Attock Cement eyeing Al-Abbas

KARACHI: Attock Cement, the maker of the powerful Falcon brand, plans to buy 74pc shares of Al-Abbas Cement, which is in the red because of a slowdown in the construction industry. In separate notices issued to Karachi Stock Exchange on Tuesday, the two cement manufacturers said a Memorandum of Understanding has been signed for the proposed deal.

Babar Bashir Nawaz, CEO Attock Cement, said the takeover of Al-Abbas will consolidate his companyís position in the market. “We feel Al-Abbas has got a lot of potential despite its losses. Our management can run the business better.”

The Al-Abbas posted a loss of Rs247 million in the first half (July-Dec) of 2009-10 following a slide in cement prices and lower consumption in the domestic and international markets. Al-Abbas drives most of its revenues from export sales.

Khurram Shehzad, head of research at InvestCap, said Attock Cementís decision was timely as shares of Al-Abbas were trading at a low value. “Al-Abbas has failed to utilize its production capacity at reasonable level so itís better for them to sell the assets.”

Attock Cement, which has strong share in the southern market of Sindh, also saw its profits plunge 13.4 percent in six months to December 2009 to Rs623m as the Competition Commission forced manufacturers to break the price cartel.

Wasi Mehdi, an analyst at Invisor Securities, said the takeover of relatively weaker Al-Abbas will give an edge to Attock Cement. “There is already a glut in the market so adding new capacity does not make sense. But for Attock, a takeover will increase sales volume and raise profits.” He said quality of Attock Cement is considered superior and increasing its volumetric sales will not be a problem.

Shares of Attock and Al-Abbas shot up on news of the deal. Al-Abbas was among the top traded in the KSE as it gained 0.14 paisa to close at Rs9.77 per share. Attock was up Rs1.15 at Rs70.7.

Syed N. Jafferi, the Chief Operating Officer of Al-Abbas Cement, said the takeover deal will fair well for both the companies. “We can add value through our 3000 tons per day production plant and presence in the export market.” Analysts say the lapse of the Competition Ordinance on March 26 is likely to push up prices of cement by 10 to 15 percent in the fourth (April-June 2009-10) quarter.

Coincidently, from March 26 the government has also started giving inland freight subsidy of 35 percent for transportation cost to the cement makers based in northern part, said Wasi Mehdi of Invisor Securities.

“One of the reasons behind the slide in cement prices in the domestic market was CCPís action against manufacturers, who were forced into price competition for gaining the market share,” he said. “Now with the lapse of Ordinance, it is natural for prices to go up.” The current average price of Rs280 per 50kg bag will likely go up to Rs320.