Nimir Industries Chemicals Limited (PSX: NICL) manufactures and sells industrial chemical products in Pakistan. It operates in the oleo chemicals and chlor alkali industry, producing satiric acid, soap noddles, and glycerin as well as caustic soda, sodium hypochlorite and, hydrochloric acid.
It is a subsidiary of Nimir Resouces (Pvt.) limited which holds 56.7 percent of its total shares. Nimir Holdings (Private) Limited, Nimir Management (Private) Limited, and Nimir Resins Limited (formerly Descon Chemicals Limited) are its subsidiaries. Nimir Resins was bought in 2016.
Industry overview The chlor alkali business in engaged in the production of liquid chlorine, hydrochloric acid, sodium hypochlorite and bleaching. Caustic soda is the main product of this sector. It is used widely in the textile industry for dyeing and mercerizing but also in the soap and detergent manufacturing process.
Rock salt or common salt, which is abundantly available in the country, is the main raw material used in the production of caustic soda. The caustic soda industry is oligopolistic with Sitara Chemicals, Ittehad Chemicals and Engro Polymer being the major players.
Oleo chemicals are chemicals derives from plant and animal fats, which include plant-based lauric oils such as palm oil. Thus fluctuations in currency exchange rate and international palm oil prices impact cost of production of oleo chemicals. These chemicals are used predominantly in the production of laundry detergent, and personal care items such as tooth paste and soap bars.
Financial history NICL has an overall rising trend in sales. In FY08 sales increased by 58 percent due to the commissioning of new soap noddle plant which increased gross profit by 8 times and pulled up the company from red.
The company completed its expansion plans of soap noodles plant in FY09 which increased capacity from 6,000 tons per annum to 12,000 tons per annum. Though sales continue to grow, NICL experienced losses as international prices of palm oil products crashed down by almost 70 percent and the currency devalued as well. This resulted in unprecedented losses on inventories and led to a loss of Rs 147 million.
Improvements in international prices of NICL's products helped sales, which increased by 26 percent, in FY10. While the company turned from losses into profits, the floods of 2010 and energy crisis deteriorated the business environment and adversely affected the business.
FY11 was an interesting year in NICL's history. Its shareholding structure changes as the senior management bought the majority shareholding from Knightsbridge Chemicals Limited. The remission of parent company loss of over Rs700 million resulted in an anomaly where the net profit was higher than the gross profit.
Sales and gross profit continued to rise in FY12 and FY13. FY14 saw double digit growth of top and bottom line along with completion of fatty acid and soap noodles plant. The company also installed toilet soap finishing facility and acquired a coal-fired boiler to reduce dependency on natural gas.
FY15 saw a further expansion of oleo chemicals plant and commissioning of a new soap finishing facility which allowed the company to offer a complete solution from noodles to finished soap bar. This led to a positive impact on sales and net profit which increased by 37 percent and a whopping 99 percent in FY16. NICL also worked towards becoming self-reliant in energy and commissioned two more solid fuel based heating systems. Furthermore, NICL bought Nimir Resin Limited.
While sales continued its strong upward growth trajectory with a 47 percent increase in FY17, increase in PAT was limited to 7 percent. Sales were led by higher volume as well as improved international prices which helped the company earn gross profit of $1.1 billion. Furthermore, accumulated tax losses were exhausted and NICL came into normal corporate tax regime which resulted in higher taxation.
The company is focusing on technological up-gradation and capacity enhances to increase benefit from plant efficiency and economies of scale. The aim is to reduce operating costs and improve product quality and make it at par with international standards.
9MFY18 NICL has posted strong sales and profit numbers so far this year with top line growing nearly by 60 percent and PAT growing by almost 40 percent. However, its gross profit margin and net profit margins declined.
Sales was driven by higher volume which was achieved through up-gradation on the plant that has been completed in the last quarter. This has allowed the company to benefit from economies of scale equivalent to international levels. Higher sales numbers converted to higher gross profit and net profit numbers.
Gross profit margin declined to higher cost of sales. While distribution costs, administrative expenses and other expenses declined as a percentage of sales, higher exchange loss due to currency devaluation led to a lower net profit margin.
Future outlook Nimir's production capacity has increased in recent years. Its capacity utilization, which declined somewhat in 2015 due to energy crisis, has increased since then. Investments in various alternate fuel-based energy solutions have allowed it to become self-reliant in its energy requirement which drove the increased capacity utilization.
Its future outlook seems promising with increase in plant capacity leading to increase in sales. Self-sufficiency in energy allows it to become insulated and not be significantly impacted by energy supply issues. Its efforts in up-gradation of technology and plant expansion and allowed it to benefit from economies of scale.
Since oleo chemicals and chlor-alkali chemicals are used for a wide range of products, its demand is not likely to see a downturn. The challenges it is most likely to face are economic downturn and currency devaluation.
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Pattern of shareholding (as at June 30, 2017)
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No. of share %
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Directors, Chief Executive Officers, and their
spouse and minor children 12,888,795 11.7%
Associated Companies, undertakings and
related parties. (Parent Company) 62,670,647 56.7%
NIT and ICP 1,500 0.0%
Banks Development Financial Institutions,
Non Banking Financial Institut 2,300 0.0%
Insurance Companies 22,500 0.0%
Modarabas and Mutual Funds 783,124 0.7%
General Public 0.0%
a. local 32,492,540 29.4%
b. foreign - 0.0%
Joint Stock Companies 1,642,268 1.5%
Foreign Companies 30,600 0.0%
Leasing Companies 24,010 0.0%
Investment Companies 11,762 0.0%
Others 20,500 0.0%
Shareholders holding 5 percent or
more voting interest
Nimir Resouces (Private) Limited 62,670,647 56.7%
Muhammad Yahya Khan 10,500,000 9.5%
Nadeem Nasir 8,824,999 8.0%
Shaheen Nadeem 8,511,750 7.7%
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Nimir Chemicals Industrial Limited
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Rs. mn 9MFY18 9MFY17 YoY%
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Sales Revenue 8,613 5,401 59%
Cost of sales -7,450 -4,615 61%
Gross Profit 1164 786 48%
Distribution costs -102 -87 17%
Administrative expenses -117 -83 41%
Operating profit 945 616 53%
Other expenses -53 -38 39%
Other income 13 31 -58%
Finance costs -147 -91 62%
Foreign exchange loss -49 -6 717%
Profit before taxation 708 511 39%
Taxation -230 -159 45%
Profit after Tax 478 351 36%
Earnings per share (Rs.) 4.32 3.18 36%
gross profit margin 14% 15% (700bps)
net profit margin 5.5% 6.5% (1500 bps)
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