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NDB Securities (Pvt) Ltd and NDB Investment Bank Ltd are subsidiary companies of NDB Capital Holdings PLC. NDB Investment Bank is the financial advisor and manager to the offering.
The company is to be listed on the Diri Savi Board of the Colombo Stock Exchange under the Manufacturing sector. The applications should be made for a minimum of 100 shares and in multiples of 100 shares thereof. Offer for sale tranche of approximately 14% is to facilitate a public holding of 20% in order to be eligible for 3 year tax benefit (see objectives of the issue on page 4).
Shareholder structure - Post IPO Hayleys PLC Rosewood (Private) Limited Akbar Brothers (Private) Limited Star Pack Investments (Private) Limited Mr. D. W. P. N. Dediwela Mr. T. H. D. I. U. Thirimanne Mr. J. M. Iqbal Roshan Trading Company (Private) Limited Public
Operations of the Company
No. of shares 152,644,500 29,340,300 29,340,300 16,003,700 10,669,200 1,111,040 222,180 111,020 59,860,600
Source - Prospectus
ALUM groups operations include manufacturing of aluminium logs, dies (molds), extruded and surface coated profiles for industrial and architectural sectors. ALUM is a subsidiary of the diversified conglomerate Hayleys PLC. With a life span of over 25 years, ALUM currently holds over 50% of the local market share. ALUM group has three extrusion plants, two powder coating lines, two anodizing lines and one wood effect coating facility in Sri Lanka. The group operates with an island wide distribution network of 57 dealers along with 5 Alumex distribution centres.
Group Structure
Alumex Limited
Sri Lankas Aluminium industry Sri Lankas aluminium extrusion industry is predominantly driven by the construction sector. In addition, its applications are also seen in industries such as aviation, defense, solar, power and electrical.
Aluminium products in Sri Lanka Extrusion technology & services
Aging ovens, anodizing chemicals, anodizing systems, automated handling, belts, billet casting equipment, billet suppliers, CNC fabrication centres, die cleaning equipment, die design, die ovens/ die preheat furnaces, die polishing equipment, die storage systems, dies, dross treatment/removal, furnaces billet heating, gas suppliers/systems, handling systems & materials Building & construction, transportation, solar, electrical, industrial, defense Metal working tools, consulting, software, media, publication
Source - Prospectus
Governments heavy focus on infrastructure development and mega scale development projects undertaken by the private sector have put the construction sector in the forefront where demand for aluminium profiles are mainly emanated from. GDP growth
% 10 8 6 4 2 0 2008 2009 2010 2011 2012 2013 (E)
Accordingly, the demand for aluminium is expected to increase by few folds in the medium term in order to keep up with the growth anticipated. Further, investments in roads and highways and especially in the mega scale high rise condominiums and other mixed developments would bolster the demand for high quality aluminium products which compiles with international standards.
NDB Securities (Pvt) Ltd Alumex Ltd Initial Public Offering 28th February 2014
Undisputed market leader ALUM has positioned itself well to cater to a niche market segment which demands superior quality. As competitors mainly focus on the aluminium extrusions for the hardware segment, ALUM has specialized in the architectural proprietary systems which entail higher margins in addition to catering to the hardware segment. As a result, ALUM has been granted the opportunity to manufacture the profiles of international brands such as Aluk and Fletcher Aluminium.
Product/ Plant Extrusion Anodizing Powder Coating* Wood effect Die manufacturing Aluminium melting Capacity (per annum) 12,000 MT 5,400 MT 3,600MT 360MT 2400 units 4,800 MT Current utilization 40% 40% 50% 50% 40% 45%
* Includes the proposed state of the art Powder Coating Plant scheduled to start commercial production in April/May 2014 with a capacity of 2400 metric tons.
Source - Prospectus
As the only fully integrated manufacturer of aluminium profiles in the country, ALUM is the only company capable of designing and manufacturing extrusion dies (molds). In addition, its the only manufacturer of high performance aluminium proprietary systems and several other products. This has positioned ALUM ahead of its competitors with the company being able to maintain its overall market share over 50% while the figure being 70% for the architectural industry. Sri Lankan Aluminium extrusion sales Capacity of Aluminium extruders in Sri Lanka
LKR, 000
10%
56% 2,000 17% 1,000 0 FY11/12 FY12/13 Alumex Lanka Aluminium FY13/14 H1 Swisstech Alumex Lanka Aluminium Swisstek Hemnette
In addition to its local dominance, ALUMs regional presence can be seen in Maldives, India and Bangladesh. The company is aiming to become a leading supplier of aluminium extrusions in the South Asian sub continent. Meanwhile, plans are underway to expand its operations to Myanmar in 2014.
