Lotte Chemical Pakistan Limited (PSX: LOTCHEM) experienced a sharp drop in profitability for the third quarter of 2024, with profit after tax plummeting by 75.1% to Rs494.94 million (EPS: Rs0.33) from Rs1.99 billion (EPS: Rs1.31) in the same period last year (SPLY). Following this news, the company’s shares fell over 5% during intraday trade on Friday.
Financial Performance Overview
While the company’s revenue increased modestly by 4.3% to Rs24.6 billion, this was offset by a 16.7% increase in the cost of sales, which resulted in a significant reduction in gross profit. The gross profit fell by 69.4% to Rs1.05 billion, reducing gross margins to 4.2% from 14.5% in the same quarter last year.
Other income contracted by 60.8% to Rs274.7 million from Rs700.47 million, further impacting the company’s earnings.
Expense and Cost Breakdown
Lotte Chemical’s administrative expenses increased by 22.1% to Rs190.64 million, while selling and distribution expenses rose 43.8% to Rs66.53 million. In contrast, other operating expenses decreased by 75.7%, landing at Rs56.74 million.
On the financing front, the company managed to reduce its finance costs by 60% to Rs186.8 million, down from Rs466.98 million in SPLY, partially cushioning the financial hit.
Taxation and Net Profit
The company’s tax expense also fell by 73.6%, standing at Rs324.07 million compared to Rs1.23 billion last year, resulting in an effective tax rate of 39.6%, slightly up from 38.2% in SPLY. Nonetheless, the decline in net profit highlights the challenges faced by LOTCHEM in managing rising input costs and lower margins in the current market environment.
Financial Summary (Un-audited Results for Quarter Ending September 30, 2024)
| Metric | Sep 2024 | % Change from Sep 2023 |
|---|---|---|
| Sales | Rs24,597,854 | 4.26% |
| Cost of Sales | (Rs23,552,829) | 16.74% |
| Gross Profit | Rs1,045,025 | -69.42% |
| Administrative Expenses | (Rs190,642) | 22.05% |
| Selling & Distribution Expenses | (Rs66,530) | 43.82% |
| Other Income | Rs274,696 | -60.78% |
| Other Operating Expenses | (Rs56,735) | -75.65% |
| Finance Cost | (Rs186,802) | -60.00% |
| Profit before Taxation | Rs819,012 | -74.52% |
| Taxation | (Rs324,070) | -73.62% |
| Net Profit | Rs494,942 | -75.09% |
| Basic Earnings per Share (EPS) | Rs0.33 | – |
Outlook
Lotte Chemical’s third-quarter results underscore the impact of rising costs and contracting margins. The company may need to explore cost-control measures or price adjustments to counter these financial pressures and restore its profit levels in future quarters.
