Through a series of modernization and capacity enhancements, the company expanded capacity to 1.8 million by FY16, holding 4 percent market share per industry total capacity. Though it supplies mainly in the south, its market share in FY16 and FY17 according to the company's annual report was 24 percent. The company is a dominant player in Karachi, for instance. Attock also exports cement to Sri-lanka, Mauritius, Sudan, India, Tanzania and Somalia. With the latest capacity addition, along with a couple other players, the company now has 5.5 percent share in total industry capacity.
Shareholdings and expansions
Attock cement is one of the company's parts of the Pharaon group. The holding company Pharaon Investment holds 84 percent in the company's share, and is a company based in Beirut, Lebanon. The group has a range of investments in the areas of oil and gas, power generation and information technology, other than cement. The company itself has subsidiaries including Pakistan Oilfields Limited set up in 1950, Attock Refinery (1922), Attock Petroleum Limited that was established jointly by the Pharaon Investment Group Limited Holding (PIGL) and Attock Oil Group of Companies (1995). The company also took over National Refinery Limited (NRL) in 2005.
With shareholding almost entirely belonging to the holding company, the distribution of shares in other groups is minimal. Individuals held about 4.21 percent of the shares for the year ending June-2017, while unspecified institutions held about 5.87 percent.
The company is one of the first players to introduce the capacity expansion that came online early 2018 and has a capacity of 1.2 million tons. The brownfield expansion at its facilities in Hub had an initial capital outlay of $120 million.
Attock also entered into a joint venture with the Iraq-based Al Geetan Commercial Agencies to form a subsidiary, a limited liability company in Busra, Iraq. The company has a cement grinding unit of 0.9 million tons capacity. It cost $24 million for the project to be completed and Attock holds 60 percent share in the partnership. Commercial production at the Busra plant as well as the Hub plant has already started.
Operational and financial performance
Attock cement is a very consistent company. Despite ups and downs in industry dynamics, the company has preserved over the years. Sales growth is nearly positive each year, while revenues have been positively growing since FY10 till date, which is an achievement in the cement sector as prices have fluctuated over the years. The CAGR for revenues is 9 percent and an average growth of 11 percent over the years.
The company enjoys the advantage of being in the South. Southern players have historically seen less costs of production as they are near the port-they have to worry less about freight, and inland transport costs. Meanwhile, price fluctuations in the region have also been fewer though the bags in the south carry a 10 percent higher price tag since demand is ample, and players are few.
The company was selling 1.8 million tons in FY10, growing it to 1.97 million tons in FY16 and bragging volumetric sales of 2.082 million tons during FY17. This means the company has been operating on maximum capacity till 2010 and beyond 100 percent since FY11. In fact, the capacity utilization was 107 percent in FY17-numbers are not yet available for 2018 but it doesn't seem the company deviated from this trend.
High capacity utilization is a sign that the company is not leaving its plant facilities idle and there is little to no wastage. Moving onto its financials, the company has slowly improved its margins from 20 percent in FY11 to 40 percent in FY16 and FY17. Costs per ton down from Rs 4,658 in FY14 to Rs 4,246 in FY17 as estimated by using numbers given in the annual reports. Costs are dependent on coal prices, fuel and energy prices as well as the exchange rate as some of the inputs including coal are imported by cement makers.
Coal prices had increased during FY17 which carried well into FY18 and resulted in margins dips for the sector all around but Attock remained steadfast unlike other cement players. Especially in the north, margins fell as cement prices also fell coupled by the coal price hike. Players in the south on the other hand saw prices remain more or less on the same levels. Attock enjoys premium pricing on account of strong market presence. In the past the company has been able to move to upper Sindh/lower Punjab area owing to affordable diesel prices. In efforts to reduce costs, Attock put in efforts to overhaul its cement mill and installed Variable Frequency Drives (VFDs) on its key motors, which contributed toward reducing power costs. The company also has a 40MW of coal fired power plant but in the past has found water shortages in the Hub dam to be a deterrent to running this plant.
