Lotte PTA safe and sound

Pakistans sole PTA manufacturer, Lotte Pakistan PTA Ltd, should thank its lucky stars for being acquired by the Lotte Group.
Since the acquisition that took place in September 2009, the firms bottom line did not only swing into green in 2009, after three straight loss making years, but it also saw a handsome growth in 2010.
With net profit margins jumping to 11 percent from 9 percent in 2009, Lotte PTAs earning per share rose to Rs2.99 from Rs2.36 a year ago. While the credit for this improved performance goes to the acquirers expertise, but at the same time, improved PTA-Px margins also played a major role.
In the wake of higher PTA prices, which remained firm on account of healthy demand from polyester fibres and yarn makers - along with steady volumetric sales, Lotte PTAs top line surged to Rs42 billion from around Rs37 billion last year.
On the other hand, Px prices were firmer but not as much as that of PTA due to strong supply by manufacturers in the region. Although PTA and Px prices both follow oil price, the growth in PTA prices was relatively higher. Improved PTA-Px margin, therefore, helped the firms gross profit margin edge higher to 17 percent from 16 percent in 2010.
"Average primary margins, PTA-Px spread, witnessed an improvement to over $320 per ton in 2010 compared to $250 per ton in CY09," according to Sana Bawani at BMA capital.
Moreover, substantial growth in finance income was realised on the back of impressive growth in income on bank deposits and short-term investments.
The companys cash and bank balance for the nine months ending September increased to Rs7.4 billion compared to Rs5.4 billion in the same period last year, while finance costs reduced on the back of relatively stable rupee-dollar parity, which helped the company take deep cut in exchange losses.
With polyester industry up and running in Asia, which nearly consumes 70-80 percent of PTA output in Asia, the companys revenue stream looks promising, as PTA prices are expected to remain healthy in 2011.

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Lotte Pakistan PTA Ltd

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Rs (mn)                              2010     2009      Chg

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Sales                              42,401   37,851    12.0%

Cost of sales                      35,369   31,954    10.7%

Gross profit                        7,032    5,897    19.2%

Gross margin                          17%      16%     6.5%

Selling and distribution expenses     109      121    -9.9%

Administration exp                    268      215    24.7%

Other operating  exp                  605      543    11.4%

Finance income                        882      260   239.2%

Finance cost                          229      754   -69.6%

Profit                              4,527    3,573    26.7%

EPS (Rs)                             2.99      2.4    26.7%

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