alumex initial public offering 28.02.2014

8/12/2019 ALUMEX Initial Public Offering 28.02.2014

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ND B Securities (Pvt) Ltd,5 th Floor,# 40, NDB Building,Nawam Mawatha,Colombo 02.Tel: +94 11 2131000Fax: +9411 2314180

+9411 2314181

I n i t i a l P u b l i c O f f e r i n g

NDB Securities (Pvt) Ltd and NDBInvestment Bank Ltd are subsidiarycompanies of NDB Capital HoldingsPLC. NDB Investment Bank is thefinancial advisor and manager to theoffering.

Shareholder structure - Post IPO No. of shares %Hayleys PLC 152,644,500 51.00 Rosewood (Private) Limited 29,340,300 9.80 Akbar Brothers (Private) Limited 29,340,300 9.80 Star Pack Investments (Private) Limited 16,003,700 5.35 Mr. D. W. P. N. Dediwela 10,669,200 3.56 Mr. T. H. D. I. U. Thirimanne 1,111,040 0.37 Mr. J. M. Iqbal 222,180 0.07 Roshan Trading Company (Private) Limited 111,020 0.04 Public 59,860,600 20.00

Alumex Limited

Avro Enterprises (Private) Limited100%

Alco Industries (Private) Limited100%

Details of the offeringNumber of securities to be offered 59,860,600 Offer price LKR 14.00Total subscription LKR 838,048,400Offer for sale (42,003,400 shares) LKR 588,047,600Offer for subscription (17,857,200 shares) LKR 250,000,800Opening of the offering 6-Mar-14Earliest closing 6-Mar-14Latest closing 25-Mar-14

Alumex Limited (ALUM)Details of the Offering

The company is to be listed on the Diri Savi Board of the Colombo Stock Exchange under theManufacturing sector. The applications should be made for a minimum of 100 shares and in multiplesof 100 shares thereof. Offer for sale tranche of approximately 14% is to facilitate a public holding of20% in order to be eligible for 3 year tax benefit (see objectives of the issue on page 4).

Operations of the Company

ALUM groups operations include manufacturing of aluminium logs, dies (molds), extrudedand surface coated profiles for industrial and architectural sectors. ALUM is a subsidiary ofthe diversified conglomerate Hayleys PLC. With a life span of over 25 years, ALUMcurrently holds over 50% of the local market share.

ALUM group has three extrusion plants, two powder coating lines, two anodizing lines andone wood effect coating facility in Sri Lanka. The group operates with an island widedistribution network of 57 dealers along with 5 Alumex distribution centres.

Group Structure

Source - Prospectus

Source - Prospectus


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NDB Securities (Pvt) Ltd Alumex Ltd Initial Public Offering 28 th February 2014 2

0

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8

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2008 2009 2010 2011 2012 2013 (E)0

5

10

15

20

25

2008 2009 2010 2011 2012

Aluminium products in Sri LankaExtrusion 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/ diepreheat furnaces, die polishing equipment, die storage systems, dies, dross treatment/removal, furnaces -billet heating, gas suppliers/systems, handling systems & materials

Extruded profiles Building & construction, transportation, solar, electrical, industrial, defenseOther products & services Metal working tools, consulting, software, media, publication

Sri Lankas Aluminium industry

Sri Lankas aluminium extrusion industry is predominantly driven by the construction sector. Inaddition, its applications are also seen in industries such as aviation, defense, solar, power andelectrical.

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 foraluminium profiles are mainly emanated from.

Accordingly, the demand for aluminium is expected to increase by few folds in the medium term inorder to keep up with the growth anticipated. Further, investments in roads and highways andespecially in the mega scale high rise condominiums and other mixed developments would bolster thedemand for high quality aluminium products which compiles with international standards.

