Ittehad Chemicals: With low volumes, share price surges 28.8% in three months

Stock may gain further on the back of company’s expansion plans.

KARACHI:

For a company whose market capitalisation is just over Rs1.7 billion with only 36 million outstanding shares, the stock performance of Ittehad Chemicals (ICL) has been remarkable in many ways.

Its share price has increased 28.8% in the last three months as opposed to the benchmark KSE 100-Share Index that inched up merely 2.9% over the same period.

“While the company’s top line has crossed Rs4 billion, there is still no price discovery in its stock,” AKD Securities CEO Farid Alam told The Express Tribune in an interview on Tuesday.

“Lack of liquidity has so far kept ICL away from the limelight,” he said while commenting on low trading in the stock of one the largest manufacturers of industrial chemicals in Pakistan.

ICL’s average daily volume for the last three months has been only 30,769 shares.



Its stock price hit the upper lock on Tuesday after increasing 4.99% to Rs49.6 a share. Trading volume stood at 515,000, as the company announced its results for fiscal year 2012-13 a day before.

While there was a respectable increase of 6.8% in the company’s net sales, after-tax profit for the year ended June 30, 2013 increased a massive 84.3% to Rs294.6 million. The increase in the bottom line appears to be on the back of more than 40% reduction in financial charges, which dropped to Rs121.8 million over the year.

The company also announced final cash dividend at Re1 per share, or 10% of its face value, which is in addition to an interim dividend already paid at Re0.50 per share.

The board of directors has also recommended that bonus shares be issued in the proportion of 38.8 bonus shares for every 100 shares held for fiscal year 2012-13.

“I expect the price of ICL stock to reach Rs65 a share by June 2014,” Alam said while indicating an upside of 31% by the end of the current fiscal year.

The appreciation in the ICL stock, Alam noted, is expected purely on the back of the company’s expansion plans and better utilisation of installed production capacity.

For example, ICL is going to replace its old caustic soda plant with an efficient ION exchange membrane plant, which will reduce power costs by 30% and result in enhanced profitability.

The utilisation of installed capacity to manufacture caustic soda has already increased from 46.6% in fiscal year 2010-11 to 53.3% in 2011-12. However, ICL is also going to import a caustic soda Flaker plant that will further improve its capacity utilisation.

Moreover, ICL is in the process of importing a coal-fired hot air furnace for its calcium chloride plant in order to cope with gas shortages that restrict plant utilisation. AKD Securities estimates that the shift to coal could increase margins by as much as 50%.

“Many international investors have told me that while they appreciate growth in the services sector, they are particularly interested in Pakistan’s manufacturing sector. They are looking for manufacturing concerns that are expanding their operations... that have visible infrastructure, a facade, so to speak,” Alam noted while explaining the rationale behind his optimistic price estimate for the ICL stock.

Earnings per share of ICL have increased from Rs3.91 in fiscal 2009-10 to Rs8.18 in 2012-13, showing an annualised growth of 27.9% over the last three years.

“Investors like companies that manufacture exportable goods and have sound fundamentals,” he added.

Published in The Express Tribune, September 11^th,  2013.

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