ici slides
TRANSCRIPT
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Company Overview
Formerly a group company of ICI PLC UK which was globallyacquired in 2008 by AkzoNobel
Lucky holdings acquired shareholding of ICI making it a partof Yunus Group
YB group is largest export house and cement manufacturer
Vision:As the partner of choice, we aspire to build our localand international footprint through sustainable growth andby creating value for all our stakeholders.
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Polyester (48%) Soda Ash (24%) Life Sciences (17%) Chemicals (11%)
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Primary Sector: Refinery, Natural Gas, Mineral, Agriculture,Farming
Secondary Sector uses output from the primary industry tofurther process for products such as polymersand plastics
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Industry Overview
Soda Ash
2 Plants in Khewra Mine Region
43% consumed in Glass Silicate
production, 28% in Textile, 7% in
Soaps, 11% for Paper
Pakistans current productioncapacity is 470,000 MTPY while
demand is 364,000, surplus can be
exported to foreign markets
Polyester Fiber (PSF)
5 major producers with total
capacity of 636,000 tons per annum
Major players are ICI, Rupali,
Pakistan Synthetics and Ibrahim
Fibers Extensive load shedding of power
and limited gas supply resulted in
lower demand for PSF
Dumping from China
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Key Competitors
Olympia Chemicals
Fibres
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Polyester Staple Fibre (PSF) manufacturing Plant having acapacity to produce 70,000 tons of PSF per annum.
Established Ibrahim Energy Limited, a 31.8 MW powergeneration plant.
The expansion unit of Polyester plant started commercialproduction thus increasing the PSF production capacity from70,000 tons per annum to 208,600 tons per annum.2001
Acquired Allied Bank Limited, one of the five largestcommercial banks in Pakistan
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Ibrahim Group (Fibres)
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Primary activitiesMarketing and Sales Production Research anddevelopment Distribution Regular market
visits
Maintaining close
contacts with the
customers
Product
knowledge and
technical
knowledge
Market Research
Polyester fiber Professional
Staff Trained staff Proper
transport
channel On time
delivery
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Ibrahim Fibers - Value Chain Analysis
Support activitiesHuman Resource
Management General
Administration Technology
Performance and
Compensation
Management, Recruitment,
Training and Selection
General management,
accounting, safety and
maintenance
Computer system,
internet, updated
machinery and plants
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Porters Competitor Analysis
Ibrahim Fibers Olympia Chemicals
Current Strategy Modernization & Expansion Investment in Power
Generations
Export to foreign markets
Growth in capacity
Objectives Sustainable Growth
Remain Competitive
Become leading Soda Ash
producer
Consistent growth
Assumptions Sufficient future demand No energy issues
Minor Price Fluctuations
Resources &Capabilities
30 years experience
Synergy with textile, bank
and power plant
Strong distributionnetwork
40 years experience
Exporting to UAE, South
Africa
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Valuable? Rare? Costly to
Imitate?
Level of
organization
Implications
Experienced
ManagementYes No No No Parity
Diversified
Portfolio of
Businesses
Yes Yes Yes Yes Sustained
Strong
PartnershipsYes Yes Yes Yes Sustained
Large
Capacity Yes Yes Yes NoTemporary
Ease of
Capital
Access
Yes No No No Parity
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VRIO Analysis of ICI Pakistan
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The switch to coal in both the PSF and Soda Ash divisions is set toprovide expansions in gross margins and the bottom line due tofuel cost savings as well as improved soda ash plant utilization.
Low domestic demand and frequent gas outages resulted in acapacity utilization of 73% in the soda ash division
Due to low margins, the plant was not able to operate at fullcapacity, resulting very low exports
Yunus Brothers Group has strong presence in the textile sector,which will create synergies for ICI
The company has a stable dividend payout history, where theyhave sustained the dividend payout ratio above 50% in the past
Strong profitability growth is likely to lead to higher payouts as themanagement aims to optimize RoE
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Financial Analysis of ICI Pakistan
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SWOT Analysis of ICI Pakistan
STRENGTHS Leading manufacturer of chemicals in
Pakistan
Highly Trained Employees
40 years, strong track record
Extraordinary research Excellent management team
Synergies with Yunus Holdings
WEAKNESSES Prices are too higher than competitors
High switching rates
Barrier perception from Middle Class
Some resources are easy to imitate
OPPORTUNITIES Abundant resources for market
expansion
Potential market for better quality
products
Growing export market demand and
globalization
Exploit synergies with Yunus/Lucky
THREATS Competitors are rapidly expanding
Availability of capital to competitors
Government policies
Political Instability
Economic Crisis
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STRATEGIC INITIATIVES AND IMPLEMENTATIONThree Tiered Strategy
Tier 1: Differentiation Strategy
Tier 2: Vertical Integration
Tier 3: Product Diversification
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Tobe the partner of first choice for customers and suppliers,ensuring sustained leadership positions in the markets where wecompete, delivering long-term business value through a high
performance culture, innovation, ethics and responsible care.
