Initial Public Offering by Pakistan Aluminium Beverages Cans

Pakistan Aluminium Beverages Cans Limited (PABC) is offering 93.888 million shares with floor price of Rs35/share (Rs3.2 billion) and cap of Rs49/share (Rs4.6 billion). The market capitalization of the company would be Rs12.6 billion, with cap to Rs17.6 billion. Its book building is scheduled on 22nd and 23rd June 2021.

Ashmore Mauritius PAC Limited is selling its 51% stake in PABC as part of their divestment strategy after seven years from initial investment and four years from commercial production which is in-line with global practice of 5-7 years through IPO and private placement. Ashmore is divesting 51% of its stake of which 25% is already placed privately to Liberty and Soorty groups at a price lower than what is proposed for the Offer for Sale (OFS).

Through private placement, company has sold 18.05 million shares (5% stake) to Mrs. Hamida Salim Mukaty (Liberty group) at a price of Rs30.80/share and 72.22 million shares (20% stake) to Soorty Enterprise (Pvt) Limited at a price of Rs31.85/share. The sponsors lock in period is for one year, which will apply to both parties.

Topline Securities has recommended to the investors to subscribe to this IPO till Rs40 to achieve a required return of 16.0%. It estimates Company’s fair value at Rs47/share based on P/E and DCF methodologies.

The investment outlook stems from: 1) one of the lowest per capita consumption of soft drinks, 2) potential hike in penetration of cans, 3) expanding footprint in export market and 4) capacity expansion. PABC is the sole manufacturer of Aluminium beverage cans in Pakistan.

Lowest per capita consumption of soft drinks: Pakistan is amongst the lowest per capita soft drink consumption (17 liters per capita) vs. Turkey (130 liters per capita), Indonesia (45 liters per capita), Egypt (40 liters per capita), and Malaysia (23 liters per capita). This low base will help company to grow faster than rest of the countries.

Potential hike in penetration of cans: Similarly Pakistan has also one of the lowest penetration of 3.6% in cans compared to global average of 19% – thus huge potential to grow.

Expanding footprint in export market: In 2021, export volumes are expected to increase by 77% to 303 million cans as compared to 171 million cans in 2020, where the major growth is expected to come from new markets including USA.

Capacity Expansion: Given the current order book (local and export) where capacity utilization is expected to reach 96% in 2021, PABC has decided to expand its current rated capacity to 950 million cans which is expected to come online by July 2022.

Key risks: The Company faces risks which include: 1) slowdown in demand from Afghanistan in case possible deterioration in relation, 2) lower than expected demand from new export markets, 3) new entrant in Pakistan, 4) lower than expected margins due to fluctuations in global aluminum prices, 5) delay in upcoming expansion and 6) removal of duty protection.

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