Pakistan’s only aluminium can manufacturer is off to a flying start. Can they consolidate? 

There was never any doubt about whether there was a market out there for Pakistan Aluminium Beverage Can Limited (PABC) or not. If anything, there were questions over why they hadn’t been in the public eye earlier.

In 2022, the company posted a profit after tax of Rs 2.71 billion. This was up by 72% compared to the previous year (2021) when it posted a profit of Rs 1.58 billion. What would make the company even more hopeful is that it has only existed since 2017 and wasn’t listed on the Pakistan Stock Exchange (PSX) until 2021. The company made an Initial Public Offering (IPO) back in June 2021, raised around Rs 4 billion in their book building process, and in October 2022 amped up production capacity by over 26% from 700 million cans a year to over 950 million cans.

So how does a company that is only six years old list itself on the stock exchange within four years and turn out increasingly massive profits two years in a row? For starters, the PABC was filling a gap in the market that everyone had somehow missed or ignored for more than six decades. Soft drinks have been available in Pakistan since the 1950s in glass bottles and aluminium cans have been around since the 1970s albeit imported. The 1990s even saw factories being set up to process the filling of aluminium cans but still nobody seemed to have the bright idea of manufacturing the cans themselves.  

This is despite the fact that Euromonitor International puts the size of Pakistan’s soft drinks market at 3.8 billion litres per annum. It expects the market to grow at a five-year annualised rate of 7% to reach 5.3 billion litres in 2025 on the back of rising purchasing power, urbanisation and favourable demographics.

It was only in 2017 that PABC was created and took the untapped market in their own hands. And now it seems that the gamble could prove even more lucrative than initially imagined. A recent report of JS Global has indicated that the company has seen “stronger than expected” export growth from new markets and new customers. There has also been an earlier than expected recovery in domestic sales, and the declining parity of the rupee with the dollar has meant increased earnings through exports. As a result of this JS Global’s report gives the PABC a Buy Rating of 70. 

But what does that mean for the company? And is it going to be the next big thing? 

The origin story 

Set up as a collaboration between Ashmore Investment Management Limited, Liberty Group and Soorty Enterprises, the company started its operations in 2017. It is the first and only company which is involved in the manufacturing of aluminium beverage cans in the country. Currently the company is held by Liberty Group and Soorty Enterprises, an associate company, with 74% of the shares.

It’s startling that the first local production of aluminium cans only began in 2017- roughly 60 years after soft drinks were first marketed in Pakistan. Until then, bottlers in Pakistan and Afghanistan were dependent on expensive imports to package their beverages in environment-friendly aluminium cans.

And then in comes the Pakistan Aluminium Beverage Cans Ltd (PABC). Better late than never, the company has constantly been reaping profits. Just three years after its formation, PABC sought an initial public offer (IPO) on the Pakistan Stock Exchange (PSX). The company planned on raising at least Rs 3.3 billion by offering a 26% stake to institutional and ordinary investors.

PABC supplied to the bottlers of all major carbonated drinks, including PepsiCo and Coca-Cola, in both Pakistan and Afghanistan. Exports to Afghanistan constituted 35% of the company’s sales in 2020. From its inception in 2017 to expansion in 202, PABC had grown its revenue at an annualised rate of 18.7%. In the third full year of its operation (2020), the company’s net profit amounted to Rs 610.7 million, up 314% from 2019.

The company made sales of around 14 billion in FY 2022 which was a 96% increase from the sales of Rs. 7 billion in 2021. Due to the pressure in international commodity prices, the company did see its gross margins fall from 39% to 35%. This happened in the backdrop of better control over selling, administrative and financial costs which lead to earnings per share increasing from Rs. 4.37 per share to Rs. 7.48 per share for FY 2022. 

How have they been doing so well? 

With only six years under their belt, PABC is already looking to grow extensively in local and international markets. The company has had a split strategy to look to find customers locally and internationally which has placed the company well in terms of capacity and looking to enter new markets.

The company has been able to corner the local market being the sole supplier to companies like Pepsi, Nestle, Coca Cola Pakistan, Murree Brewery and Mehran Bottlers. The company has done long term contracts with these customers which makes the revenue generation stable into the future. While Pepsico and Coca Cola are definitely the big fish, the company has been helped by the fact that Nestle has launched their own line of carbonated juices that are packaged in aluminium cans. On top of this, Murree Brewery has also tried to make a push again towards promoting their drinks in cans. Earlier, the company had shifted a lot of its iconic drinks mostly to plastic bottles because of the lower costs. The existence of PABC offers a cheaper alternative for them. 

Even at this point, it is felt that there is potential for more sales and the company is looking to broaden the base of its customers. One of the biggest positives for the company is the fact that they enjoy a 10 year income tax holiday as it is located in the Special Economic Zone in Faisalabad which expires in September 2027.

The company is the only one manufacturing aluminium cans in the country which gives it a strong advantage in terms of having pricing power and control over it. Due to lack of competition, the company has practised a cost plus pricing model which allows the company to make a profit for every sale they make.

Risks faced by the company

The risks that the company faces are an appreciation in Pakistan Rupee which will decrease the potential of earnings once the company expands its export sales. In order to protect itself from appreciation, the company has looked to hedge its dollar exposure in order to sustain that revenue and earnings stream. The company saw its finance cost double compared to FY 2021 even though they paid back some of its short term borrowing. This shows that any increase in interest rates will eat into the profitability of the company.

The company is also exposed to risk in terms of stock in trade it holds which form nearly 50% of its current assets. This is an illiquid asset which can damage the working capital cycle of the company. Better inventory management will mean that the company can free up some of its funds and cash flow and look to improve the liquidity in the company.

Opportunities for the company

The Coca Cola Company expects that the sparkling soft drink market will see a steady growth of around 4 to 5 percent from FY 23 till FY 26 and this market growth can be capitalised on by PABC. The company is also looking to move from traditional packaging to recyclable packaging mix. The current profits that PABC has achieved are at a time when g Pepsi, Coca Cola, Nestle, Shezan and Murree Brewery have all said that the industry is going through weaker demand for the past 6-18 months due to macro-challenges such as inflation, decline in buying power and residual income available to buy non-essential products like soft drinks. The industry has experienced varying levels of demand decline from 5% to 20% during 1HCY023 and is expected to remain weak for 6-12 months before kicking off. Aluminium packaging is seen to be the most recyclable compared to other packaging materials which means there is potential for the company to grow further.