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 a management buyout scheme. The principal activity of the company is the manufacturing and sale of chemical products including a wide range of oleo chemicals, aerosols, chlor alkali as well as personal and home care products.

Pattern of Shareholding

As of June 30, 2024, NICL has a total of 110.59 million shares outstanding which are held by 1826 shareholders. The local general public has the majority stake of 58.65 percent in the company followed by the Directors, CEO, their spouses, and minor children holding 35.73 percent shares of NICL. Associated companies, undertakings, and related parties account for 2.33 percent of shares of the company. The remaining shares are held by other categories of shareholders.

Performance Trail (2019-24)

The top line of NICL posted reasonable growth until 2023 followed by a downtick in 2024. The bottom line also followed an uphill trajectory except in 2022 and 2024. NICL’s gross and operating margins strengthened until 2021 followed by a plunge in 2022. Conversely, its net margin dropped until 2020 followed by a rise in 2021 and a fall in 2022. In 2023, gross and operating margins rebounded, however, net margin continued to descend. In 2024, gross margin slightly ticked up while operating and net margins tapered off (see the graph of profitability ratios). The detailed performance review of the period under consideration is given below.

In 2019, NICL’s topline ascended by 22.82 percent year-on-year to clock in at Rs.14,850.12 million. This came on the back of increased volumes as well as upward revision in prices. Increased production to meet robust demand coupled with the inflationary effect pushed the cost of sales up by 21.62 percent year-on-year in 2019, however, GP margin ticked up from 12.81 percent in 2018 to 13.67 percent in 2019 with a 40 percent year-on-year rise in gross profit in absolute terms. Distribution expense surged by 18 percent year-on-year on account of higher outward freight charges as well as increased salaries and wages of the sales force. Administrative expenses also escalated by 15.68 percent in 2019 on account of higher payroll expenses as the number of employees increased from 150 in 2018 to 161 in 2019. Despite mounting expenses, vigorous topline resulted in 33.84 percent year-on-year growth in operating profit with OP margin clocking in at 11.67 percent in 2019 up from 10.71 percent in 2018. Other expenses dwindled by 34.77 percent because of the high-base effect as the company booked impairment loss on property, plant, and equipment as well as a provision against a refundable sales tax in 2018. Other income almost stayed constant in 2019. Pak Rupee depreciation resulted in a 64.98 percent year-on-year rise in foreign exchange loss incurred by the company. Finance costs also escalated by 76 percent year-on-year on the back of higher discount rates. NICL’s total debt stands at a whopping 1.8 times its equity in 2019 as against 1.9 times in 2018. The bottomline flourished by 16.47 percent year-on-year in 2019 to clock in at Rs.810.10 million with an NP margin of 5.46 percent which was slightly lower than last year’s NP margin of 5.75 percent on account of a 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. EPS clocked in at Rs.7.33 in 2019 versus EPS of Rs.6.29 recorded in the previous year.

In 2020, the topline further inclined by 15.64 percent year-on-year to clock in at Rs.17,172.58 million. This was because 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 borders. Yet gross profit posted a healthy 25.46 percent year-on-year rise with GP margin climbing up to 14.83 percent in 2020 due to better pricing and volume. Outward freight severely rose during 2020 which pushed the distribution cost up by 37.3 percent year-on-year. Administrative expenses also increased by 17.83 percent year-on-year on the back of rising inflation and also because of workforce expansion which resulted in 178 employees in 2020. Operating profit magnified by 25.61 percent year-on-year in 2020 with OP margin marching up to 12.68 percent. Other expenses grew by 30.62 percent year-on-year on the back of higher provisioning for WWF and WPPF. Foreign exchange loss weighed down by 9.96 percent year-on-year in 2020. Finance costs grew by a massive 67.33 percent on account of higher discount rates for most part of the financial year. The total liabilities of NICL surged to 2 times its equity in 2020 as the company undertook aggressive investment plans which included the expansion of a caustic soda plant and solid fuel-based power plant coupled with the completion of an aerosols project. The gearing ratio stood at 56 percent in 2020 as against 55 percent in 2019. Net profit rose by 14.37 percent year-on-year in 2020 to clock in at Rs.926.48 million. This translated into an NP margin of 5.4 percent. EPS climbed to Rs.8.38 in 2020.

