Just as there are two faces of a coin and two sides to a story, so there are two ways to look at the financial results released by Lotte Pakistan PTA Limited yesterday for the nine months ended September 30, 2011. The enthusiasts of this heavily traded scrip may factor Lottes 9MCY11 results more into their calculations. Others might not - reading perhaps more into the sequential quarter-in-quarter results. Lottes 9MCY11 performance is stellar to say the least! Buoyed by exports; the sales revenue jumped by a handsome 46.4 percent over same period last year. Although, the manufacturing cost increased by 46.01 percent, it actually dipped as a percentage of revenue by 22 bps to 84.39 percent in 9MCY11. Aggressive top-line growth coupled with identical rise in cost of sales led the companys gross profits to increase by a multiple of 1.5 in 9MCY11. The gross margin, however, could improve by only 22 bps over the same period. Other operating expenditures shot up by 53.25 percent in 9MCY11. Owing to higher export-oriented sales on which Lotte bears the freight and handling charges, the company spent 1.5 times more on selling & distribution during 9MCY11 than it spent during the same period last year. Administrative expenses also beat the inflationary pressures, growing by 26.45 percent. However, owing to a smaller outlay on these non-production operating expenditures, they exhausted less than 2 percent of revenues in 9MCY11. Hence, an overall brilliant operating performance led to a healthy growth of 49.17 percent in operating profits. However, the operating margins could only improve by 25 bps to reach 13.64 percent in 9MCY11. The finance income showed an increase of 10 percent during the period under review. The finance costs showed a significant decline of 42.45 percent, due to partial repayment of the parent company loan. During the period, Lotte paid Rs2.05 billion in corporate taxes. Lotte might have cheered the investors with brilliant year-on-year growth and attractive margins; however, it is the companys sequential quarterly performance which is a cause of worry. Lotte started the CY11 on a high as the prices of PTA, an essential raw material for polyester industry, rose during that time. Much of the growth during the ensuing quarters is attributable to the stellar first quarter sales performance. The sequential quarter-on-quarter growth is lacklustre at best. Take the recent quarter results for instance. Lottes revenues declined by 4 percent in 3QCY11 compared to previous quarter. Gross profits, operating profits and net profits all declined by 25 percent, 27 percent and 26 percent respectively over the same period. The gross, operating and net margins all dipped, by 272, 249 and 194 bps, respectively. Lottes gross margins are indeed under stress owing to lower PTA-Px margins and higher costs of acetic acid & electricity. Since reaching $350 per ton in Match earlier this year, the PTA-Px margin is on a declining run and fell below $200 per ton during last month. Going forward, the margin would be dependent on the extent of rise in value of both PTA and Px. Lottes fate, in fact its presence in Pakistan, will be increasingly dependent on how the negotiations between the companys management and the government regarding the tariff structure pan out. Lotte demands the revival of 7.5 percent tariff, which has been slashed to just 3 percent. Next few months are very critical for the companys presence in Pakistan.
=========================================================================== Lotte Pakistan PTA Limited =========================================================================== Rs (mn) 9MCY11 9MCY10 chg =========================================================================== Revenues 44,815 30,612 46% Cost of sales 37,818 25,900 46% Gross profit 6,997 4,711 49% Gross margin 15.6% 15.4% - Operating profit 6,114 4,098 49% Finance income 660 599 10% Profit after taxation 4,588 3,186 44% EPS (Rs) 3.03 2.10 ===========================================================================
Source: KSE notice
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