Nimir Resins Limited

Nimir Resins Limited (PSX: NRSL) was established in 1964 as a private limited company under the Companies Act, 1913 (now Companies Act, 2017). It was converted into a public limited company in 1991. The company’s name was changed to Descon Chemicals Limited in 2010 when it entered into a merger/amalgamation agreement with Descon Chemicals (Private) Limited. The name was changed yet again, to Nimir Resins Limited in 2016 when there was a change of management within the company.

The company’s current status is that it is a subsidiary of Nimir Management (Private) Limited and its parent company is Nimir Industrial Chemicals Limited.

Their five business lines are textile auxiliaries and binders, unsaturated polyester resins, coatings and emulsions, pulp and paper chemicals, adhesives and graphics, and lastly trading and exports.

Shareholding pattern

A significant majority of shares of the company are owned by the associated companies, undertakings and related parties- at 67 percent. Of this, a considerable 51 percent is held by Nimir Management (Private) Limited. The local general public holds about 26 percent while the directors, CEO, their spouses and children own close to 5 percent. Prior to the change in management in 2015, the directors, CEO, their spouses and minor children held the majority of the shares, at about 77 percent.

Historical operational performance

Nimir Resins’ topline has been fluctuating through the years. It began to improve consistently since FY17. Profit margins have also exhibited a similar trend, except for net profit margin which remained more or less flat since spiking post FY15.

During FY15, Nimir Resins faced several challenges both from the external macroeconomic environment and industry specific factors. The company’s topline reduced by almost 18 percent; this was due to a fall in sales volumes by roughly the same percentage. Cost of sales took up more than 91 percent of the revenue leaving little room to absorb other operating costs. Although other income nearly doubled, it could not lift profits.

In FY16, the management of Nimir Resins changed, which brought about positive changes in the financials of the company. The new management took over in the second half of the year which meant that the first half was marked by similar trends, and the turnaround occurred in the second of the year. The topline declined marginally by a little over 1 percent. Costs consumed 87 percent of the revenue as opposed to 91 percent in the previous year. Of this a major decline was seen in raw materials consumed, fuel and power and transportation. This allowed gross margins to improve significantly. Distribution and finance costs also reduced during the year, which eventually resulted in a positive bottomline figure.

Topline grew exorbitantly in FY17- at a little over 50 percent. This was due to better sales volumes combined with favourable international prices. Despite the rise in sales figure, the distribution costs remained the same while administrative costs reduced, depicting the improvement in management. Cost of sales consumed a higher percentage of revenue than the preceding year causing gross margins to reduce; however, the curtailment in costs in other areas allowed operating margins to improve. During the year, the company entered in the corporate tax regime which slightly affected net margins. In absolute terms though, bottomline figure increased.

Nimir Resins grew its topline by a significant 34 percent in FY18; however, it was accompanied by a corresponding rise in costs as well causing gross margins to decline further. Higher sales were achieved through better volumes, while a major contribution to costs was made by a higher amount for raw material purchases. There were notable changes in other elements of the financials; however, as a percentage of sales, they were negligible. Net margin improved slightly due to the company claiming minimum tax concerning previous years. Nimir Resins issued rights share in FY17, which was successfully completed in FY18.

Topline grew for the third time consecutively in FY19 by 36 percent on the back of higher volumes and prices. Costs, as a percentage of revenue, reduced only marginally. While most other factors remained more or less similar, finance cost increased considerably due to short term borrowings. According to the company’s annual report, most of the benefit of positive profit figures was tied with the government in terms of further advance tax. In addition, the government gave a refund of Rs108 million, but it was in terms of Bonds which are tradable on the stock exchange. The company was unable to take advantage of this immediately to improve its cash flow.

Half yearly results and future outlook

Despite the challenging economic times, Nimir Resins was able to remain afloat in 1HFY20 due to its diversified product portfolio. It managed to increase its topline by 18 percent year on year while volumetrically it only increased by 1 percent. Costs also consumed a lower percentage of topline allowing gross profit to improve. Despite higher finance costs and taxation, the higher topline allowed room for margins to grow.

The industry has been marred by the unorganised sector. The latter is naturally not subject to as many regulatory requirements as a registered company is. Thus Nimir Resins, along with other companies in this sector face the most competition from the unorganised sector. Moreover, a recent trend in this sector has also been that a lot of the users are developing their own resins. With a change in government and hence policies such as currency devaluation and high interest rates, the company foresees tough times ahead in terms of business activity. It also hopes that improvement in security and CPEC investments will restore business confidence and bring the much needed boost in economic activity.