demand pushed capacity expansion of soda ash
TRANSCRIPT
February 4, 2020
Diversifying, Expanding, Growing
Chemicals ICI Pakistan Limited REP 300
Closing Price is as of 03-Feb-2020
We initiate coverage on ICI Pakistan Limited (ICI) with a Dec’20 target price of PKR
769/share, representing an upside of 13.6% from last day’s closing. Our investment
case is hinged upon:
Expansion in the company’s Soda Ash manufacturing facility to 500k tons per
annum from current capacity of 425k tons per annum, by Jun’22.
Diversification into a new business during FY19 with the company successfully
commissioning the MasterBatch manufacturing facility, and
Recent commissioning of NutriCo Morinaga (Private) Limited (a joint venture
company between ICI Pakistan Limited, Morinaga Milk Industry Co. Limited and
Unibrands (Private) Limited), a facility to manufacture infant and growing up
formula products. ICI has a 51% stake in this venture and the plant has a
manufacturing capacity of 12k tons per annum.
Demand Pushed Capacity Expansion of Soda Ash
Soda Ash is primarily consumed in glass, paper and detergent manufacturing. On the back
of expected growth in demand of glass due to rise in construction activity, the company
undertook expansion in its Soda Ash production capacity to 425K tons from 350K tons.
Whereas, the container glass market is also growing. While population growth along with
changing life style (urbanization) has triggered the demand for detergents. All these factors
have noticeably contributed to an increase in demand of Soda Ash and therefore, ICI plans
to further augment its capacity to 500k tons by Jun’22.
Morinaga Infant Formula; Entering the Consumer Market
During FY19, the company established a manufacturing facility for Morinaga infant
formula. NutriCo Morinaga (Private) Limited, a subsidiary of ICI Pakistan (Holding: 51%),
has been incorporated to manufacture 12,000 tons p.a. of infant formula.
Diversification to Offset the PSF Underperformance
During FY19, the company successfully commissioned the Masterbatch manufacturing
facility. It is a colorant/pigment that is used in plastics and comes under the company’s
Chemical and Agri Sciences business. As per management, the company is planning an
expansion in next 5-6 months due to better than expected market response. In addition,
the company has also signed an agreement with Huntsman Textile to manufacture and
distribute textile effects products in Pakistan. This venture is expected to enhance the
company’s profits going forward.
Exhibit: 01 Valuation Snapshot
FY19A FY20E FY21F FY22F
EPS PKR 27.3 39.9 46.2 59.8
DPS PKR 9.0 20.0 23.0 30.0
P/E x 19.5 17.0 14.7 11.3
P/B x 2.3 2.7 2.4 2.0
Source: Company Financials, AHL Research
BUY
769.0
676.7
13.6
Shares (mn) 92
403
3M 6M 12M
25.4 39.7 -7.1
126.4 69.5 43.0
728.1 728.1 728.1
529.4 436.6 436.6
Source: Bloomberg
Analyst:
Rao Aamir Ali
F:+92 21 3242 0742
D:+92 21 3246 1106
ICI PA
Upside (% )
Current Price
Target Price (Dec'20)
Recommendation
Market Cap. (USD mn)
www.arifhabibltd.com
UAN: +92 21 111 245 111, Ext: 242
62,498
- Associated Companies
Price Performance
Major Shareholders
Relative Performance
Avg. Volume (000)
High Price - PKR
Low Price - PKR
Return (% )
Market Cap. (PKR mn)
T op 25 Listed C ompanies
C orporate Finance House
of the Year: 2018
Be s t Domestic
E quity House
Be s t E quity Research
Ana lyst: 2017
50%
60%
70%
80%
90%
100%
110%
Jan-
19
Feb-
19
Mar
-19
Apr
-19
May
-19
Jun-
19
Jul-1
9
Aug
-19
Sep
-19
Oct
-19
Nov
-19
Dec
-19
Jan-
20
ICI KSE100
ICI Pakistan Limited Page 2
ICI – Chemicals
Valuation
We valued the company based on the Free Cash Flow to Firm (FCFF) methodology with the
Dec’20 target price arriving at PKR 769/share, which translates into an upside potential of
13.6% from last closing. Our valuation parameters include beta of 0.74, Risk Free Rate (RFR)
of 11.0% and a risk premium of 6.0%, which brings cost of equity to 15.4%. Hence, we
initiate our coverage with a ‘BUY’ call on the stock. Currently the stock is trading at FY20E
and FY21F P/E of 17.0x and 14.7x, respectively.
