textured jersey lanka limited - ipo review

8/6/2019 Textured Jersey Lanka Limited - IPO review

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Textured Jersey Lanka Limited

Initial Public Offering

7th

July 2011

Subscribe

SC Securities (Pvt) Ltd

TJL IPO…..

No. of shares issued 80 (Mn)

ssue Price (LKR) 15.00

Amount to be raised (LKR) 1.2 (Bn)

ssue Opening day 7 th July 2011

ssue Close The day the issueis oversubscribedor 27 th July 2011

Minimum Subscription 100 shares

(LKR 1,500.0)

Valuation Pg2 “The share is fairly valued at a PER of14.35x on current earnings, 11.3x on FY12E earnings and 9.5x on FY13Eearnings. Hence the share is offered at a fair discount of 62% to the market earnings multiple and 59% discount o the footwear & textile sector earnings multiple. Thehare looks even more attractive on forecasted earningsor FY12 depicting a steep discount of 49% to the market

earnings multiple. Moreover the company is on a strongooting with a low financial risk profile and strong growthn the revenue stream and earnings.

Hence the IPO offers good value at the issue price of

LKR.15.00, and given the strong investor appetite. Weecommend SUBSCRIBE ” .



extured Jersey Lanka- Subscribe SC Securities Research

Textured Jersey Lanka Limited (TJL) is a manufacturer of weft knitted fabrics used by garment manufacturers. It was formed inAugust 2001 as a result of a joint venture between Mas Holdings(MAS), Brandix Lanka Limited and Textured Jersey UK Limited toprovide quality focused highly customized fabrics to their majorbuyer, Marks & Spencer (M&S) in UK.

Subsequently MAS Holdings partnered with Pacific TextilesHoldings Which is a leading manufacturer of customized knittedfabric, listed in the Hong Kong Stock exchange. MAS Holdings thendivested their stake in TJL which was acquired by Brandix LankaLimited.

TJL manufactures different kinds of designs & specifications of weft knitted fabrics exclusively to apparel manufacturers aroundthe globe. It is imperative for the company to work closely withbrand owners in order to customize the fabric designs to meet individual order specifications. The end product of TJL will then besold to apparel manufacturers who will convert the knitted fabricsinto finished garments for sale to apparel brand owners.

Further, TJL also expects to expand their manufacturingoperations in the south Asian region to enjoy enhancedcomparative as well as competitive advantage over other rivals.

TJL top line has recorded an impressive CAGR of 24% during thelast 5 years whilst it has witnessed an 11% YoY growth in FY11reaching LKR9.2Bn. Further , TJL’s bottom line of LKR.684.7Mn forFY2011, witnessed a growth of 19% YoY despite the loss of GSP+.

With strong Growth potential and fair valuations the issue price of LKR15.00 depicts an attractive offer. The share is fairly discountedat 62%% to the market earnings multiple and 59% discounted tothe footwear & textile sector earnings multiple. The share lookseven more attractive on forecasted earnings for FY12 depicting asteep discount of 49% to the market earnings multiple. There bythe IPO offers good value at the issue price of LKR.15.00 and given

the strong investor appetite. We recommend SUBSCRIBE.

TEXTURED JERSEY LANKA LIMITEDInitial Public Offering at a glance

IPO Details

No. of shares issued 80 (mn)

Issue Price (LKR) 15.00

Amount to be raised (LKR) 1.2 (Bn)

Issue Opening day 7 th July 2011

Issue Close The day the issueis oversubscribedor 27 th July 2011

Minimum Subscription 100 shares(LKR 1,500.0)

(Applications exceeding 100 should beinmultiples of 100 new shares)

Basic of Allotment

Employees 10% (8Mn)

Unit Trust 10% (8Mn)

Retail Investors 40% (32Mn)

Non-retail 40% (32Mn)

Utilization of IPO funds

Construction of Modern Production FacilityLKR.344Mn

Purchase of Equipments LKR.1,000MnCommission of water Treatment Plant

LKR 82Mn

(The proposed time period for this expansion is

expected to be 18 Months)

Pacific Textiles Holdings Limited

Pacific Textured JerseyHolding Limited

Brandix Lanka Limited Other Shareholders

Textured Jersey Lanka Limited

Group Structure

100%

45.6% 34.3% 20.1%



pg. 3


Contents

Facts for recommendation Pg4

“It operates in a fast growing industry with a high competitive environment.However, TJL maintains good business relationships with globally reputedapparel brands (Intimissimi, Mark & Spencer and Victoria’s Secret)..”

