Archroma Pakistan Limited

Archroma Pakistan Limited (PSX: ARPL) is primarily engaged in the manufacture and sale of chemicals, dyestuffs and emulsions. It also acts as an indenting agent and has a production site at Jamshoro which produces liquid indigo for the denim industry. ARPL has a history of acquisitions. In 2013, it was formed from the textile, paper and emulsions business of Clariant. Clariant itself was formed in 1995 as a spin-off from Sandoz, a chemical company that was established in Basel in 1886. In 1997, Clariant acquired the chemicals business of Hoechst, a German Chemical company.
In 2014, Archroma acquired 49 percent of M. Dohmen SA, an international group specializing in the production of textile dyes and chemicals for the automotive, carpet and apparel sectors. It also acquired the global textile business of BASF SE in 2015. Archroma Pakistan Limited (APL) acquired BASF Pakistan (Pvt) Ltd on 31 July, 2015. Archroma Textiles Chemicals Pakistan Pvt Ltd (ATCPPL) amalgamated into APL with effect from 1 January, 2016. With 75 percent shares, Archroma Textiles S.a.r.l. is its holding company. Incorporated in Luxemburg and headquartered in Reinach, Switzerland, globally it has 3000 employees, 25 production sites and is present in 35 countries.
Global textile chemicals market There has been a movement away from synthetic dyes and chemicals to the usage of natural dyes globally. In addition, the usage of renewable sources of energy in textile and apparel industry has increased due to many ecological advantages. Archroma is following these trends with its eco-conscious Jamshoro plant and its Earth Colours (EC) range.
The global textile chemicals market was estimated to be worth $19.63 billion in 2013 and is further expected to reach $23.42 billion in 2018, growing at a CAGR of 3.6 percent from 2013 to 2018, according to Fibre2Fashion, an international B2B forum that specialises in textiles and apparel. Globally, this market is driven by the growth of the global apparels market and technical textiles market. Archroma's unique selling point is its EC range which uses biosynthetic dyes for cotton and cellulose based fabrics.
The red, brown, and green colours for denim and casual wear are derived from agricultural waste products like almond shells, saw palmetto, rosemary leaves and other natural products that would otherwise been sent to landfills. This, along with its fully traceable nature due to smart Near Fields Communications technology (NFC) increases ARPL's international market competitiveness and is helping boost its exports. As a result, export sales increased by 46 percent to comprise 14 percent of total sales in FY17 from 10 percent in FY16. Financial overview
The textile sector is the biggest consumer of the company's products. The sector's decline in recent years has not fared well for Archroma. However, by increasing exports by 46 percent and capturing a larger pie of the market, ARPL managed to increase its top line with the growth led by 6 percent increase in the brand & performance textile specialties segment. The packaging & paper specialties segment, though a smaller contributor to ARPL's revenue, did well by increasing by 36 percent while coating, adhesives & sealants growth was lacklustre at 3 percent. Total sales growth remained low at 8 percent.
Though Archroma's top line grew, and its gross margins stayed intact, its bottom line shrunk. Distribution and marketing expenses marketing expenses remained largely flat; as percentage of sales it stood at around 6.7-6.8 percent. However, administrative expenses increased significantly - 100 basis points as percentage of sales - due to an increase in salaries as well as outside service charges.
Future outlook
ARPL's fortunes are strongly linked to the textile sector. Recently, there have been favourable movements in Pakistan's exports with growth in value added textiles registering in double digits. Implementation of some of the assurances made in the PM textile package has driven this growth along with tweaks in the export package. Better provision of utilities has also allowed more export orders to be processed. Many companies in the chemical sector are strongly linked to Pakistan's textile sector. The cautious optimism being seen in the export sector bodes well for these companies, including Archroma. However, issues such as rising cost of doing business affect not only the textile sector but also its downstream industries. Though the rupee depreciation brings hope for an increase in exports, more deep-rooted issues such as evolving consumer preferences globally could adversely affect the textiles sector and hence companies providing its raw materials.
Having said that, Archroma tries to stay abreast with international trends as evident from its increase in exports. If it continues to work towards increasing its supply to the global market, it will be less sensitive to movements in the textile sector.

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Archroma Pakistan Limited

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Rs (mn)                                 FY17      FY16     YoY

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Net Sales                             12,243    11,350      8%

Cost of goods sold                     8,378     7,680      9%

Gross Profit                           3,865     3,670      5%

Distribution and Marketing Expenses      841       763     10%

Administrative expenses                  491       326     51%

Other Expenses                           179       186     -4%

Other Income                              21        54    -61%

Finance Cost                             135       128      5%

Profit before Tax                      2,240     2,320     -3%

Tax                                      619       600      3%

Profit after Tax                       1,621     1,720     -6%

EPS (Rs. Per share)                    47.53     50.41     -6%

Gross profit margin                      32%       32%     -2%

Net profit margin                        13%       15%    -13%

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Source: Company accounts

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Pattern of shareholding (as at year ended Sept 2017)

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Shareholders Category                    No of     No of  Percentage

                                         shares   Shares

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Directors, Chief Executive Officer,

and their spouse and minor children.       0           0           0

Associated Companies, undertakings

and related parties                        1  25,588,533          75

NIT and ICP                                1         700           0

Banks Development Financial Institutions,

Non Banking Financial Institutions.        4     253,875        0.74

Insurance Companies                        8   1,073,507        3.15

Modarabas and Mutual Funds                15   2,074,337        6.08

Share holders holding 10%                  1  25,588,533          75

General Public :

a. Local                                1609   4,526,845       13.27

b. Foreign

Others                                    57     600,084        1.76

Total

(excluding: share holders holding 10%)  ,806  34,117,881         100

Shareholders holding 10%

or more voting interest

Archroma Textiles S.a.r.I, Luxemburg       1  25,588,533          75

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