Exhibit. 03 Valuation Snapshot
Jun-20 Jun-21 Jun-22 Jun-23 Jun-24 Jun-25
Profit after tax 3,681 4,264 5,520 6,759 7,620 8,376
Less: Income from Cash Deposits (net of taxes) 45 40 26 92 307 595
Add: Depreciation 2,765 2,729 2,496 2,740 2,553 2,389
Interest expense (net of taxes) 1,425 1,676 1,401 931 558 429
Capital Expenditure (2,794) (2,920) (2,670) (970) (990) (1,005)
Changes in Working Capital (314) (435) (548) (782) (424) (457)
Free Cash Flow to Frim 4,764 5,313 6,200 8,677 9,317 9,733
Discount Factor 1.06 0.94 0.83 0.72 0.62 0.54
PV 5,065 5,004 5,125 6,220 5,779 5,207
Sum of PV 32,400
Cash 424
Debt (Sep’19) 16,934
Terminal Value 55,133
Equity Value 71,023
Outstanding Shares (mn) 92
Value Per Share 769
Source: AHL Research
Exhibit. 02 Valuation Criteria
Risk Free Rate 11.0%
Beta (adjusted) 0.74
Risk Premium 6.0%
Cost of Equity 15.4%
Source: AHL Research
ICI Pakistan Limited Page 3
ICI – Chemicals
About the Company
ICI Pakistan Limited was established in 1944. The company is engaged in manufacturing
and trading of different chemicals. ICI has four major segments: Polyester stable fiber
(PSF), Soda Ash, Life Sciences and Chemicals. In addition, the company has management
stake in infant milk formula business under the name NutriCo Morinaga Private Limited
[a joint venture company between ICI Pakistan Limited, Morinaga Milk Industry Co.
Limited and Unibrands (Private) Limited].
ICI Pakistan Limited is a part of Yunus Brothers Group (YBG) which has a diversified
portfolio of businesses including textiles, cement, power, autos and trading business.
Exhibit. 04 Shareholding Pattern (as of Jun'19) Figure. 01 Shareholding Pattern (as of Jun'19)
No. Shares
(mn) % of Shares
Lucky Cement Holdings (Pvt) Ltd. 50.5 54.73
Yunus Textile Holdings (Pvt) Ltd. 12.1 13.13
Gadoon Textile Mills Ltd. 6.0 6.48
Insurance Companies 5.2 5.65
Lucky Textile Mills Ltd. 5.1 5.50
Modarabas and Mutual Funds 2.2 2.40
Others 11.2 12.1
Total 92.4 100.00
Source (s) : Company Financials, AHL Research Source (s) : Company Financials, AHL Research
Figure. 02 Company’s Revenue Break-up (FY19) Figure. 03 Company’s Operating Profit Break-up (FY19)
Source (s): Company Financials, AHL Research Source (s): Company Financials, AHL Research
Associated Companies, 84.9%
Insurance Co., 5.7%
Modarabas and Funds, 2.4%Others, 7.0%
PSF, 41%
Soda Ash, 28%
Life Sciences, 17%
Chemicals, 14%
PSF, 1%
Soda Ash, 73%
Life Sciences, 9%
Chemicals, 14%
ICI Pakistan Limited Page 4
ICI – Chemicals
75 Years Journey of ICI Pakistan Limited
Set up of Polyester
Plant in
Sheikhupura;
Production
Capacity 12K tons
The Khewra Soda
Ash Company was
established in 1929
Company’s Name
was changed to ICI
Pakistan Ltd.
1944
1982
1987
1994
Soda Ash Capacity
was increased by
50K tons.
Akzo become the
holding company of ICI.
Paint Business was
demerged into
separate legal entity:
Akzo Nobel Pakistan
Ltd.
Yunus Brothers
Group acquired
75.8% shares of ICI
Pakistan Ltd.
