Attock Cement to acquire Al-Abbas Cement
The cash rich Attock Cement Pakistan Limited (ACPL) is pursuing
growth strategy by expressing interest to acquire majority stake in cash
starved Al-Abbas Cement Company Limited (AACIL). If the deal gets
metalized, the total capacity of ACPL is expected to reach 2,610,000 tons
annually. Besides, we expect ACPL to achieve following benefits:
Gain more market share in other cities of Sindh like Hyderabad,
Thatta, and other ruler areas.
More domination in the Southern region will give ACPL strength in
determining cement prices.
Economies of scale may lead to decline in production cost.
Cater bulk export orders which will strengthen its exports going
AACIL – the struggler!
For the past few years, AACIL is struggling due to financial constraints
with total interest bearing liabilities swelling to PKR 3,185 million on
December 31, 2009. This along with high interest rates wipes out
company’s profitability. Moreover, high working capital requirement is
keeping AACIL to achieve higher capacity utilization which currently
stands at meager 39%. Following table shows key financial highlights of
Financial highlights 1H-FY2010 FY2009
Sales 1,025 2,983
Gross profit 98 700
Financial cost (186) (351)
Profit/(loss) after tax (247) 164
Profit/(loss) per share - PKR (1.35) 0.67
Gross profit margin 10% 23%
Total assets 5,652 5,924
Total liabilities 4,182 4,206
Equity 1,470 1,717
Book value per share - PKR 8.04 9.39
Capacity utilization 39% 65%
Source: AACIL financial statements
What is the purchase price?
Although the company has not declared any purchase price, however a
comparative analysis of EV/ton given below gives a fair idea of current
valuations of AACIL and its peer companies.
Company name EV/ton
Al-Abbas Cement 5,495
Flying Cement 930
Dewan Cement 4,116
Cherat Cement 3,317
Attock Cement 3,823
At the stock price of PKR 9.63/share, the EV/ton of AACIL com es at PKR
5,495 which is 80% more than is peer average of PKR 3,047. We believe
that ACPL is expected to pay a premium as benefits (mentioned above)
are expected to add more value for ACPL and its shareholders. Currently
we have a buy stance on ACPL with June 2010 target price of PKR