Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
ICI: Stiff task ahead - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Mar 11, 2002

    ICI: Stiff task ahead

    Slowdown in the economy and increased competition, both from domestic majors as well as multinational majors, have forced companies to restructure themselves in order to become competitive on a global scale. Though it remains to be seen whether they emerge competitive or not, an attempt is being made across the spectrum. ICI India is one amongst them. The decade long restructuring exercise finally gained pace in the current fiscal. The company aims at restructuring its business in line with its parent company.

    (Rs m) 3QFY01 3QFY02 Change
    Net sales 1,966 1,724 -12.3%
    Other Income 11 22 101.9%
    Expenditure 1,792 1,514 -15.5%
    Operating Profit (EBDIT) 174 211 21.0%
    Operating Profit Margin (%) 8.9% 12.2%  
    Interest 7 8 26.2%
    Depreciation 59 56 -4.9%
    Profit before Tax 119 168 40.9%
    Extraordinary items (9) (16) 76.7%
    Tax 34 49 45.2%
    Profit after Tax/(Loss) 76 103 34.8%
    Net profit margin (%) 3.9% 6.0%  
    No. of Shares (m) 40.9 40.9  
    Diluted Earnings per share* 7.5 10.1  
    P/E Ratio (x)   6.8  

    The restructuring exercise has already started to show positive results. The company reported a 35% rise in net profits for the third quarter ended December 31, 2001. Though sales fell sharply by 12%, it is primarily on account of exit from identified non-core businesses. The company sold its polyurethanes and industrial paints businesses in April 2001 and May 2001 respectively (earlier in FY01, ICI exited from explosives business). The polyurethane division contributed to 13% of turnover of the company in FY01.

    However, it is one of the market leaders in the Indian paint segment and has been gradually increasing its presence in the decorative segment across the country. Also, its industrial specialties sales has grown 20% over previous year on the back of strong growth in agricultural surfactants, spin finishes, polymer additives and adhesives. But turnover declined by 5% for industrial paints division on account of slowdown in the economy. The rubber chemicals business of the company, notably, has been affected on account of subdued tyre demand. The rubber chemicals business contributed to 13% of FY01 sales.

    Besides, ICI has decided to sell its pharmaceutical business to Nicholas Piramal India for a consideration of Rs 700 m (including working capital). Consequently, Nicholas would take over the manufacturing facility at Chennai and ICI's employee strength would reduce by around 360. This will go a long way in reducing its debt (Rs 357 in FY01) and working capital requirements.

    On one hand, the company is exiting from unprofitable business. On the other, it has been consolidating its presence in its core businesses. ICI acquired Hindustan Lever's catalyst and adhesives businesses for Rs 210 m and Rs 90 m in Dec 2001.

    Going forward, the company's strategies on the paints front are encouraging. This is one segment, which is expected to grow at a CAGR of 12% over the next five years. While it is consolidating its presence in the chemicals business front, it still has a long way to go. The company has a very low operating margin when compared with its peers and it has to perk up its act to be competitive. With peak customs duty being lowered in the recent budget, imports could pose serious threat to domestic players. While we expect the operating margins to improve gradually, net profit is expected to grow at a slower rate.

    The stock currently trades at Rs 69, implying a P/E multiple of 6.8x annualised nine months earnings. Though market capitalisation to sales of ICI is just 0.3 times, the diversified nature of the company has been affecting its valuations.



    Equitymaster requests your view! Post a comment on "ICI: Stiff task ahead". Click here!


    More Views on News

    Asian Paints: Destocking Ahead of GST Impair Sales Volumes (Quarterly Results Update - Detailed)

    Aug 17, 2017

    Asian Paints registers 20.1% YoY decline in profits during 1QFY18 with low single-digit volume growth in the decorative paints segment.

    Asian Paints: Good Performance Across Segments (Quarterly Results Update - Detailed)

    May 18, 2017

    Asian Paints registers 10.4% YoY growth in profits during 4QFY17 with double-digit volume growth in the decorative segment.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 18, 2017 (Close)


    • Track your investment in AKZO NOBEL with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
    • Add To MyStocks


    Compare Company With Charts