Economic activity started resuming which resulted in a staggering 34.48 percent growth in the net sales revenue of NICL in 2021. NICL’s net sales stood at Rs. 23,093.74 million in 2021. Gross profit also picked up by 39.17 percent while GP margin slightly grew to 15.34 percent in 2021. The high cost of feedstock and utilities inflated the cost of sales and impeded the GP margins to grow further. Distribution was augmented by 29.65 percent in 2021 due to a massive upsurge in freight, salaries, and promotional expenses. Administrative costs escalated by 38.32 percent in 2021 due to continuous expansion in NICL’s workforce which stood at 205 in 2021. Operating profit grew by 39.88 percent year-on-year with OP margin clocking in at 13.19 percent in 2021. Other expenses 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 booked during the year. Finance cost eased down by 22.86 percent year-on-year in 2021 due to a lower discount rate although NICL’s borrowings massively increased during the year pushing the gearing ratio up to 62 percent. The rise in borrowings was the result of the instigation of new projects including a new boiler, turbine, chlorine liquefaction, chlorinated paraffin wax plant, etc. The bottom line posted an impressive 82.89 percent year-on-year growth to clock in at Rs.1694.43 million in 2021 with an NP margin of 7.34 percent. EPS mounted to Rs.15.32 in 2021.

2022 was characterized by a massive 46.3 percent growth in net revenue of NICL which stood at Rs.33,785.64 million. However, record high inflation drove up the cost of sales by 50.87 percent year-on-year in 2022, suppressing the GP margin to 12.7 percent. Gross profit grew by 21 percent in 2022. 24.88 percent year-on-year escalation in distribution expense in 2022 was the result of higher freight charges incurred during the year. As NICL added a new insect killer spray production plant in 2022, and increased the annual capacity of chlor alkali and oleo chemical plants, additional resources were required which drove the workforce up to 254 employees in 2022. This resulted in 19.57 percent higher administrative expenses incurred during the year. High operating expenses also pushed the OP margin down to 10.91 percent despite 21 percent year-on-year growth in operating profit. Other expenses provided some breather as it fell by 36 percent year-on-year in 2022. This was because 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 142.86 percent in 2022 due to an upward revision in discount rate during the year coupled with an exorbitant rise in both short-term and long-term borrowings in 2022. The gearing of NICL surged to a whopping 75 percent in 2022. High costs and expenses didn’t allow the topline growth to trickle down. The result of which was a 5.83 percent year-on-year fall in net profit which clocked in at Rs.1595.63 million in 2022 with an NP margin of 4.72 percent. EPS also plunged to Rs.14.43 in 2022.

In 2023, NICL’s net sales grew by 29.72 percent year-on-year to clock in at Rs. 43,825.54 million. This was because the projects initiated in the last two financial years started bearing results in 2023, translating into improved volumes. Besides, better pricing due to an uptick in export sales particularly to Central Asia as well as cost optimization resulted in 49.48 percent higher gross profit in 2023 with GP margin climbing up to 14.63 percent. Distribution expenses spiked by 79.57 percent in 2023 due to higher freight expenses as well as payroll expenses incurred during the year. NICL enlarged its workforce to 274 employees in 2023, resulting in 28 percent higher administrative expenses incurred during the year. Operating profit multiplied by 49.81 percent in 2023 with OP margin climbing up to 12.6 percent. 44.75 percent higher operating expense incurred in 2023 was the effect of increased profit-related provisioning made during the year. However, it was almost counterbalanced by 239.98 percent higher other income recorded by NICL in 2023 on the back of grant income received as loans were received at below-market rates under the SBP TERF scheme for setting up new projects. Foreign exchange gain and write-off of loans from directors/sponsors also buttressed other income in 2023. Finance costs surged by 139.54 percent in 2023 due to higher discount rates. This was despite the fact that NICL’s gearing ratio ticked down to 70 percent in 2023 from its peak level of 75 percent in 2022. Net profit grew by 15.17 percent in 2023 to clock in at Rs.1837.65 million with EPS of Rs.16.62 and NP margin of 4.19 percent.

