Lotte Pakistan PTA Ltd., the pure terephthalic acid producer whose shares have declined by a quarter this year, plans to spend as much as $20 million within the next two years on its plant to trim costs amid concerns annual profit will decline.
Lotte, which started commercial operations of a $50 million power plant in July, plans to modernize its machines, Chief Executive Officer Asif Saad said in an interview in Karachi. The power plant may help cut energy costs by 50 percent, he added. Lotte’s PTA is used to make polyester staple fiber, which is in turned used to make clothes.
The company, part of South Korea’s Lotte Group, reported a 95 percent slump in consolidated net income in the third quarter to 47.4 million rupees ($495,000) compared with the same period a year ago. The company posted a consolidated net loss of 247 million rupees for the nine months started January compared with 4.6 billion rupees profit a year earlier.
“This has not been a good year for us,” Saad said. “You have to appreciate this is a cyclical commodity business and we are going through a down cycle.”
The Lotte group aims to grow “topline” revenue in Pakistan from about $600 million currently to $2 billion in the next five years though expansion in petrochemicals and acquisitions in areas such as food, retail and real estate, Saad said.
“Cost cutting will have an impact on their exports, but it will be very marginal,” Raza Hamdani, a research analyst with Shajar Capital, said. “I expect the company to make a marginal profit in 2013 provided they cut costs and regionally prices rise.”
Lotte, which got all its sales from Pakistan last fiscal year, has to sell its product at international prices linked with China, Shajar Capital’s Hamdani said. Lotte is asking Pakistan’s government to increase duties on PTA imports to 7.5 percent from 3 percent now.
Lotte Pakistan’s shares that have declined 24 percent this year compared with a 40 percent gain in the KSE 100 Index.