Demand in the local markets has remained robust. Though most of the demand for the cement industry comes from the North (due to the infrastructure and development activity), Southern players have never felt a supply glut. When the company is unable to sell to local markets, its proximity with the port allows it to export to markets abroad and fetch a better price compared to other players who incur higher transportation expenditure. However, local markets have always taken priority since companies get a better price here than abroad where they have to compete with cheaper and more competitive cements.
Exports share in fact has fallen for Attock from 39 percent in FY15 to 24 percent in FY17 as a share of all its sales, which is still higher than some other players. Surplus quantity in FY17 was exported to Sri lanka, Yemen, India and East African economies.
Its controlled indirect expenses, especially distribution costs have allowed Attock to improve profit margins from 8 percent in FY11 to 21 percent in FY17.
Latest financials, opportunities and outlook.
The latest financial results announced to the PSX show that Attock grew its revenues by 15 percent and despite seeing higher borrowing costs, its profit margins grew to 26 percent from 21 percent. This was able to happen due to a tax credit that the company received as its expansion came through. This benefit allowed the before tax profit of Rs 3 billion to become Rs 4.4 billion-with tax credit of 41 percent.
Other picture however seemed bleak as the company, much like other players, faced higher coal prices and higher exchange losses due to rupee depreciation. Margins had fallen from 40 percent to a sad 31 percent in FY18. Indirect expenses remained 11 percent of the revenues, finance costs 1 percent, against 0.2 percent in FY17. This is owing to the company's borrowing due to its expansions and other capital expenditure.
With the new expansion, Attock with 5.5 percent share in industry capacity, should have retained the 24 percent market share in the south. Other players have also expanded. Attock is keeping at pace. Some of its most promising fundamentals are its strong capacity utilization, it's positioning in the south and brand recognition in the market, as well as stable prices and lower freight in the south. But it does face tough competition from the few players that do operate in the south.
Diversifying its investments is a great idea. Attock's investments in Iraq with a grinding plant and in power projects through local subsidiaries will bode well for it in the future.
The new government intends on keeping most of the planned infrastructure projects which ensures cement demand to persist in the segment. Meanwhile, the PTI government also announced plans to construct five million houses over the next five years which would generate demand for more than 20 million tons of cement each year on an estimate.
This is the additional cement needed across the country that the industry is poised to capture and may even safe face from a supply glut. If this demand materializes indeed, prices will remain high and cement companies well-positioned like Attock will boost higher bottom lines. Coal prices turnaround and stable rupee may help with the margins.
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Attock Cement (Unconsolidated)
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(Rs mn) FY18 FY17 YoY
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Sales 16,884.4 14,735.2 15%
Cost of Sales 11,697.6 8,843.0 32%
Gross Profit 5,186.8 5,892.2 -12%
Distribution costs 1,171.0 903.5 30%
Administrative expenses 533.1 419.4 27%
Other operating expenses 163.0 333.6 -51%
Finance cost 251.2 28.4 785%
Other income 60.8 236.6 -74%
Profit before tax 3,129.4 4,443.3 -30%
Income tax (credit)/expense -1,270.4 1,409.9 n/a
Net profit for the period 4,399.8 3,034.1 45%
Earnings per share (Rs) 38.42 26.49 45%
GP margin 31% 40% -23%
NP margin 26% 21% 27%
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Source: Company accounts
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Pattern of Shareholding (as on June 30, 2017)
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Categories of Shareholders Share
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Directors and their spouse(s) and minor children 0.110%
Executives 0.01%
Pharaon Investment Group Limited , Lebanon 84.00%
Banks, development finance institutions, 3.67%
insurance, non-banking finance companies etc.
Modrabas and Mutual Funds 1.90%
Others:
Institutions 5.87%
Foreign 0.17%
Individuals 4.21%
Total 100%
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Source: Company accounts