Morning Briefing for Mar 16, 2012 – Standard Capital

Morning Briefing for Mar 16, 2012 – Standard Capital

[ 0 ] March 16, 2012 | | Share:

Karachi: ICI may herald new beginning

ICI is in the process of having a re‐look after Akzo may jettison with loss making paints business.

According to Standard Capital, this thing is on for quite some time now and Standard Capital considers it good for ICI itself. ICI would continue to be an efficient PSF and soda ash player; thus Standard Capital holds a positive view for long term on ICI. ICI people desperately want its loss making problematic paint segment to go. Paints are problematic due to payment cycle problem wherein company is at the whims of paint dealers payment mechanism.

Hence ICI’s CY11 results should be seen in this light. There has been an earnings decline wherein profit after tax of ICI has decreased and reported Rs 1.9 billion as compared to Rs 2.4 billion earned in CY10. ICI EPS reduced to Rs 13.95 in the period as against Rs 17.50 in CY10.

Though board passed on a final payout of Rs 5.50/share wherein company has already given Rs 3.5/share thus total payout remains Rs9.0/sh. The dividend yield is not more than 7%.

Operations marred by non supply of SNGPL gas + impairment over investments
Standard Capital saw ICI’s turnover increased to Rs 44.8 billion in CY11 against Rs 39.5bn in CY10. The company’s cost of sales increased to Rs 33.7bn against Rs 28.4 bn. Net sales was up 14 % over last year. The operating result was 23 % lower than last year due almost entirely to a further deterioration in the availability of gas by SNGPL to the Soda Ash and Polyester Staple Fibre plants.

During the year, gas was not available to the company’s Soda Ash and Polyester Staple Fibre plants for 174 days and 186 days respectively, compared to 143 days and 108 days in 2010. The consequent financial impact on the operating result of using alternative expensive fuel was over Rs 825 million in 2011.

The operating result also includes an impairment charge of Rs 210 million relating to the investment in ICI Pakistan Powergen Limited, a 100 % owned captive power company in accordance with international financial reporting standards. The paints, chemicals and life sciences businesses recorded strong growth in margins and operating result.

One good silver lining
The coal fired boiler project which is at a cost of over Rs2bn is said to be commissioned 2QCY13. ICI people are upbeat since this boiler investment was made at a critical juncture when costs overruns have been higher and there was a gas shortage situation which was hitting plant production. Now coal fired boiler shall significantly improve the energy economics of the Soda Ash segment.

Earnings increase would come with efficiency in PSF and Soda Ash. Standard Capital remains Positive in ICI.

Category: Brokerage

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