Polyester Capacity
was increased by
44K tons.
2012
2008
2002
1998
PTA Plant was
commissioned in
Karachi, which was
demerged to
separate entity in
2000.
Acquisition of certain
assets of Wyeth
Pakistan Ltd. and
Pfizer Pakistan Ltd.
Groundbreaking
ceremony of NutriCo
Morinaga.
Investment in
NutrioCo Pakistan
was made.
Phase-I of 75K tons
of Soda Ash was
commissioned.
2014
2017
2018
2019
Master batches
manufacturing
facility was
commissioned.
ICI Pakistan Limited Page 5
ICI – Chemicals
Industries Served by ICI Pakistan
Polyester
• Textiles
Soda Ash
• Textiles, Footwear, Oil/Petroleum, Food and Beverage, Personal Care, Pharmaceuticals, Chemical
Processing/Resins, Plastics/Rubber/Tanneries, Detergents/Laundry Soaps, Paper/Ceramics/Glass,
Livestock and Poultry
Life Sciences
• Pharmaceuticals, Nutraceuticals, Animal Health
Chemicals & Agri Sciences
• Textiles, Paints, Appliances, Construction, Automobile, Footwear, Edible Oil, Oil/Petroleum, Food and
Beverage, Personal Care, Metal Cleaning/Engineering, Agro Chemicals, Pharmaceuticals, Cement,
Chemical Processing/Resins, Plastics/Rubber/Tanneries, Crops, Coatings/Inks, Detergents/Laundry
Soaps, Surgical, Fertilisers, Furniture and Mattresses, Sporting Goods, Dairy, Hotels, Restaurants and
Cafes, Sugar, Glass and Ceramics, Agriculture
ICI Pakistan Limited Page 6
ICI – Chemicals
Soda Ash Segment
Soda Ash is used to manufacture glass, soaps, detergents, sodium silicate, paper, caustic
soda, paints, petroleum refining and inorganic chemicals. China, USA and India are the
major producers having collectively 44mn tons (world’s capacity 58.7mn tons) production
capacity of Soda Ash.
Whereas ICI is the largest Soda Ash manufacturer of the country, with an annual
production capacity of 425K metric tons per annum and is expected to increase to 500K
tons per annum by Jun’22. This is followed by Olympia Chemicals which has a total
production capacity of 140K tons per annum.
Meanwhile, Sodium Bicarbonate (Baking Soda), a byproduct of ICI is used in drugs
manufacturing, bakery & food products and beverages. ICI Pakistan (40K tons) and
Olympia Chemicals (14K tons) have a combined capacity of about 54K tons/year to
produce Sodium Bicarbonate.
Manufacturing Process of Soda Ash
Limestone + Rock Salt Light Soda Ash+ Calcium Chloride
Light Soda Ash Dense Soda Ash
Soda Ash segment contributed almost 73% (PKR 3,631mn) to the company’s total
operating profit during FY19. Its share in the company’s total sales arrived at 28% with
the segment registering a growth of 32% YoY during FY19, due to the addition of 75K
tons in total production capacity.
Exhibit. 05 Products and Uses
Product Uses
Light Soda Ash Textile, Soaps and Detergents,
Chemical, Paper
Dense Soda Ash Glass, Detergents, Chemical
Refined Sodium Bicarbonate (RSB) Baking, Beverages, Tannery
Source (s): Company Reports, AHL Research
Chemical Reaction
Densification and Crystallization
ICI Pakistan Limited Page 7
ICI – Chemicals
India Still a Major Destination for Soda Ash Exports
Exports contributed 6% to total sales of Soda Ash during FY19. Post Pulwama attack, India
imposed a 200% import duty on all imports from Pakistan which led to a decline in exports
to India by 5% to PKR 654mn from PKR 685mn. Share of exports to India has declined to
63% in FY19 from 86% in FY18. However, from FY19, ICI has also started exports to
Bangladesh which led to a 30% YoY rise in exports to PKR 1,034m.
