Look to raise Rs3.3b through initial public offer at PSX
Pakistan Aluminum Beverage Cans Ltd (PABC) is planning to raise at least Rs3.3 billion by offering a 26% stake to institutional and ordinary investors in an initial public offer (IPO) on the Pakistan Stock Exchange (PSX).
PABC supplies 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 calendar year 2020.
Book building will take place on June 22 and 23, followed by public subscription on June 29 and 30.
The entire offer of 93.8 million ordinary shares, or 26% of the post-IPO shareholding, will be offered through the book-building process at a floor price of Rs35 per share.
Successful bidders will be provisionally allotted only 75% of the issue size and the remaining shares will be offered to the retail investors at the strike price.
It means PABC will raise at least Rs3.3 billion in the IPO. But based on the interest from investors during the book-building process, the strike price can rise by 40% (Rs49 a share), thus helping the company collect Rs4.6 billion.
“The company is good. But I don’t think it would have much growth in the domestic market,” said Adnan Sami Sheikh, a senior research analyst. “It is because cans have below 4% beverages market share in Pakistan, which I don’t see changing much.”
He added that people in Pakistan are price conscious and would prefer cheaper bottled beverages as compared to comparatively expensive cans to consume the same product.
Sheikh added that Coca-Cola established bottling plants and not cans, which shows the beverage giant sees demand for bottled beverages and not cans.
Sheikh says the IPO should be subscribed to between Rs35 and Rs40 for interested investors.
However, another analyst Muhammad Saad Ali, who is Head of Research Intermarket Securities said that the company has good prospects and the IPO can be subscribed up to its maximum price of Rs49.
“The global trend is that consumers were moving towards cans against plastic bottles,” Ali said. “I believe Pakistan will also move towards using more cans.”
He added there’s little competition for the company in the country and has export potential, which makes it a good company.
Ashmore Mauritius PABC Ltd, an emerging markets investment manager based in Mauritius, currently holds 51% shareholding in the company while Liberty Group, a leading player in the textile and power sectors, owns the remaining 49% stake.
With the exit of Ashmore post-IPO, Liberty Group, the general public, and Soorty Enterprises will own 54%, 26%, and 20% shareholding in the company respectively.
The company started its operations in 2017 as the country’s only local manufacturer of aluminum beverage cans.
Established on a 20.9-acre piece of land in Faisalabad’s Special Economic Zone with a current rated capacity of 700 million cans per annum, PABC continues to enjoy a 10-year tax holiday. The company says it is increasing its capacity by almost 36% to 950 million cans per annum by July next year.
The company says its revenues have grown at an annualised rate of 18.7% in the last five years. In the third full year of its operation (2020), the company’s net profit amounted to Rs610.7 million, up 314% from 2019.
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 favorable demographics.
With the estimated market size of 275 million cans, aluminum beverage cans in Pakistan account for only 3.6% of total soft drinks sales as opposed to the global average of 19%.
PBAC’s biggest export market is Afghanistan as the country does not have local beverage glass manufacturing facilities. The company claims it has a 50% market share in the country.