Industry over View Pg5

“The production of fabric products over the years has traditionally beenassociated with developed countries such as USA, UK, other European countries& Japan. However as mass production is a key feature of the fabricmanufacturing industry, it was imperative that production costs were kept lower in order to remain competitive ”.

Company overview Pg7

“Textured Jersey Lanka Limited (TJL) is a joint venture between PacificTextured Jersey Holdings Limited (subsidiary of Pacific Textiles HoldingsLimited) & Brandix Lanka Limited. TJL is the largest manufacturer of knittedfabrics in Sri Lanka. The company was formed in 2001”

SWOT Analysis & Future outlook Pg9

“Textured Jersey Lanka’s strong local presence and the fast phase recovery of the textile industry has enabled it to explore new opportunities”

Financial overview Pg10

“TJL top line recorded a n impressive CAGR of 24% during the last 5 years whilst witnessing 11% YoY growth. TJL has maintained good long term relationshipswith glob al apparel players”

Valuation & recommendation Pg 12

“With the strong Growth Potential and solid valuations the issue price of LKR15.00 depicts an attractive offer. Meanwhile economic stability in thecountry coupled with global economic recovery and increased demand forappeal products has opened up a number of growth opportunities to theindustry. There by the IPO offers good value at this issue price and given thestrong investor appetite. We recommend SUBSCRIBE ” .

5 year summary Pg13



pg. 4


Facts for Recommendation

Textured Jersey Lanka Limited (TJL), a joint venture between Brandix Lanka and PacificTextiles Holdings announced its IPO of 80Mn

shares at LKR15.00 per share, to raise LKR1.2Bn.The proceeds of the issue are planned to beutilized to increase the production capacity(LKR344Mn), Purchase of Equipment (LKR1000Mn) and Commissioning of watertreatment plant (LKR82Mn). The Company whichcommenced operations in 2001 as a joint venturebetween Textured Jersey UK limited and Lineaclothing Pvt Ltd (a joint venture between BrandixLanka and MAS holdings). In late 2004, TexturedJersey UK exited the joint venture partnershipwhile pacific Textured Jersey became the newjoint venture partner.

It operates in a fast growing industry with a highcompetitive environment. However, TJL maintainsgood business relationships with globally reputedapparel brands (Intimissimi, Mark & Spencer andVictoria’s Secr et). Although they are not direct customers of the company they are the principalrevenue generators of the company. Further, the

backing of a global giant in knitted fabricmanufacturing (Pacific textiles holdings)& SriLanka’s largest exporter of apparel (BrandixLanka) led TJL to enjoy comparative advantageover their rivals. The top 3 long standingcustomers, account for circa 90% of TJL’s revenue.Although the current global cotton prices arevolatile, the company has the luxury of passing it on to the customers as TJL does not enter into anyprice contracts with customers.

TJL produces a wide range of fabricsaccording to apparel brand owner’s requirements & specifications and is sold to

supply to the garment manufacturers. BrandixLanka remains the key customer of TJL wherethe company liaises with brand owners andproduces the fabric as per their requirementsand standards.

With the strong Growth Potential and fairvaluations the issue price of LKR15.00 depictsan attractive offer. Meanwhile economicstability in the country coupled with globaleconomic recovery and increased demand forappeal products has opened up a number of growth opportunities for the industry. With astrong regional presence, the backing of aglobal manufacturing giant and leading localgarment exporter, the company is poised togain an advantage amongst its rivals. Weexpect TJL to post net earnings of LKR866Mn(up 26%YoY) in FY12 and LKR1,038Mn (up20%YoY) in FY13. Further the share is fairlyvalued at PER of 11.3xon FY12E earnings and9.5x on FY13E earnings. The share is valued at a 49% discount to the market earningsmultiple and 47% discounted to the footwear& textile sector earnings multiple on FY12Eearnings.The company is also expected to report impressive earnings compared to the listedindustry rivals. Moreover the company is on astrong footage with a low financial risk profileand strong growth in revenue streams andprofits.There by the IPO offers good value at the issueprice of LKR.15.00, and given the stronginvestor appetite. We recommendSUBSCRIBE.

