Corporate results: Lotte Pakistan baffles market by posting loss

Analysts expected the PTA manufacturer to generate profit.

KARACHI:

Lotte Pakistan reported a loss during January to July 2012 despite market consensus estimating the company to post a profit.

Lotte reported net loss of Rs294 million in the first six months of 2012 compared with net profit of Rs3.70 billion reported in the same period last year, according to a notice sent to the Karachi Stock Exchange on Tuesday.

The result is much lower than street expectation as a consensus of three research houses expected the bottom-line to stand around Rs250 million.

“The result is below our expectation due to a higher than anticipated impact of currency depreciation,” said Shahjar Research Investment Analyst Raza Hamdani.

Surprised by the result, investors sold the stock and wiped off 4% stock value as the scrip closed at Rs7.11 during trade at the Karachi Stock Exchange on Tuesday.

Lotte Pakistan PTA is a supplier of purified terephthalic acid (PTA), an essential raw material used in the polyester industry. Over 30 per cent of PTA is sold to the Polyethylene Terephthalate (PET) sector while the rest goes to polyester staple fibre and other sectors. PET is used in the plastics industry for the production of bottles and bed sheets.

The overall sluggish performance is primarily attributable to weak PTA-PX margins and secondary by lower other income, said BMA Capital analyst Muhammad Affan Ismail.

Sales declined by 13% to Rs27 billion compared with Rs31 billion recorded last year.

PTA prices dipped to a 22-month low during the period under review owing to concerns emanating from large new manufacturing plants coming online and extremely low prices of substitute cotton, according to a research note issued by BMA Capital.

Finance income of the company decreased by massive 61% to Rs198 million due to lower cash balance, thus further denting the bottomline.

Cash balance of the company was substantially reduced during July to August 2012 owing to repayment to the parent company for a loan and capital expenditure incurred on co-generation power plant. Moreover, 4% deterioration in the rupee against the dollar also dented other income.

The company also announced that commercial operations of its co-generation power project that uses waste heat recovery function.

After incorporating the impact of captive power plant, the valuable cost savings and sale of surplus electricity will provide significant support to the upcoming profits, said Ismail.

Published in The Express Tribune, August 29^th, 2012.

Correction: In an earlier version of the article, the year 2012 was mistakenly written as 2011 at one instance. The error has been rectified.