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Archroma Pakistan expect massive growth amid Huntsman Textile Acquisition

September 22, 2023

Pakistan’s premiere Chemical Company, Archorma Pakistan Ltd (PSX: ARPL) is all set for a Growth Year despite existing economic challenges. ARPL portfolio is skewed towards Textile Effects products. And with Volumetric downturn in Textile segment, ARPL has also been impacted.

To recall the 9M2023 performance, ARPL reported a year-on-year revenue growth of 8% to reach PKR 24.5 billion, which includes a 1% increase in exports to PKR 5.1 billion. However, despite a decrease in raw material prices, the gross margin declined to 36%, marking a 2.8-percentage-point drop from the previous year. This decline was primarily attributed to the significant devaluation of the Pakistani Rupee (PKR). Additionally, finance costs surged by 1.4 times compared to the previous year due to rising interest rates and the discontinuation of lower-rate export refinance schemes. On a positive note, there was a noteworthy 41% year-on-year decrease in taxation. Consequently, the profit after tax (PAT) and earnings per share (EPS) saw a significant 38% year-on-year decline, amounting to PKR 903 million and PKR 26.47, respectively.

he company operates two manufacturing facilities, one in Jamshoro with a capacity of 83,300 tons and zero effluent discharge for environmental preservation, and the other in Karachi (Landhi) with an annual capacity of 24,720 tons. Furthermore, approximately 95% of the product prices have been linked to the USD, safeguarding profit margins against any further PKR devaluation.

In terms of revenue contribution, the Textile Effects segment made up 88% and experienced a 5% year-on-year growth, while the Packaging and Paper Coatings segment contributed 12% to revenue and exhibited impressive growth of 46%. The company did face some challenges, with shipment delays to Turkey following an earthquake leading to the loss of approximately 2-3 months’ worth of export sales. In response, the company launched new products in the home care segment, targeting major market leaders such as Unilever, P&G, and Colgate-Palmolive, which could diversify revenue streams in the future.

The company is in the process of merging the local operations of Huntsman Textile Effect with Archroma Pakistan Limited after the global acquisition, pending approval from Sindh High Court. There are plans to expand the business significantly and commence domestic manufacturing of products.

Amid challenging times, Management believes that recent improvements in the country’s macroeconomic conditions may support the textile and construction sectors, ultimately benefiting the company’s earnings. To enhance performance, the management plans to carefully manage cash flows and fixed costs. Additionally, improvements in cotton production and procurement are expected to drive growth across various sectors, including the chemical industry.