The general perception of Pakistan as a foreign investment destination has taken a massive hit in recent years. Law and order, inefficiency and constantly interrupted utilities supplies are just some of the reasons that fog the assessment.
Korean conglomerate, KP chemical probably had its eye set on the return on investment in developing economies. Surely, the results of its decision to invest in, what is now, Lotte Pakistan, are spot on. LOTPTA announced first quarter results on Friday, posting a massive increase in profits over last year.
With an annual production capacity of 0.5 million tons, Lotte benefited from higher margins compared to last year. Demand for PTA remained strong for the first quarter, in line with the previous year, while the price of a major input Px fell in international markets.
The differential between Px and PTA prices shot up to $290 per ton compared to $150 per ton in the corresponding period last year, according to research by Furqan Punjani of Topline Research.
New management, led by Asif Saad has been successful in optimizing the operational costs of the firm as well, as the firm reduced other operational expenses by 59 percent. Perhaps a hint that Asian efficiency can be applied to Pakistani companies as well.
Owing to the favorable business environment for PTA, the company saw higher liquidity and the returns on bank deposits led to a massive surge in other income, contributing heavily towards the improved bottom line.
Margins are expected to remain robust through 2010, though regional capacities may curtail the windfall income of the first quarter. Demand from the Indian textile industry is likely to provide a solid playing field for Lotte.
The company has already announced plans to invest $45 million in Pakistan. Construction of a cogeneration power plant and a catalyst recovery plant are expected to hedge against unstable electricity supply and increase cost efficiency.
Attracted by the low hanging fruits in the Pakistani economy, the company has acknowledged its interest in diversifying into the food business as well.
Interestingly, the stock market saw nearly a 1 percent decline in LOTPTA on Friday as the higher investors appetite in second tier stocks overplayed the improved profitability.
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LOTPTA P&L
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Rs (mn) 1Q2010 1Q2009 % chg
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Net Sales 9,323 7,116 31%
COGS 7,973 6,362 25%
Gross Profit 1,350 754 79%
Gross margins 14% 11% 37%
Admin Expenses (59) (54) 9%
Other Operating Income 258 6 4200%
Finance Cost (59) (108) -45%
Profit after Tax 873 524 67%
EPS (Rs) 0.58 0.35 67%
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Source: Company Accounts
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