KARACHI – Attock Cement Pakistan Limited (ACPL) underperformed in comparison to the benchmark KSE-100 Index by 15 percent since December 2010. This underperformance was due to dismal profitability of the Company, which suffered a massive 62 percent annual contraction during 1HFY11 to Rs 2.71 per share.
ACPL managed to post one percent growth in net revenues, which however did little against the massive 21 percent annual increase in cost of sales resulting in a 46 percent decline in the gross profit since last year. A 49 percent annual rise in average coal prices coupled with gradual upwards revision in the power tariff were the major contributors to the swelling cost of sales.
The premium pricing of the company’s brand ‘Falcon’ has remained under pressure, which has significantly dropped by 61 percent to Rs 220 per tonne since competition is heating up in the southern market as Lucky Cement is augmenting its presence in the domestic market and is likely to keep the brand premium under pressure. In absence of a captive power plant, ACPL has been exposed to continuously rising electricity tariff.
The decision of GoP to increase electricity tariff by two percent every month is painting a gloomy picture for the company, whose GP margins have already dropped to 16 percent in 1HFY11 compared to 29 percent a year back due to high coal and power cost. It is believed that the company will have to establish a captive power plant to shield itself from ever escalating energy costs.
The company is working on a plant of 12 MW capacity which is expected to come online in 1QFY12. This is likely to reduce power cost by 10 percent in FY12 with an annualized after tax impact of Rs 1.08 per share.
