Pakistan Cables Limited (PSX: PCAL) was incorporated in Pakistan as a private limited company in 1953 and was converted into a public limited company in 1955. The principal activity of the company is the manufacturing and sale of copper rods, wires, cables and conductors, aluminum extrusion profiles, and PVC compounds.

Pattern of Shareholding

As of June 30, 2024, PCAL has a total of 49.507 million shares outstanding which are held by 2290 shareholders. Directors, CEO, their spouses, and minor children have the majority stake of 29.52 percent in the company followed by the local general public holding 23.01 percent of its shares. Associated companies, undertakings, and related parties which comprise International Industries Limited and Shirazi Investments (Private) Limited hold 17.12 percent and 4.22 percent shares of PCAL respectively. The remaining shares are held by other categories of shareholders.

Financial Performance (2019-24)

PCAL’s topline after posting a marginal growth in 2019 slumped in 2020. In the subsequent years, the company’s net sales followed an upward trajectory. PCAL’s bottom line nosedived in 2019 and 2020 with net loss recorded in the latter year. The subsequent two years mustered staggering bottom-line growth and the company posted the highest ever net profit in 2022. In 2023 and 2024, PCAL’s net profit considerably shrank. PCAL’s margin which was dwindling until 2020, significantly recovered in 2021. In the next two years, while gross and operating margins kept rising to max out in 2023, net margin followed a descending route. In 2024, all the margins registered a plunge. The detailed performance review of the period under consideration is given below.

In 2019, PCAL’s topline posted a skimpy 1.5 percent year-on-year growth which was primarily on account of an upward revision in the prices of PCAL’s products particularly wires and cables and aluminum profiles. Dispatches remained tamed in 2019 due to an overall slowdown in construction and industrial activity on account of high inflation and political mayhem prevailing in the country. Not only did local sales witness a plunge in 2019, but sales proceeds from Middle East and African markets also ticked down during the year. The rise in input cost due to the global spike in commodity prices as well as Pak Rupee depreciation pushed the cost of sales up by 1.6 percent year-on-year in 2019. This culminated in a drop in GP margin from 11.9 percent in 2018 to 11.8 percent in 2019. Due to lower sales volume, carriage and freight charges also dropped in 2019; however, higher payroll and advertising expenses pushed the distribution expense up by 16.33 percent year-on-year in 2019. The initiation of a new manufacturing facility in Sind resulted in human resource induction, resulting in 6.95 percent year-on-year growth in administrative expenses in 2019. Operating profit plummeted by 23.58 percent year-on-year in 2019 with OP margin inching down from 4.82 percent in 2018 to 3.63 percent in 2019. Finance costs grew by 41.15 percent year-on-year in 2019 due to a high discount rate and also because of long-term loans obtained for the purpose of capital expenditure during the year. Consequently, net profit declined by 58.66 percent year-on-year in 2019 to clock in at Rs.126.23 million with an NP margin of 1.3 percent versus an NP margin of 3.2 percent recorded in 2018. PCAL issued 7.115 million shares in 2019 which resulted in a 64.19 percent year-on-year drop in EPS which clocked in at Rs.3.56 in 2019.

In 2020, PCAL’s net sales nosedived by 6.37 percent year-on-year which was not only because of restrained demand due to sluggish economic activity on account of COVID-19 but also because of operational disruptions due to the lockdown imposed during the year. During the year, the company also launched an e-store to bolster its sales; however, it couldn’t trigger sales on the back of unfavorable macroeconomic backdrop. Cost of sales plunged by 3.89 percent year-on-year in 2020, resulting in a 24.91 percent year-on-year decline in gross profit in 2020. GP margin also tumbled to 9.47 percent in 2020 as high per unit cost on account of Pak Rupee depreciation couldn’t be completely passed on to the customers. Lower advertisement and publicity expenses, carriage and forwarding charges, and payroll expenses pushed distribution expenses down by 14.66 percent year-on-year in 2020. The workforce was also streamlined from 485 in 2019 to 474 in 2020, resulting in 16.48 percent lesser administrative expense. Unlike other years where the company booked reversals on trade receivables, in 2020, PCAL booked a provision worth Rs.16.9 million as a buffer due to a depressed business environment and shrunken pockets of its customers. Operating profit further slid by 38 percent year-on-year in 2020, translating into an OP margin of 2.4 percent. To add to ado, finance cost multiplied by 50.20 percent year-on-year on account of exchange loss on borrowings in USD and also because of the high discount rate for the first three quarters of the year. PCAL recorded a net loss of Rs.91.786 million in 2020 with a loss per share of Rs.2.58.

With a magnificent 45 percent year-on-year rise in its topline, PCAL seems to have come out of its hard-luck pitch in 2021. This was on account of a rebound in demand due to multiple policy initiatives undertaken by the government including the construction package. The company also invested in a new plant during the year using the SBP Temporary Economic Refinance Facility (TERF). A sharp spike in international copper prices during the year also resulted in price rationalization of PCAL’s products which also buttressed the net sales in 2021. Besides Pakistan, the sales to the African region also stayed upbeat during 2021. Cost of sales grew by 41 percent year-on-year, however, robust sales volume and prices resulted in a 77 percent year-on-year growth in gross profit with GP margin jumping up to 11.6 percent in 2021. Higher freight charges and payroll expenses drove the distribution expense up by 19 percent year-on-year in 2021. Administrative expenses also grew by 22 percent year-on-year. Other expenses and other income posted an extraordinarily high growth of 1142 percent and 383 percent respectively in 2021. This was due to increased provisioning against WWF and WPPF booked in 2021. Other income grew primarily on the back of insurance claims received against business interruption. Operating profit made a staggering year-on-year growth of 323 percent in 2021 with an OP margin of 7 percent. Finance costs shrank by 32 percent despite increased borrowings during the year on account of lower policy rates. PCAL made a net profit of Rs.553.65 million in 2021 as against a loss of Rs.91.876 million in 2020. This translated into an EPS of Rs.15.56 and an NP margin of 4.2 percent – the highest among all the years under consideration.

