Pakistan Cables Limited

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, aluminium extrusion profiles and PVC compounds.

Pattern of Shareholding

As of June 30, 2022, PCAL has a total of 35.578 million shares outstanding which are held by 2187 shareholders. Directors, CEO, their spouse and minor children are the major shareholders of PCAL holding 29.52 percent of its shares. They are followed by local general public having 23.01 percent stake in the company. Associated companies, undertakings and related parties which comprise of 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 (2018-23)

PCAL’s topline posted a marginal growth in 2019 and slumped in 2020. The bottomline kept nose-diving in both the years and translated into a net loss in 2020. The subsequent two years mustered staggering topline and bottomline growth for PCAL and the company posted the highest ever net sales and net profit in 2022. In 2023, the topline growth remained subdued with a downtick in net profit. PCAL’s margin which were 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. The detailed performance review of each of the years under consideration is given below.

In 2019, PCAL’s topline posted a skimpy 1 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 aluminium profiles. Sales off-take remained tamed in 2019 due to a general slowdown in residential and industrial activity on account of high inflation and political mayhem prevailing in the country. Not only did the local sales witness a plunge in 2019, sales proceeds from Middle East and African markets also ticked down during the year. Rise in input cost due to global spike in the commodity prices as well as Pak Rupee depreciation pushed the cost of sales up by 2 percent year-on-year in 2019, culminating into a slight 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 dropped in 2019; however, higher payroll and advertising expense pushed the distribution expense up by 16 percent year-on-year in 2019. The initiation of a new manufacturing facility in Sindh resulted in human resource induction, resulting in a 7 percent year-on-year growth in administrative expense in 2019. Operating profit plummeted by 24 percent year-on-year in 2019 with OP margin inching down from 4.8 percent in 2018 to 3.6 percent in 2019. Finance cost grew by 41 percent year-on-year in 2019 due to high discount rate and also because of long-term loan obtained for the purpose of capital expenditure during the year. Consequently, net profit declined by 59 percent year-on-year in 2019 to clock in at Rs.126.23 million with an NP margin of 1.3 percent versus 3.2 percent in 2018. PCAL issued 7.115 million shares in 2019 which resulted in a 64 percent year-on-year drop in EPS from Rs.9.94 in 2018 to Rs.3.56 in 2019.

In 2020, PCAL’s net sales nosedived by 6 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 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 4 percent year-on-year in 2020, resulting in a 25 percent year-on-year decline in gross profit in 2020. GP margin also tumbled to 9.5 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 expense, carriage and forwarding charges and payroll expense pushed the distribution expense down by 15 percent year-on-year in 2020. Number of employees was cut down from 485 in 2019 to 474 in 2020, resulting in 16 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 to account for the depressed business environment and shrunken pockets. Operating profit shed further 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 percent year-on-year on account of exchange loss on borrowings in USD and also because of high discount rate for the three quarters of the year. PCAL made 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 construction package. The company also invested in a new plant during the year using SBP Temporary Economic Refinance Facility (TERF). 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 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 expense drove the distribution expense up by 19 percent year-on-year in 2021. Administrative expense also grew by 22 percent year-on-year. Other expense 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 claim 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 cost shrank by 32 percent despite increased borrowings during the year on account of lower policy rate. PCAL made a net profit of Rs.553.65 million in 2021 as against the 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 s 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. Cost of sales grew by 59 percent year-on-year in 2022 due to commodity super cycle on account of Russia-Ukraine crisis as well as Pak Rupee depreciation. Energy price hike also added insult to injury. Yet, PCAL was able to attain 80 percent year-on-year growth in gross profit with GP margin jumping up to 13 percent in 2022. Distribution expense grew by 47 percent year-on-year on the back of higher advertising and freight charges. Administrative expense 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 also booked an impairment allowance worth Rs.71.58 on investment in International Industries Limited (IIL), an associate company of PCAL. However, PCAL’s net sales were strong enough to absorb elevating operating expenses and trickled down into a 76 percent bigger operating profit in 2022 with an OP margin of 7.7 percent. Finance cost magnified by 63 percent year-on-year in 2022 due to higher discount rate and also because of increased borrowings particularly running finance facilities obtained during the year. This diluted the bottomline growth for the year. In 2022, PCAL’s net profit grew by 50 percent year-on-year to clock in at Rs.827.73 million with a slightly lesser NP margin of 3.9 percent in 2022 compared to 4.2 percent in 2021. EPS stood at Rs.16.72 in 2022.

2023 witnessed a skimpy 2 percent sales growth of PCAL. This was due to high prices of copper while sales volume remained depressed on account of slow construction and industrial activity in the country. With lower off-take the cost of sales grew by only 0.3 percent, resulting in a 16 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 and administrative expense grew by 6 percent and 9 percent year-on-year respectively on account of unprecedented level of inflation. Operating profit grew by 28 percent year-on-year in 2023 with OP margin marching up to 9.6 percent. Finance cost multiplied by over 200 percent in 2023 on the back of high discount rate. PCAL’s net profit couldn’t sustain the massive finance cost and shed its value by 13 percent year-on-year in 2023 to clock in at Rs.723.65 million with an NP margin of 3.3 percent and an EPS of Rs.14.62.

Future Outlook

With suppressed demand, high copper prices don’t offer a sustainable solution to PCAL’s net sales growth. Moreover, with Pak Rupee depreciation, energy price hikes, high discount rate and increased taxation, the bottomline and margins see no getaway from further erosion.