Pakistan Aluminum Beverage Cans Limited eyes new customers in South Asia, Central Asian States, Africa, and the Middle East. The management of PABC held an analyst briefing recently to discuss the CY21 result and stated that Pakistan’s demand includes can sizes of 250ml and 300ml; 250ml is the main pack size, contributing 91% to the local sales.

Although 250ml has the major market share in Afghanistan, 300ml is also a sizeable pack contributing around 47%. Overall total demand for 250ml makes the biggest pie (76.9%) followed by 300ml size (22.2%), 330ml (0.2%) and 355ml (0.6%; to USA/Canada).

·      PABC products are offered at a 10-20% discount on imported cans.

·      Local and export sales by the company are USD denominated, so the currency risk is hedged.

·      Local sales form 60% of total offtake and the remaining 40% is that of exports. Of exports, 35% of sales are made to Afghanistan and 5% to other international markets.

·      Moreover, price hike in aluminium is usually passed on easily as per contracts. Management highlighted that aluminium did come down a little in the past few days. The company procures 5000-6000 tons per annum.

·      Production of cans climbed up from 434mn in CY20 to 545mn in CY21. Sales in the last quarter of the outgoing year were down due to peak winter in the North region of Pakistan and Afghanistan. 40% of the offtake is made to Afghanistan, where sales went up despite the regime change (+5.4% YoY). At the same time, the company also managed to increase overall offtake as it diversified the risk and added two more markets (Tajikistan and Bangladesh).

·      The company is eyeing new customers in South Asia, Central Asian States, Africa, and the Middle East.

·      GP margins improved to 35.5% from 30.3% last year amid improved efficiency and pricing.

·      Improvement was also witnessed in the leverage position compared to previous years (debt to equity of 1.16x compared to 1.45x last year).

·      Company has a 10-year tax advantage till 2027.

·      The company has invested USD 8mn, which will augment capacity from 700mn cans to 950mn cans. This should come online by Jun’22, the management believes. Utilization of the plant went up from 74% to 91%, showing that the expansion was taken on a timely basis.

·      As per Euromonitor International, Pakistan’s soft drinks market is expected to grow at a CAGR of 7.5% till 2025 to 5,344mn litters. However, the consumption is still much lower than other neighbouring and regional countries at 17 litres per capita, which further opens up avenues for growth.

·      The management expects that CY22 volumes can exceed sales of CY21 as the Afghanistan situation has improved and payment issues have largely been dealt with (cash payments now). 1Q sales have already shown growth on a YoY basis (sales were made to Afghanistan and Bangladesh). One more international market will be added in the next quarter.

·      Growth in the local market is expected at 7-8%, whereas exports growth remains robust too as new customers are being added. Sales to Afghanistan will be majorly supported by sales to new client: Alokozay.

·      The management forecasts demand from the regional market at nearly 1bn cans per annum.

·      Inventory gains have not added more than ~3-5% to the gross profit margins.

Courtesy- AHL Research