NICL retains "A+" long-term rating from PACRA

July 14, 2024 (MLN): Pakistan Credit Rating Agency Limited (PACRA) has maintained entity ratings of NIMIR Industrial Chemicals Limited (PSX: NICL) at "A+" for long term and "A1" for short term with a stable outlook forecast, latest press release issued by PACRA showed.

NICL specializes in the manufacturing and sales of oleo chemicals and chlor alkali products which includes Soap Noodle, Stearic acid, Glycerin caustic soda, and a variety of industrial chemicals.

In addition to this the company also provides toll manufacturing services for the production of Toilet Soaps, Aerosol, Personal Care Products and Home Care Products.

The ratings reflect the firm’s strong presence in the chemical industry driven by a diversified product portfolio that benefits clients, mostly renowned multinational FMCGs.

Currently, the country is grappling with several macroeconomic challenges, including high inflation, rising interest rates, disruptions in global supply chains, and depreciation of the currency.

These factors have collectively eroded consumer buying power and increased economic uncertainty.

Additionally, regional geopolitical tensions have temporarily altered consumer buying preferences.

These factors led to a decrease in volumes related to the oleochemicals and blending segments; however, revenue was supported by price inflation.

During 9MFY24 NICL’s top-line recorded at Rs32.907bn (9MFY23: Rs34.024bn) registering a meager decline of 3.3%.

The company maintained stable gross and operating margins through several cost-efficiency initiatives, such as commissioning a 20MW power plant, production and sale of Chlorinated Paraffin Wax (import substitution), and expansion in Chlor Alkali segment.

Moreover, an effective pricing strategy indexed to dollar rates helped hedge against exchange rate risks associated with raw material imports.

However, net profitability declined mainly due to surge in finance costs. Going Forward, the Company announced the acquisition of production facility situated in Hub Balochistan from Protector & Gamble Pakistan Private Limited (P&G).

This strategic decision is expected to enhance the company's capacity to cater the demand of its customers (MNCs) and its presence in the southern region.

The acquisition is anticipated to generate synergies and create new export opportunities.

The company’s financial risk profile is characterized by moderate coverages, cashflows and working capital cycle.

The capital structure is leveraged, where borrowings comprise a mix of short-term for working capital management and long-term for CAPEX.

The ratings are dependent on sustaining margins and profitability in line with business expansion. Prudent management of working capital and retaining strong coverages are critical.

Successful expansion and translation of the same in revenues is important.

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