Exhibit: 06 Soda Ash Exports over the Years
PKR mn FY14 FY15 FY16 FY17 FY18 FY19
Afghanistan 8 3 35 60 - -
Bangladesh - - - - - 321
India 498 818 704 585 685 654
Others - - - - 112 59
Total 505 822 739 645 798 1,034
Source (s): Company Financials, AHL Research
Figure. 04 Exports Remained 6% of total Soda Ash sales for FY19
Source (s): Company Financials, AHL Research
10,428 9,313 10,102 10,396 11,749
15,503
505 822
739 645 798
1,034
-
2,500
5,000
7,500
10,000
12,500
15,000
17,500
2014 2015 2016 2017 2018 2019
Local Exports(PKR mn)
ICI Pakistan Limited Page 8
ICI – Chemicals
Figure. 05 Fuel Cost is the Major Cost of Soda Ash; 46% of total cost
Source (s): Company Financials, AHL Research
Figure. 06 Soda Ash Contribution in Companies Operating Profit
Source (s): Company Financials, AHL Research
40%
42%
12%
6%
39%
46%
10%
5%
Raw Material Oil, Gas and Electricity Salaries Others
FY18FY19
76%
80%
65%
60%
73%
50%
57%
64%
71%
78%
85%
2015 2016 2017 2018 2019
ICI Pakistan Limited Page 9
ICI – Chemicals
Figure. 07 ICI’s historical Soda Ash Production and Capacity Utilization
Source (s): Company Financials, AHL Research
314.4 308.5 337.9 342.4
378.2 422.2
81%
84%
87%
90%
93%
96%
99%
102%
-
75.0
150.0
225.0
300.0
375.0
450.0
FY14 FY15 FY16 FY17 FY18 FY19
Production Capacity Utilization (RHS)(000 tons)
Exhibit: 07 Financial Snapshot of Soda Ash Segment
PKR mn FY18A FY19A FY20F FY21F FY22F FY23F
Net Sales 12,547 16,538 16,134 16,424 16,752 19,138
COGS 9,178 12,120 11,113 11,288 11,594 13,402
Gross Profit 3,369 4,418 5,021 5,136 5,158 5,736
Gross Margins 26.9% 26.7% 31.1% 31.3% 30.8% 30.0%
SGA 623 787 865 952 1,047 1,152
Operating Profit 2,747 3,631 4,155 4,184 4,111 4,584
Operating Margins 21.9% 22.0% 25.8% 25.5% 24.5% 24.0%
Source (s): Company Financials, AHL Research
ICI Pakistan Limited Page 10
ICI – Chemicals
Life Sciences Segment
This segment consists of two divisions (Pharmaceuticals and Animal Health) and has
witnessed over PKR 11bn sales during FY19.
Pharmaceuticals
ICI is enhancing its manufacturing facilities of this division. At the Hattar plant, ICI
completed up-gradation and capacity expansion of the sterile area while another
expansion has been planned for the cephalosporin area. To expand the product base in
Nutraceuticals, ICI is also planning to add more products.
However, the profitability of the segment has been affected due to regulatory restriction
and lower pricing in Pakistan compared to region.
Figure. 08 Share of Exports of Pharmaceutical Products over the Year
Source (s): SBP, AHL Research
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
-
50
100
150
200
250
300
FY
04
FY
05
FY
06
FY
07
FY
08
FY
09
FY
10
FY
11
FY
12
FY
13
FY
14
FY
15
FY
16
FY
17
FY
18
FY
19
Pharmaceutical Products % of Total Exports
(USD mn)
ICI Pakistan Limited Page 11
ICI – Chemicals
Animal Health
Livestock is a subsector of Agriculture and contributed 61% to the Agriculture sector and
11% to the total GDP of Pakistan in FY19. It witnessed a growth of 4.0% during FY19
compared to an aggregate growth of 0.8% in Agriculture. The growth of Agriculture
remained subdued due 4.4% decline in crops, the second largest contributor in
Agriculture.
Pertinently, livestock has a 66% share in the Animal Health segment with a total topline
of PKR 3.7bn in FY19. Farmer’s choice poultry antibiotics has become a major contributor
to sales (PKR 2.3bn) followed by PKR 1.5bn of Vanda’s sales (nutritional food for animal).