Major Share Holders Pre, Post IPO

Name Pre IPO % Post IPO %

Pacific Textured Jersey Holding Limited45.6% 40.0%

Brandix Lanka Limited34.3% 30.1%

Public 20.1% 29.9%Total 100% 100%



pg. 5


Global Industry

The production of fabric products over theyears have traditionally been associated withdeveloped countries such as USA, UK, otherEuropean countries & Japan. However as massproduction is a key feature of the fabricmanufacturing industry, it was imperative that production costs were kept lower in order toremain competitive. The availability of rawmaterial, economies of scale & low cost production inputs primarily Labour costs,created new centers for fabric production.Consequently China, India & Pakistan came into the forefront in fabric manufacturing. By end2010 China, India & Pakistan accounted for68.50% of the worlds’ total cotton production.

Sri Lankan IndustryThe country’s textile & apparel industry beganits success story in the 1980’s after the SriLankan economy was liberalized in 1977. East Asian apparel exporters took advantage of thissituation by starting up production facilities inSri Lanka. The industry saw momentous growthduring the last three decades, contributing closeto 10% to the GDP in 2009. The industry alsoaccounted for circa 45% of the country’s totalexport earnings whilst continuing to

be Sri Lanka’s largest net foreign earnersince 1992.

It has been forecasted by the Joint ApparelExport Forum of Sri Lanka that apparelexports would reach US dollars 5 billion by2015, from the 2010 level of US dollars 3.4billion. A notable rise in demand forapparels from foreign countries waswitnessed during the past few months.

Furthermore it has been forecasted that textile & clothing imports will grow at aCAGR of 3.9% & 6.3% in the US & EU regionrespectively. With China experiencing steepincreases in costs major buyers may shift toother apparel producing countries in theSouth Asian region which would benefit theSri Lankan Apparel industry. Sri Lanka’slabour compared to other regionalcountries remains cheap. The sector also

benefits from lower power costs & betterquality of power compared to some of theregional countries.

Industry Overview

0

5001000

1500

2000

2500

3000

3500

4000

2006 2007 2008 2009

Foreign Exchange Earnings

Textile Works remetance Tea tourism

Source: ICAC

Source: CBSL



pg. 6


The Sri Lankan Textile Industry

The Sri Lankan textile industry consists mainly of two variants, Woven fabrics & knitted fabrics of which the demand for knitted fabrics has shown a

noteworthy growth over the last few years. This hasserved the Sri Lankan textile industry well as SriLanka lacks the essentials that are required for thesuccess of the woven fabric manufacturing industry.Sri Lankan fabric manufacturers have capitalized onthis situation by shifting to Knitted fabricmanufacturing.

The Sri Lankan fabric manufacturing industry hasbenefited by being in close proximity to two of theworlds’ largest cotton producing countries, namely,India & Pakistan. Sri Lanka imports it’s fabricrequirements mainly from India & Pakistan. Fabricmanufacturers of Sri Lanka also derive benefits bybeing in close proximity of some of the world’slargest apparel manufacturers in terms of sourcing,logistics, transportation & storage.

-

50,000

100,000

150,000

200,000

2008 2009

Garments Exports

EU UK USA ITALY

LKR Mn

-15%

-10%

-5%

0%

5%

10%

15%

20%

70,000

75,000

80,000

85,000

90,000

95,000

100,000

2006 2007 2008 2009 2010

Total Textile & Clothing of US

Value Growth

LKR Mn

48%51%

1%

Composition of Apparel Exports-2010

Woven Knit Other Loss of GSP Plus-A threat or an opportunity?

TJL although not directly affected by the termination of theGSP+ scheme, will clearly face tough times if the Sri Lankanapparel producers lose the competitiveness due to theincrease in costs, therefore the abolition of the GSP remainsa concern, although we believe this situation could bring inpositives to TJL & the apparel industry as a whole.

