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Attock Cement Pakistan Limited (PSX: ACPL) was incorporated in Pakistan as a public limited company in 1981. The company is engaged in the manufacturing and sale of cement. The company is the subsidiary of Pharaon Investment Group Limited Holding S.A.L, Lebanon.

Pattern of Shareholding

As of June 30, 2023, ACPL has a total of 137.427 million shares outstanding which are held by 2076 shareholders. Pharaon Investment Group Limited, S.A.L, Lebanon holds 84.06 percent shares of the company followed by the local general public holding 7.57 percent shares. The remaining shares are held by other categories of shareholders.

Financial Performance (2019-23)

Except for a slide in 2020 and 2022, ACPL’s topline has been rising over the period under consideration. Conversely, its bottomline plunged in 2019 and 2020 followed by stagnancy in 2021 after which it picked up for the subsequent years. ACPL margins drastically fell until 2021. In 2022, gross margin continued to slump while operating and net margins rebounded. In the following year, gross margin saw considerable improvement while operating and net margins slightly budged. The detailed performance review of the period under consideration is given below.

In 2019, ACPL’s topline grew by 26 percent year-on-year. This was on the back of robust demand for both cement and clinker from both local and export markets. ACPL achieved the highest ever dispatches of 3.205 million M tons, up 28.5 percent year-on-year. Local sales grew by 1.7 percent year-on-year to clock in at 1.857 million M tons while export sales posted a tremendous growth of 28 percent to clock in at 0.59 million M tons. Clinker exports stood at 0.758 million M tons, up 269.4 percent year-on-year. The prices remained highly competitive due to the addition of new players in the market. As a result, ACPL couldn’t pass on the impact of cost hikes to its consumers. Its gross profit inched up by a paltry 0.1 percent in 2019 while its GP margin drastically fell from 29 percent in 2018 to 23 percent in 2019. While coal prices eased off during the year, it was offset by the steep depreciation of Pak Rupee Distribution expense multiplied by a massive 80.87 percent in 2019 on account of higher quantities exported during the year which drove up freight, handling, and other export-related expenses including higher commission. Administrative expenses lessened by 5.25 percent in 2019 primarily due to lower payroll expense. Lesser profit-related provisioning drove down other expenses by 8.13 percent in 2019. Conversely, other income registered a tremendous 383.20 percent rise in 2019 due to vigorous exchange gain due to staggering export sales. Nevertheless, operating profit eroded by 10.46 percent in 2019 with OP margin standing at 14.6 percent, down from 20.5 percent in 2018. Finance costs mounted by 158.17 percent in 2019 on the back of higher discount rates and increased short-term borrowings. This pushed down ACPL’s net profit by 52.88 percent in 2019 to clock in at Rs.2073.20 million with EPS of Rs.15.09 versus EPS of Rs.32.02 in 2018. NP margin also deteriorated from 26.7 percent in 2018 to 10 percent in 2019.

In 2020, ACPL’s net sales took a 10.97 percent slide. During the year, the total capacity of the sector reached 63.6 million tons while local demand stood at around 39.9 million tons and export demand at 7.8 million tons. Due to excess supply in the market and low demand due to the outbreak of COVID-19, ACPL’s cumulative dispatches dropped by 8.8 percent to clock in at 2.924 million M tons. While local and export sales of cement tumbled by 33 percent and 11.5 percent respectively in 2020, clinker exports mounted by 52.7 percent in 2020. Lower coal prices during the year were offset by higher packaging material costs, elevated electricity charges, and Pak Rupee depreciation. Moreover, the shift in sales mix from bag packaging to bulk clinker also reduced the overall packaging cost. While gross profit slipped by 11.53 percent in 2020, GP margin stayed intact at 23 percent. Distribution expense multiplied by 29.4 percent year-on-year in 2020 due to increased combined exports of cement and clinker which pushed up export-related expenses incurred during the year. Administrative expenses inched up by a paltry 0.35 percent in 2020. While the number of employees increased from 968 in 2019 to 1005 in 2020, resulting in higher payroll expenses, it was offset by lower legal & professional charges and low rent, rates, and taxes incurred during the year. Profit-related provisioning also took a dive in 2020, translating into 38.38 percent lower other expenses. Other income also shrank by 20.5 percent in 2020 on the back of lower exchange gains and scrap sales made during the year. Operating profit eroded by 32.19 percent in 2020 with OP margin contracting to 11.1 percent. Finance costs lowered by 18.9 percent in 2020 despite the fact that the discount rate was higher for most part of the year. This was the result of ACPL availing lost cost export refinance scheme to meet its working capital requirements and its ability to pay off its entire long-term loan availed for the line-3 project. Net profit descended by 46.58 percent year-on-year in 2020 to clock in at Rs.1107.49 million with EPS of Rs.8.06 and NP margin of 6 percent.

