ICI Pakistan Limited operates in a range of activities, with soda ash, polyester staple fibre and life sciences significant among them.

The Younus Brothers Group (YBG) — sponsors of the country’s largest cement company, Lucky Cement — acquired three-quarters of ICI Pakistan for Rs14.4bn two years ago. For most people, the ICI name has long remained synonymous with paints. But in a restructuring of the company, ICI Limited had spun off its paint business into a separate listed entity, AkzolNobel Pakistan, to allow it to focus more on core activities and shed off excess fat.

Meanwhile, in the latest available report for the quarter ending September 2014, the directors informed shareholders that the company had made its first tranche of the intended investment, for 15pc equity, in ‘NutriCo Pakistan Pvt. Ltd’. The company was established to import and distribute a range of infant formula and nutrition products in Pakistan made by Japan’s Morinaga Milk Industry Company Limited.

The development follows ICI Pakistan’s decision, announced early last year, to make a foray into the food business.

While some people wonder at the company’s venture into a segment that is poles apart from its core activities of soda ash and polyester staple fibre (PSF), a senior company official explained: “This investment is in line with the company’s aspiration to advance its growth in diverse portfolios through organic and inorganic business opportunities”.

“The investment [in the food business] is in line with the company’s aspiration to advance its growth in diverse portfolios through organic and inorganic business opportunities,” said a senior ICI Pakistan executive

Research analyst Rajesh Kumar Maheshwari at Standard Capital Securities believes that the company’s entry into the consumer goods sector represents its desire to profit from the enormous earnings of the sector and its expected growth potential.

ICI Pakistan’s total assets stood at Rs23bn by September 30, and its paid-up capital amounted to Rs923m, in the form of 92.3m shares of par value of Rs10 each. It had built up a huge sum of Rs10bn in reserves/unappropriated profit, which lifted shareholders’ equity to Rs11.6bn. It also enabled the company to finance its diversification and expansion projects from internal resources.

The ICI stock ended last week at around Rs485 a share. Most brokerage houses do not cover the script due to non-availability of big blocks of its shares in the market, which puts the stock out of reach of their major clients, including foreign investors.

For quarter ending September 2014, the company posted a profit-after-tax of Rs352m, which translated into earnings-per-share (eps) of Rs3.81 — up 15pc from a profit of Rs307m and eps of Rs3.32 in the corresponding period of the previous year. Sales rose by3pc to Rs9.36bn, from Rs9.06bn in the same period. A company official said the growth was “primarily due to higher sales of soda ash and life science business”.

The domestic market for soda ash performed slightly better than it did during the same time of the previous year due to improved lifting in all downstream segments. Demand for soda ash dense and refined sodium bicarbonate continued to remain strong. Soda ash light exports to India on a regular basis also helped lift sales and profit.

But on the other hand, the company said the domestic PSF market continued to remain under pressure owing to continuous oversupply in both domestic and regional markets, coupled with dumping of PSF by China. Aggressive pricing at uneconomic levels by exporters from China hampered the domestic industry’s sales volumes and margins.

Analyst Rajesh Kumar commented that “among the four main small business units, polyester and soda ash are the major contributors in terms of sales. Being part of the YBG, ICI has an advantage in PSF sales to sister companies which are in the textile business”.

The commissioning of coal-fired heaters, replacing those run on expensive alternate fuel, in June 2014 significantly alleviated the company’s energy costs. Work on the coal-fired steam turbine project is in progress and is expected to be completed by mid-2015.

Work on the refined sodium bicarbonate and a dense soda ash capacity expansion project is underway. In order to further enhance the business’s own energy and electricity generating capacity, the board of directors approved the installation of two additional coal fired boilers and an 18MW steam turbine. The project is expected to be completed by FY16-17.

“Going forward, the ongoing energy conundrum is expected to impact business performance, with low gas availability, increasing gas prices and frequent power shortages adversely impacting both energy costs and industrial activity,” the company’s chairman M. Sohail Tabba and CEO Asif Jooma wrote in their quarterly report.

They lamented that the dumping of soda ash and polyester at uneconomical prices was constraining both pricing and sales of domestic producers. The directors asserted that the company planned to file an anti-dumping application with the National Tariff Commission.

Published in Dawn, Economic & Business, February 9th, 2015

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