Nimir Industrial Chemicals Limited

Nimir Industrial Chemicals Limited (PSX: NICL) was incorporated in Pakistan in 1994 as Ravi Alkalis Limited and was listed on PSX in 1996. The company changed its name in 1998 after its ownership was taken over by a Saudi Group. In 2004, the ownership was sold to an American Group; Knightsbridge which was later bought back by the company in 2011 under management buyout scheme. The principal activity of the company is the manufacturing and sale of chemical products including wide range of oleo chemicals, aerosols, and choler alkali as well as personal and home care products.

Pattern of Shareholding

As of June 30, 2022, NICL has a total of 110.590 million shares outstanding which are held by 1883 shareholders. General public has the highest stake of 58.46 percent in the company followed by Directors, CEO, their spouse and minor children who collectively hold 38.5 percent shares of NICL. Joint stock companies account for 1.5 percent shares of NICL. The remaining shares are held by other categories of shareholders each having an ownership of less than 1 percent shares of NICL.

Performance Trail (2018-22)

The topline of NICL is attaining new heights with each passing year. The bottomline is also following the similar trajectory except in 2022 where it marginally dipped despite the highest ever topline growth. The margins also rode an upward journey until 2021 and then shrank in 2022. The detailed performance review of each of the years under consideration is given below.

In 2019, NICL’s topline ascended by 23 percent year-on-year which came on the back of increased volume as well as upward revision in prices. Increased production to meet robust demand coupled with the inflationary effect pushed the cost up by 22 percent year-on-year in 2019, however, GP margin ticked up from 13 percent in 2018 to 14 percent in 2019 with a 31 percent year-on-year rise in gross profit. Distribution expense was ballooned by 18 percent year-on-year on account of outward freight charges as well as salaries and wages. Administrative expense also inched up by 16 percent in 2019. Despite mounting expenses, vigorous topline resulted in a 34 percent year-on-year growth in operating profit with an OP margin of 12 percent in 2019 up from 11 percent in 2018. Other expense dwindled by 35 percent because of high-base effect as the company booked impairment loss on property plant and equipment as well as provision against refundable sales tax in 2018. Other income almost stayed afloat in 2019. Pak Rupee depreciation resulted in a 65 percent year-on-year rise in the foreign exchange loss incurred by the company. Finance cost also escalated by 76 percent year-on-year on the back of higher discount rate. NICL’s total debt stands at a whopping 1.8 times of its equity in 2019 as against 1.9 times in 2018. The bottomline flourished by 16 percent year-on-year in 2019 to clock in at Rs.810 million with an NP margin of 5.5 percent which was slightly lower than last year’s NP margin of 6 percent on account of reduction in tax rebate on BMR on new capital investments. Barring the effect of taxation, the PBT margin in 2019 was higher than in 2018.

In 2020, the topline further inclined by 16 percent year-on-year as the company being the producer of soap, an essential ingredient to fight against COVID-19, didn’t shut down its operations during the lockdown period. The topline growth was backed by prices as well as volumes. The cost of sales ticked up by 14 percent on the back of supply chain bottlenecks due to restrictions on the movement of people and goods within and across the borders. Yet gross profit posted a healthy 25 percent year-on-year rise with GP margin climbing to 15 percent in 2020. Outward freight severely rose during 2020 which pushed the distribution cost up by 37 percent year-on-year. Administrative expense also enlarged by 18 percent year-on-year on the back of rising inflation. Operating profit magnified by 26 percent year-on-year in 2020 with OP margin marching up to 13 percent. Other expense grew by 31 percent year-on-year on the back of higher provisioning for WWF and WPPF. Foreign exchange loss weighed down by 10 percent year-on-year in 2020. Finance cost grew by a massive 67 percent on account of higher discount rate for most part of the financial year. The total liabilities of NICL surged to 2 times of its equity in 2020 as the company undertook aggressive investment plans which include expansion of caustic soda plant and solid fuel based power plant coupled with the completion of aerosols project. Net profit rose by 14 percent year-on-year in 2020 to clock in at Rs.926.48 million with an NP margin of 5.4 percent. EPS climbed to Rs.8.38 in 2020.

As the signs of COVID-19 began to disperse, economic activity started resuming which resulted in a staggering 34 percent growth in the sales revenue of NICL. Gross profit also exceeded by 39 percent while GP margin slightly grew to 15.3 percent in 2021. High cost of feedstock and utilities inflated the cost of sales and impeded the GP margins to grow further. Distribution and administrative cost augmented by 30 percent and 38 percent respectively due to massive upsurge in freight, salaries and promotional expense. Operating profit grew by 40 percent year-on-year; however OP margin didn’t post any considerable uptick. Other expense more than doubled during the year not only because of higher provisioning for WWF and WPPF but also because of expected credit losses on trade debts as well as provision for slow moving stores and spares. Finance cost eased down by 23 percent year-on-year in 2021 due to lower discount rate although NICL’s borrowings massively increased during the year pushing the debt-to-equity ratio up to 2.3 percent. The rise in borrowings was the result of instigation of new projects including new boiler, turbine, chlorine liquefaction, chlorinated paraffin wax plant etc. The bottomline posted an impressive 83 percent year-on-year growth to clock in at Rs.1694.43 million in 2021 with an NP margin of 7 percent. EPS mounted to Rs.15.32 in 2021.

2022 was characterize by a massive 46 percent growth in net revenue of NICL, however record high inflation drove up the cost of sales by 51 percent year-on-year suppressing the GP margin to 13 percent. High operating expenses also pushed the OP margin down to 11 percent despite a 21 percent year-on-year growth in operating profit. Other expense provided some breather as it inched down by 36 percent year-on-year in 2022 as the company made reversals against the provisions booked on slow moving stores and spares and expected credit losses coupled with the recognition of exchange gain in 2022. Finance cost multiplied by 143 percent in 2022 due to upward revision in discount rate during the year coupled with exorbitant rise in both short-term and long-term borrowings in 2022. The debt to equity ratio of NICL surged to 3.8 times in 2022. High cost and expense didn’t allow the topline growth to trickle down. The result of which was a 6 percent year-on-year fall in the net profit to clock in at Rs.1595.63 million in 2022 with an NP margin of 5 percent. EPS also plunged to Rs.14.43 in 2022.

Recent Performance (9MFY23)

During 9MFY23, the net sales posted a 50 percent year-on-year upsurge; however, record high inflation resulted in a 51 percent year-on-year rise in cost of sales. This restrained the GP margin to 12 percent in 9MFY23 from 13 percent during the same period last year. While administrative expense remained in check and grew marginally by 6 percent in 9MFY23, distribution expense multiplied by 85 percent during the period. Operating profit grew by 39 percent year-on-year in 9MFY23, OP margin ticked down to 10 percent from 11 percent during 9MFY22. Other expense slid by 15 percent year-on-year in 9MFY23 while other income posted a stunning 210 percent growth. Record high discount rate resulted in a 206 percent rise in finance cost which didn’t allow the topline growth to cascade down to bottomline. The net profit contracted by 15 percent year-on-year in 9MFY23 to clock in at Rs.1089.59 million with an NP margin of 3 percent versus 6 percent during 9MFY22. EPS also slipped to Rs.9.85 in 9MFY23 from Rs.11.52 in 9MFY22.

Future Outlook

While company’s sales are expected to stay buoyant, high cost of sales due to surging labor cost, cost of feedstock as well as utility cost coupled with steep cost of borrowing will squeeze NICL’s margins in the coming times.