Exhibit. 08 Product Categories of the Livestock and Poultry Segment
Livestock Segment’s Products
1 Anthelmintic
2 Antibiotics
3 Intra-Mammary
4 Intrauterine Products
5 Antiprotozoal
6 Bovine Genetics
7 Reproductive Hormones
8 Nutritional Portfolio
9 Silage and Vanda
Poultry Segment’s Products 1 Antibiotic Growth Promoters (AGPs),
2 Antibiotics
3 Biologicals
4 Disinfectants
5 Enzymes
6 Nutritional Products Source (s): Company Reports, AHL Research
Figure. 09 Livestock Share in Agriculture over the Years
Source (s): SBP, AHL Research
1,052 1,087
1,131 1,170
1,199 1,247
1,288 1,327
1,375
1,430
53%
54%
55%
56%
57%
58%
59%
60%
61%
900
1,000
1,100
1,200
1,300
1,400
1,500
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
Livestock % of Agricultural(PKR bn)
ICI Pakistan Limited Page 12
ICI – Chemicals
Livestock Exports have a Potential to Grow Further
Exports of Live Animal and Animal Products have grown by a CAGR of 10% during the last
15-years compared to a growth of total export’s CAGR of 5%. This segment contributed
3.2% (USD 783mn) to total country’s exports during FY19.
There is a lot of potential to increase exports of meat in the regional markets such as
Middle East and South-East Asian countries.
Figure. 10 Share of Exports of Live Animal and Products and increased over the Year
Source (s): SBP, AHL Research
Exhibit: 09 Financial Snapshot of Life Sciences Segment
PKR mn FY18A FY19A FY20F FY21F FY22F FY23F
Net Sales 11,473 11,111 12,296 13,895 15,007 16,207
COGS 8,075 8,485 8,723 9,866 10,655 11,507
Gross Profit 3,398 2,626 3,573 4,030 4,352 4,700
Gross Margins 29.6% 23.6% 29.1% 29.0% 29.0% 29.0%
SGA 1,964 2,197 1,954 2,147 2,258 2,378
Operating Profit 1,434 428 1,619 1,883 2,094 2,322
Operating Margins 12.5% 3.9% 13.2% 13.6% 14.0% 14.3%
Source (s): Company Financials, AHL Research
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
0
100
200
300
400
500
600
700
800
900
FY
04
FY
05
FY
06
FY
07
FY
08
FY
09
FY
10
FY
11
FY
12
FY
13
FY
14
FY
15
FY
16
FY
17
FY
18
FY
19
Live Animals and Animals Products % of Total Exports(USD mn)
ICI Pakistan Limited Page 13
ICI – Chemicals
NurtiCo Morinaga; Now Locally Manufactured
The size of Pakistan’s baby food market is ~PKR 80bn and majority of the demand is
fulfilled by imports (~80%). ICI Pakistan Limited already has presence in the infant formula
milk market through NutriCo Pakistan (Pvt) Limited, whereby it has a 40% stake in the
company and it currently imports, markets and distributes Morinaga infant formula.
NurtiCo Morinaga (Pvt) Limited was incorporated to manufacture Morinaga infant
formula. In phase-1 the company only conducts dry blending while wet blending is
undertaken in phase-2. Initially 90% of the raw material will be imported and eventually,
reliance on imports will be reduced to 30%. BF-1 and BF-2 will be imported and marketed
by NutriCo Pakistan (Pvt) Limited, however BF-3 and BF-4 will be locally manufactured
and marketed by NurtiCo Morinaga (Pvt) Limited. Going forward, the company is also
contemplating to enter the promising cereal market, worth ~PKR 13bn. We expect the
net margins from this segment to hover near 13.5%. Pertinently, ICI Pakistan Limited has
a 51% share in the company.
Figure. 11 Historical Imports of Milk and Cream (including Infants)
Source (s): PBS, AHL Research
-
20
40
60
80
100
120
-
50.0
100.0
150.0
200.0
250.0
300.0
350.0
FY
05
FY
06
FY
07
FY
08
FY
09
FY
10
FY
11
FY
12
FY
13
FY
14
FY
15
FY
16
FY
17
FY
18
FY
19
Amount Quantity (RHS)
(USD mn) (000 tons)
2014
2016
2019
Increased stake in
NutriCo Pakistan
(Pvt) Limited to
40%.
