Nimir Resins Limited

Nimir Resins Limited (PSX: NRSL) was incorporated in Pakistan in 1964 as a public limited company and then converted into a public limited company in 1991. NRSL is the subsidiary of Nimir management (Private) Limited while Nimir Industrial Chemicals Limited is its ultimate parent company. The company is engaged in the manufacturing of coating resins, composite resins (UPR), textile auxiliaries, optical brightener and paper surface sizing agents.

Pattern of Shareholding

As of June 30, 2023, NRSL has a total of 141.32 million shares outstanding which are held by 4326 shareholders. Associated companies, undertakings and related parties which includes Nimir Management(Private) Limited and Nimir Industrial Chemicals Limited have the major stake of 67.19 percent in the company. These are followed by local general public holding 24.58 percent shares of NRSL. The company’s leadership which includes its directors, CEO, their spouse and minor children account for 3.7 percent shares of the company while Moradabas & Mutual funds hold 2.75 percent shares. The remaining ownership is distributed among other categories of shareholders.

Financial Performance (2019-23)

Except for a marginal dip in 2020, NRSL’s topline and bottomline have been riding an upward trajectory during the years under consideration. Its gross and operating margins also inclined until 2022 followed by a small dip in 2023. Conversely, net margin took a slide in 2020, rebounded in 2021 and then began to erode since 2020. The detailed performance review of each of the years under consideration is given below.

In 2019, NRSL’s topline grew by 36 percent year-on-year which is attributable to both increased prices and volumes of its products. In order to meet the rising demand, the company also increased its total capacity from 39,000 MT in 2018 to 42,000 MT in 2019 and utilized 69.6 percent of its capacity versus 67 percent capacity utilization in 2018. Cost of sales hiked by 35 percent year-on-year in 2019 mainly on the back of rising inflation, higher energy prices and Pak Rupee depreciation. NRSL was able to conveniently pass on the onus of cost hike to its customers, resulting in 52 percent higher gross profit recorded in 2019 and GP margin rising from 9.21 percent in 2018 to 10.24 percent in 2019. Distribution cost escalated by 24 percent year-on-year in 2019 on account of higher packing, carriage and forwarding charges due to increased sales volume, increased salaries of sales staff and a considerable uptick in sales commission. Administra-tive expense also surged by 11 percent year-on-year on account of higher payroll expense as the workforce tally increased from 125 in 2018 to 133 in 2019 due to increased operations. Operating profit registered 65 percent year-on-year growth in 2019 with OP margin rising from 6.6 percent in 2018 to 8 percent in 2019. While the company incurred higher exchange loss in 2019 due to depreciation in the value of local currency, lesser loss allowance booked for the year resulted in 16 percent year-on-year plunge in other expense in 2019. As against to other expense, finance cost soared by 123 percent year-on-year in 2019 on account of higher discount rate and increased working capital related borrowings obtained during the year. Net profit rebounded by 49 percent year-on-year in 2019 to clock in at Rs.154.02 million. EPS grew from Rs.0.36 in 2018 to Rs.0.54 in 2019.

NRSL registered 8 percent year-on-year slide in its topline in 2020. This was the consequence of COVID-19 which plagued the local and global economy bringing regular economic activity to a standstill. While the demand of its products greatly reduced due to lockdown, NRSL continued to sell some of the essential items from its portfolio to minimize the impact of the global pandemic on its sales. The break-up of the company’s sales reveal that while sales of coating, emulsion and blending nosedived during the year, there was an uptick in the sales of textile, paper and other products. Owing to reduced demand, NRSL utilized 61.6 percent of its installed capacity in 2020 and produced 25,877 MT of its products. Cost of sales plummeted by 9 percent year-on-year in 2020, resulting in 1 percent rise in gross profit, however GP margin improved by 100 bps to clock in at 11.24 percent during the year. Distribution expense dropped by 11 percent year-on-year in 2020 on account of reduced packing, carriage and forwarding charges as sales volume eroded during the year. Administration expense, however, mounted by 17 percent year-on-year in 2020 due to higher payroll expense despite reduction in the number of employees to 127.

Operating profit marginally grew by 1 percent year-on-year in 2020, however, a check on operating expense buttressed OP margin which rose to 8.8 percent. Other expense also registered a slump of 49 percent in 2020 as NRSL booked lesser loss allowance and also because of significant reduction in exchange loss during the year. Finance cost inched up by 10 percent year-on-year in 2020 as discount rate was high for most part of the year and also because NRSL’s long-term financing climbed up from 2.1 million in 2019 to 21.096 million in 2020 which largely includes loan obtained under SBP Refinance scheme for the payment of salaries and wages. Short-term borrowings dropped during the year due to curtailed operations on account of COVID-19. While profit-before-tax grew by 14 percent year-on-year in 2020, higher taxation squeezed net profit by 17 percent year-on-year in 2020 to clock in at Rs.127.22 million. EPS dropped to Rs.0.45 and NP margin inched down to 2.83 percent in 2020.

