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Attock Cement Pakistan Limited (PSX: ACPL) was established as a public limited company in 1981. It is a subsidiary of Pharaon Investment Group Limited Holding S.A.L, Lebanon. Attock Cement manufactures and sells cement. It began commercial production in 1988. It has an annual production capacity of over 3 million tons. Its manufacturing facility is located in District Lasbela, Baluchistan. Currently it has three production lines, while the fourth one is expected to be completed by 1HFY23.

Shareholding pattern

As at June 30, 2021, 84 percent shares are categorised under “shareholders holding 10 percent or more”. This category solely includes Pharaon Investment Group Limited Holding S.A.L., Beirut, Lebanon. The local public owns close to 8 percent shares. Around 4 percent shares are held under modarabas and mutual funds while the directors, CEO, their spouses and minor children own less one percent share in the company. The remaining 4 percent shares are with the rest of the shareholder categories.

Historical operational performance

Since FY15, the company has mostly seen a growing topline while profit margins have followed a declining trend.

In FY18, revenue registered a growth of almost 12 percent to reach nearly Rs 16.5 billion. Total dispatches grew by almost 20 percent, cement dispatches grew by 10 percent while clinker export dispatches were recorded at 205,141 metric tons compared to zero in the previous year. Cement exports however declined by 7.6 percent as local market provided better prices.

In the second half of FY18, the company began commercial production from its Line 3, and produced 538,884 tons of clinker by the end of the year. At the start of the last quarter of FY18, the company also began its Waste Heat Recovery System that reduced the power requirement. However, cost of production grew to consume nearly 71 percent of revenue, up from last year’s 60 percent. This was due to increase in fuel cost by 46 percent, coal procurement cost from US$88 per ton C&F Karachi to US$102 per ton C&F Karachi, paper bag prices by 15 percent and packing and raw material cost by 20 percent due to increase in royalty rates by the Baluchistan government. Thus, operating margin fell to 20.5 percent.

In FY19, revenue posted the highest growth by nearly 26 percent to reach Rs 20.8 billion. Total dispatches grew by 28 percent, and cement dispatches by 7 percent. Cement export sales grew by 28 percent. “The net retention per ton of cement sold increased by Rs 198 per ton due to better sales mix and devaluation of PKR against US dollar which made positive impact on export proceeds realization”. However, cost of production increased to 77 percent of revenue, shrinking gross margin to 23 percent. This was attributed to a rise in net average fuel cost by 23 percent, and packing material cost by 39 percent. Thus, net margin fell to almost 10 percent.

After growing consecutively for five years, revenue in FY20 fell by nearly 11 percent. Total dispatches fell by almost 9 percent while local dispatches fell by 33 percent. This was due to increase in the number of players as well as northern brands penetrating the south market. In addition, the lockdowns due to Covid-19 pandemic further affected the business environment. The latter also adversely impacted cement exports with a marginal change in cost of production, gross margin was largely flat at 23 percent. But net margin reduced to 6 percent as distribution cost increased to consume 10 percent of revenue due to higher combined quantities of clinker and cement.

Topline recovered in FY21 as it posted a growth of 14.8 percent to cross Rs 21 billion in value terms. Total sales volumes registered an incline of 15 percent overall. Total cement dispatches were higher by 13.8 percent, while clinker export dispatches were higher by 17 percent. While prices remained more or less similar, majority of the growth in topline was attributed to volumes. Despite this, gross margin was lower at nearly 22 percent as production cost increased to 78 percent. Operating margin was further impacted due to continuous rise in distribution expense, while other income also reduced. This also trickled to the bottomline that was recorded at an all-time low of 5.2 percent.

Quarterly results and future outlook

Revenue in 1QFY22 was 15 percent lower year on year. This was due to decreased exports for both clinker and cement as prices remained depressed. Local dispatches, however, increased as the demand improved post-Covid-19. Due to low demand in export market and price constraints, the company closed two of its production lines to curtail costs. With reduction in distribution expenses, particularly, net margin improved to 6 percent versus 2.3 percent in 1QFY21. In 2QFY22, revenue was lower by 6.5 percent year on year, again due to lower exports. Due to lower demand, the company closed its Line 1. This resulted in net margin improving to 10.8 percent that also received support from other income, versus 7.4 percent in 2QFY21.

The third quarter saw higher revenue by 14.6 percent year on year. This was largely supported by local dispatches. Prices in the local market also saw an upward revision as some burden of rising costs was passed on to the consumer. However, production cost increased that adversely affected profitability as net margin was lower at 5.3 percent. With the ongoing political and economic uncertainty, the company foresees declining demand, whereas rising input costs in addition to non-availability of good quality coal are some of the hurdles the company faces.

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