Earnings Preview: PKR depreciation and coal inflation likely to pull down ACPL’s profitability

January 18, 2019 (MLN): Attock Cement Pakistan Limited (ACPL) is scheduled to announce its financial earnings for the period ended December 31, 2018, on Monday, January 21, 2019. Based on projections from various research houses, the market expects ACPL’s net income for 1HFY19 to decline by over 30% YoY, and the earning for 2QFY19 is likely to drop by 27% – 30%.

According to analysts at Arif Habib Limited (AHL), ACPL is likely to post earnings of Rs.386 million for the 2QFY19, (EPS: PKR 2.81), marking a decline of 30% YoY.

Although the topline of the company is projected to jump up by 21% YoY during the quarter, led by 27% growth in dispatches, margins are set to recoil by 11ppts to 24% amid cost pressures during the quarter vis-à-vis last year, including 26% deprecation in the Pak Rupee against USD and 10% YoY higher average coal prices.

As per AHL’s observations, the same reasons are likely to cause a decline of 30% YoY, in the cumulative profitability for 1HFY19, despite topline growth of 41% YoY.

Pearl Securities estimates that company is likely to post after tax profits of PKR 608 million(EPS PKR4.43) during 1HFY19E against PKR1,153 million (EPS PKR8.39) in the corresponding period last year, depicting a decline of 47%YoY. The basis for lower earnings expectation is margin erosion and substantial increase in distribution and finance cost.

Elaborating further, Mr. Mohammad Ahmed at Pearl Securities told Mettis Link News that since coal prices during the quarter inflated noticeably, the cement companies in general took the shock since coal is an essential material required in cement production.

Moreover, given that Pakistan imports coal, the recent Rupee depreciation pushed the company’s costs further upwards, resulting in a decline in profitability.

However, the top-line of the company is estimated to exhibit an increase of 59%YoY. The surge in revenue is mainly due to 75% volumetric growth observed in the dispatches (Local 16% YoY & Exports 291% YoY).

Another research house Ismail Iqbal Securities Private Limited expects the company to post earnings of PKR 399 million (EPS: PKR 2.91) in 2QFY19, reporting a decline of 27% YoY despite 25% YoY growth in total dis-patches and increase in cement price in local market.

The research house anticipates ACPL’s selling expenses to increase by 2.2 times compared to same period last year due to significant growth in export dispatches. Moreover, the company’s finance cost is expected to remain 2.7 times higher than that reported in the corresponding period last year due to hike in interest rate and increase in long term borrowings.

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Posted on: 2019-01-18T17:47:00+05:00