Wednesday, September 20th, 2017
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An oleo chemicals and chlor-alkali manufacturing company, Nimir Industrial Chemicals Limited (NICL) produces stearic acid, soap noodles, glycerin, caustic soda, sodium hypochlorite, and hydrochloric acid.

NICL is a subsidiary of Nimir Resources (Private) Limited, which holds 56.67 percent of the total shares of the company. Nimir Holdings (Private) Limited, Nimir Management (Private) Limited, and Nimir Resins Limited (formerly Descon Chemicals Limited) are its subsidiaries. Nimir Resins was bought in 2016.

Industry Outlook Pakistan has a large potential in production of basic inorganic chemicals such as soda ash and chlorine. However, it faces high prices of basic feedstock. Basic raw materials constitute a major portion of cost of production (30 percent to 60 percent) in the chemical industry. Pakistan's chemical industry either uses natural gas or crude oil as feedstock for manufacturing process. The fluctuations in oil prices therefore affect the growth projections of the firms.

The chlor-alkali industry is the industry that produces chlorine and alkali, sodium hydroxide or potassium hydroxide by electrolysis of a salt solution. Currently, 95 percent of world chlorine production is obtained by the chlor-alkali process. Chlorine production since the 1940s has risen enormously, on the back of the burgeoning demand for plastics, notably PVC and polyurethanes.

Soda ash, commonly known as dhobi soda or washing soda is used in the manufacture of glass, soaps, detergents, sodium silicate, paper, caustic soda, paint, petroleum refining, inorganic chemicals.

About 43 percent of soda ash production is consumed by the glass & silicate industry, 28 percent by the textiles industry and 11 percent by paper production. The remaining production of soda ash is used by the baking powder industry and detergent and soaps industry.

Operational and historical performance Nimir's production capacity has increased in recent years. Its capacity utilization, which declined somewhat in 2015 due to energy crisis, increased in 2016. Investments in various alternate fuel-based energy solutions have allowed it to become self-reliant in its energy requirement which drove the increased capacity utilization. The plants are operating at nearly full capacity and any variance between maximum capacity and actual utilization can be attributed to market conditions.

NICL approved a capital expenditure plan in 2015 to upgrade the plant and machinery. This will result in improvement in quality and reduction in operation costs besides increasing production capacity. Financially, NICL's sales have improved over the last five years along with higher profitability ratios. 2016 saw a significant jump of Rs 1.4 billion in turnover as the company crossed the Rs 5 billion mark. This, along with better management of expenses and cost of goods sold and increased capacity resulted in a doubling of EPS from 2015 to 2016. Furthermore, NICL has been managing its working capital and liquidity well by keeping its current ratio at around 1.

9MFY17 - Financial analysis NICL is heading towards record sales for 2017 as its nine months ending March 31 2017 sales figure crossed FY16's turnover. Its top-line growth recorded a 51 percent increase over the comparable period last year. Other income has risen as well since NICL is earning through the mark-up on the loan given to its subsidiary Nimir Resins.

Though NICL's bottom-line has increased by 15 percent, its net profit margin and gross profit margin have declined due to increase in its distribution and financial costs. The higher turnover resulted in higher working capital requirements which caused an increase in these expenses. Regardless of the higher working capital requirements, the current ratio has been maintained at its positive level of 1.1.

The BMR (Balancing, Modernisation and Replacement) plan for the oleo chemicals plant has been put into place and is progressing. The up-gradation of the plant to the latest technology will be completed in phases. The first phase is expected to be commissioned in first quarter of the next financial year.

An interim dividend of Rs 2 was declared in FY16 after which no final dividend was declared. No interim dividend has been announced for FY17.

Future outlook The future outlook of NICL is promising. Plant expansion has increased capacity, which has increased sales. Planned investments in upgrading technology, plant, equipment is likely to have a further positive effect on its turnover.

A repeat of 2015's decrease in capacity utilization seems unlikely since NICL commissioned two more solid fuels based heating systems during FY16. Therefore, increase in production to utilize increase in capacity will not be hampered by energy supply issues. These efforts have benefitted in the form of economies of scale, which can allow it to compete internationally.

As far as the industry is concerned, oleo chemicals and chlor-alkali chemicals are used for a wide range of products. If Pakistan's continues with positive economic growth, the demand for NICL's products is expected to increase.





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NICL 9MFY17

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Rs. in mn 9MFY17 9MFY16 YoY%

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Sales Revenue 5,401 3,570 51%

Cost of sales -4,615 -2,926 58%

Gross Profit 786 643 22%

Distribution costs -87 -78 12%

Administrative expenses -83 -71 17%

Operating profit 616 495 24%

Other expenses -38 -29 31%

Other income 31 0.7 4329%

Finance costs -91 -64 42%

Foreign exchange loss -6 -22 -73%

Profit before taxation 511 380 34%

Taxation -159 -75 112%

Profit after Tax 351 306 15%

Earnings per share (Rs.) 3.18 2.76 15%

gross profit margin 15% 18%

Net profit margin 6% 9%

Current ratio 1.1 1.1

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Pattern of shareholding

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Categories of shareholders Shares held Percentage

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Directors, Chief Executive Officers,

and their spouse and minor childern 6,15,45 5.4390%

Associated Companies, undertakings

and related parties. (Parent Company) 62,670,647 56.6691%

NIT and ICP 1,500 0.0014%

Banks Development Financial Institutions,

Non Banking Financial Institutions. 2,300 0.0021%

Insurance Companies 22,500 0.0203%

Modarabas and Mutual Funds 673,624 0.6091%

General Public 39,888,206 36.0684%

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Others (to be specified)

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1- Joint Stock Companies 1,243,352 1.1243%

2- Foreign Companies 30,600 0.0277%

3- Leasing Companies 24,010 0.0217%

4- Investment Companies 11,762 0.0106%

5- Others 7,000 0.0063%

110,590,546 100.0000%

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SHAREHOLDERS HOLDING 10% OR MORE

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Categories of shareholders Shares held Percentage

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Nimir Resources (Private) Limited 62,670,647 56.6691%

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