The Generalized system of preferences (GSP) is the systemof preferential trading through which the European Unionextends preferential access to its markets for imports fromdeveloping countries. This scheme grants duty free accessto the European Union (EU) for small & vulnerablecountries taking in to consideration the ratification &compliance of multilateral environmental agreements &key human rights & governance agreements. The tradeconcessions under the GSP + scheme were granted to SriLanka as a special case to assist the development of thecountry after it was affected extensively by the 2004

Tsunami.Sri Lankan exporters have voiced their concern over theabolition of the GSP+ on fears of being less competitivecompared to other South Asian & East Asian low cost manufacturers, but have marched forward since thetermination of the scheme in August 2010, without seeing areduction in sales to the EU. This again denotes theresilience of the Sri Lankan apparel industry in facingturbulent situations, which it has overcome on number of occasions before. However Sri Lankan exporters, need toimprove their productivity thereby reducing their cost perunit in order to price their products competitively. This we

believe will enhance the overall performance of the apparelindustry by taking it a few steps further in competingsuccessfully with highly efficient & low cost basemanufacturers of other Asian countries. Furthermore theability of keeping the profit margins intact or improvingthem further even after the loss of the GSP+ scheme seemsmore achievable for larger scale manufactures. Since TJL isa part of the largest apparel exporter in Sri Lanka &producers the bulk of the Knitted fabrics to large scaleapparel manufacturers, TJL looks less exposed to anyadverse effects of the termination of the GSP+ scheme.

Source: CBSL

Source: OTEXA

Source: TJL



pg. 7


Formation & Present Context

Textured Jersey Lanka Limited (TJL) is a joint venture between Pacific Textured JerseyHoldings Limited (subsidiary of Pacific TextilesHoldings Limited) &Brandix Lanka Limited. TJLis the largest manufacturer of knitted fabrics inSri Lanka. The company was formed in 2001through a joint venture partnership betweenMAS Holdings, Brandix Lanka Limited &Textured Jersey UK Limited. In 2004 TexturedJersey UK Limited moved out of the businessresulting in MAS Holdings becoming the majorshareholder. A new shareholding structure wasformed with the entry of Pacific Textured JerseyHoldings Limited (PTJH). This was a major plusfactors for TJL as the parent company of PTJH,Pacific Textiles Holdings Limited, a worldleader in fabric manufacturing particularly inKnitted fabric. Subsequently Brandix LankanLimited acquired MAS stake while the balancewas owned by Pacific Textured Jersey HoldingsLimited. Prior to the IPO Brandix LankaLimited & PTJH placed 116Mn shares toselected institutional & non institutionalinvestors. This reduced the shareholding of Brandix Lanka Limited & PTJH to 34.3% &45.6% respectively.

Parent Companies

Pacific Textiles Holdings Limited (PTHL)

PTHL is a Hong Kong listed manufacturer of customized knitted fabric. Incorporated in 2004,the company has one of the largest textilemanufacturing facilities in China. PTHL focuseson complex, value added fabric manufacturing& provides integrated services comprising of knitting, dyeing, printing & finishing.

Brandix Lanka Limited

Brandix Lanka Limited, incorporated in 2002,has been Sri Lanka’s largest apparel exporter,

producing various apparel products that aremanufactured across 32 manufacturinglocations in the country. The company has aworkforce of 30,000 in Sri Lanka& also has apresence in the South Asian region. Thecompany has been producing apparels forleading apparel brands, in the caliber of Gap,Victoria’s Secret, PINK, banana republic, Marks& Spencer, Intimissimi& Tommy Hilfiger.

Products

TJL manufactures different kinds of designs &specifications of weft knitted fabrics exclusivelyto apparel manufacturers around the globe. It isimperative for the company to work closelywith brand owners in order to customize thefabric designs to meet individual orderspecifications. The end product of TJL will thenbe sold to apparel manufacturers who will in

convert the knitted fabrics into finishedgarments for sale to apparel brand owners.

