ICI: growing with diversity

If it could be helped, ICI Pakistan would put up the PSF segment on a pedestal for the commendable performance in CY2010. The top line of the company improved by 24 percent, believed to be mainly on account of substantial growth in the PSF sector.
Strong volume growth in this segment, also the largest segment of the company in terms of revenues, coupled with margin management helped key indicators of the company.
PSF demand has been strong in the country because of rising prices of cotton, which encourages the use of PSF as a blend material.
The soda ash segment, on the other hand, also grew during CY2010 as ICI tapped the export potential in the region. Domestic demand, however, was relatively muted since the floods affected business activity in soda ash-consuming industries, such as construction, paper and glass-making industries.
Besides that, rising input costs held the reins tight on more robust growth in soda ash. The major bandit for the segment, however, was the energy crisis and the gas curtailment issue since gas is a key input in the production of soda ash. Because of gas curtailment, the company ends up using the more-expensive furnace oil, thus affecting the profits of the sector.
The paints sector of the company is driven mainly by the construction and auto industries of Pakistan. The demand from the construction side has been relatively muted, however, as the company re-established its alliance with two large automotive assemblers in the country, the segment managed to fare well. Besides this, the refinish segment in paints has done well, working towards broadening the product range.
The mixed dynamics from the various segments resulted in a slight drop of a percentage point in the gross margin of the company. PAT increased by an impressive 19 percent for the year, even though the net margin fell by 30 bps. Dividends paid out to shareholders totaled Rs17.50 for the year.
Going forward, product expansion and a rebound in business and industrial activity after the floods is likely to bode well for ICI in CY11. The energy crisis, however, is likely to be a deterrent in 2011, unless the government brings a sound and consistent energy policy.

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ICI Pakistan P&L

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(Rs mn)                   CY10        CY09         Chg

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Net sales               35,130      28,430         24%

Cost of sales           28,444      22,754         25%

Gross profit             6,686       5,676         18%

Gross margin               19%         20%

Selling & distribution   1,675       1,470         14%

Administrative expenses  1,299       1,178         10%

Operating Profit         3,713       3,028         23%

Operating margin           11%         11%

PAT                      2,429       2,045         19%

Net margin                  7%          7%

EPS (Rs)                    18          15

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Source: Company notice to KSE