Construction sector growthGDP growth

% %

Source - Prospectus

Source - CBSL


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56%

17%

17%

10%

Alumex Swisstek

Lanka Aluminium Hemnette

0

1,000

2,000

3,000

4,000

5,000

FY11/12 FY12/13 FY13/14 H1Alumex Lanka Aluminium Swisstech

Product/ Plant Capacity (per annum) Current utilizationExtrusion 12,000 MT 40%Anodizing 5,400 MT 40%Powder Coating* 3,600MT 50%Wood effect 360MT 50%Die manufacturing 2400 units 40%Aluminium melting 4,800 MT 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.

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 hasspecialized in the architectural proprietary systems which entail higher margins in addition to cateringto the hardware segment. As a result, ALUM has been granted the opportunity to manufacture theprofiles of international brands such as Aluk and Fletcher Aluminium.

As the only fully integrated manufacturer of aluminium profiles in the country, ALUM is the onlycompany capable of designing and manufacturing extrusion dies (molds). In addition, its the onlymanufacturer of high performance aluminium proprietary systems and several other products. Thishas positioned ALUM ahead of its competitors with the company being able to maintain its overallmarket share over 50% while the figure being 70% for the architectural industry.

In addition to its local dominance, ALUMs regional presence can be seen in Maldives, India andBangladesh. The company is aiming to become a leading supplier of aluminium extrusions in theSouth Asian sub continent. Meanwhile, plans are underway to expand its operations to Myanmar in2014.

Capacity of Aluminium extruders in Sri LankaSri Lankan Aluminium extrusion sales

LKR, 000

Source - Prospectus

Source Alumex Investor Presentation


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67%

19%

14%

51%

35%

11%3%

47%

38%

9%6%

ALUMs plans to move up in the high value addition product range are expected to augur well forcompanys future prospects. In FY08/09, anodized products dominated with a contribution ofapproximately 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 isexpected to continue with the company anticipating to increase the value added product contributionto 53% by FY18/19.

Anodizing Powder coated Extrusions Wood effect

Risks

A sudden increase in global aluminium prices could hinder the demand while hurting companysmargins. 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, increasingenergy costs (which contributes to approximately 10% of cost of sales), slow down in the constructionsector, 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 forsubscription while LKR 588 Mn through an offer for sale. The proceeds received through the offer forsubscription will be utilized for companys future growth by way of an expansion in its powdercoating 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 broad base the public ownership

Moving up in the high value addition products range

FY08/09 FY13/14 FY18/19

Source Alumex Investor Presentation


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In LKR Mn FY09/10 (A) FY10/11 (A) FY11/12 (A) FY12/13 (A) FY13/14 (E) FY14/15 (E)Revenue 1,593.21 2,279.54 2,189.74 2,429.98 2,784.80 3,442.60 Profit after tax 31.59 37.23 114.50 306.35 417.50 527.80 EPS (LKR) 0.11 0.13 0.41 1.09 1.48 1.76 DPS (LKR) 0.36 0.06 0.06 0.36 0.53 - BV (LKR) 0.94 2.18 2.52 3.50 4.93 5.81 Net profit margin (%) 1.98 1.63 5.23 12.61 14.99 15.33 ROE (%) 20.18 10.63 17.42 36.20 33.96 32.85

Recommendation

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 aPER of 9.46X.

We feel the manufacturing sector is currently undervalued compared to the broader market as thesector 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 atdiversifying investments into the manufacturing sector. As we anticipate the broader market to pickup as well, the counter could offer notable upside potential.

In LKR ALUM TILE TKYO ACL TJLEPS (LKR, FY13/14)* 1.48 11.37 7.56 8.92 1.67PER (X)** 9.44 6.25 4.31 7.07 9.10BV (latest available) 3.94 65.17 28.36 95.39 9.64PBV (X)** 3.55 1.09 1.15 0.66 1.58Gearing (%)*** (as at 31.03.2013) 14.56 30.72 39.69 34.52 5.89ROE (%) 33.96 18.00 29.00 9.00 18.00ROA (%) 21.06 14.08 11.14 9.05 12.40Earnings growth - FY13/14 (%) 36.28 21.00 195.00 -4.00 16.00Dividend Yield (%) 3.79 5.30 3.80 1.50 8.00*Based on annualized and forecasted figures