ACPL registered 14.83 percent growth in its topline in 2021. The stimulus packages introduced by the government of Pakistan to revive the economy instilled life in the cement sector which registered a 20 percent rise in its overall dispatches in 2021. ACPL’s overall dispatches rebounded by 15 percent year-on-year in 2021 to clock in at 3.366 million M tons. Local off-take grew by 19.8 percent while export sales slightly dropped by 0.3 percent in 2021. Clinker exports, however, remained strong clocking in at 1.355 million M tons, up 17 percent year-on-year in 2021. The inability of the company to pass on the impact of escalated coal, electricity, and packaging prices to its customers due to superfluous supply in the market pushed down its GP margin to 21.9 percent in 2021 despite a 9.26 percent rise in its gross profit. Distribution expense spiked by 20.34 percent in 2021 on the back of higher clinker export coupled with greater fuel charges. 12 percent year-on-year rise in administrative expenses in 2021 was the consequence of higher payroll expenses despite streamlining the workforce to 990 employees. ACPL made bigger provisioning for WWF and WPPF in 2021, resulting in 23.68 percent higher other expenses. Conversely, other income declined by 42.28 percent in 2021 as the company made no net exchange gain. Operating profit dwindled by 7.83 percent in 2021 with OP margin falling to 8.9 percent. Finance costs sank by 32 percent in 2021 due to monetary easing and the utilization of export refinance schemes to meet working capital requirements. Net profit stood almost stable at Rs.1107.35 million with EPS of Rs.8.06, however, NP margin inched down to 5.2 percent in 2021.

The slowdown of the global economies, rising energy tariffs, and hiking commodity prices due to the Russia-Ukraine war coupled with the Pak Rupee depreciation, high indigenous inflation, soaring discount rate, and political instability not only halted the new construction projects but also resulted in the closure of ongoing projects. As a result, the overall dispatches of the cement industry decreased by 8 percent in 2022. ACPL’s topline registered a 3.6 percent plunge in 2022 which came on the back of a 32 percent slippage in the total off-take. While local sales posted a meager 6.8 percent rise, exports of both cement and clinker drastically fell by 58 percent and 63 percent respectively in 2022. Highest-ever coal prices, unprecedented level of electricity tariff, paper bag cost as well as escalated fuel prices pushed down ACPL’s gross profit by 20.25 percent in 2022 with GP margin sliding down to 18 percent. Distribution expense leveled down by 41.24 percent in 2022 on account of significantly lower export-related expenses. Administrative expense mounted by 12.8 percent in 2022 on the back of an increase in the number of employees from 990 in 2021 to 998 in 2022 coupled with an adjustment of the minimum wage rate owing to inflation. Other expenses ticked up by 9 percent in 2022 in line with increased profit-related provisioning. However, it was conveniently offset by a 583 percent rise in other income on the back of hefty exchange gain on trade receivables as well as dividend income from its subsidiary company, Saqr Al Keetan for Cement Production Company Limited (SAKCPCL). This drove up ACPL’s operating profit by 35.5 percent in 2022 with OP margin climbing up to 12.5 percent. Finance cost also shrank by 27.84 percent in 2022 despite a high discount rate as ACPL has availed Temporary economic refinance facility, Renewable energy refinance facility, and payroll refinance scheme for most of its long-term loan and export refinance facility for its working capital requirements. The imposition of a 10 percent super tax during the year drove up tax expense by 175 percent in 2022, resulting in net profit registering a 1.29 percent year-on-year rise to clock in at Rs.1121.59 million. EPS stood at Rs.8.16 and NP margin at 5.5 percent in 2022.

