Planning to payoff USD 63 Million loan
The management of Lotte Pakistan (LOTPTA) has recently decided to retire its foreign loan of USD 63 Million and to further invest USD 40 Million in Pakistan in a captive power plant for uninterrupted power supply while USD 5 Million in a catalyst recovery plant for cost efficiency. I believe that these steps will help the company’s volatile margins to improve.
Higher current assets will led this payoff
The company is considering the loan payoff option in support of ample amount of cash and cash equivalent owned in FY09. The company had the cash and cash equivalents of PKR 5.4 Billion during the period comparing to PKR 16.45 Million during the same period last year which translated tremendous increase of 329.65%YoY during the period.
PKR-USD Parity expected to remain depreciating
I believe that this initiation would result in hedging the company against exchange losses as the PKR-USD parity is expected to remain in a meager downward momentum going forward. Conversely, the deposit income will be lowered going forward.
PTA prices touched 18 months high level
The Purified Terephthalic Acid (PTA) touched the 18 months high level of USD 979 per tons on April 01, 2010. The up-surge in price is mainly attributed to the higher demand of Polyester Fiber from China and India.
Looking Forward
With rising PTA prices in international market I assume that the margins of the company will further improve to USD 350 per tons comparing to USD 245 during FY09 while I expect PTA demand to grow up by 5% in FY10. On the other hand, the further saving from captive power plant & catalyst recovery plant will start producing the results from FY12. I maintain ‘buy’ stance for the company’s scrip by considering the current trading at FY10E 7.04x where my target price for FY10 is PKR 25 per share.
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