Customers

The company has built up strong relationshipswith leading apparel brand owners. Althoughthe company does not directly sell theirproduction to the brand owners, they are thekey participant in the fabric procurement process. However at times apparel

manufacturers purchase fabrics directly fromTJL without the involvement of brand owners.The company strives hard to maintain a strongrelationship with premier brand owners, whichis a key for sales growth. This has been a fertileexercise as the company’s top three customersaccounted for 85%-90%% of sales during thelast three years (Year ended 31st March 2008to 31st March 2010). These customers includeMarks&Spencer, Victoria’s Secret, Initimissimi,

H&M etc.

Company Overview



pg. 8


Sales

The production capacity is always taken intoconsideration before accepting any sales ordersas the company maintains a high degree of

reliability on the delivery of orders. Thecompany does not have long term written salescontracts with the majority of the customers,most of the orders are accepted orally or viaemail which is the industry norm.

Pricing

The prices of the fabrics are determined as cost plus a markup based on the competitive ratestaking into account the prevailing market conditions, level of orders in hand & prices of raw material.

Production Process

The production process of the company usesinvolves a highly mechanized process, thus theprocess is capital intensive. The productionprocess involves converting cotton & syntheticyarn into weft knitted fabrics which consists of

knitting, dyeing & finishing.

Production Facility & ProductionVolume

The production facility situated at Avissawellain the seethawaka industrial estate,

manufactures approximately 32Mn meters of weft knitted fabric annually. Power for the

facility is obtained from Sr i Lanka’s publicpower supply network. The facility also has twostand by diesel powered generators. Water is

obtained through the facilities provided by theBoard of Investment of Sri Lanka. Productionvolume of TJL amounted to circa 19.15 millionpounds for the year ended 31st March 2010.

Competition

The environment in which TJL operates ishighly competitive with a number of fabricmanufactures. Ocean Lanka (Pvt) Limited,South Asian Textile Industries (Pvt) Limited &Hayleys MGT Knitting Mills are some of the keyplayers in the industry. Product quality, service& product pricing are areas where competitionintensifies.

53.0%

53.5%

54.0%

54.5%

55.0%

55.5%

56.0%

56.5%

0100020003000400050006000700080009000

2008 2009 2010

Yarn Cost %

Cost of sales Yarn Cost % yarn



pg. 9


Future out Look

Textured Jersey Lanka’s strong local presence

and the fast phase recovery of the textileindustry has enabled it to explore newopportunities. Further, TJL expects to expandits current business operations by circa 80% inthe next five years (Turnover capacity fromUSD 83Mn to USD 150Mn) by utilizing the newproduction plant and continuing to produce at optimum levels by having minimum damagerates.TJL planned to utilize the IPO funds (LKR1.2 bn)to build a new production plant which thecompany expects will increase the productioncapacity by 40%.

Research carried out by OTEXA & Eurostat show that the imports of textile and clothing inthe US will increase at a CAGR 3.9%, 2010-2015and CAGR 6.3% in EU region which will have apositive influence to the company’s top line.

Increasing cotton prices and threat of competitors are the main challenges faced byTJL, we believe the company will

Overcome this issue by passing the rise incosts to the customer whilst, we believe TJLwill strengthen the relationship with globalbrand owners and garment exporters.Brand owners are not TJL’s direct customers, however they play a major rolein selecting the fabric suppliers for theirproducts. Further, TJL also expects toexpand their production operations in thesouth Asian region to enjoy enhancedcomparative &competitive advantage overtheir rivals.

TJL’s future looks favorable with backing of a world leader in knitted fabricmanufacturing and Sri Lanka’s leadingapparel exporter’s coupled with a boomingindustry demand and other favorableproduction factors that provides anadvantage towards the Sri Lankan apparel& textile industry.

Strengths

Technical strengths of Pacific Textiles Holdings Limited. Experience and technically competent management team.

Established relationships with premium apparel brand owners Supply chain integration of Brandix Lanka Limited to offersuperior and speedy solutions

International accreditations/certifications Backing of strong shareholders

Weaknesses

Dependence on a few key customers Transfer Pricing.

