Nimir Industrial Chemicals Limited

Nimir Industrial Chemicals Limited (PSX: NICL) was set up as a public limited company. The company is part of the Nimir Group of Companies. It manufactures Chlor Alkali and Oleo Chemicals. Its product portfolio consists of Caustic Soda, Sodium Hypochlorite, Hydrochloric Acid, Stearic Acid, etc.

Shareholding pattern

As at June 30, 2021, close to 43 percent shares were held by the directors, CEO, their spouses and minor children. Within this category, the CEO of the company, Zafar Mahmood is a major shareholder. The local general public owns over 44 percent shares followed, whereas the remaining shares are held by the rest of shareholder categories.

Historical operational performance

Nimir Industrial Chemicals has seen a growing topline throughout the decade since FY10, whereas profit margins have been largely stable in the last six years.

In FY18, the company witnessed the highest growth in revenue by 64 percent, with topline crossing Rs 12 billion. This was primarily attributed to a growth in volumes. But the higher topline did not translate into higher profitability as cost of production increased to over 87 percent, up from 85.5 percent seen in FY17. This resulted in gross margin reducing to 12.8 percent. The effect of this also reflected into the net margin as it was also lower year on year, at 5.75 percent, compared to 6.4 percent seen in the previous year. In value terms, bottomline was higher in FY18, at Rs 695 million.

Revenue growth in FY19 stood at close to 23 percent, with topline nearing Rs 15 billion. This was attributed to an increase in prices as well as volumes. On the other hand, production cost was slightly lower at over 86 percent which resulted in gross margin improving marginally to 13.7 percent. While the lower other expenses allowed operating margin also to increase, recorded at 11.2 percent, the escalation in finance expense, coupled with an exchange loss and a higher tax expense, resulted in net margin to reduce to 5.4 percent.

In FY20, revenue growth stood at 15.6 percent and topline crossed Rs 17 billion. Of this, Rs 4 billion of revenue was earned in the third quarter of FY20, while roughly Rs 5 billion was seen in the last quarter. Due to the outbreak of the Covid-19 pandemic, lockdowns were imposed which meant that production and business activities were brought to a sudden halt for majority of the companies, barring a few that were considered essential. Nimir Industrial Chemicals was allowed to operate; therefore, it did not incur loss for 1HFY20 as was the case with some companies. Production cost was slightly lower at 85 percent allowing gross and operating margin to improve year on year. But finance expense, due to higher interest rates, continued to hamper the growth in net margin as the former consumed 3.5 percent of revenue. Thus, net margin was recorded at a lower, albeit marginally, 5.4 percent.

In FY21, revenue increased by 34.5 percent, reaching an all-time high of Rs23 billion. This was attributed to a growth in prices and volumes. Production cost reduced marginally as a share in revenue, at close to 85 percent, allowing gross margin to improve slightly to 15.4 percent. While this also trickled down to the operating margin, the effect on net margin was more pronounced due to the reduction in finance expense combined with the absence of a net exchange loss that was recorded at Rs 132 million in the previous year. Thus, net margin stood at 7.34 percent for the year.

Quarterly results and future outlook

Revenue in the first quarter of FY22 was higher by almost 47 percent year on year, as it clocked in at Rs 7.4 billion, compared to Rs 5 billion in 1QFY21. The increase in revenue was attributed to the rise in prices in the international market. However, the higher revenue could not be translated into a higher profitability due to the rise in cost of production that consumed nearly 90 percent of revenue in 1QFY22 compared to over 85 percent in 1QFY21. The increase in production cost was due to the rise in energy prices. In addition, finance expense was also higher year on year due to a higher working capital requirement, while the company also made investments in new projects. Thus, net margin was recorded at 4.3 percent for the period versus 7 percent in 1QFY21.

The inflationary pressure for commodities and energy is a world-wide phenomenon. Given that the country relies on imported resources, and the currency depreciation, future profitability will continue to remain under pressure. However, the company has been investing in new projects such as new turbine, new boiler, and expansion of caustic soda, new chlorine liquefaction and chlorinated paraffin wax plant, expansion of aerosol facility and new personal care and home care production facilities that can ensure growth in sale turnover.