In Focus: Result Preview of Attock Cement (17102008)

Target Price: Rs75
Attock cement is scheduled to announce its 1Q09 results on 20, Oct 2008. We are forecasting about 10.9 percent growth in earnings to Rs97.6m (EPS: Rs1.35) in 1Q09 as compared to Rs88.05m (EPS: Rs1.22) in 1Q08. The main reason behind this growth is 26 percent increase in top line on the back of volumetric growth as well as better retention prices during the period.
Growth in top line increased company’s earning
Sales revenue of the company is projected to increase by 26 percent on the back of volumetric growth as well as better retention prices during the period. In 1Q09 company sales quantities depicted growth of 20 percent at 344k ton due to better production and high export of cement to UAE. Local dispatches of the company have also shown growth of 13 percent where export showed a massive growth of 173 percent due to shortage of cement in regional market.
Rising input costs keeps gross margin in check
On cost side, we expect that ACPL’s COGS per ton would increase by 9 percent due to increase in electricity charges, paper bag cost and royalty rates. As a result, gross margin during the period is likely to drop to 22 percent in 1Q09 compared to 25 percent in corresponding period last year. Coal prices on QoQ basis declined by 13 percent while a decline of 27 percent from their peak was recorded, however the cost of coal remained same due to 9.7 percent depreciation of Pak rupee against US$. On the other hand, we estimate a financial charge is expected to grow Rs36mn from Rs27mn same period last year.
Massive increase in distribution cost on the account of huge export
We expect that firm’s distribution cost will sharply increase by 89 percent to Rs34mn in 1Q09 from Rs15mn in 1Q08 due to surging quantity of export sales that anticipated to increase logistic and other related charges for uploading bulk cement on sea vessels. In addition, hike in local oil prices would increase the freight charges for transportation of cement.
Outlook
It is expected that local dispatches will further decline due to poor economic circumstances, however the key positive factor is the strong demand in the regional markets especially in UAE, Qatar and India. Therefore, the company has recently started export of bulk cement in the regional markets. Going forward, decline in local dispatches, significant depreciation of Pak Rupee against US$ would have a adverse effect on the financial statement of the company.