PABC is the sole manufacturer of aluminum beverage cans in Pakistan and supplies to all material bottlers in Pakistan, 35% of its revenues are dependent upon export of cans to Afghanistan and has footprints in North America and Central Asia.
PABC cash flow from operations was negative during CY18 and CY19 amounting to PKR (1,560) Million and PKR (75) Million respectively which improved significantly and turned positive with cash generated from operations to PKR 705 Million during CY20. All eyes are now on nearing results, as to how much revenues of the company have been hit by the Afghanistan Situation.
PABC’s grossly underperformed since its listing on the mainboard of Pakistan Stock Exchange. The summer- season-sales play a decisive factor in the in the determination of annual revenues of the company. The 35% of the revenues of the Company emanate from Afghanistan, with US withdraw and subsequent freezing of forex reserves had a direct impact over the company revenues rising out of AFG region which caters to some central Asian countries as well. Though it is reliably learnt that ‘Not all’ the ‘sales’ has been hit, yet the winter season and AFG situation had its maximum tool over the performance of the company.
However, the Company’s claim about risk mitigation measure about raw material price flotations are plausible, but the risks associated with currency risks and interest rate risk so high that the same may affect profitably given a debt of 4.5 billion i.e. based on floating rate.
Conservative estimates suggest that an earnings per share of Rs. 4.1/- and 4.9/-per share CY21 & CY22 with 30% gross margins assumed against 35% of 9MCY21 margins for CY22 on the basis of zero growth in volumetric sales in exports due to ongoing situation in the Afghanistan.
At present, PABC caters 50% of the cans demand in Afghanistan while eyeing to cater 60% in this year. Pakistan’s trade with AFG has declined considerably. Mainly due to political decision of then Afghanistan govt to reduce imports reliance on Pakistan. Political landscape has altered in Pakistan’s favor now. This is likely to facilitate PABC in increasing its market share in Afghanistan once economic situation improves. We believe that with the upcoming expansion in 2QCY22, it would be much easier for the company to diversify its export base. PABC has already started to diversify its exports base by selling in USA & Tajikistan markets in CY21. This diversification is likely to mitigate some of the risks pose by Afghanistan during current year.
In consideration the aforementioned situation, the market forces seem to have discounted the price of the stock by 35%, with the start of summer season, it can be expected that the stock might perform.
BY : Inside Financial Markets