The cement industry in Pakistan is divided into the North and South Zones; Attock is located in the South Zone with a manufacturing plant in Tehsil Hub, Balochistan. The operational capacity of Attock Cement is 1.7 million tons of Clinker and 1.7 million tons of Cement, leading it to be a mid-sized operation in the country. The company is a member of the Pharaon Group of companies, an international group invested in the manufacturing and power generation industries in Pakistan.
INDUSTRY REVIEW After a tough FY11 when the country was hit by the Great Floods of 2010, FY12 saw local cement retention prices going up, lending some price-based support to local cement manufacturers. In addition, post-flood reconstruction activity and greater housing construction in some parts of the country also brought about a volumetric growth in local sales. Export sales, however, continued to be stifled during the year.
The trend of rising local sales and dwindling export sales continues into FY13. In addition, increased retention prices, stable coal prices, better PSDP allocation and continuous enhancements in infrastructure projects owing to forthcoming elections, will keep domestic demand robust in this fiscal year.
PROFITABILITY Like any other company in the cement industry of Pakistan, Attock Cement also shined out in FY12 and FY13 in terms of profitability. The company's net turnover went up by about 24 percent in FY12 on a year-on-year basis, and by 19 percent in 1QFY13, helped mainly by better domestic prices of cement, while local sales volumes also improved.
Worth mentioning is Attock Cement's Waste Heat recovery System, which has become fully functional and has started contributing favourably towards the company's cost of production. As a percentage of sales, the company's cost of sales went down from 80 percent in FY11 to 72 percent in FY12, and from 76 percent in 1QFY12 to 74 percent in 1QFY13.
Overall, gross profit improved by a whopping 70 percent during FY12 on a year-on-year basis, and by 28 percent in 1QFY13. The relatively lesser increase in FY13 is due to a high-base effect of a phenomenal performance in FY12.
Distribution costs as a percentage of sales during FY12 remained at nearly the same level as FY11, and during 1QFY13 relative to 1QFY12. It hovers around six percent for the company. Altogether, an improvement in operating margins of about seven percentage points during FY12, and about four percentage points in 1QFY13 versus the same periods last year.
Owing to the low leverage position of the company, its finance costs as a percentage of sales were hardly even a percentage point during FY10, FY11, FY12 and 1QFY13. Overall, Attock Cement's net profit more than doubled during FY12 to Rs 1.4 billion compared to FY11, while it improved by about 69 percent in 1QFY13 on a year-on-year basis.
OPERATIONAL PERFORMANCE Attock Cement's remarkable capacity utilisation is worth mentioning when it comes to the company's operational performance. With cent percent capacity utilisation through most of the recent years, the company is sitting way above the industry average of about 73 percent capacity utilisation.
Other variables of operational performance include the inventory turnover in days, which increased in FY12 relative to FY11, as well as the number of days in receivables, which also increased a tad in FY12 relative to the previous year. Both these show that the company's operational efficiency suffered a bit in FY12.
LEVERAGE As mentioned previously, Attock Cement is not a highly leveraged company. In fact, their accounts show a nil debt to equity ratio during FY12, FY11 and FY10. Such a leverage position stands in stark contrast to the industry dynamics, where many players are sitting on heavy debt-to-equity ratios.
A lower debt percentage in the balance sheet also facilitates lower financing costs for the company, as mentioned previously. The effect is evident from a considerable improvement in the interest coverage ratio of the company over the years.
FUTURE OUTLOOK The cement sector as a whole is poised for a promising FY13, with favourable budgetary policies, such as an enhancement of PSDP expenditures and reduction in FED. FED on cement was reduced by a further Rs 100 per ton for FY13, and the budgeted increase in PSDP is also more than 19 percent of last year's outlays - aspects that bode well for cement players like Attock Cement. Out of the total allocation of Rs 360 billion for PSDP, Rs 51.6 billion have been released in the 1QFY13 for 344 infrastructure development projects, while the remaining amount will be released till 2QCY13, according to a planned mechanism.
However, with the company already sitting at a fair level of capacity utilisation, the impact of a demand-led volumetric growth may not be quite high. However, the FED reduction and better retention prices of cement locally, combined with the downtrend in global coal prices seen recently, the company may see further uptick in its turnover and margins.
INVESTMENT AND VALUATION Attock Cement has rewarded its shareholders with dividends in all the recent years, including FY09, FY10, FY11 and FY12. Healthy growth in profitability and margins in FY12 have elicited positive comments from research analysts about the company.
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Attock Cement Pakistan Limited
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Key Ratios
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1QFY13 FY12 FY11 FY10
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Profitability ratios
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Gross profit % 26.2 27.7 20.2 25.5
Operating profit % 19.4 19.2 12.4 19.1
Net profit after tax % 14.0 13.5 8.0 13.3
Return on equity % - 21.7 11.8 18.9
Return on capital employed % - 30.9 18.3 24.5
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Operating ratios
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No of days in inventory - 25.6 12.6 23.4
No of days in receivables - 6.5 2.2 2.6
Fixed assets turnover ratio (times) - 1.9 1.6 1.8
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Leverage ratios
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Current ratio (times) 2.7 2.5 1.7 2.6
Debt: equity ratio - - - -
Interest cover ratio (times) 244.0 176.5 43.6 18.9
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Shares and Earnings
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Earnings per share (Rs) 4.13 16.59 7.9 11.74
Cash dividend per share 8.5 4.5 5
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Source: Company accounts