NDB Securities (Pvt) Ltd Alumex Ltd Initial Public Offering 28th February 2014
ALUMs plans to move up in the high value addition product range are expected to augur well for companys future prospects. In FY08/09, anodized products dominated with a contribution of approximately 67%. However, by FY13/14 this has come down to 51% with value added products (powder coated and wood effect) gaining ground to increase its share to 38%. Meanwhile, the trend is expected to continue with the company anticipating to increase the value added product contribution to 53% by FY18/19. Moving up in the high value addition products range
14%
11%
3% 9%
6%
47%
FY08/09
Anodizing
FY13/14
Powder coated Extrusions
FY18/19
Wood effect
Risks A sudden increase in global aluminium prices could hinder the demand while hurting companys margins. Since majority of the raw materials are imported (which contributes to approximately 60% of cost of sales), the depreciation of the LKR could have an adverse impact. In addition, increasing energy costs (which contributes to approximately 10% of cost of sales), slow down in the construction sector, increased competition could affect the company negatively. Utilization of proceeds of the IPO LKR 838 Mn will be raised through the IPO with LKR 250 Mn being through an offer for subscription while LKR 588 Mn through an offer for sale. The proceeds received through the offer for subscription will be utilized for companys future growth by way of an expansion in its powder coating capacity. Objectives of the IPO are depicted as follows. To finance the capital requirement to setup a powder coating plant To be eligible for the 3 year tax benefit offered by the Government for entities obtaining a listing on the CSE (estimated at LKR 38.3 Mn for FY13/14) To facilitate Alumex to obtain a listing on the CSE and broadbase the public ownership
NDB Securities (Pvt) Ltd Alumex Ltd Initial Public Offering 28th February 2014
Recommendation
In LKR Mn Revenue Profit after tax EPS (LKR) DPS (LKR) BV (LKR) Net profit margin (%) ROE (%) FY09/10 (A) 1,593.21 31.59 0.11 0.36 0.94 1.98 20.18 FY10/11 (A) 2,279.54 37.23 0.13 0.06 2.18 1.63 10.63 FY11/12 (A) FY12/13 (A) FY13/14 (E) FY14/15 (E) 2,189.74 2,429.98 2,784.80 3,442.60 114.50 306.35 417.50 527.80 0.41 1.09 1.48 1.76 0.06 0.36 0.53 2.52 3.50 4.93 5.81 5.23 12.61 14.99 15.33 17.42 36.20 33.96 32.85
ALUM 1.48 9.44 3.94 3.55 14.56 33.96 21.06 36.28 3.79
TILE 11.37 6.25 65.17 1.09 30.72 18.00 14.08 21.00 5.30
TKYO 7.56 4.31 28.36 1.15 39.69 29.00 11.14 195.00 3.80
ACL 8.92 7.07 95.39 0.66 34.52 9.00 9.05 -4.00 1.50
TJL 1.67 9.10 9.64 1.58 5.89 18.00 12.40 16.00 8.00
As opposed to the manufacturing sector PER of 8.84X (based on the universe of stocks covered by us whereas according to CSE the sector PER is 12.9X), ALUM is priced (IPO price of LKR 14.00) at a PER of 9.46X. We feel the manufacturing sector is currently undervalued compared to the broader market as the sector is trading below the market PER of 13.8X (based on the universe of stocks covered by us, according to the CSE the market PER is 15.6X). Therefore, we expect ALUM to be an attractive investment option for investors looking at diversifying investments into the manufacturing sector. As we anticipate the broader market to pick up as well, the counter could offer notable upside potential.
NDB Securities (Pvt) Ltd Alumex Ltd Initial Public Offering 28th February 2014
ACL TJL
NDB Securities (Pvt) Ltd Alumex Ltd Initial Public Offering 28th February 2014
NDB Securities (Pvt) Ltd Alumex Ltd Initial Public Offering 28th February 2014
NDB Securities (Pvt) Ltd Alumex Ltd Initial Public Offering 28th February 2014
Appendix 6 Income statement for the nine months ending 31 December 2013
NDB Securities (Pvt) Ltd Alumex Ltd Initial Public Offering 28th February 2014
NDB Securities (Pvt) Ltd Alumex Ltd Initial Public Offering 28th February 2014
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NDB Securities (Pvt) Ltd Alumex Ltd Initial Public Offering 28th February 2014
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Disclaimer This document is based on information obtained from sources believed to be reliable, but NDB Securities (Pvt) Ltd., (NDBS) accepts no responsibility or makes no warranties or representations, express or implied, as to whether the information provided in this document is accurate, complete or up-to-date. Furthermore, no representation or warranty is made by NDBS as to the sufficiency, relevance, importance, appropriateness, completeness or comprehensiveness of the information contained herein for any specific purpose. Prices, opinions and estimates reflect our judgment on the date of original publication and are subject to change at any time without notice. NDBS reserves the right to change their opinion at any point in time as they deem necessary. There is no guarantee that the target price for the stock will be met or that predicted business results for the company will be met. NDBS accepts no liability whatsoever for any direct or consequential loss or damage arising from any use of these reports or their contents. References to tax are based on our understanding of current law and Inland Revenue practices, which may change from time to time. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressee only and is not to be taken as substitution for the exercise of judgment by addressee. The information contained in any research report does not constitute an offer to sell securities or the solicitation of an offer to buy, or recommendation for investment in, any securities within Sri Lanka or any other jurisdiction. The information in any research report is not intended as financial advice. Moreover, none of the research reports is intended as a prospectus within the meaning of the applicable laws of any jurisdiction and none of the research reports is directed to any person in any country in which the distribution of such research report is unlawful. Past results do not guarantee future performance. NDBS cautions that any forward-looking statements in any research report implied by such words as anticipate, believe, estimate, expect, and similar expressions as they relate to a company or its management are not guarantees of future performance. The investments in undertakings, securities or other financial instruments involve risks. Any discussion of the risks contained herein should not be considered to be a disclosure of all risks or complete discussion of the risks which are mentioned. NDBS and its associates, their directors, and/or employees may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other financial services for these companies.
NDB Securities (Pvt) Ltd Alumex Ltd Initial Public Offering 28th February 2014
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