To achieve our mission we will:
Give highest priority to health, safety, environment and ethicalmatters Ensure our products deliver maximum value to customers bymaintaining dependable supply, consistent quality, and reliability Uphold excellent service levels to foster long-term relationshipswith customers and suppliers
Achieve the highest possible operating efficiencies and lowest costs,and expand the business through selective capacity increase and new
product launches Develop and retain a team of highly capable people dedicated todelivering the mission
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Proposed Mission Statement
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Even though cost control is essential, ICI should notcompriseon its quality
Market position would be greatly affected
ICI should opt for a differentiation and focus strategy and itshould continue to pursue it
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A. Differentiation Strategy
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The rising cost of sales as well as the energy crisis presents ICIwith the opportunity to form backward linkages.
Since the raw materials of both Soda Ash and PSF have beenincreasing, an opportunity exists to form backward linkages inthe manufacture of raw materials for both these products
Nishat Mills are primarily a textile goods manufacturercompany and Formed a subsidiary called Nishat Power
A similar strategy can be applied by ICI, if they truly want toincrease their operational efficiency and plant load.
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B. Vertical Integration
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1. DIVERSIFY INTO THE PACKAGING BUSINESS
Moderately feasible (cost of acquiring or building a plant from scratchcould be high).
Cost savings possible through use of Soda Ash and other chemicalsproduced by ICI
Experience is a critical factor in the competitive advantage that PackagesLtd has over other small players in the packaging industry. This could be amajor hurdle for ICI.
There is a huge market for packaging in Pakistan particularly in thebusiness to business segment with major customers being food etc
In the B2C segment the market is dominated by Packages Ltd. which sellsthe Rose Petal brand.
Demand will continue to grow with the dominance of the FMCG sector inthe Pakistani economy.
Since the major portion of the business will come from B2B, ICIs brandimage should not be a major factor in the decision making process.
Quality and reliability which go with the ICI brand perception could beadvantageous though for customers such as Unilever and Engro.
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C. Product Diversification
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2. DIVERSIFY INTO CONSUMER HEALTHCARE
Engage in the business of developing, manufacturing andmarketing non-prescription medicines, vitamins andnutritional products.
This venture would allow ICI to leverage on its expertise in
the pharmaceutical and chemical aspect of its currentbusiness and add a wide range of products to its portfolio,such as:
1. Oral hygiene
2. Multi-vitamins
3. Pain suppressants (analgesics)4. Skincare
5. Nutritional drinks
6. Anti-bacterial soaps
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C. Product Diversification
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Assumptions1. The idea of expanding into the B2C market, is in line with
the ICIs vision of Cultivating Growth.
2. ICI is willing to form a team, where the focus would be onproduction and marketing of the product to the consumers
3. The growth in the Consumer Health market falls in linewith the said forecasts
Risks
1. Consumers still perceive ICI as a paints manufacturer.
Changing this perception is going to take a lot of effort.2. Internal and external marketing will require a lot of
investment.
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C. Product Diversification
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Buying 100% of ZIL Limited (formerly Zulfeqar IndustriesLtd.) .
ZIL Ltd excels in soap manufacturing with an experience ofover 50 years.
Capris Natural Skincare and Wellness Range delivers a
lifestyle to consumers in the premium segment. Palmy is positioned on the affordable beauty platform and
gives consumers the best quality product in the popularsegment.
Opal was launched with an innovative concept of multi-
packs i.e. four soaps in one pack, giving consumers bestvalue for money.
Champion and King Swan in the discounted segment offervalue conscious consumers viable options and solutions foreveryday laundry wash.
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Target Acquisition
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Valuation MetricsZIL Limited Sector (Peers)
Average EPS Rs 7.36 Rs 4.85
EPS Rs -4.61 Rs 10.87
Dividend (last 4 quarters) Rs 4.50 Rs 2.24
Dividend Yield 2.32%
Book Value Rs 77.20 Rs 147.08
Outstanding Shares 5,324,000 -
Net Current Asset Value /
Share
Rs 5.45 -
Total Assets Rs 1,006.00 (In Millions) -
P/E 107.51 52.35
Current Price Rs 95.10 -
DCF Value (based on EPS) Rs -37.66 -
DCF (Free Cash Flow) Rs -78.26 -
DCF Value (Dividends) Rs 36.76 Rs 0.97
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Soda Ash, a major resource for Soap production is apart of ICIs product portfolio.
Soda Ash could be used at lower cost and supplied tothe newly acquired factory which is located in
Hyderabad Other chemicals in the ICI Chemicals Business could
also be utilized
ZILs chemical suppliers could be potential business
partners
ICI can avoid paying these synergies to ZIL Limited bymaking a complete acquisition of the business
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Post Acquisition Synergies
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Thank You
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