Acquired 30%
stake in NutriCo
Pakistan (Pvt)
Limited
Established
Morinaga
Manufacturing
Facility in Lahore.
ICI Pakistan Limited Page 14
ICI – Chemicals
Polyester Staple Fiber (PSF)
Polyester Staple Fiber (PSF) is a man-made fiber and key raw material of the textile value
chain. It is used to manufacture different polymers and blended yarns (PSF + Cotton).
Pure Terephthalic Acid (PTA) and Mono Ethylene Glycol (MEG) are the primary raw
materials for manufacturing PSF; PTA is in powder form, while MEG is a liquid. Production
of 100kg of PSF requires approximately 89kg of PTA and 40kg of MEG. Textile sector
contributed 56% to the country’s export in FY19, hence this segment remains significant
for the economy.
Total local demand of PSF is ~600K tons and of which ~77% is fulfilled by local producers.
Ibrahim Fiber holds the highest fiber producing capacity in the country (391K tons). With
lower conversion cost, Ibrahim Fiber acts as the price dictator in the local industry.
Whereas ICI Pakistan remains another key player in the industry with a total annual
production capacity of 122K tons per annum. In order to compete with IBFL’s low
conversion cost, ICI Pakistan has successfully commissioned key energy projects, Coal
Fired Heaters and Coal Fired Boilers.
PSF Chain
Figure. 12 Installed Capacity of PSF (000 tpa) Figure. 13 Operational Capacity of PSF (000 tpa)
Source (s): Company Financials, AHL Research Source (s): Company Financials, AHL Research
Ibrahim Fibers Ltd., 391
Dewan Salman Fibers Ltd., 240
ICI Pakistan Ltd., 122
Rupali Polyester Ltd., 24
Ibrahim Fibers Ltd., 391
ICI Pakistan Ltd., 122
Rupali Polyester Ltd., 24
Crude Oil
Gasoline
Naphtha
Xylene
Ethylene
PTA
MEG
Polyester
Staple Fiber
Cotton
Yarn Fabric Garments
ICI Pakistan Limited Page 15
ICI – Chemicals
Figure. 14 Historical PSF Production of IBFL and ICI
Source (s): Company Financials, AHL Research
Polyester Staple Fiber (PSF) Margins
Average PSF margins during the last 5 years remained at USD 285/ton and currently hover
around USD 345/ton. The rise in margins was led by decline in PTA and MEG prices. Our
long term assumption for PSF margins is set at USD 325/ton.
Figure. 15 Historical PSF Margins
Source (s): Yarn Merchants Association, Bloomberg, AHL Research
232.2 228.1 251.3 290.7 326.3 313.9
109.8 115.0 118.9
121.9 126.9 121.6
-
75.0
150.0
225.0
300.0
375.0
450.0
525.0
FY14 FY15 FY16 FY17 FY18 FY19
IBFL ICI(000 tons)
890
664
748
942
727 782
608 640
739
879 380
325
304 309
343
290
300
310
320
330
340
350
360
370
380
390
-
100
200
300
400
500
600
700
800
900
1,000
FY15 FY16 FY17 FY18 FY19
MEG Price PTA Price PSF Margins
ICI Pakistan Limited Page 16
ICI – Chemicals
Exhibit: 10 Financial Snapshot of PSF Segment
PKR mn FY18A FY19A FY20F FY21F FY22F FY23F
Net Sales 18,156 23,629 22,215 22,330 23,000 23,690
COGS 17,618 22,937 21,309 21,548 22,144 22,747
Gross Profit 538 692 905 783 856 943
Gross Margins 3.0% 2.9% 4.1% 3.5% 3.7% 4.0%
SGA 491 627 699 702 723 745
Operating Profit 47 65 207 80 133 198
Operating Margins 0.3% 0.3% 0.9% 0.4% 0.6% 0.8%
Source (s): Company Financials, AHL Research
ICI Pakistan Limited Page 17
ICI – Chemicals
Chemical Segment
This business segment consists of general chemicals, polyurethanes, specialty chemicals
Masterbatch and Agri sciences. During FY19, ICI successfully installed a manufacturing
facility for Masterbatchs. It is a colorant and additive for plastics and its manufacturing
facility is located in Karachi. The company has already achieved a monthly sale of 100 tons
in sales. As per management, the company is planning another expansion in the next 5-6
months due to better than expected market response.
