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BMA Capital Management Ltd, 801 Unitower, I.I.Chundrigar Road, Karachi , 74000, PakistanFor further queries, please contact: [email protected] or call UAN: 111-262-111
This memorandum is produced by BMA Capital Management Limited and is only for the use of their clients. While the informationcontained herein is from sources believed reliable, we do not represent that it is accurate or complete and should not be relied upon assuch. Opinions expressed may be revised at any time. This memorandum is for information only and is not an offer to buy or sell, orsolicitation of any offer to buy or sell the securities mentioned.
Equity Research Pakistan
Thursday, February 09, 2012
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In FocusChemicals
Marketweight
Stock StatisticsTicker ICI
Mkt Cap USD mn 229
12M ADT mn shares 0.2
Shares Outstanding mn 139
Stock Performance
1M 3M 12M
Absolute % 14% 11% 10%
Relative to KSE % 4% 9% 11%
ICIPakistan: The Upcoming Deal ICI Pakistan conducted an extra ordinary annual general body meeting
(EOGM) yesterday to approve scheme of arrangement for the demerger
The management of ICI Pakistan has decided to restructure the company
into two separate entities i.e. ICI Pakistan (consisting of non-paint
businesses) and Akzo Nobel Pakistan (Paint business)
Post restructuring Akzo Nobel will divest its 75% holding in ICI Pakistan to
prospective buyers.
Management clarified that the abrupt jump of approx. PKR3.7bn in assets of
paint business during 2010 was due to segregation of accumulated cash to
the respective businesses
Discussing future prospects of existing ICI businesses, the management
disclosed that apart from paint business, every other business requires
heavy working capital and capital expenditures going forward
With details of split issues recently disclosed we are in the process of
reviewing our financial models of ICI Pakistan to incorporate post demerger
scenario
ICI Pakistan, soon to be demerged into two entities (ICI Pakistan and Akzonobel
Pakistan) conducted an extra ordinary annual general body meeting (EOGM)
yesterday to approve scheme of arrangement for the demerger. However this
arrangement is subject to approval of Sindh High Court.
Akzo Nobel, the parent company of ICI Pakistan (75% stake) has in principle decidedto streamline its Pakistan business portfolio inline with its global business portfolio. For
this purpose the management of ICI Pakistan has decided to reconstitute the company
into two separate entities i.e. ICI Pakistan (consisting of non-paint businesses) and
Akzo Nobel Pakistan (Paint business). Post demerger, Akzo Nobel will divest its 75%
holding in ICI Pakistan to prospective buyers.
According to the scheme, the share capital, capital and revenue reserves, un-
appropriated profits and losses are to be split between the non-paints and paints
businesses on the basis of split ratio of 66.5:33.5 respectively, taking net asset method
as primary valuation technique. Resultantly, the existing share holders of ICI Pakistan
will get approx. 66% of ICI Pakistan (ex-paint business) and approx. 34% of newly
created Akzonobel Pakistan.
EOGM:Highlighted takeaways
The management disclosed that after approval by shareholders, the demergermay take up to three months as this scheme requires approval by Sindh High
Court.
Responding to a question, the management informed the shareholders that netasset valuation technique is used after considering tax treatments for post
demerger ICI businesses. Moreover, management clarified that the abrupt jump of
approx. PKR3.7bn in assets of paint business during 2010 was due to segregation
of accumulated cash to the respective businesses.
ICI - UR
Current Price: PKR 147
Furqan [email protected]
Price and Volume Graph
ICI vs KSE100 Relative Index Chart
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BMA Capital Management Ltd, 801 Unitower, I.I.Chundrigar Road, Karachi , 74000, PakistanFor further queries, please contact: [email protected] or call UAN: 111-262-111
This memorandum is produced by BMA Capital Management Limited and is only for the use of their clients. While the informationcontained herein is from sources believed reliable, we do not represent that it is accurate or complete and should not be relied upon assuch. Opinions expressed may be revised at any time. This memorandum is for information only and is not an offer to buy or sell, orsolicitation of any offer to buy or sell the securities mentioned.
Equity Research Pakistan
Thursday, February 09, 2012
2
In FocusChemicals
Marketweight
Discussing future prospects of existing ICI businesses, the management disclosedthat apart from paint business, every other SBUs requires heavy working capitaland capital expenditures for expansion going forward.
ICI Pakistan or Akzonobel Pakistan:Where does value exists?
ICI Pakistan post demerger
Post demerger, ICI would be left with four major businesses including Polyester, Soda
Ash, Life Sciences and Chemicals which during last 5 years have contributed 65%-
96% in cumulative operating profitability of ICI Pakistan. With earning capacities of
these businesses remaining strong (better margins in PSF and growing life sciences)
we believe operating margins of these segments post demerger would continue to stay
healthy.Profit contribution by paints and non-paints businesses
Source: Company Reports, BMA Research
Having said that, these businesses would continue to require handsome working
capital along with extensive capital expenditures (especially for Soda Ash and life
sciences business) hence it would be difficult for ICI to stay loan free. Thus, despite
better ability to post higher profits, these businesses would remain cash hungry for
future growth.
Akzonobel Pakis tan
Despite being the lowest profit contributor in current ICIs cumulative profits, handsome
free cash of PKR3.7bn (PKR80/sh post demerger) with hardly any requirements forcapital expenditure, Akzo would reap benefits from stable other income. Thus, we
believe operating margins under paint business would continue to remain low
compared to other businesses. However, major support from other income and
absence of finance costs would stand as the major earning contributors.
ICI Pakistan:Under review
The demerger of paint business has raised many questions amongst investors as to
what value should be associated to each business with their standalone earnings
capacities and payouts. However with details of split issues recently disclosed we are
in the process of reviewing our financial models of ICI Pakistan to incorporate post
demerger scenario. We will soon update our investors with our revised valuations and
profitability of the demerged entities.
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500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
2006 2007 2008 2009 2010
PKRmn
Paints Non-Paints Total
