Demand Pushed Capacity Expansion of Soda Ash

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)

E: [email protected]

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

http://www.jamapunji.pk/

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%



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 – 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 – 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 – 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 – 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


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 – Chemicals

Figure. 05 Fuel Cost is the Major Cost of Soda Ash; 46% of total cost


Figure. 06 Soda Ash Contribution in Companies Operating Profit


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 – Chemicals

Figure. 07 ICI’s historical Soda Ash Production and Capacity Utilization


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%



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 – 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


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 – 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


Exhibit: 09 Financial Snapshot of Life Sciences Segment


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



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 – 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 – 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 – Chemicals

Figure. 14 Historical PSF Production of IBFL and ICI


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 – Chemicals

Exhibit: 10 Financial Snapshot of PSF Segment


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




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


Exhibit: 11 Financial Snapshot of Chemical Segment


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



11%

13% 14%

6%

14%

0%

4%

8%

12%

16%

20%

24%

2015 2016 2017 2018 2019


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 – 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



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 – Chemicals

Disclaimer

Analyst Certification: The research analyst(s) is (are) principally responsible for preparation of this report. The views expressed in this research report accurately reflect the

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

This document has been prepared by Research analysts at Arif Habib Limited (AHL). This document does not constitute an offer or solicitation for the purchase or sale of any

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

involved in investing in equity securities. The information contained herein is based upon publicly available data and sources believed to be reliable. While every care was taken

to ensure accuracy and objectivity, AHL does not represent that it is accurate or complete and it should not be relied on as such. In particular, the report takes no account of the

investment objectives, financial situation and particular needs of investors. The information given in this document is as of the date of this report and there can be no assurance

that future results or events will be consistent with this information. This information is subject to change without any prior notice. AHL reserves the right to make modifications

and alterations to this statement as may be required from time to time. However, AHL is under no obligation to update or keep the information current. AHL is committed to

providing independent and transparent recommendation to its client and would be happy to provide any information in response to specific client queries. Past performance is

not necessarily a guide to future performance. This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for any investment

decision. The user assumes the entire risk of any use made of this information. Each recipient of this document should make such investigation as it deems necessary to arrive at

an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult his or her

own advisors to determine the merits and risks of such investment. AHL or any of its affiliates shall not be in any way responsible for any loss or damage that may be arise to any

person from any inadvertent error in the information contained in this report.

© 2020 Arif Habib Limited: Corporate Member of the Pakistan Stock Exchanges. No part of this publication may be copied, reproduced, stored or disseminated in any form or

by any means without the prior written consent of Arif Habib Limited.

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