The luck streak continued in 2022 whereby PCAL posted a splendid 61 percent growth in its net sales which came on the back of a rise in both volumes and prices of the company’s products. This was despite the fact that the country was passing through immense political turmoil during 2022 which had pushed it into serious macroeconomic vulnerabilities. The cost of sales grew by 58.51 percent year-on-year in 2022 due to the commodity super cycle on account of the Russia-Ukraine crisis as well as the Pak Rupee depreciation. Energy price hike also added insult to injury. PCAL was able to attain 80.21 percent year-on-year growth in gross profit with GP margin jumping up to 13 percent in 2022. Distribution expenses grew by 46.77 percent year-on-year on the back of higher advertising and freight charges. Administrative expenses also escalated by 21 percent year-on-year in 2022 which was the result of an uptick in the number of employees from 465 in 2021 to 503 in 2022 and also because of the inflationary pressure which drove the salaries up. During the year, PCAL booked an impairment allowance worth Rs.71.58 on investment in International Industries Limited (IIL), an associate company of PCAL. PCAL’s net sales were strong enough to absorb the elevated operating expenses and trickle down into a 76.19 percent bigger operating profit in 2022 with an OP margin of 7.68 percent. Finance costs magnified by 63 percent year-on-year in 2022 due to higher discount rates and also because of increased borrowings particularly running finance facilities obtained during the year. In 2022, PCAL’s net profit grew by 49.5 percent year-on-year to clock in at Rs.827.73 million with an NP margin of 3.91 percent in 2022 compared to 4.2 percent in 2021. EPS stood at Rs.16.72 in 2022.

In 2023, PCAL registered a thin 2.29 percent growth in its net sales. This was due to the high prices of copper while sales volume remained depressed on account of slow construction and industrial activity in the country. During the year, the company’s sales also suffered due to import restrictions, inflationary pressure, higher discount rates, Pak Rupee depreciation, and supply chain disruptions. The devastating floods that occurred during the year further worsened the economic conditions. With lower off-take, the cost of sales grew by only 0.28 percent, resulting in 15.74 percent year-on-year growth in gross profit in 2023. GP margin considerably grew to 14.7 percent – the highest since 2018. Despite lower sales volume and dejected overall business performance, distribution expenses grew by 5.78 percent due to elevated carriage and forwarding expenses. Administrative expenses surged by 9.11 percent year-on-year in 2023 on account of an unprecedented level of inflation. Operating profit grew by 27.90 percent year-on-year in 2023 with OP margin marching up to 9.61 percent. Finance cost multiplied by over 204.10 percent in 2023 on the back of a high discount rate and higher long-term loans obtained during the year to finance the company’s capital expenditure plans. PCAL’s net profit couldn’t sustain the massive finance cost and shed its value by 12.57 percent year-on-year in 2023 to clock in at Rs.723.65 million with an NP margin of 3.34 percent and EPS of Rs.14.62.

PCAL registered year-on-year topline growth of 20.85 percent in 2024. This was the product of improved sales volume as well as upward price revisions due to elevated copper prices. During the year, copper prices touched its record-high price of USD 11,105 per ton. In the presence of thin demand, the company couldn’t completely pass on the impact of cost hikes to its consumers. While gross profit ticked up by 5.65 percent in 2024, GP margin slipped to 12.85 percent. Distribution expenses mounted by 23.55 percent in 2024 due to a higher advertising and promotion budget and an increase in the carriage and forwarding charges incurred during the year. Administrative expenses ticked up by just 2.32 percent in 2024 on account of inflation. The company also expanded its workforce from 549 employees in 2023 to 574 employees in 2024. For the past three years, PCAL has been booking reversals of allowance on trade receivables. However, it was replaced by the booking of an impairment allowance worth Rs.52.03 million during the year. Operating profit dwindled by 1.63 percent in 2024 with OP margin falling down to 7.82 percent. Finance costs escalated by 82 percent in 2024 due to higher discount rates and long-term debt obtained during the year to finance its manufacturing facility in Nooriabad. PCAL’s debt-to-equity ratio climbed up from 37 percent in 2023 to 44 percent in 2024. The company recorded a 71.14 percent year-on-year decline in its net profit in 2024 which clocked in at Rs.208.858 million with EPS of Rs.4.22 and an NP margin of 0.8 percent.

Future Outlook

The local economy has started stabilizing with inflation and discount rate showing downward trend. The exchange rate has also been stable off-late. While industrial and construction activities can’t rebound overnight which might result in a muted demand outlook for the near-term, however, going forward, investment in the country’s grid infrastructure and renewable energy to mitigate the soaring energy cost will create ample demand for the company’s products.