Part of the Atlas group, Atlas Battery (PSX: ATBA) started out as Shirazi Investments and is today a leading player in the auto parts and accessories sector specialising in the manufacturing of batteries for cars, motorcycles, heavy vehicles (tractors, buses etc.), and other industrial applications. The company primarily supplies to domestic markets across the country. The company was founded in 1962 with a technical collaboration of Japan battery storage co, later renamed GS Yada Corporation and started manufacturing in 1969. A year later, the company went public.
The company was manufacturing car batteries until 1974 but soon started to expand. The company introduced proprolyene batteries in 1986 and in subsequent years, Atlas entered into joint venture agreements Japan Storage Battery, which acquired an equity stake of 15 percent. Atlas started to make motorcycle batteries, and also started exporting in 1998. In 2015, the company for the first time introduced hybrid batteries.
The Atlas group has 16 companies spread across various industries such as power generation, engineering, financial services and trading. According to its own website, the group contributes 2 percent to the GDP of the country. The group has companies such as Honda Atlas Cars, Atlas Honda, Atlas Battery which are dominating players in the automotive and auto parts industry.
As per Atlas Battery's shareholding year ending June 2018, more than 77 percent of the Atlas Battery's shares belong to its associate companies with Shirazi Investments holding more 58 percent of the shareholding. GS Yuasa International Ltd Japan held 15 percent. The general public has 15 percent shares.
Financial and operational performance
Batteries find an outpouring of demand in the Pakistani market, not only because they are used in new and old vehicles, but also because they are a source of energy alternative in households and firms in a country such as Pakistan where power outages are frequent and persistent. They are used to power UPS, generating sets, and solar panels.
The automotive industry and the alternative power industry both drive battery demand. Atlas Battery's steady growth in revenues is testament to the demand in these two areas. As vehicle ownership grows with local and imported vehicles-both the new battery and replacement battery demand goes up, while electricity shortages continue to give rise to typical alternative sources of power. However, when the demand for these connected sectors comes down, battery sales also suffer.
Between 2010 and 2018, the company has had an upward and positive movement in revenues (CAGR: 18%), though revenues did fall in 2016 and climbing back up thereafter. The year 2018 was tough but the company's revenues still grew positively from the previous year. Since new power plants were added, electricity shortages have been less frequent taking away some of the demand for backup power systems which use batteries. This may have affected revenues a little during the year.
However, the company argued in its annual report for 2018 report that: "With the reduction in solar panels cost, their usage particularly in off-grid areas has propelled, creating a new segment of battery usage, which has augmented the demand of medium and small size batteries". Diversifying into new segments is positive for the business. In fact, more recently, as demand for cars and motorcycles have started to come down; it would serve Atlas Battery to have a diverse range of segments to expand revenue generation.
Though revenue CAGR has been encouraging, the company's high cost of production has historically kept its margins between 15-20 percent, though falling dramatically to 11 percent in 2018 from 17 percent from previous year. The CAGR for profit-after-tax is only 3 percent in the past eight years.
Costs associated to the companies include movement of the exchange rate as well as commodity prices for lead which is a raw material for battery production. Moreover, cost of doing business in Pakistan that includes energy prices is high which keeps Atlas Battery and companies like it to have fluctuating margins. Due to greater competition, the company may not raise prices when costs go up as frequently as it wants, in the fear of losing market share. Atlas faces the challenge of optimizing its inventory as well to maximize margins.
Recent financials and outlook
And then it was all down-hill. The company was doing pretty well up until 2018-though margins had certainly taken a hit. In 9MFY19, however, the top-line is down 34 percent. Gross profits are negative and the company is incurring an after tax loss. Demand is certainly a huge factor. Demand coming from the automotive industry has been slowing down for a while. The commercial vehicle and tractor segments have fallen dramatically in terms of volumes, while passenger cars and motorcycles are also registering negative growth. The company is also facing competition particularly in the replacement market.
According to the company, some players are offering steep discounts by adopted "unfair trade practices" which is causing players like Atlas Battery to lose market share in the segment. The margins decline has also come on the back of rising costs of production owing to higher fuel prices, rising international lead prices and the depreciating currency.
Given that the company's future performance is pegged closely to the automotive industry does not bode well for it in the short term. Though, many new players entering the auto market and hopefully expanding market size will help grow Atlas Battery's business. The company should reach more export markets, in case domestic demand continues to shrink, which is a huge possibility for the next 6-8 months at least.
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9M Atlas Battery
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Rs (mn) 9MFY19 9MFY18 YoY
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Sales 8,837 13,420 -34%
Cost of Sales 8,919 11,989 -26%
Gross Profit/(Loss) (82) 1,432 NA
Distribution costs 433 520 -17%
Administrative expenses 170 184 -8%
Other operating expenses 30 113 -73%
Other income 352 67 424%
Finance cost 166 88 88%
Profit (Loss) before tax (529) 593 NA
Taxation 115 155 -26%
Profit (Loss) after tax (644) 439 NA
Earnings per share (Rs) -26.43 18.01 NA
GP margin -1% 11%
NP margin -7% 3%
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Source: Company accounts
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Pattern of Shareholding (as on June 30, 2018)
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Categories of Shareholders %
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Directors and their spouse(s) and minor children 0.01%
Associated Companies 77.44%
Shirazi Investments (Pvt) Ltd. 58.86%
GS Yuasa International Limited-Japan 15.00%
Atlas Foundation 1.84%
Atlas Insurance Limited 1.74%
NIT & ICP 0.03%
Modrabas and Mutual Funds 0.39%
Banks, development finance institutions, 0.7%
non-banking finance companies, insurance companies,
takaful, modarabas and pension funds
Insurance Companies 2.2%
Public sector companies 1.4%
General Public 15.43%
Others 2.48%
Total 100%
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