ICI Pakistan is the market leader in sunflower seeds markets. To replace the imported
edible oil, the incumbent government is giving incentives to farmers in order to aid
growth of sunflowers. ICI Pakistan has also collaborated with a Chinese firm for the
research and production of new best-suited varieties of hybrids rice for Pakistan. The
company is continuously adding the portfolio of new products whereby seven new
products have been launched, four (4) in agro chemical and three (3) in the seeds
segment.
Figure. 16 Share of Chemical Business in Company’s Total Operating Profit
Source (s): Company Financials, AHL Research
Exhibit: 11 Financial Snapshot of Chemical Segment
PKR mn FY18A FY19A FY20F FY21F FY22F FY23F
Net Sales 7,826 8,109 8,410 9,001 9,721 10,207
COGS 6,241 6,217 6,403 6,841 7,388 7,757
Gross Profit 1,585 1,892 2,007 2,160 2,333 2,450
Gross Margins 20.3% 23.3% 23.9% 24.0% 24.0% 24.0%
SGA 1,298 1,187 1,185 1,373 1,481 1,599
Operating Profit 287 705 823 787 852 851
Operating Margins 3.7% 8.7% 9.8% 8.7% 8.8% 8.3%
Source (s): Company Financials, AHL Research
11%
13% 14%
6%
14%
0%
4%
8%
12%
16%
20%
24%
2015 2016 2017 2018 2019
ICI Pakistan Limited Page 18
ICI – Chemicals
Key Risks
Higher than expected increase in coal prices.
Higher than expected increase in furnace oil prices.
Higher than expected PKR depreciation.
Lower than expected PSF margins.
ICI Pakistan Limited Page 19
ICI – Chemicals
ICI’s Profitability went up by 124% YoY in 1HFY20
During 2QFY20, the company posted a profit after tax (PAT) of PKR 1,010mn (EPS: PKR
11.00) compared with profit after tax of PKR 279mn (EPS: PKR 3.00) during same period
last year. This took the 1HFY20 earnings to PKR 1,846mn (EPS: PKR 20.05) compared to
earnings of PKR 825mn (EPS: PKR 8.83) during 1HFY19.
Result Highlights
Net sales of the company registered an increase of 1% YoY to PKR 15.2bn during
2QFY20. While, during 1HFY20 sales went up by 5% YoY.
Gross profit margins increased by 634bps to 20.4% compared to 14.1% during
2QFY19. The rise in margins is witnessed due to better performance of PSF and Soda
Ash segments.
During 2QFY20 the company booked an exchange gain of PKR 7.3mn compared with
exchange loss of PKR 205mn during 2QFY19.
Finance cost of the company went up by 20% to PKR 461mn due to higher interest
rates.
Along with the result, the company also announced a cash dividend of PKR 11/share.
