Allah Tawaqal Metals (Pvt.) Limited ("ATM" or "the Company") is a private limited company established in Pakistan on September 11, 2019, under the Companies Act, 2017. The Company specializes in recycling copper and aluminum ingots from dismantled compressors and other imported scrap. Its registered office is located at Opposite Kotli Shahan, G.T. Road, Gujranwala, Punjab, Pakistan

The business was established in the 1980s by Mr. Muneeb Arif's father as a sole proprietorship. Initially, it specialized in importing raw materials, trading them locally within Pakistan, and performing metal melting tasks. In 2019, the eldest son, Mr. Mubeen Arif, formally registered the business and expanded its operations by introducing recycling and export activities into the existing model. Furthermore, various aspects of the business were streamlined to improve efficiency.

The Company specializes in importing and purchasing scrap for manufacturing metal alloy ingots, primarily for export. It also trades secondary and semi-finished non-ferrous and ferrous metals in the local market. The primary export market is China's auto industry. The Company sources raw materials globally, with major suppliers located in the USA and Europe, handling up to 60,000 MT of raw material annually.

The current shareholding structure of ATM is distributed among three family members. Mr. Muhammad Mubeen Arif, the eldest brother and CEO, holds 34% of the shares, while Mr. Muhammad Muneeb Arif (the younger brother) and Mr. Muhammad Umair (the brother-in-law) each hold 33%.

The business, established in the 1980s, has transitioned to the second generation, which is focused on transforming it into a formal corporate structure to drive growth. The shareholding remains within the family, with no anticipated changes in the near term. However, a formal succession plan has not yet been developed.

The family has been successfully operating this business for decades, demonstrating a deep understanding of the industry and the ability to overcome challenges. The current shareholders, though young and enthusiastic, benefit greatly from the experience of their father. Under his guidance, the new management is steadily learning to navigate the challenges of running a successful business.

The financial strength of the sponsors is considered adequate.

The overall control of the Company resides with a three-member Board of Directors (BoD), which includes the Chief Executive, Mr. Mobeen Arif. All three board members are from sponsoring family and hold executive positions. The board currently does not include any independent or non-executive directors.

Mr. Mubeen Arif holds a Bachelor's degree in Accounts and Finance from Brunel University London and has 7 years of professional experience. Mr. Muneeb Arif is currently pursuing a Bachelor's degree in Business Management at Regent University London and has 4 years of experience. Mr. Umair holds a Master's degree in Mass Communication and brings 5 years of professional experience to the business.

As a family-owned and operated business, ATM faces the risk of overlapping management and ownership roles. The governance framework is still in its early stages and requires further development.

The Company has engaged the QCR-rated, external auditors, Hassan Farooq & Co., who issued an unqualified opinion on the financial statements for the year ended June 30, 2023. The audit for FY24 is currently in progress.

The Company's organizational structure is divided into five main functions: 1) Sales, 2) Production, 3) Finance, Accounts & Taxation, 4) Import, and 5) Export. Each department is headed by a director of the Company and is supported by a team of new, energetic members.

Mr. Mubeen Arif Jutt has been the CEO of the Company since its incorporation in 2019, overseeing the Finance and Compliance functions. His younger brother, Mr. Muhammad Amin Arif, serves as the GM of Finance and is responsible for reporting on all other functions. Mr. Muhammad Irfan heads the Import and Export departments.

As a family-owned business with a relatively flat organizational structure, where the sponsors oversee the day-to-day operations, ATM would benefit from establishing formal management committees. These committees would help monitor performance and ensure adherence to policies and procedures.

The Company currently uses QuickBooks Enterprise Solutions - Accountant Edition 18.0 for financial reporting. However, its inventory module is not utilized, as it is not suitable for ATM's inventory, which is managed manually. The Company is in the process of implementing a customized ERP system called Business Management System and has engaged Crox Avenue Solutions to provide related services.

Currently, the control environment is relatively weak and still evolving, as there is no formal internal audit department. However, a Quality Department has been established to ensure products meet specific export quality standards. The Company plans to obtain ISO certifications for Quality Control in the current year. Additionally, ATM has received the necessary clearance from the Provincial Environment Protection Agency (EPA), Punjab.

