Attock Cement Pakistan Limited

Attock Cement Pakistan Limited (ACPL) is a subsidiary of the Pharaon Group and has been a publicly listed firm since it listing at the Karachi Stock Exchange in June 2002. The Company is mainly involved in the manufacturing and sale of cement.
ACPL's manufacturing plant is located in Hub Tehsil, Lasbela District of Baluchistan. ACPL attained ISO 9001:2000 and ISO 14000 certifications from Lloyds Register Quality Assurance (LRQA) in 2002 and 2006, respectively.
The original capacity of the plant was 2,000 tons per day (TPD) of clinker, but with continuous growth in cement demand both in local and regional markets, the Company put up another line of 3,300 TPD of clinker in 2006-2007 at a total investment of $61 million.
After this additional capacity started production, the total clinker capacity of the company has reached 1,710,000 metric tons of clinker per annum.
FINANCIAL ANALYSIS OF ATTOCK CEMENT PAKISTAN LIMITED Profitability The Company achieved overall net sales revenue growth of 70 percent in FY09 compared to the previous fiscal year. Increases in the revenue are largely attributable to two factors: increases in volume (25 percent) and net retention (37 percent).
Political uncertainty, major slashes in the country's developmental budget and an overall slowdown in economic activities impeded local sales which registered negative growth of 14 percent year-on-year in FY09.
However, over the same period, exports jumped exponentially and in consequence of it revenue from exports also increased by 412 percent. Despite achieving the volumetric growth of 4 percent, the overall sales revenue in FY10 declined by Rs 842 million compared to the previous fiscal year, because of significant reduction in net retention. During this time, significant surplus capacity was available in the country that drove down local prices as well. To make matters worse for the sector, export prices also fell during this period as the world's major economies reeled with global financial crisis.
ACPL's fortunes improved considerably in FY09 as the Company's net profit after tax increased to Rs 1,493 million, as compared to a relatively paltry tally of Rs 435 million earned in FY08. This marked improvement quantifies an impressive jump of 243 percent, year-on-year or Rs 1,058 million. Summarily put, improved demand allowed the local cement manufacturers, including Attock Cement to better utilise their respective production capacities by about 18 percent, compared to FY08's.
Rising cost of electricity and hefty reductions in local as well as international prices of cement packed a one-two punch for Attock Cement just like the rest of the local cement industry during FY10. As a result of it ACPL saw its NPAT fall by Rs 476 million when compared to the previous fiscal year.
However, during the same period the Company managed to bring down its interest expense, while lower fuel prices also helped ACPL secure relatively cheaper rates on coal, used for cement production. The Company is also successful in generating interest income of Rs 175 million on surplus funds.
An increase of 20 percent in the cost of production since the start of FY11 compared with last year reduced the company's profitability to Rs 425 million as compared to Rs 839 million in the same period last year, showing a decrease of 52 percent. During the ongoing fiscal year, the lack of fiscal space has continued to limit the government's ability to fund new and existing developmental projects that have traditionally created a major chunk of the demand for local cement manufacturers including ACPL.
Moreover, competition has intensified for the Company as other entrants are also sitting on idle capacity. Consequently, ACPL has been unable to pass on increases in its cost of production to consumers. Due to these constraints, the Company's gross margins reduced from 28 percent to 22 percent. Likewise, ACPL saw its operating margins swing from 18 percent to 10 percent, compared with the same period of last year.
Liquidity The Company has successfully improved its short-term liquidity position despite the current economic situation. This is reflected through the rise in ACPL's current ratio in FY09 with a slight fall in FY10 when the Company's profitability was relatively lower.
Debt Management Finance costs reduced substantially from Rs 113 per ton in FY08 to Rs 70 per ton in FY09, mainly because of interest rate hedging executed by the Company by entering into interest rate swap agreements with banks. These hedging transactions allowed the Company to offset effects of higher interest rates witnessed during FY09.
The Company has been able to maintain an optimal capital structure to reduce the cost of capital and minimise risk by financing its operations through equity, borrowings and management of working capital. As a result, the company's net debt figures are nil for FY09 and FY10.
Operational Efficiency The Company witnesses significant improvement in its operational efficiency. This can be seen by the total asset turnover ratio which was 1.22 in FY09, as a result of optimal capacity utilisation. The ratio was healthy in FY10 at 1.09, signalling the Company's capacity to turn assets into revenue.
Market Value Phenomenal profitability in FY09 reflected in the earnings per share of the Company, which increased from Rs 6.03 in FY08 to Rs 20.69 in FY09. However, EPS fell significantly in FY10 due to subdued sales and thinner margins to Rs 11.74.
Future Prospects The current business environment is extremely challenging for the Company. Double digit inflation, rising coal prices in international markets, significant increases in power tariffs, higher interest rates and recently increased special excise duty as well as the imposition of flood tax have affected cement demand and the Company's profit margin. Margins in the export market have also been affected by heightened competition from local as well as foreign firms with idle capacity.
Rising input costs and shrinking profit margins have become challenges for the Company and increasing cement prices seem to be the only option to ensure the future viability and profitability of the cement business.
The Industry has great potential to grow but its success, at least in the short-term will remain largely hinged upon the government's ability to commit sizeable investments towards large-scale developmental projects such as the construction of new dams, highways, bridges, etc. Short of this, the Company will likely face subdued demand while the current economic gloom persists locally and internationally.
COURTESY: Economics and Finance Department, Institute of Business Administration, Karachi, prepared this analytical report for Business Recorder.
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