Equity Analysis /
Pakistan

ICI Pakistan: FY22 Corporate Briefing Takeaways – More growth coming your way

  • Soda Ash has become the company’s major cash cow with FY22 exports showing 87% record growth

  • ICI Pakistan recently announced record consolidated net profits of PKR8.8bn

  • With regards to PSF, ICI is the second largest domestic player with plant operating at full capacity i.e 122,250tpa.

Intermarket Securities
21 August 2022

ICI Pakistan recently announced record consolidated net profits of PKR8.8bn (EPS: PKR91.66) for FY22, up c.52% YoY from PKR5.2bn (EPS: PKR60.30) in FY21. The company also announced a final cash dividend of PKR15.0/sh, taking total payout to PKR35.0/sh for the year.    

Key Takeaways    

Soda Ash & PSF

ICI is set to expand the total capacity of its Soda Ash plant by 60,000 tons pa from 500,000 tons to 560,000 tons pa. Soda Ash has become the company’s major cash cow with FY22 exports showing 87% record growth. Due to regional dynamics shifting post Covid-19, the company is now able to hedge its imported raw material cost with dollar-denominated earnings from Soda Ash exports. The company estimated that the full effect of the additional capacity will be felt in 2HFY23.

With regards to Polyester (PSF) ICI is the second largest domestic player with plant operating at full capacity i.e 122,250tpa. Domestic sales volume in FY22 reached 639,711mt which is c.12% higher than the SPLY. This was mainly attributed to robust growth within the textile industry as multiple players took advantage of TERF and LTFF to expand their capacities also supported by PKR devaluation which improved competitiveness. ICI PSF achieved production and sales of 139,099 tons and 141,040 tons, up by 1% and 4% respectively from SPLY.

Nutrico-Morinaga

The Board of Directors of ICI Pakistan Limited has authorized partial divestment of approximately 26.5% of the issued and paid up share capital of its subsidiary, NutriCo Morinaga (Private) Limited (NMPL) to Morinaga Milk Industry Co. Ltd. at an aggregate sale price of $45.08 million (c.PKR9.7bn), which will be $2.07 per share. The company would continue to hold around 24.5% of its stake in the subsidiary upon completion of the transaction. Management explained that it was in their best interest to sell this stake as it allows Nutrico Morninga to further develop specific products for the Pakistani market of which ICI will still be a beneficiary. With the selling of its stake, the company has the ability to reduce its finance cost as well as further diversify and invest in organic or inorganic sources.

LOTTCHEM Acquisition

A hot topic of discussion was ICI’s intention to acquire 75.01% shareholding or (1,135.86mn shares) of Lotte Chemicals Pakistan Limited (LOTCHEM). The management showcased keenness on following through with this transaction. As the company is currently receiving c.PKR9.7bn from their sale of Nutrico-Morinaga, they would still need additional capital to finance this deal. This capital can be funded through a combination of debt and equity.  The management's zeal for growing inorganically can be corroborated through its PKR35bn investment since ICI’s acquisition in 2012, and additional PKR16bn is already in the pipeline (excluding LOTCHEM’s acquisition).