Pakistan Aluminum Beverage Cans Limited IPO

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Dear Clients,

Pakistan Aluminium Beverage Cans Limited (PABCL) has secured its position as the sole aluminium can manufacturer displacing imported cans. The company is listing 26% of its float as Ashmore Investment Management seeks to divest its shareholding. At floor price, the capitalization of PABCL stands at PKR 13bn. We see multiple positives from cost-plus business model, spearheading into export markets, and organic growth of domestic beverage market for investors. We recommend investors to SUBSCRIBE with a projected valuation of PKR 57/sh, 61% higher than the floor price. PABCL is priced at an implied PE of 9x at floor vis-à-vis global metal container industry average 13.9x, a discount of 54%.

Unique packaging player to list: Pakistan Aluminium Beverage Cans Limited (PABCL) commenced its operations in 2017 after setting up the plant at a cost of USD 80mn. The company is the sole manufacturer of aluminium cans in Pakistan that has successfully displaced imported can requirement. The company has now filed intention to list 26% of the company for PKR 3.3bn at floor. The proceeds would provide an exit to Ashmore Investment Management that came on board as lead investor. The floor price of the deal is PKR 35/share, which values the business at PKR 12.6bn. This implies 9x PE multiple on CY21E.

Multiple positives in the offing: From our analysis we conclude that the company can get a valuation of PKR 57/share, which is 61% higher than the floor price. We think the target multiple of 13.9x/11.5x over CY21E/CY22E is amply justified due to its cost plus model as well as competitive advantage of being the sole distributor of aluminium cans to leading beverage manufacturers domestically. One aspect we like the most is the expansion of current capacity by 250mn cans from 700mn cans with an investment of just USD 8mn on its existing line. It is targeted for commissioning by Jul’22. Effective capacity should then reach 900mn cans. The company is well placed to absorb rising demand for canned beverages and potential volumes from export to the region should help sustain revenue growth. We recommend our clients to Subscribe to the issue.

Dominance on all fronts: PABCL is a near monopoly domestically driving imported cans to less than USD 1mn in value. The company was incorporated in 2014 and commenced operations by 2017. Since then it has secured domestic contracts after proving product delivery in line with global standards. In 2020, the company sold 232mn cans to the domestic beverage companies and exported 171mn cans to Afghanistan. That said, the beverage market has depicted a 7% 5-yr CAGR and expected to maintain its momentum. So far, revenues were at PKR 5bn for CY20 from nil in CY17. We think major uptick from domestic contracts is nearly captured and uptick in exports is a potential avenue for sustained growth in customer base and volumes. Exports look promising already as management guidance suggests it has signed contracts with key beverage bottlers in Afghanistan while targeting other markets such as USA and Tajikistan. We expect revenues to reach PKR 7bn this year (up +41% Y/Y) and depict a revenue CAGR of 12% from thereon.

Operates at a cost-plus model: PABCL has contracts in place that are at a cost-plus model. The major input Aluminium is indexed to LME rates and currently the raw material makes up 60% of the cost. This is built up in the price which is indexed to imported parity giving the company a sustainable outlook on margins. PABCL has seen gross margins of 30% in CY20 where utilization level stood at 74%. The next best alternative to their product is imported finished can that attracts custom duty of 20%, ACD of 7% and RD of 10%. The company already sells at a 10-15% discount to imported parity and any uptick in landed cost can provide respite in pricing.

Subscribe till PKR 49/sh: We eye earnings growth of 24% during CY21-CY24 driven by expanding export volumes and increasing beverage consumption locally. The company has key contracts in place at favourable terms (cost plus pricing) and venture into markets such as USA and Tajikistan can prompt the company to undertake expansion down the road. Ashmore’s divestment will likely bring in core focus on business expansion from seasoned business group, Liberty. PABCL is getting listed at a forward PE of 9x as opposed to the global metal container average of 13.9x, a discount of 54%. We recommend investors to Subscribe from the floor price of PKR 35/sh with a projected valuation of PKR 57/sh, 61% higher than the floor price.

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