Opportunities

Have a low cost power supply compared to other apparelManufacturing markets

Cheaper labour compared to other countries. Conductive investment zones based with the required

infrastructure and tax reliefs corporate tax rates are lowercompared to other apparel manufacturing countries

Threats

Loss of market share due to high competition Increase in global raw material prices(cotton prices) Increase in emerging markets labour costs. High dependence on the fashion industry Seasonality of the business operations Weak raw material base.

SWOT Analysis



pg. 10


Revenue Trend

TJL top line has recorded an impressive CAGR

of 24% during the last 5 years whilst it haswitnessed 11% YoY growth. Revenue for FY11was LKR.9.2Bn. TJL has maintained good longterm relationships with global apparel playersand leading garment manufacturers which haveled the company to account for circa 90%revenue through them. TJL also maintainedhigh quality fabric production in line withbrand owner’s specification which has enabledthe company to get a competitive advantage

over other rivals. Further, TJL is backed byHong based knitted manufacturing giant PacificTextiles Holdings limited which has assisted thecompany to adopt cutting edge technology andbest practice on production processes.

TJL also planned to expand fabric production by40% using the funds raised from the IPO whichwill also expand the company’s revenue baseand will have the capacity to cater to largecustomized orders from long standingcustomers.

However, TJL Cost of sales accounts for circa85% of TJL’s top line . This is mainly due tovolatile raw material prices coupled with othervariable costs. Further, power accounts forcirca 3% of the Cost of sales. Cost of sales hasrisen in line with revenue, by a 5 year CAGR of

24%. Further, going forward we believe TJLmay expand their

production operations in the south Asian region

to enjoy comparative and competitiveadvantage.

Gross Profit Trend

TJL’s last 5 year g ross profit CAGR stands at animpressive 18%. Gross Profit in absolute termsfor FY11 was LKR 1.1Bn with an increase of 6%YoY. Further, the company has maintainedtheir Gross profit margin at 12% levels duringthe last 5 years despite the volatile global

cotton prices.

EBIT Trend

EBIT too has denoted a commendable growth of 17%YoY to reach LKR 730.82Mn for FY11. EBITgrowth has outpaced gross profit growth by

11% during FY11. Further, EBIT recorded a 5year CAGR of 25.2% compared to revenueCAGR of 24%. The growth is mainly facilitatedby reduced Administration expenses anddistribution expenses. Administration expenseshave reduced by a noteworthy 12% YoY toLKR282.4Mn during FY11. Significant drop inrepair and maintenance cost has facilitated thedrop in administration costs. Distribution coststoo recorded a decline of 6% YoY during FY11.

FY09 was a drawback for the companyprimarily due to the global economic downturn

Financial Overview

Revenue Growth

Gross Profit Growth

0%

2%

4%

6%

8%

10%

12%

14%

16%

0

200

400

600

800

1000

1200

FY06 FY08(15 Mts) FY09 FY10 FY11

Gross Profit GP Margin (%)

LKR Mn



pg. 11


coupled with instability in the Sri LankanPolitical and Economic environment whichturned the EBIT & Gross profit growths to anegative. However,FY10 was a turnaroundstory for the company and the industry as awhole. TJL maintained the EBIT margin at 5-8%levels during the past three years.

Earnings trend

With the world economies recovering, TJL’sbottom line has posed a notable growth of 19%YoY to LKR684.7Mn in FY11 despite the loss of GSP+ whilst it recorded an impressive CAGR of 25.1% during the 5 last years. Further TJL’s net profit margins were stable at 7% during FY10-FY11.

TJL had LKR.2.2Bn in Long term & short termInterest bearing Borrowings in FY11 with anincrease of circa 14% YoY. Further the interest cost amounted to LKR.25Mn, a reduction of 46% for FY11. The Interest cover shot up to29

times in FY11. Going forward, we believeinterest cover will increase further.

Company’s gearing level has seen a gradualimprovement, recording 76% in FY11. We

believe the company will further reduce thegearing level in the future.

