A business review of Ittehad Chemicals Limited (ICL)

Ittehad Chemicals Limited (ICL) conducted its analyst briefing session, discussing 1HFY21 result and business outlook. To recall, the company reported earnings of PKR 0.26Mn (EPS: PKR 3.0) in 2QFY21, up 10.3/1.5x YoY/QoQ. This takes the total earnings for 1HYFY21 to clock-in at PKR 0.43Mn (EPS: PKR 5.0). Moreover, the company also announced dividend of PKR 2.0/sh in 2QFY21.

Key takeaways from the briefing are:

The company recorded caustic production of 46.

5Mn tons (↑ 11.3% YoY), whereas sales quantity clocked-in at 41.6Mn tons (↑ 7.5% YoY) in 1HFY21. As a result, sales revenue during the same period jumped up 25% YoY to PKR 5.3Bn.

The total demand for caustic soda stood at 144.7Mn tons in 1HFY21, out of which SCIL held the largest share at 44.3%, followed by ICL and EPCL at 28.8% and 26.9%, respectively.

On the other hand, LABSA contributed 35% to the total sales revenue. The company sells around 1800-2000 tons of LABSA.

Gross margins witnessed an accretion of 9.0 points YoY to stand at 22% in 1HFY21, mainly on account of lower RLNG prices.

As per the company, LABSA unit II with a capacity of 46,000 MT is under construction and is expected to come online in 2HFY22. The expansion is being financed through the TERF facility, where PKR 700Mn have already been availed by the company and further PKR 200Mn are in pipeline.

The company is also planning upgradation of Wartsila Engines. They are also planning to diversify into the salt mining business. The project is still at its initial stages and its feasibility is still being reviewed by the company.

Commenting on the duty structure, the management mentioned that there is around 8000/ton custom duty levied on the import of caustic soda, whereas there is 20% duty imposed on caustic flakes.

On the contrary, there is no custom duty imposed on LAB, which is the major raw material for LABSA, while 6% custom duty is levied on import of LABSA.

The GIDC recovery timeline has already been decided by the Court and the payment timeline is extended to 48 monthly instalments. However, the GIDC levy adjustment issues are still under the Court jurisdiction.

Going forward, the company expects the caustic soda market to continue its momentum, whereas they are also expecting the LABSA market to expand by 10-15% in the coming years. While commenting on the risk, management stated that increasing RLNG prices are a cause of concern going forward.

Report by: BMA Capital Management Ltd.

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