Attock Cement Pakistan Limited (ACPL) is a public limited company, listed on the Karachi Stock Exchange since June 2002. The main business of the company is manufacturing and sales of cement.
ACPL, a part of the Pharaon Group which, in addition to investment in cement industry, has diversified stakes in Pakistan mainly in the Oil and Gas Sector.
The Attock Cement project was conceived and the company was incorporated in 1981, the plant finally commenced commercial production on June 1, 1988. The project is a Pak Saudi joint venture and involved initial capital outlay of around Rs 1.5 billion with foreign exchange component of around US $ 45 million. This made it one of the largest enterprises in the private sector. Pharaon Commercial Investment Company Limited holds 84.06% of total paid up share capital whereas the general public holds a total of 15.94% shares
Last year, company completed its expansion plan, which increased its cement manufacturing capacity by 135.5% to 1.79m tpa from 0.76m tpa, with the cost of Rs 3.33b, of which 70.0% was financed through internal cash generation and the remaining in the form of debt financing.
RECENT RESULTS (FY'08, 1Q):
Attock Cement posted a net profit after tax of Rs 88 million during the quarter under review, which is considerably lower as compared to the same period last year. The reason behind this decline in profits has been a serious malfunction in the new production line due to which it was unable to perform properly and functioned at 66% of capacity. Due to this, volumetric sales were not achieved, and this problem was compounded by the decline in the retention prices of cement. Also because the company has undergone capacity expansion, depreciation was an added cost to the company.
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July-Sept . July-Sept
2007 2006
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Tonnes
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Clinker Production 313.043 279.208
Cement Production 288.734 270.775
Cement Despatch - Local 274.375 243.843
- Export 12.580 20.100
286.955 263.943
Clinker Sales - Local - 24.853
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The liquidity, as depicted by current ratio, shows an increase after a dip in FY'06. Main increase is due to a rise in the cash balances, stores and inventory balances. The current assets have almost doubled as compared to the last year, while the current liabilities have increased by nearly 50%. The increase in current liabilities is due to advance payments from customers, and in lieu of a payment to be made to a cement research institute in China.
The asset management figures show a decline, because of a slower than expected increase in sales. The sales/equity figures show a slight increase in line with the increase in sales as no significant change has been observed in the equity figures. The company carries very low trade debts, so the DSO figure is very small. However, it can be estimated that as soon as the repairs are done, the company will be able to achieve volumetric growth.
The margins have gone down, because of the fact that the company could not achieve targeted volumetric sales, and also because of a decline in the retention prices of cement in FY'07. Attock Cement has the advantage of its "Falcon Brand" which is perceived as a premium brand, and the effect of reduction in retention prices is not as much as for other players. During 9mths'07, average retention price of cement in the industry declined 32.3% to Rs 128 per bag from Rs 189 per bag in the corresponding period last year.
However, in the case of Attock Cement, retention prices declined just 11.0% to Rs 175 per bag in 9mths'07 as compared to Rs 196 per bag. This situation will only improve once the retention prices increase. Similarly, ROA has been declining because of an increase in assets because of the expansion. The profits need to increase at a faster pace to pull up the ratio. The net profit margin has also been showing a declining trend due to an increase in depreciation charges as well as financial charges as a consequence of capacity expansion. Also, the raw material costs along with energy costs have been showing an increase further depressing the profitability figures.
Attock Cement has diversified its investment portfolio by investing in ARL, POL, APL and NRL to the extent of not more than 2.5% of paid up capital of the investee company and the total amount not being more than Rs 2500 million. This decision has diversified the sources of earnings for the company, and will protect it from fluctuations in the prices of cement. The effect of this decision shall manifest itself in the next financial year. With the increasing oil prices, it is strongly expected that Attock Cement will greatly benefit from the decision.
The above ratio trend of TIE, Debt/Asset, and Long term debt to Equity reflects that since 2005, the long-term debts have increased. Although most of the expansion was financed through internal sources, some debt was also taken to cover-up the shortfalls. Due to this, the D/A ratio has increased, while the TIE ratio has decreased showing an increase in the financial charges as compared to the declining ability of the company to finance them due to lower than expected sales. The long term financing has been taken through Murabaha financing arrangement from a syndicate. The current Murabaha arrangement will get paid off in 5 years time.
The company stands to gain from its location in a coastal city of Balochistan. It can therefore tap export markets which give a better return as compared to the local market because of higher prices in the ME region because of a shortage situation there.
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2007 2006
(Metric tonns)
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CAPACITY AND PRODUCTION
Production capacity
- Clinker 1,620,000 720,000
- Cement 1,701,000 756,00
Actual production
- Clinker 1,314,666 780,014
- Cement 1,234,878 842,296
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With increasing energy costs and reclining retention prices, the cement manufacturers need to focus upon volumetric increase in sales to achieve economies of scale. Attock Cement can also focus upon increasing its export base to neutralize the effect of declining local prices. International prices are increasing because of the demand supply gap as well as the rising freight charges which put Pakistan in a prime location to export at favourable rates.
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Attock Cement - Consolidated Ratios
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Jun'02 Jun'03 Jun'04 Jun'05 Jun'06 Jun'07
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LIQUIDITY
Current Ratio 1.99 2.43 1.93 1.72 0.71 1.27
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ASSET MANAGEMENT
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Inventory Turnover 102.07 93.50 80.59 74.05 44.13 49.35
Days Sales Outstanding 4.13 4.04 1.16 0.55 2.40 0.79
Operating Cycle 106.20 97.55 81.75 74.60 46.52 50.13
Total Asset Turnover 0.96 0.97 1.02 0.76 0.71 0.79
Sales/Equity 1.33 1.32 1.47 1.22 1.18 1.34
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DEBT MANAGEMENT
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Debt to Asset Ratio 27.87 26.77 30.80 37.72 39.38 41.30
Debt to Equity Ratio 0.39 0.37 0.45 0.61 0.65 0.70
Long Term Debt to Equity 12.61 14.47 15.50 34.45 38.78 40.54
Times Interest Earned 9.73 25.96 55.58 109.35 59.95 12.69
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PROFITABILITY
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Gross Profit Margin 19.14 17.69 32.58 39.71 47.95 34.09
Profit Margin 7.00 9.16 14.89 33.30 26.17 17.46
Return on Assets 6.71 8.87 15.15 25.29 18.65 13.77
Return on Equity 9.31 12.12 21.89 40.61 30.77 23.45
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