Gross Profit/ EBIT Growth

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

140%

160%

FY08(15 Mts) FY09 FY10 FY11

Gross Profit Growth (%) EBIT growth

Net Earnings

0%

1%

2%

3%

4%

5%

6%

7%

8%

0

100

200

300

400

500

600

700

800

FY06 FY08(15 Mts) FY09 FY10 FY11

Net earnings NP Margin (%)

LKR Mn

0

10

20

30

40

50

60

0

20

40

60

80

100

120

140

FY09 FY10 FY11 FY12E FY13E FY14E

Finance Cost In t.cover



pg. 12


Recommendation & Valuation

With the strong Growth Potential and solidvaluations the issue price of LKR15.00 depictsan attractive offer. Meanwhile economicstability in the country coupled with globaleconomic recovery and increased demand forappeal products has opened up a number of growth opportunities to the industry. And alsostrong regional presence, the backing of a globalmanufacturing giant and leading local garment exporter, the company is poised to gain anadvantage over its rivals . We expect TJL to post net earnings of LKR.865.5Mn (up 26%YoY) inFY12E and LKR1,038.3Mn (up 20%YoY) inFY13E.Further the share is fairly valued at PER of 11.3x on FY12E earnings and 9.5x on FY13Eearnings. The share is valued at a 49% discount tothe market earnings multiple and 47% discountedto the footwear & textile sector earnings multipleon FY12E earnings.

The company is also expected to report attractive earnings compared to the listedindustry rivals. Moreover the company is on astrong footing with a low financial risk profileand strong growth in the revenue stream andearnings.There by the IPO offers good value at the issueprice of LKR.15.00, and given the stronginvestor appetite, we recommend SUBSCRIBE.

Forecasted Income statement


Sales 7,188.1 8,351.7 9,284.6 10,729.3 12,628.3 14,578.2

Gross profit 607.4 1,025.0 1,084.0 1,266.9 1,475.4 1,932.2

Operating Profit 262.7 626.3 730.8 886.8 1,057.6 1,490.2

Net profit 144.5 577.5 684.7 865.5 1,038.3 1,466.5

Investment table


Net profit 144.5 577.5 684.7 865.5 1,038.3 1,466.5YoY % -29% 300% 19% 26% 20% 41%

EPS 0.22 0.88 1.05 1.32 1.59 2.24

YoY% -29% 300% 19% 26% 20% 41%

PER 67.97 17.01 14.35 11.35 9.46 6.70

DPS - - - 0.44 0.48 0.67

NAVPS 2.9 3.67 4.53 5.42 6.53 8.10

PBV 5.25 4.09 3.31 2.77 2.30 1.85

ROE 8% 24% 23% 24% 24% 28%

ROA 4% 11% 9% 9% 10% 14%



pg. 13


5 Year Summary Income Statement

For the year ended FY06

FY08(15

Mts) FY09 FY10 FY11 CAGRFY06-FY11

Revenue 3,973.4 6,254.4 7,188.1 8,351.7 9,284.6 23.64

Cost of sales 3,406.9 5,553.4 6,580.7 7,326.7 8,200.6 24.56

Gross Profit 566.5 701.0 607.4 1,025.0 1,084.0 17.61

Operating Profit 297.5 323.4 262.7 626.3 730.8 25.19

Finance Cost 92.0 119.0 118.1 45.9 25.0

Profit before Tax 205.5 204.3 144.6 580.4 705.9 36.14

Tax - - - (2.9) (21.1)Profit Attributable to ShareHolders 205.5 204.3 144.6 577.5 684.7 35.11

Balance Sheet Summary

Total Assets 3,699.3 5,533.6 6,013.6 5,452.3 7,226.1 18.2Shareholders’ Funds 1,378.0 1,611.1 1,869.8 2,404.9 2,969.3 21.2

Total Debt 463.4 1,894.9 2,026.5 1,675.1 99.5 (31.9)

SC Securities (Pvt) Ltd

2nd

Floor, No.55 D.R Wijewardana Mawatha Colombo 10.

Tel: 0114 711000

Email: [email protected]

Disclaimer

We have included in this report, publicly available information that we believe is accurate. However we cannot guarantee its accuracy and this report cannot beconstituted as undertaking responsibility or liability on any action undertaken using the information provided in this report. The opinions presented in this report aresubject to change without notice as per the prevailing market conditions.

mailto:[email protected]




textured jersey lanka limited - ipo review

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