ACPL posted a robust 24.41 percent year-on-year topline growth in 2023. The local cement industry registered a 16 percent slump in its off-take in 2023 owing to muted construction activity in the country. This was the consequence of an unexpected monsoon spell, the highest ever inflation and discount rate, Pak Rupee depreciation, commodity super cycle as well as supply chain disruptions due to diminishing foreign exchange reserves. ACPL’s off-take also took a 10.8 percent slide in 2023 on the back of 14.2 and 30.8 percent deterioration in its local and export sales during the year (see the graph of sales volume). Clinker exports, however, rebounded by 8.4 percent during the year. The company was able to pass on the onus of cost hikes to its customers, resulting in gross profit rising by 53.25 percent in 2023 with GP margin mounting to 22.3 percent. Distribution expenses surged by 45.44 percent in 2023 due to higher transportation and port handling charges. The administrative expense also hiked by 13.47 percent due to higher payroll expenses despite the contraction in the workforce from 998 employees in 2022 to 961 employees in 2023. Increased provisioning for WWF and WPPF drove other expenses by 61.71 percent in 2023. Conversely, other income marched down by 66.88 percent in 2023 due to lower exchange gains and no dividend earned from SAKCPCL. Operating profit grew by 23.59 percent in 2023 with OP margin slightly ticking down to 12.4 percent. Finance costs spiked by 12.13 percent in 2023 due to a higher discount rate. Net profit spiraled by 35.17 percent year-on-year in 2023 to clock in at Rs.1516.06 million with EPS of Rs.11.03 and NP margin of 6 percent.

Recent Performance (1HFY24)

ACPL’s topline rebounded by 41 percent in 1HFY24 which was primarily due to upward price revisions. Local dispatches remained muted as funds allocated for PSDP projects have not yet been released with any expectations of disbursement in the near term amidst prevailing political uncertainty. Export sales showed some improvement during the period under consideration. High inflation and fuel prices resulted in a 43 percent spike in the cost of sales during 1HFY24. Gross profit improved by 32 percent during the period, however, GP margin inched down from 20.4 percent in 1HFY23 to 19 percent in 1HFY24. 120 percent higher distribution expense recorded by ACPL in 1HFY24 is the effect of elevated fuel charges as well as the implementation of the axle load regime. Administrative expenses also grew by 12 percent in line with inflationary pressure. Higher profit-related provisioning and exchange loss resulted in 38 percent higher other expenses incurred by ACPL in 1HFY24. Conversely, other income tumbled by 44 percent due to the absence of exchange gain. Operating profit plummeted by 20 percent year-on-year in 1HFY24 with OP margin slipping to 6.5 versus 11.5 percent during the same period last year. During the period under consideration, ACPL disposed of its subsidiary SAKCPCL in Iraq and recorded a gain worth Rs.2196.74 million. Finance cost also thinned down by 57.9 percent in 1HFY24 due to better-working capital management. Net profit progressed by 264.3 percent year-on-year in 1HFY24 to clock in at Rs.2040.45 million with EPS of Rs.14.85 versus EPS of Rs.4.08 during the same period last year. NP margin also climbed up from 5.4 percent in 1HFY23 to 13.9 percent in 1HFY24.

Future Outlook

The local cement industry is grappling against low demand and high capacity. While local sales yawn, export sales are providing a cushion against elevated distribution expenses amid axle load implementation. Cement manufacturers have also conveniently increased their prices despite muted demand. Any improvement in local demand hinges on political stability.

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