By: BMA Capital Management Limited
In yesterday’s corporate briefing held by the management of ICI Pakistan Limited, the company highlighted the key developments and outlook relating to the various business segments of the company. In this regard, the company re‐iterated its stance of diversifying into new business while adding efficiencies to the existing ones. ICI, eyeing immense growth potential in consumer segment, intends to increase its exposure in infant milk business by investing a further PKR240mn (10%) in NurtiCo. to take their total stake in the company to 40%. The management also pointed out towards a major development pertaining to the Polyester business where the National tariff Commission (NTC) has finally imposed a provisional anti‐dumping duty on PSF imports from China in the range of 6.4%‐14.9%. As per our calculations, the said development translates into an impact of ~PKR668mn (PKR7.3/sh), at 7% duty assumption, on the bottomline of the company. Given steady margins and optimistic growth outlook, ICI is in process to increase its presence in the soda ash segment with the new 84KT and 14KT capacities in dense soda ash and Sodium bicarbonate, respectively. While the previously announced 150KT expansion in the light soda ash capacity at a cost of PKR9.4bn is expected to commission in FY18. At our target price of PKR699/sh, the stock is offering a total return of 44% (41% capital gain + 3% dividend yield) – ‘BUY’
Coal based power; adding efficiencies to the business: As part of the company’s strategy to shift its fuel mix from conventional energy sources to coal, the power requirement of polyester segment is completely catered by coal based power generation. However, soda ash is currently meeting ~50% of its energy needs through coal since CFB 3 & 4 will come online by end FY16, making the segment completely reliant on coal as well.