Linde Pakistan Limited dates back its history to 1958, when it was listed at the stock exchange as Pakistan Oxygen Limited. It was renamed as BOC Pakistan in 1995. BOC and Linde AG, Germany merged in 2006 to from the Linde Group, which rebranded BOC Pakistan as Linde Pakistan Limited (LPL) in 2011.
LPL manufactures and distributes industrial, medical gases, and specialty gases, as well as welding products. It also provides a range of related services including installation of on-site plants, gas equipment, pipelines and associated engineering services.
Industry overview: In 2014, the global industrial gases market was valued at approximate $45 billion and expected to grow at CAGR of 6 percent from 2015 to 2020. The industry is categorised by a few big players dominating; globally 8 companies account for 80 percent of the market share of which Linde AG is one.
This is because industrial gases are characterised by lower operating margins, which forces companies to resort to volumetric expansion. Multiple industries utilise gases as raw materials for various manufacturing processes.
Industrial gases market in Pakistan can be divided into two basic regions: north-west and south region. Major players in the north-west region include LPL, Ghani Gases and Sharif Oxygen (Pvt.) Limited, while the southern region is dominated by LPL, Ghani Gases and Agha Steel Ltd.
Moreover, the industry also has a significant informal sector that caters to local demand. Excluding the informal sector, total market size of north-west region is around 218 tonnes per day (TPD), while that of the south region is approximately 167 TPD. Linde Pakistan is the biggest player in the market.
Operational performance: Linde Pak has been investing in productivity initiatives to improve manufacturing efficiencies and reducing operational costs. However, operating expenses increased in the latest financial results and capacity utilisation remained near its average of 60 percent.
For gases, production is demand driven, which affects capacity utilisation. Moreover, load shedding of electricity and non availability of natural gas also contributed towards reduced utilisation of plants.
1HYCY17: Linde Pakistan has seen healthy growth with the top line and gross profit both increasing by 6 percent. While all of its business segments grew, the increase in turnover was primarily driven by power and infrastructure related projects, hospital business and Gaddani's ship breaking sector.
Double digit growth in the bottom line and EPS was a result of overall robust performance with increased turnover and controlled costs. Industrial, medical and other gases remain the main source of sales and profits, which increased by 20 percent. Turnover of welding and other hard products increased by 7 percent whereas its profits increased by 4 percent.
This was despite price erosion due to excess capacity as air separation plants of other companies became operational in the last few years. Growth in top line and bottom line was in part because of the industrial sector posting a healthy growth rate of 6.8 percent in FY16, which was higher than the growth rate of 4.8 percent in FY15.
Shareholding pattern: The majority shareholder, the BOC Group Limited, is looking to sell all its holding. For this purpose, it has signed a Share Purchase Agreement with (i) Adira Capital Holdings (Pvt.) Limited, (ii) Hilton Pharma (Pvt.) Limited, (iii) Soorty Enterprises (Pvt.) Limited, (iv) Al-Karam Textile Mills (Pvt.) Limited, (v) Mr. Siraj Dadabhoy, and (vi) Mr. Fawad Anwar. The price per share has been set at EUR 2.53. The sale is awaiting regulatory approvals to go through.
The alleged reason behind the divestment is that the Linde Group is globally refining its operating model and divestment of some of its portfolio is part of this process.
Future outlook Logistics and distribution sector is the largest consumer of the gases produced by LPL, followed by the healthcare sector. Chemical sector and ship-breaking industry also account for sizeable proportion of overall consumption.
Linde Pakistan's business gets affected by incidents such as the fire that broke out in the Gaddani ship breaking yard earlier this year. Similarly, in 2016, a series of explosions occurred. Fire and other accidents are common at Gaddani and they have the potential to adversely affect Linde's business that supplies to ship breaking and steel segments.
Among other challenges is the surplus of capacity in the market overall, and in the CO2 business in particular. This has put downward pressure on prices. Furthermore, hard good segment's sales continued to remain under pressure due to imposition of regulatory duty on raw and finished imported materials. This has encouraged smuggling and increased availability of cheaper product in the market, thus increasing competition.
Despite these challenges, the future outlook for Linde Pakistan remains positive. As per industry estimates, demand for these gases is expected to grow at a CAGR of 5 to 6 percent in Pakistan. CPEC in particular is expected to increase demand. On-going projects resulted in construction activity to grow by 13.1 percent in FY16 and this trend is expected to continue.
Going forward, economic improvement largely under the umbrella of infrastructure and power projects will have positive impact on LPL. The government intends to construct medium sized hospitals in industrial and economic zones in the coming years. This will create more opportunities for the healthcare business as well. On the whole, LPL's outlook remains positive.
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Condensed Interim profit and loss account
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Rs(000) 1HCY17 1HCY16 YoY
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Net Sales 2,119,979 1,994,392 6.3%
Cost of sales (1,649,330) (1,551,977) 6.3%
Gross Profit 470,649 442,415 6.4%
Distribution and marketing expenses (124,879) (129,294) -3.4%
Administrative expenses (117,369) (117,662) -0.2%
Other operating expenses (28,797) (13,418) 114.6%
Operating profit before other income 199,604 182,041 9.6%
Other income 10,265 5,259 95.2%
Operating profit 209,869 187,300 12.0%
Finance cost (50,864) (54,951) -7.4%
Profit before taxation 159,005 132,349 20.1%
Taxation (36,437) (33,299) 9.4%
Profit for the period 122,568 99,050 23.7%
Earnings per share - basic and diluted (Rs) 4.9 3.96 24.0%
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Source: Company accounts
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Pattern of shareholding
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Shares held %
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Associated Companies, Undertakings and related parties
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The BOC Group Limited and its 4 nominees 15,023,232 60
Directors and their spouse(s) and minor children 70 0
Mr Humayun Bashir 50
Mr Shahid Hafiz Kardar 50
Executives 74 0
Public sector companies and corporations 1,676,319 6.69
Banks, development finance institutions, non-banking finance
companies, insurance companies, takaful, modarabas and pension funds 516,028 2.06
Mutual Funds CDC - Trustee MCB Pakistan Stock Market Fund 39,900 0.16
CDC - Trustee Pakistan Capital Market Fund 3,000 0.01
CDC - Trustee Pak. Int. Element Islamic Asset Allocation Fund 34,000 0.14
CDC -Trustee National Investment (UNIT) Trust 961,841 3.84
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General Public
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a. Local 4,823,008 19.26
b. Foreign 1 0
Foreign Companies 1,641,543 6.56
Others 319,674 1.28
Total 25,038,720 100
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