Pakistan Cables Limited, established in 1953 under the umbrella of the Chinoy group of companies, is one of the oldest cable companies of the country.
It has secured itself as a market leader and a pioneer within the cable industry over a span of six decades. Its affiliation with a Fortune 500 company, General Cables, among other foreign affiliations has allowed it to imitate and improve technology, explore export opportunities and consistently enhance product quality.
PACL is essentially a manufacturer of conductors, wires, and cables of transmission and distribution of electricity. In addition to the aforementioned its product portfolio, ALUMEX, which is used for architectural and structural applications, copper rod, and PVC compounds. A new product, namely ACCC conductor which has a high current capacity, has also been introduced, with the purpose of minimizing energy loss.
The company has continuously been adding to their plant facilities to cater the ever increasing customer demand. Aiming to be self-reliant for its energy requirement, Pakistan Cable also set up a 2-MW gas-fired tri-generation power plant. In 2019, PACL, with the aim of being more efficient and enhancing manufacturing facilities, has began development of a new factory in Nooriabad, Sindh.
Shareholding pattern
PACL is primarily owned by the directors, CEO and their spouses, which constitutes 33.33 percent of the total shares. International Industries Limited holds over 17 percent shares, whereas the general public accounts for approximately 21 percent.
Historical performance
Due to the nature of PACL's products, they are used across numerous sectors such as construction, infrastructure, engineering and maintenance, petrochemical fertilizer and textile. PACL has seen a steady rise in its sales, since FY14, with the exception of the year FY16, in which its sales experienced a minor dip of 1.5 percent year-on-year. However, sales growth slowed down in FY19. As opposed to their previous years where the revenues saw a greater positive rate of change, a mere 1.5 percent year-on-year jump in FY19 revenues was largely attributable to unfavorable economic environment prevalent in the country.
However, along with the topline, the cost of sales has also seen a rise, causing only a negligible move in the gross profit margin; in fact, the gross profit margins have seen a downward trend from 15.7 percent in 2017 to approximately 12 percent in 2018 and 2019. A major contributing factor to the rise in cost of sales is the devaluation of the rupee.
The pricing of the products of the cable industry is largely dependent on the global markets for copper and aluminium. Since both the metals are traded on the London Metal Exchange, the prices of the aforementioned are determined there. Evidently, any volatility and variation in copper and aluminium prices directly impacts the pricing of PACL's products. However, the adverse economic conditions in the country did not allow for the rising cost of inputs to be passed on to the consumer, hence the staggering profits.
In addition to the cost of sales, growth in marketing, selling, distribution and advertising costs have also contributed to the declining net profit in the last couple of years. PACL has also witnessed increase in finance cost in FY18 and FY19, which has been due to the upward revision in policy rate by 575 basis points during the year by the State Bank of Pakistan. FY19 seems to have been a rather difficult year for PACL considering it has seen the lowest profit after tax in the past five years, a mere Rs125 million.
Clearly, FY17 has been a profitable year for Pakistan Cables, with the highest net profit margin recorded in five years. This is evident by the earnings per share recorded for the same year at a high of Rs16.81. As mentioned previously, FY19 has been a particularly challenging year for the company, with an EPS of only Rs3.56.
1QFY20 Performance
Comparing the quarter July to September 2019 to that of the previous year, the net sales commanded a 23 percent year-on-year growth from Rs1.8 billion in 1QFY19 to Rs2.2 billion in 1QFY20; a 27 percent year-on-year rise in cost of sales, however, offset the increase in net sales, allowing gross profit to only grow marginally by 2 percent.
The administrative, selling and distribution costs, in addition to impairment loss on doubtful trade reduced by 16 percent year-on-year because of a curtailment in advertising expenses. Finance costs, on the other hand, grew by over 2.5 times year-on-year due to rising interest rates.
Stock performance: PACL stock also seems to be quite volatile; when the market dipped slightly between March 2019 and June 2019, PACL stock saw a much significant decline in its stock performance. Similarly, when the market exhibited an upward trend in June 2019, PACL's stock shot up considerably.
Future outlook: The general economic slowdown and increasing unpredictability, has caused a reduction in the construction activity, In addition, the government has cut down public development expenditure which has further reduced the demand for construction material, mainly cables and wires. PCAL is attempting to minimize the cost of production which has been negatively affected by rupee devaluation, and increase productivity.
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