Karachi, May 29, 2023 (PPI-OT): PABC: Growth play with benefit of exports

Pakistan Aluminium Beverage Cans Limited (PABC) held its Analyst Briefing to discuss financial performance and outlook. To recall, company posted a PAT of Rs2.7bn (EPS: Rs7.5) for CY22, an increase of 71% YoY. Bottomline for 1QCY23 also expanded 2.2x YoY to Rs1.3bn, primarily due to significant rupee devaluation benefiting exports and capacity addition.

PABC increased its capacity by 150mn cans in Aug-22 taking total capacity to 950mn cans per annum. PABC intends to further increase its rated capacity to 1.2bn cans per annum to cater to growing consumer demand for aluminium cans.

Due to current economic climate, PABC expects some slow-down in domestic volumes. However, in order to make up for the same, it aims to boost and diversify exports - Afghanistan has gone from contributing 100% of exports earlier to 75% in CY22.

Expansion to enhance momentum

PABC, is the largest and only can manufacturing facility in the country and hence enjoys monopoly in the segment. Company achieved utilization of 88% in CY22 compared to utilization of 78% in CY21. Company increased its capacity by 150mn cans in Aug-2022 taking total capacity to 950mn cans per annum. PABC intends to further increase its rated can production capacity to 1.2bn cans per annum.

Management, in its recent Corporate Briefing, shared that import of the needed machinery has already been made. The said expansion aims to cater to the growing consumer demand for aluminium cans and the CoD is expected by Aug- 2023. Management apprised that it can increase production capacity to around 2.5bn cans per annum at its current premises in Faisalabad. The management also shared that up until Apr-2023, the company was required to provide 100% cash margins for import of raw material; however, the said requirement has now been relaxed.

Management forecasts sales volume of around 750mn cans per annum for CY23 whereas revenue and net profit are estimated to clock-in at Rs18bn and Rs3.5bn, respectively for the ongoing year.

Revenue jumps over boosted capacity and higher exports

Despite experiencing economic obstacles brought on by the local and global geopolitical environment, PABC has been on a solid growth trajectory, posting a revenue of Rs14.2bn during CY22 (+96% YoY). Moreover, the company is also benefitting from the ongoing sharp PKR depreciation with more than 40% revenue share derived from exports, with remaining from local market. On the gross level, however, profitability saw some pressure as margin clocked in at 33.4% in CY22, which was 2.1ppt lower compared to CY21. Nonetheless, Profit after tax for CY22 clocked in at Rs2.7bn (EPS: Rs7.5), an increase of 71% YoY.

The high growth continued in 1QCY23, as bottom line expanded 2.2x YoY to a Profit after tax of Rs1.3bn, primarily due to higher sales which came in 97% higher YoY, owing to the significant spell of rupee devaluation benefiting export sales and the enhanced capacity.

Proactively exploring other markets for exports

PABC has remained proactive to diversify its sales mix. The company has had high reliance on the Afghanistan market earlier, as easy road access to Afghanistan made it an ideal export destination, but has started to look for other markets as well now also evident from its recent sales mix. From 100% export sales coming from Afghanistan in CY20, the contribution from the country has now gotten to 75% of the total export sales by PABC. PABC exported to USA during CY21 but pulled back later due to increased cost competition in the North American market amid surge in freight costs. PABC is also attempting to penetrate the markets of Uzbekistan, Tajikistan and Bangladesh for exports.

Durable growth prospects

The business uses a "cost plus" pricing mechanism, effectively passing on inflationary input costs (which are built into the contracts). Management shared that there is a one-month lag in the passing on of raw material prices. Company’s major raw material are aluminium coils (constituting 60% of total RM) and can-ends.

With Pakistan being the sixth most populous country in the world and having the fourth-highest rate of urbanization, PABC is ideally positioned to benefit from the growing consumerism in the country. Being the sole manufacturer of cans and the sole supplier for all major beverage companies, there is immense growth potential. The increasing acceptance of products packaged in aluminium due to environmental concerns further strengthens the proposition. Company’s proactive approach toward increasing exports to other countries, tax exemptions until 2027 by virtue of being established in the Special Economic Zone and a dollar-linked pricing plan as mentioned above all point toward solid prospects for PABC.