Economic and political headwinds took its toll on the purchasing power of consumers which greatly affected NICL’s core business of oleo chemicals and resulted in a 4.34 percent decline in its net revenue which clocked in at Rs.41,925.36 million in 2024. Cost reduction measures including technological advancements and the commissioning of a new power plant helped the company attain a slightly higher GP margin of 14.74 percent in 2024 despite a 3.67 percent downtick in gross profit in absolute terms. Distribution expense and administrative expenses escalated by 22.58 percent and 19.79 percent respectively in 2024 mainly on account of increased freight charges, payroll expenses, legal & professional charges, communication charges, fees & subscriptions as well as CSR outflows. Operating profit ticked down by 7.66 percent in 2024 with OP margin falling down to 12.16 percent. Other expenses tumbled by 26.80 percent in 2024 on the back of lower profit-related provisioning which offset the impact of greater exchange loss incurred during the year. Other income multiplied by 70.83 percent in 2024 on account of gain recognized on the sale of property, plant & equipment, grant income, and scrap sales. NICL’s other income completely offset its other expenses in 2024. Finance costs magnified by 40.62 percent in 2024 due to higher discount rates and increased borrowings. The gearing ratio was recorded at 69 percent in 2024. NICL’s net profit slid down by 45.43 percent to clock in at Rs.1002.875 million in 2024. This translated into EPS of Rs.9.07 and NP margin of 2.39 percent.

Recent Performance (1HFY25)

During the first half of the ongoing fiscal year, NICL’s net sales dipped by 1.14 percent to clock in at Rs.20,389.33 million. This was due to the sunken purchasing power of customers on account of a sustained period of high inflation. However, better pricing strategies and increased operational efficiency resulted in an 11.95 percent improvement in gross profit in 1HFY25 with GP margin clocking in at 16.2 percent versus GP margin of 14.3 percent recorded during the same period last year. Distribution expenses surged by 24.81 percent in 1HFY25 due to elevated outward freight charges and payroll expenses of the sales force. Administrative expenses also recorded a 14.42 percent year-on-year surge in 1HFY25 on account of inflationary pressure. NICL’s operating profit strengthened by 10.32 percent in 1HFY25 with OP margin clocking in at 13 percent versus OP margin of 11.71 percent recorded in 1HFY24. Other expenses surged by 84.66 percent in 1HFY25 probably due to increased profit-related provisioning booked during the year. Other income eroded by 37.87 percent in 1HFY25 apparently due to a high-base effect as the company recognized a gain on the sale of fixed assets and grant income in the previous year. Despite diminution, other income offset the impact of higher other expenses incurred during the period. Finance cost shrank by 27 percent in 1HFY25 on the back of monetary easing and improved working capital management. NICL’s bottom line improved by 104 percent to clock in at Rs.847.634 million in 1HFY25. This translated into EPS of Rs.7.66 in 1HFY25 versus EPS of Rs.3.76 posted in 1HFY24. NP margin also picked up from 2 percent in 1HFY24 to 4.16 percent in 1HFY25.

Future Outlook

The company’s sales are expected to recover as the economic and political dust begins to settle. On September 01, 2024, the company acquired the soap manufacturing facility of Proctor & Gamble Pakistan (Private) located at Hub, Baluchistan. This has not only enabled NICL to secure business from Proctor & Gamble Pakistan but has also made it capable of meeting the demand of the southern region with lesser logistics costs. Moreover, NICL is in a position to export through the seaport. All these benefits will start reaping once the plant attains its optimal performance. Furthermore, monetary easing has greatly reduced the finance cost of the company and has improved its margins and profitability.