NRSL’s net sales which weakened in 2020 rebounded by a robust 40 percent year-on-year in 2021. This not only came on the back of higher volumes but also windfall gains as the company purchased huge stocks of inventory before the lockdown period at lower prices which was sold afterwards at significantly higher prices. During the year, the company increased its production capacity to 45,600 MT and achieved capacity utilization of 73 percent. Gross profit leaped by 57 percent year-on-year in 2021 with GP margin inclining to 12.65 percent. Distribution expense magnified by 30 percent year-on-year in 2021 due to higher salaries as well as increased packing, carriage and forwarding charges incurred during the year on account of higher volumes as well as hike in freight rates as shipments which were held back on account of COVID-19 started clearing. Administrative expense also escalated by 24 percent year-on-year in 2021 on account of higher payroll expense, although number of employees was same as last year. Operating profit enlarged by 66 percent year-on-year in 2021 with OP margin registering considerable rise to clock in at 10.4 percent. Other expense mounted by 48 percent year-on-year in 2021 due to increased profit related provisioning as well as provisioning for ECL and obsolescence of stock booked during the year. Finance cost slipped during the year by 39 percent year-on-year due to monetary easing. This was despite the fact that NRSL’s long-term borrowings significantly increased during the year for CAPEX as well as for the disbursement of salaries & wages under SBP Refinance Scheme. NRSL’s net profit grew by 182 percent year-on-year in 2021 to clock in at Rs.358.75 million with EPS of Rs.2.54 and NP margin of 5.71 percent – the highest among the years under consideration. Another positive development that took place during the year was 20 percent increase in the net worth of the company to clock in at Rs.2070 million. Moreover, accumulated losses were completely wiped off creating room for future dividend payments.

In 2022, NRSL recorded 32 percent year-on-year rise in its topline. Significant rise the prices of global commodities particularly feedstock prices drastically increased the cost of sales, however, NRSL’s competitive prices pushed gross profit up by 35 percent year-on-year in 2022. GP margin also improved to clock in at 13 percent in 2022. During the year, NRSL’s capacity utilization slipped to 66.88 percent. Distribution expense inched up by 20 percent year-on-year in 2022 on account of higher payroll expense as well as packing, carriage and forwarding charges. Administrative expense also signifies high inflation as it hiked by 18 percent year-on-year in 2022 on account of higher payroll expense. Operating profit ticked up by 39 percent year-on-year in 2022 with OP margin rising up to 10.95 percent. A considerable hike of 109 percent in other expense in 2022 was the consequence of higher exchange loss as well as provisioning related to profit, ECL and inventory obsolescence. Finance cost surged by 90 percent year-on-year in 2022 on the back of hiking discount rate as well as momentous increase in long-term and short-term borrowings obtained during the year. This, coupled with the imposition of 10 percent super tax by the government greatly diluted the bottomline growth. Net profit grew by a mere 2 percent year-on-year in 2022 to clock in at Rs.366.87 million with EPS of Rs.2.6 and NP margin of 4.44 percent.

In 2023, NRSL’s topline posted a subdued 13 percent year-on-year growth. Capacity utilization inched down to 57.4 percent due to supply chain impediments on account of restriction on import as well as reduced demand due to restricted business activity across the sectors on account of high inflation which squeezed consumers’ pockets. Cost of sales also hiked by 13 percent year-on-year in 2023 due to drastic hike in the prices of raw materials which was further worsened by Pak Rupee depreciation. The company was able to revise its prices accordingly which is evident from its GP margin which slightly shed to 12.89 percent in 2023. Gross profit also enlarged by 12 percent year-on-year in 2023. Distribution expense registered a massive 31 percent year-on-year growth in 2023 as higher prices of POL products took its toll on freight as well as travelling and conveyance expense incurred during the year. Administrative expense also multiplied by 23 percent year-on-year in 2023 as number of employees grew from 125 in 2022 to 135 which inflated the payroll expense amid high inflation. Operating profit could grow by 10 percent year-on-year in 2023 with OP margin slightly inching down to 10.6 percent. Other expense shed 35 percent in 2023 due to lower provisioning as well as no exchange loss incurred during the year. Finance cost multiplied by a whopping 76 percent year-on-year in 2023 due to monetary tightening. This was despite the fact that the company paid off a huge portion of its liabilities during the year which is evident from its gearing ratio considerably falling to 23 percent in 2023 from 53 percent in 2022 (see the graph of gearing ratio & finance cost). NRSL posted 5 percent year-on-year rise in its net profit in 2023 which clocked in at Rs.385.88 million with EPS of Rs.2.73 and NP margin of 4.12 percent.

Recent Performance (1QFY24)

NRSL kicked off 2024 with quite robust note characterized by a staggering rise in its bottomline and margins. Its topline grew by 16 percent year-on-year mainly on account of upward price revisions to pass on the impact of cost hike. The company did it really well as its gross profit mounted by 46 percent year-on-year in 1QFY24 with its GP margin rising up from 8.9 percent in 1QFY23 to 11.23 percent in 1QFY24. Distribution and administrative expense hiked by 20 percent and 60 percent respectively in 1QFY24 supposedly on the back of inflation, increased freight, transportation and utility charges incurred during the period. Higher operating expense couldn’t hurt company’s operational performance which is evident by 48 percent higher operating profit earned by the company in 1QFY24 with OP margin marching up from 6.77 percent in 1QFY23 to 8.67 percent in 1QFY24.

The company was also able to trim down its finance cost by 19 percent year-on-year in 1QFY24 despite rate hike on account of efficient utilization of its short-term borrowing lines. NRSL posted a phenomenal 372 percent year-on-year growth in its bottomline in 1QFY24 which stood at Rs.81.18 million. EPS also grew from Rs.0.12 in 1QFY23 to Rs.0.57 in 1QFY24. NP margin which stood at 0.75 percent in 1QFY23 jumped up to 3.04 percent in 1QFY24.

Future Outlook

NRSL’s diversified product portfolio and its ability to pass on its cost to its customers will keep its financial performance buoyant amid economic headwinds. However, declining trend seen in the international commodity prices for the past few months may impact the profitability of the company