Linde Pakistan Limited (PSX: LINDE) was incorporated as a private limited company in 1949 and converted into a public limited company in 1958 when it was listed at the stock exchange as Pakistan Oxygen Limited. In 1995, it was renamed as BOC Pakistan. BOC and Linde AG, Germany merged to form the Linde Group in 2006. In 2011, it was re-branded as Linde Pakistan Limited (LPL), which is known as today.
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
The global industrial gases market was valued at approximately $45 billion in 2014. Categorized by a few big players dominating globally, the industry is expected to grow at a CAGR of 6 percent from 2015 to 2020.
Large economies of scale are required for production because industrial gases are characterised by low operating margins. This is the reason why there are only few big players globally. Only about 8 companies account for 80 percent of the market share internationally of which Linde AG is one. Multiple industries utilize gases as raw materials for various manufacturing processes.
In Pakistan this industry can be divided into two regions: north-west and south. LPL and Ghani Gases are dominant in both regions while Sharif Oxygen is a big player in the north-west and Agha Steel is important in the south.
Other than the formal sector, there is also a significant informal sector that caters to local demand. Excluding the informal sector, total market size of north-west region is around 218 tons per day (TPD) while that of the south region is approximately 167 TPD. Linde Pakistan is the biggest player in the market.
Performance in 3QCY17
Growth in all the business segments for LPL led to significant top line growth in the results posted for 3QCY17, allowing it to continue on its positive upward trajectory. Industrial, medical and other gases, that made up for more than 80 percent of the business, increased by 15 percent on a year-on-year basis, whereas welding and others rose by 61 percent.
This came somewhat as a surprise since surplus capacity in the market had put downward pressure on prices. Continuing past trends, increase in sales to different sectors such as the sugar industry, projects related to medical engineering, power and infrastructure, as well as Gaddani's ship breaking sector helped to drive revenue growth.
Linde Pak has been focusing on curtailing its overheads, which translated into a higher net profit margin and drove the high double digit growth in net profit.
Shareholding pattern
Since the shareholding pattern of 2017, there have been some major changes. The majority shareholder, the BOC Group Limited, has sold part of it its holdings. 5,007,744 ordinary shares were bought by Adira Capital Holdings (Pvt) Limited, Hilton Pharma (Pvt) Limited, Soorty Enterprises (Pvt) Limited, Al-Karam Textile Mills (Pvt) Limited, Siraj Dadabhoy and Fawad Anwar. This represents 20 percent of the total issued ordinary share capital. Soorty Enterprises (Pvt) Limited bought an additional 3,004,647 shares, which represents approximately 12 percent of the company's paid up share capital.
With the share transfer, there is a change in upper management with a new CEO, CFO and members in the Board of directors.
Future outlook
The biggest consumers of industrial gases are the logistics and distribution sectors followed by the health care sector. The ship-breaking industry and the chemical sector also account for a sizeable chunk of LPL's production of gases.
Overall LPL's future outlook is positive with the management rightly expected continuation of present positive trends. As per industry estimates, demand for these gases are expected to grow at a rate of 5 to 6 percent in Pakistan with CPEC in particular being a driver of growth.
There are some challenges faced by LPL. These include incidents such as the fire that broke out in Gaddani's shipping breaking year in 2017 and the series of explosions that occurred there in 2016. Since fire and other accidents are common at Gaddani, they have the potential to adversely affect Linde's business.
Furthermore, surplus capacity in market overall, and the CO2 business in particular, may affect its top line though its affects have not been felt as yet. Another issue is that the hard good segment's sales are under pressure due to imposition of RD on raw and finished import material. This has encouraged smuggling, and the increased availability of cheaper products increase LPL's competition.
However, going forward these challenges are smaller than the opportunities available. Economic improvement under the umbrella of infrastructure and power projects will have positive impact on LPL. Furthermore, the government's intention to construct hospitals in industrial and economic zones will create more opportunities in the health care business as well.
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Linde Pakistan Limited
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Rs (mn) 3QCY17 3QCY16 YoY
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Net Sales 1,165 956 22%
Cost of sales -893 -735 21%
Gross Profit 272 220 24%
Distribution and marketing expenses -70 -65 8%
Administrative expenses -64 -59 8%
Other operating expenses -17 -7 143%
Operating profit before other income 121 89 36%
Other income 10 7 43%
Operating profit 131 96 36%
Finance cost -23 -28 -18%
Profit before taxation 109 68 60%
Taxation -33 -20 65%
Profit for the period 76 48 58%
Earnings per share 3.01 1.91 5800bps
Gross profit margin 23% 23% 100bps
Net profit margin 7% 5% 3000bps
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Source: Company accounts
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Pattern of shareholding (as at 31 Dec, 2016) 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** 100 0.00
Executives 74
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 1,038,741 4.15
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General Public
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a. Local 4,823,008 19.26
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b. Foreign 1
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Foreign Companies 1,641,543 6.56
Others 319,674 1.28
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Total 25,038,720 100
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Shareholders holding 5% or more voting interest
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The BOC Group Limited and its 4 nominees* 15,023,232 60
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State Life Insurance Corporation of Pakistan 1,392,791 5.56
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