ICI Pakistan Limited operates in a range of activities from soda ash to life sciences. Yet among them all, it is easy to pick out the ugly duckling — the polyester staple fibre (PSF). It continues to be the bane of business for the company due to the glut in the market together with dumping of PSF from China.

The company is a market leader in the soda ash segment with a total capacity of 350 thousand ton per annum. It also operates the second largest PSF plant, accounting up to 21pc of the total industry production.

Going by the total assets, the ICI Pakistan at the last count on Dec 31, 2015 was a Rs28bn company. But with 92m paid-up shares, each tagged at Rs443 at the local bourse, the market capitalization of the company amounted to Rs49bn. One reason for a higher investor’ valuation could be the huge sum of Rs12bn that ICI carries on its balance sheet as ‘unappropriated profit’ against paid-up capital of Rs824m.

Younus Brothers Group, the sponsors of the country’s largest cement plant Lucky Cement, acquired three-quarters shares of ICI Pakistan for Rs14.4bn a few years back.

Early last month, the company released the financial figures for the half year ended Dec 31, 2015 posting profit after tax (PAT) at Rs1.31bn translating into earning per share (eps) at Rs14.13, which represented increase of 27pc over the PAT at Rs1.02bn and eps at Rs11.10 for the corresponding period of the previous year. Net turnover declined by 6pc to Rs18.1bn, from Rs19.2bn YoY. The drop in sales was primarily attributable to lower sales value in the polyester business which fell by 25pc as a consequence of declining prices across the petrochemical chain.

Improved performance in the soda ash, life sciences and chemicals businesses largely compensated for lower sales in the polyester business. Regardless of the lower sales, the net earnings managed to show growth of 27pc mainly due to dividend income from NutricCo Pakistan (Private) Limited and ICI Pakistan PowerGen Limited. At Dec 31, 2015, ICI Pakistan had investment of Rs720m, representing 30pc ownership in ‘NutriCo Pakistan (Pvt). Ltd’--Morinaga infant food formula distribution business.

The company also placed Rs500m in wholly owned subsidiary ICI Pakistan PowerGen Limited. The foray into the infant food and energy sector seems to have proved useful. Earlier in a restructuring of the company, ICI Limited had spun off its paints business into a separate stock market listed entity, AkzolNobel Pakistan to allow ICI focus on core activities.

Analyst Reema Waheed at Foundation Securities said in a Feb 28 report that the multi-segmented ICI continued to perform at its utmost, but its PSF segment marginally takes the gloss off the earnings potential of the company. “The segment continues to be adversely affected by the slowdown in the Chinese market despite a 25pc YoY decline in the cost of raw material in 1HFY16”.

The slump in oil prices has had a ripple effect across the chemical chain, pushing PTA and MEG prices down by 29 and 20pc YoY in 1H16. While this should have impacted the PSF margins favourably, the slowdown in Chinese market choked out improvement as PSF prices and margins fell by 25pc and 20pc YoY in 1HFY16.

Initiatives on the duty front also did not do much to aid recovery. A provisional anti-dumping duty on imported PSF in the range of 6.6 to 14.9pc was imposed in October last year for four months which expired in Feb. “The company, along with other members of the Polyester Staple Fibre Manufacturing Group continued to present its case at every forum for the imposition of final ADD against dumped PSF imports from China”, said the directors.

The company tried to salvage the situation by curtailing energy costs by 30pc. The commissioning of the coal fired/biomass steam turbine project reduced energy costs by replacing the expensive alternate fuel with coal for electricity and steam generation.

ICI continues to strengthen its profitable soda ash business Phase I of the new dense ash plant was completed and the new plant was commissioned in the second quarter of the current financial year (Oct-Dec 2015). At that date, work was progressing as per plans on several projects including the refined sodium bicarbonate (RSB) expansion and the coal/biomass power and steam generator projects.

The directors look towards the future with optimism. Chairman Muhammad Sohail Tabba and CEO Asif Jooma who jointly signed the directors’ review on accounts for the six months ended Dec 31, 2015 which states: “Going forward, declining margins in the polyester business continues to pose a challenge. Despite the imposition of provisional anti-dumping duty and the operation of the coal/biomass steam turbine project, the polyester business is likely to remain under pressure.”

The directors affirmed that in soda ash, capacity expansion projects would further improve the business performance in the future. The outlook for the Life sciences and chemical businesses also was thought to be positive. The company also looks forward to commissioning of the refined sodium bicarbonate (RSB) 14,000 tpa expansion project in the second half of the current financial year. Analyst Reema Waheed at Foundation Securities identified catalysts for the business which included reversal in the PSF segment and diversification of portfolio in the life science business.

Published in Dawn, Business & Finance weekly, March 7th, 2016