LOTPTA mired by low PTA prices

The loss posted by Lotte Pakistan yesterday was pretty much predicted by analysts in line with the changing dynamics of the industry and the cyclicality of the business.
With a revenue loss of over four percent in 3QCY11 on a year-on-year basis versus an increase of over six percent in the cost of sales under the same analogy, the company took a hard hit on its gross margins, which slumped by nearly 28 percentage points for the period.
The scenario was also reflected for 9MCY12 whereby an over 10 percent decline in the top line and a nearly seven percent increase in cost of sales led to a decline of 16 percentage points in the gross margins.
The southward turn in gross margins comes at the heels of significantly lower PTA prices and relatively stiff Px prices, leading to a decline in PTA-Px margins. "Average PTA-PX margins in 3QCY12 stood at 75 dollars per ton compared to 110 dollars per ton in 1HCY12," said an analysis by BMA Capital.
The decline in PTA prices is attributable to capacity additions in the industry on a global level leading to a supply-led decrease, and an overall slowdown in the downstream polyester sector because of reduced international cotton prices as well as an overall economic slowdown globally.
The loss in gross profit cascaded down into other heads of the P&L account as well. Distribution expenses and operating expenses fell by 51 percent and 95 percent, respectively, in 3QCY12 on a year-on-year basis. This is owed to reduced export sales in case of the former and no provision for workers profit participation fund because of the operating loss.
Overall, the operating margins fell by two percentage points in 3QCY12 relative to 3QCY11, saved from a whopping decrease due to reduced distribution and operating expenses mentioned above.
The companys finance income is another area worth mentioning, which decreased significantly on a year-on-year basis owing to a reduction in the companys cash surplus. The net result was a year-on-year decrease in net margins of about five percent and 11 percent in 3QCY12 and 9MCY12, respectively.
Going forward, while no improvement in profitability or PTA-Px margins is expected for the remaining part of CY12, the cyclicality of the business should be borne in mind, with expectations of an improvement in PTA demand towards mid-CY13.

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LOTPTA

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(Rs in mn)             3QCY12   Y/Y chg   9MCY12   Y/Y chg

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Revenues               13,543       -4%   40,082      -11%

Cost of sales          13,606        6%   40,318        7%

Gross profit              -62         -     -236         -

Gross margin            -0.5%         -    -0.6%         -

Distribution &             96      -51%      113      -18%

selling expenses

Other operating expense     6      -95%       17      -97%

Operating Profit         -157         -     -555         -

Operating margin        -1.2%         -    -1.4%         -

Finance income         62,027      -66%      241      -63%

Profit after taxation     128         -     -422         -

Net margin               0.9%         -    -1.1%         -

EPS (Rs)                -0.08         -    -0.28         -

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Source: KSE notice