Nimir Industrial Chemicals Limited

Nimir Industrial Chemicals Limited (PSX: NICL) is one of the companies in the Nimir Group of Companies. It was established as a public limited company, manufacturing Chlor Alkali and Oleo Chemicals. Some of its products include Caustic Soda, Sodium Hypochlorite, Hydrochloric Acid, Stearic Acid, etc. Shareholding pattern

Close to 43 percent of the shares are held under the category of directors, CEO, their spouses, and minor children, making it the key shareholder of the company. Within the category, Mr. Zafar Mahmood, the CEO, holds the largest number of shares at 22 percent. The local general public holds 55 percent; the rest of the shareholder categories hold close to 1 percent shares or less than that.

Historical operational performance

While the topline has consistently been on a rise throughout the decade, profit margins have remained relatively stable apart from the increase seen in FY16.

During FY16, topline growth was recorded at 37 percent. This was as a result of plant expansion that was undertaken in FY15. The higher revenue was also accompanied by a lower cost of production as a percentage of revenue, at 80 percent. This led gross margin to peak at 19.4 percent. While most other elements of the financial statements remained constant, the higher gross margin also reflected in the bottomline, with net margin also peaking at 8.8 percent.

During FY16, the company “acquired the controlling stake in Nimir Resins Limited- formerly Descon Chemicals Limited, through its wholly owned subsidiary Nimir Holding Private Limited (NHPL).”

In FY17, Nimir Industrial Chemicals saw the highest growth in topline, thus far, at 47 percent, crossing the Rs 7 billion mark. This was attributed to higher sales volumes as well as better prices in the international market. However, the increase in revenue was accompanied by a more than corresponding increase in costs, bringing gross margins down to 14.4 percent. Lower gross margin translated to lower net margin at 6.4 percent, although in value terms the bottomline rose by 7 percent year on year.

Topline growth increased to its highest at 64 percent during FY18. This was largely a volume driven growth. However, cost of production consumed 87 percent of revenue, up from last year’s 85 percent. This lowered gross margin to near 13 percent. While distribution expense decreased to less 1 percent of revenue, it was compensated for by increase in other expenses coming from impairment expense. With finance cost making a lower percentage of revenue, the decrease in net margin year on year was not as pronounced and was recorded at nearly 6 percent, remaining relatively stable.

Revenue growth, at close to 23 percent during FY19, was a little subdued in comparison to that seen in the previous three years. The increase in revenue was brought about by a rise in prices, as well as volumes. With a minute downward change in cost of production, gross margin increased marginally. While most other factors remained relatively unchanged, finance cost rose to claim 2.4 percent of revenue, which had remained below 2 percent of revenue for that last three years. The higher mark-up rate on short term borrowings was responsible for higher finance expense for the year. Thus, net margin decreased marginally to 5.4 percent.

Owing to the Covid-19 pandemic and the lock down that followed, a lot of the companies in the economy witnessed negative growth due to the shutdown of their plants. However, Nimir Industrial Chemicals continued to operate, given that it produced soap- a product that was immensely emphasized on to combat the spread of the virus. Thus, the company witnessed a topline growth of 15.6 percent during FY20. Of the total Rs 17 billion annual sales, the company saw Rs 4 billion sales in the third quarter of FY20 and roughly Rs 5 billion in the last quarter, when majority of the other companies saw a contraction in their revenue. With a slight reduction in cost of production, gross and operating margin improved, but it was marred by the rising finance expense that grew to consume 3.5 percent of revenue. This is attributable to the high discount rate that remained high until the pandemic hit Pakistan towards the end of 3QFY20. Thus, net margin remained nearly stable at 5.4 percent.

Quarterly results and future outlook

The companied maintained its growth momentum as topline grew at more than 33 percent during 1QFY20. The slightly higher cost of production at 85 percent, and hence the lower gross margin year on year was compensated for by lower finance expense that helped to maintain net margin. Lower finance expense was due to lower interest rates- a relief measure provided to the businesses by the government.

In light of lower interest rates, the company made several investment plans; expanding caustic soda plant, additional investment in new solid fuel based 20MW power plant and a third-party manufacturing plant. The company foresees these investments to fetch higher profitability in the future.