables type tested by the world-renowned KEMA Laboratory in Netherlands.
PCAL's product portfolio is used across a variety of sectors such as construction, maintenance, engineering, infrastructure, petrochemical fertilizer and textile. The company has faced increasingly tough competition from the huge quantum of low-quality cable imports from China and other informal players.
Shareholding pattern PCAL's ownership resides mostly with the directors, CEO and their spouses that hold 37 percent and an associated company, International Industries Limited (INIL), which holds 17 percent of the ownership. The general public only holds 16 percent of the stock.
Historical performance
Like other cable manufactures, PCAL's pricing and bottom-line is impacted by the fluctuations in the prices of metals, particularly of copper and aluminum. During FY18 the copper price on the London Metal Exchange (LME) touched a 4 year high of $7216 per ton in Dec-17 on the back of rising demand by China and falling stockpiles. However, the ensuing US-China trade war resulted in significant downward pressure on copper prices, which closed at $6646 per ton by the end of Jun-18 marking a 13 percent increase on a yearly basis.
PCAL saw its top-line growth by 18 percent in FY18 recording sales of Rs9.6 billion, which is the highest revenue mark in the company's history. The revenue growth came on the back of strong volumetric growth across all segments of the company's wire and cable business. However, the company's gross profit was kept in check by the considerable devaluation in the rupee, which increased raw material costs as well as copper prices. The company's finance costs also jacked up due to increased borrowings to fund the higher working capital requirements. The bottom-line of PCAL fell by 36 percent in FY18 as compared to FY17. The company announced a final cash dividend of Rs 3.5 per share in FY18, which was on top of the interim cash dividend of Rs 2.5 per share during the year.
Snapshot 9MFY19 PCAL saw sales go up by only 6 percent in the 9MFY19 period, which could be attributed to the general economic slowdown that has resulted in decreased construction and housing activity. The company's gross profit margins continue to be under pressure on the back of the never ending rupee devaluation, which has resulted in high raw material costs. The increased competition from Chinese and domestic suppliers also means that PCAL is unable to pass on all of the increase in price to end customers in a bid to retain market share. Finance costs for the company continue to mount with a 28 percent increase in the 9MFY19 period on yearly basis. Both a rise in interest rates by the central bank as well as the increased working capital requirement contributed to the rise in finance costs for PCAL. The company registered a 20 percent decline in its bottom-line for the nine months of FY19 as compared to SPLY.
Future outlook The economic slowdown over the past year has resulted in construction activity going down considerably. Add to this the fact the government has massively slashed public development expenditure under the public sector development programme, (PSDP) and the result is a considerable decrease in the demand for construction material, which includes cables and wires. Then on the cost front, PCAL's cost of inputs is highly sensitive to the rupee devaluation that has increased the cost of production for the firm. Rising interest rates have also meant an increase in financing costs, which could increase more in the coming year. The company is making efforts to implement cost minimization measures and is aiming to increase productivity to offset the rise in cost of production. The other important determinant on the firm's profitability will be the trend of copper prices in the international market.

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PAKISTAN CABLES LIMITED

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Rs (Mn)                     9MFY19    9MFY18       YoY Chng

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Net sales                     7252      6829             6%

Cost of sales                 6334      5928             7%

Gross profit                   917       902             2%

Selling and distribution       379       329            15%

Administrative expenses        203       186             9%

Finance costs                  127        99            28%

Other expenses                  19        26           -27%

Other income                    43        29            48%

PBT                            242       294           -18%

Taxation                        61        68           -10%

PAT                            181       226           -20%

EPS                           5.13       7.4           -31%

Gross margin                 12.6%     13.2%    down 56 bps

Net margin                   2.50%     3.31%    down 81 bps

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Pakistan Cables Limited: Pattern of shareholding        % shares held

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Directors, CEO & their spouse/minor children                    37.35

Associated Companies and Related Parties                        17.12

Banks, DFI's, NBFIs, insurance/takaful firms &

 Modarabas and pension funds                                     0.52

Mutual Funds                                                     9.18

Shareholders having 5 percent or more voting rights             19.36

General public                                                  15.65

Others                                                           0.79

Total                                                             100

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