Ali Asghar Poonawala, Syed Taha Owais. Jehanzeb Hassan Khan,
Mohammad Ibad Desmukh, Mohib Umrao, Maisam Ali Shams, Minhaj Ahmed
1 Company Overview Formerly a group company of ICI PLC UK which was globally acquired in 2008 by AkzoNobel Lucky holdings acquired shareholding of ICI making it a part of Yunus Group YB group is largest export house and cement manufacturer
Vision: As the partner of choice, we aspire to build our local and international footprint through sustainable growth and by creating value for all our stakeholders. 2 Polyester (48%) Soda Ash (24%) Life Sciences (17%) Chemicals (11%) Primary Sector: Refinery, Natural Gas, Mineral, Agriculture, Farming Secondary Sector uses output from the primary industry to further process for products such as polymers and plastics 3 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 production capacity 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 4 Key Competitors Olympia Chemicals Fibres Polyester Staple Fibre (PSF) manufacturing Plant having a capacity to produce 70,000 tons of PSF per annum. Established Ibrahim Energy Limited, a 31.8 MW power generation plant. The expansion unit of Polyester plant started commercial production thus increasing the PSF production capacity from 70,000 tons per annum to 208,600 tons per annum. 2001 Acquired Allied Bank Limited, one of the five largest commercial banks in Pakistan 5 Ibrahim Group (Fibres)
Primary activities Marketing and Sales Production Research and development 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 6 Ibrahim Fibers - Value Chain Analysis
Support activities Human 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 Manufacturing and marketing of Soda Ash and Sodium Bicarbonate Combined annual revenue of $300 million Customers are glass, paper, soap and detergent manufactures. Exporting to UAE, South Africa, India, Sri Lanka and Bangladesh. 7 Olympia Chemicals (Soda Ash) 8 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 distribution network 40 years experience Exporting to UAE, South Africa
Valuable? Rare? Costly to Imitate? Level of organization Implications Experienced Management Yes No No No Parity Diversified Portfolio of Businesses Yes Yes Yes Yes Sustained Strong Partnerships Yes Yes Yes Yes Sustained Large Capacity Yes Yes Yes No Temporary Ease of Capital Access Yes No No No Parity 9 VRIO Analysis of ICI Pakistan The switch to coal in both the PSF and Soda Ash divisions is set to provide expansions in gross margins and the bottom line due to fuel cost savings as well as improved soda ash plant utilization. Low domestic demand and frequent gas outages resulted in a capacity utilization of 73% in the soda ash division Due to low margins, the plant was not able to operate at full capacity, 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 they have sustained the dividend payout ratio above 50% in the past Strong profitability growth is likely to lead to higher payouts as the management aims to optimize RoE 10 Financial Analysis of ICI Pakistan
11 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 12 STRATEGIC INITIATIVES AND IMPLEMENTATION Three Tiered Strategy Tier 1: Differentiation Strategy Tier 2: Vertical Integration Tier 3: Product Diversification To be the partner of first choice for customers and suppliers, ensuring sustained leadership positions in the markets where we compete, 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 ethical matters Ensure our products deliver maximum value to customers by maintaining dependable supply, consistent quality, and reliability Uphold excellent service levels to foster long-term relationships with 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 to delivering the mission 13 Proposed Mission Statement Even though cost control is essential, ICI should not comprise on its quality Market position would be greatly affected ICI should opt for a differentiation and focus strategy and it should continue to pursue it
14 A. Differentiation Strategy The rising cost of sales as well as the energy crisis presents ICI with the opportunity to form backward linkages. Since the raw materials of both Soda Ash and PSF have been increasing, an opportunity exists to form backward linkages in the manufacture of raw materials for both these products Nishat Mills are primarily a textile goods manufacturer company and Formed a subsidiary called Nishat Power A similar strategy can be applied by ICI, if they truly want to increase their operational efficiency and plant load.
15 B. Vertical Integration 1. DIVERSIFY INTO THE PACKAGING BUSINESS Moderately feasible (cost of acquiring or building a plant from scratch could be high). Cost savings possible through use of Soda Ash and other chemicals produced by ICI Experience is a critical factor in the competitive advantage that Packages Ltd has over other small players in the packaging industry. This could be a major hurdle for ICI. There is a huge market for packaging in Pakistan particularly in the business to business segment with major customers being food etc In the B2C segment the market is dominated by Packages Ltd. which sells the Rose Petal brand. Demand will continue to grow with the dominance of the FMCG sector in the Pakistani economy. Since the major portion of the business will come from B2B, ICIs brand image should not be a major factor in the decision making process. Quality and reliability which go with the ICI brand perception could be advantageous though for customers such as Unilever and Engro. 16 C. Product Diversification 2. DIVERSIFY INTO CONSUMER HEALTHCARE Engage in the business of developing, manufacturing and marketing non-prescription medicines, vitamins and nutritional products. This venture would allow ICI to leverage on its expertise in the pharmaceutical and chemical aspect of its current business 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 17 C. Product Diversification Assumptions 1. 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 on production and marketing of the product to the consumers 3. The growth in the Consumer Health market falls in line with 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. 18 C. Product Diversification Buying 100% of ZIL Limited (formerly Zulfeqar Industries Ltd.) . ZIL Ltd excels in soap manufacturing with an experience of over 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 popular segment. Opal was launched with an innovative concept of multi- packs i.e. four soaps in one pack, giving consumers best value for money. Champion and King Swan in the discounted segment offer value conscious consumers viable options and solutions for everyday laundry wash.
19 Target Acquisition
20 Valuation Metrics ZIL 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 Soda Ash, a major resource for Soap production is a part of ICIs product portfolio. Soda Ash could be used at lower cost and supplied to the 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 by making a complete acquisition of the business 21 Post Acquisition Synergies Thank You 22