Scrap metal recycling is a relatively new industry in Pakistan, particularly growing after 2017 when China banned foreign scrap metal and imposed waste sanctions within its own country. This shift led to an increase in scrap metal imports to other countries, primarily Pakistan, India, Malaysia, Indonesia, and Vietnam. The industry benefits from a supportive business environment in Pakistan, with minimal import duties on scrap, ranging from 2-3%, and tax credits under Section 65D of the Income Tax Ordinance (ITO) for newly established industrial undertakings.

The Company operates in an unregulated industry with numerous small players, making it difficult to assess ATM's current market size. Additionally, ATM faces international competition from countries like India, Malaysia, and Vietnam. However, most of the competitors operate in small sole proprietorship models, while ATM has positioned itself within a corporate environment. ATM is committed to being an eco-friendly business and has installed an environment treatment plant called a baghouse with its furnace. This plant collects any carbon emissions in bags, which can be sold as a usable product.

During FY24, the Company successfully installed a furnace, increasing its capacity from 38,000 to 43,000 metric tons to meet growing demand. Capacity utilization remained at ~73% in FY24 (FY23: ~72%). According to the FY24 management accounts, ATM reported a topline of PKR ~8.3bln, with export sales of PKR ~6.5bln and local sales of PKR ~2bln. This represents a slight decline from FY23, when topline sales were PKR ~9.2bln, with export sales of PKR ~7.3bln and local sales of PKR ~2.3bln. Export sales declined by approximately 10.9%, while local sales decreased by 13%, resulting in an overall decline of 11%. Copper Ingots and Aluminum Alloy Ingots are exclusively exported to China, while ferrous waste is sold locally to traders in Gujranwala and Lahore.

During FY24, the Company reported a gross margin of 9%, down from 11% in FY23. The decline in both gross margin and net profit margin is attributed to the depreciation of the USD. The net profit margin also decreased to 3.9% in FY24, compared to 5.9% in FY23. Finance charges for FY24 stood at PKR 118 million, slightly higher than the PKR 114 million recorded in FY23. As a result, the Company reported a profit of PKR 328 million for FY24, a decrease from PKR 540 million in FY23.

Copper, being the best electrical conductor, is extensively used in electric vehicles, which will keep its demand high, particularly until 2030. The Company has recently expanded its aluminum furnace capacity by 1 container (24 MT) per day, translating to approximately 6,000 MT per annum, bringing the total aluminum production capacity to between 14,000 and 16,000 MT per annum. Additionally, the company is working on increasing the capacity of its holding furnace, which stores melted metal and maintains its temperature, thus facilitating a further increase in aluminum furnace production capacity. Following China's restrictions on the melting of scrap, the opportunity has shifted to developing countries like Pakistan, where the industry can grow. This shift presents a positive outlook for the sustainability of the business, making it well-positioned to capitalize on future demand and market dynamics.

ATM manages its working capital cycle through a combination of internal cash flows and short-term borrowings. During FY24, the Company’s reliance on short-term borrowings increased to PKR 1,016mln (FY23: PKR 803mln), with a significant portion of PKR 781mln availed under the SBP Export Refinance Scheme. Short-term financing is primarily used for importing scrap, with borrowing levels linked to the volume of purchases. Meanwhile, the net working capital days increased to 83 days in FY24, compared to 64 days in FY23, indicating a longer time to convert working capital into cash, which may require more efficient management of inventory and receivables.

During FY24, ATM’s FCFO’s recorded at PKR 193mln (FY23: PKR 511mln) resulting in lower interest coverage which declined to 2.6x in FY24 (FY23: 5.4x). The profitability of the Company decreased resulting in lower FCFOs however the finance cost remained almost same for 2024.

The Company has a moderately leveraged capital structure, with a debt to debt-plus-equity ratio of 36% (FY23: 36%). The company does not have any long-term loans and instead relies on short-term funded facilities such as FATR, Export Refinance, and FE-25 to manage its working capital.