Exhibit: 12 Financial Highlight
1HFY20 1HFY19 YoY 2QFY20 2QFY19 YoY QoQ
Net Sales 29,745 28,408 5% 15,229 15,108 1% 5%
COGS 23,783 24,067 -1% 12,115 12,976 -7% 4%
Gross profit 5,962 4,341 37% 3,114 2,132 46% 9%
Selling and Admin Expense 2,504 2,392 5% 1,295 1,215 7% 7%
Operating Profit 3,458 1,949 77% 1,819 917 98% 11%
Other Income 52 69 -24% 28 26 8% 13%
Financial Charges 957 704 36% 461 385 20% -7%
Other Charges 201 331 -39% 114 235 -52% 31%
Share of Profit for Associate 286 169 70% 139 44 215% -6%
Profit before tax 2,638 1,152 129% 1,411 367 285% 15%
Taxation 792 327 143% 401 87 359% 2%
Profit after tax 1,846 825 124% 1,010 279 262% 21%
EPS (PKR) 20.05 8.83 11.00 3.00
DPS (PKR) 11.00 4.50 11.00 4.50
Source: AHL Research
ICI Pakistan Limited Page 20
ICI – Chemicals
Financial Highlights
ICI Pakistan Ltd. (ICI) Current Price 676.7 Upside 13.6%
Target Price 769.0 Recommendation BUY
PKR mn FY18A FY19A FY20F FY21F FY22F Unit FY18A FY19A FY20F FY21F FY22F
Income Statement Items Per Share
Net Sales 49,992 59,382 65,169 80,851 85,569 Earnings PKR 35.5 27.3 39.9 46.2 59.8
Cost of Sales 41,007 49,637 52,759 64,038 65,691 Earning Growth % (0.0) (23.0) 45.8 15.8 29.5
Gross Profit 8,985 9,745 12,410 16,813 19,878 Dividend PKR 16.5 9.0 20.0 23.0 30.0
EBITDA 7,484 8,027 9,935 11,095 12,244 Book Value PKR 216.9 231.6 250.1 285.8 344.5
Operating Profit 4,602 4,943 6,689 8,723 11,165 Valuation
Financial Charges 1,085 1,923 2,011 2,361 1,973 P/E x 22.6 19.5 17.0 14.7 11.3
Profit Before Tax 3,934 3,404 5,100 6,822 9,657 P/B x 3.7 2.3 2.7 2.4 2.0
Profit After Tax* 3,280 2,525 3,681 4,264 5,520 Return on Equity % 17.4 12.2 16.5 17.2 19.0
Balance Sheet Items Return on Assets % 8.0 5.3 7.4 8.4 10.6
Paid-up Capital 924 924 924 924 924 Turnover & Activity
Total Equity 20,033 21,393 23,095 26,394 31,815 Asset Turnover x 1.2 1.3 1.3 1.6 1.6
Current Liabilities 14,708 16,733 17,264 15,848 12,639 Current Ratio x 1.3 1.2 1.2 1.4 1.8
Non-Current Liabilities 10,272 11,316 10,200 9,082 7,964 Margins
Current Assets 19,328 19,898 20,987 21,560 22,480 Gross Margin % 18.0 16.4 19.0 20.8 23.2
Non-Current Assets 25,684 29,543 29,573 29,764 29,938 EBITDA Margin % 15.0 13.5 15.2 13.7 14.3
Total Assets 45,013 49,441 50,560 51,324 52,418 Net Profit Margin % 6.6 4.3 5.6 5.3 6.5
Source: Company Financials, AHL Research , * Attributable to owners of the holding company
ICI Pakistan Limited Page 21
ICI – Chemicals
Disclaimer
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personal views of the analyst(s) about the subject security (ies) or sector (or economy), and no part of the compensation of the research analyst(s) was, is, or will be directly or
indirectly related to the specific recommendations and views expressed by research analyst(s) in this report. In addition, we currently do not have any interest (financial or
otherwise) in the subject security (ies). Furthermore, compensation of the Analyst(s) is not determined nor based on any other service(s) that AHL is offering. Analyst(s) are not
subject to the supervision or control of any employee of AHL’s non-research departments, and no personal engaged in providing non-research services have any influence or
control over the compensatory evaluation of the Analyst(s).
Equity Research Ratings
Arif Habib Limited (AHL) uses three rating categories, depending upon return form current market price, with Target period as Dec 2020 for Target Price. In addition, return
excludes all type of taxes. For more details, kindly refer the following table;
Rating Description
BUY Upside* of subject security(ies) is more than +10% from last closing of market price(s)
HOLD Upside* of subject security(ies) is between -10% and +10% from last closing of market price(s)
SELL Upside* of subject security(ies) is less than -10% from last closing of market price(s)
* Upside for Power Generation Companies (Ex. KEL) is upside plus dividend yield.
Equity Valuation Methodology
AHL Research uses the following valuation technique(s) to arrive at the period end target prices;
Discounted Cash Flow (DCF)
Dividend Discounted Model (DDM)
Sum of the Parts (SoTP)
Justified Price to Book (JPTB)
Reserved Base Valuation (RBV)
Risks
The following risks may potentially impact our valuations of subject security (ies);
Market risk
Interest Rate Risk
Exchange Rate (Currency) Risk
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security. This publication is intended only for distribution to the clients of the Company who are assumed to be reasonably sophisticated investors that understand the risks
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