ICI surpasses market expectations

Positive numbers dominated the results of ICI Pakistans first-half net profits announced yesterday. With slight deviations, the results were above analysts expectations thanks to improved sales, profits and dividend payout metrics.
The firms top line soared by 23 percent to around Rs17 billion on the back of rising PSF prices and also due to increased PSF demand in the backdrop of dearer cotton.
Other factors that helped beef up ICIs revenues include growth in Soda Ash owing to the opening up of regional markets, and increase in paint sales on account of growing demand from down stream segments and the auto industry.
However, rising cost of sales offset the increase in turnover, plunging down gross margins by a percentage point to around 18 percent. The energy-intensive Soda Ash segment is believed to be the primary culprit, with hiccups in gas supply to be blamed since this increases reliance on expensive furnace oil.
It had a spillover effect on the companys financial charges as use of the less cost-effective furnace oil took a toll on the companys working capital requirements, owing to which ICIs financial charges rose by 19 percent to Rs92 million during the period.
Net profits increased by 14 percent to around Rs1.2 billion in the first half ending in June - beating market expectations of a decline over the same period last year.
With a dividend payout of 55 percent, and higher-than-expected EPS of Rs8.39, the market responded positively as share prices of ICI surged by Rs 5.70 from Rs 114.09 to Rs119.79 on Thursday.
While the recent floods have affected the roads leading to Khewra mines from where ICI sources its raw material for Soda Ash, it is believed to create only temporary supply-side disruptions.
For the future, higher cotton prices are likely to keep up PSF demand and regional demand for the Soda Ash segment is also likely to keep ICIs top line afloat.

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ICI P&L

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Rs (mn)                 1HCY10    1HCY09   % chg

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Sales                   17,066    13,885     23%

Cost of sales           13,920    11,193     24%

Gross profit             3,146     2,691     17%

Administrative expenses    535       480     11%

Selling & distribution     840       712     18%

Financial charges           92        77     19%

Other operating income     253       230     10%

PAT                      1,165     1,025     14%

EPS (Rs)                  8.39      7.39

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Source: KSE notice