Attock Cement Pakistan Limited

Attock Cement (PSX: ACPL) is one of the cement manufacturers catering primarily to the south zone of the cement market and has been established since 1981. Commercial production started in 1988 with a capacity of 0.6 million tons annually. Through expansions, the company boasted a capacity of 1.8 million tons in 2016 making it a mid-size cement firm with a market share of about 4 percent in total. The company added a new production line (brownfield expansion) in 2017 bringing up the capacity to 3 million tons and about 5-6 percent of the market share. Its market share in the south is around 25 percent or more though. The company was started with an initial capital outlay of Rs1.5 billion and a foreign exchange component of $45 million. The company currently also exports to Sri Lanka, Mauritius, Sudan, India, Tanzania and Somalia and is exploring new exporting markets as the industry expands capacity.
Aside from its latest expansion, Attock has also made investments in a cement grinding unit in Iraq through a joint venture with the Iraq-based Al Geetan Commercial Agencies to form a subsidiary, a limited liability company. Attock's holds 60 percent of the company. The mill has a capacity of 0.9 million tons at a cost of $24 million. The mill will soon enter into trial phase of production after the company obtains required permissions to import clinker.
Shareholdings
Pharaon Investment is the holding company that held more than 84 percent shares in the company in June 2018. The shareholding for Attock has not changed much. The rest of Attock's shares are distributed between banks, DFIs, Modrabas, Mutual Funds and institutional investors. The public held 4.92 percent of the company's shares in the last fiscal year. The Pharaon group has a range of investments in the areas of oil and gas, power generation and information technology. Aside from Attock cement, the group also includes Pakistan Oilfields Limited (1950), Attock Refinery (1922), Attock Petroleum Limited jointly established by the Pharaon Investment Group Limited Holding (PIGL) and Attock Oil Group of Companies (1995). Pharoaon also took over National Refinery Limited (NRL) in 2005.
Operational and financial performance
Though Attock is not the King of the Southern cement market, it is one of the primary cement suppliers in the zone and when domestic demand fails to deliver; its proximity to the port makes it easier for the company to export, compared to other cement manufacturers located further away. Since a large share of inputs are imported (mostly fuel related), the advantage Attock enjoys is significant not only in terms of getting exports out the door to markets abroad but getting inputs in comparatively cheaper. Moreover, the companies in the south also charge 10-12 percent higher for the cement bags due to the fact that there are fewer places and less competition.
Over the years the company has maintained strong capacity utilization and a steady stream of revenue flows with positive growth throughout. Even during the years when production fell down (Fy12-Fy13) the company managed to get a better value for them with its sales mix and higher retention prices.
The fluctuation of coal costs are a major factor that determine the margins that cement companies get. Since they are imported, the exchange rate also affects the costs of coal that are themselves often dependent on the international markets. During FY18, the depreciating of rupee against the dollar raised costs significantly affected margins. Attock's margins that had strengthened previously during Fy15 and Fy16 (at 40%) on the back of high demand and stable costs, dropped to 31 percent during FY18.
The company is running three operational lines now running at maximum nameplate capacity. Attock exports to Sri Lanka, Yemen, India and East African economies but since the introduction of line-3, the company has been exploring markets such as Bangladesh, Kenya, Tanzania, and Sri Lanka for the export of clinker. The south zone is leading the cement exporting sector in Pakistan, but nearly 32 percent of it is clinker exports which fetch much lower costs compared to cement exports and domestic cement sales. However, as local demand wanes, the companies adjust their sales mix.
Attock's exports share during FY16- FY18 during the time when domestic sales were improving substantially, however, this share is starting to rise as domestic demand simmers down.
Latest financials and outlook
Attock announced it's financial for nine months and while the revenues were above expectations, its bottom line did not deliver, for obvious reasons. The revenue growth came due to higher off take in the exporting market, particularly of clinker. In the south, Attock has nearly 34 percent share to exporting markets. However, since exports fetch lower prices, the revenue growth could have been much higher. On average, clinker fetches about $50 per ton less than prices retained from domestic markets.
Costs have also been higher due to a higher average coal price of $94 per ton in 9M against $91 per ton last year, plus the rupee depreciation of 34 percent since Jul-17. This pushed margins down to 22 percent against 31 percent last year.
Rising interest rates and expansion related borrowing also raises finance costs. The company got a tax reversal which led to a profit fall of 25 percent, compared to before tax profit fall of 35 percent.
With only three months left into the fiscal year end, there isn't much change in the market that is expected. The company will probably get similar off take from exports, and domestic markets, at roughly the same prices it is at now. The PSDP cuts and lower construction activities may not see a major turnaround in the next few months either. Outlook remains the same for most cement players.

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Attock Cement: Unconsolidated 9M

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Rs (mn)                    9MFY19      9MFY18      YoY

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Sales                      16,151   11,857.35    36.2%

Cost of Sales              12,541    8,162.26    53.6%

Gross Profit                3,610    3,695.09    -2.3%

Distribution costs          1,100      471.90   133.0%

Administrative                380      376.33     1.0%

Other operating expenses      103      132.00   -22.3%

Other income                  163       43.84   272.1%

Finance costs                 485      152.25   218.7%

Profit before tax           1,706    2,606.45   -34.6%

Taxation                      330      779.68   -57.7%

Net profit for the period   1,376    1,826.76   -24.7%

Earnings per share (Rs)        10       13.29   -24.7%

GP margin                     22%         31%   -28.3%

NP margin                      9%         15%   -44.7%

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Source: PSX notice

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Pattern of Shareholding (as on June 30, 2018)

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Categories of Shareholders                          Share

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Directors and their spouse(s) and minor children   0.110%

Pharaon Investment Group Limited , Lebanon         84.06%

Banks, development finance institutions,            1.57%

insurance, non-banking finance companies etc.

Modrabas and Mutual Funds                           4.39%

Others:

Institutions                                        4.94%

Foreign                                             0.00%

Individuals                                         4.92%

Total                                                100%

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