** Based on current prices

***Calculated as Total Debt/Debt+Equity

Based on book value forecast for 31/03/2014, the Alumex PBV is 2.84x

Source - Prospectus & Alumex Investor Presentation

Source - Alumex Investor Presentation & NDBS Research


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Item description Approximate cost (LKR Mn)Powder coating plant

Italtechno powder coating plant 100Building 32 Freight/ insurance, taxes 35 Power supply/ air dryers/ waste water system/ installation/ other 23

190

Die Manufacturing ProcessDie Polishing Plant 22 Wire Cutter 18

40 General Power Supply

1000 KVA Generator 10 10

Total 240

Company Shareholder's Name Shareholding as at 31st Dec 2013%

TILE Lanka Walltiles PLC 68.22TKYO St. Anthony's Consolidated (Pvt) Ltd 27.50

Nippon Coke & Engineering Co. Ltd 23.65South Asian Investment (Pvt) Ltd 20.13

ACL Mr. U. G. Madanayake 38.13Mr. Suren Madanayake 22.21

TJL Pacific Textured Jersey Holdings 40.00

Brandix Lanka Ltd 30.08

Selling shareholder No. of shares offered Date of acquisitionHayleys PLC 18,687,700 4-Nov-10Rosewood (Private) Limited 9,159,700 22-Nov-10Akbar Brothers (Private) Limited 9,159,700 22-Nov-10Star Pack Investments (Private) Limited 4,996,300 22-Nov-10

42,003,400

Appendix 1 Cost break down of the powder coating facility

Appendix 2 Offer for sale divestiture of existing shares

Appendix 3 Main shareholders of comparable manufacturing sector companies

Source - Prospectus

Source - Prospectus


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Appendix 4 Income statement


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Appendix 5 Balance sheet


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Appendix 6 Income statement for the nine months ending 31 December 2013


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Appendix 7 Balance sheet as at 31 December 2013


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Mrs. Prasansini Mendis Chief Executive Officer [email protected] 011 2131005

Sales Branches

Head Office CSE

Mr. Gihan R. Cooray [email protected] 011 2131010 Mr. Sujeewa Athu orala [email protected] 011 3135495

Mr. !ayantha Sa"arasin#he [email protected] 011 2131011 Mrs. Shiro"i $e Silva [email protected] 011 2131073

Mr. Channa a Munasin#he [email protected] 011 2131014 Kiribathgoda

Mr. Aroos %aleel [email protected] 011 2131012 Mr. Gayan Pathirana [email protected] 011 2907515

Mr. Au&urn Senn [email protected] 011 2131013 Matara

Mr. 'ditha Silva [email protected] 011 213101" Mr. (ithsiri )ishantha [email protected] 041 223"757

Mr. *aa"ara $e Silva [email protected] 011 213101# Mr. Sri"al Gunawardana [email protected] 041 223"757

Mr. +"ran Reyal [email protected] 012 2131021 Galle

Mr. Ra"esh Anthony [email protected] 011 2131023 Mr. * A A Aravinda [email protected] 091 2225447

Mr. )i"al (u"ara [email protected] 011 2131022 Gampaha

Mr. Sanjaya Pra&ath [email protected] 011 2131024 Mr. Cha"esh ,ettiarachchi [email protected] 033 2231117Mr. A ra" *hadani [email protected] 011 2131025 Mr. 'ddee-a Peiris [email protected] 033 2231117

Mr. +shan a %ernando [email protected] 011 2131054 Mr. Priyashantha Senevirathne [email protected] 033 2231117

Mr. ,arsha Sritharan [email protected] 011 2131017 Kaluthara

Mr. Sajed Sallay [email protected] 011 2131019 Ran#anath ijethun#e [email protected] 034 22215#9

Mr. Stefan $e Alwis [email protected] 011 2131015 Mr. A A !eewantha [email protected] 035 22215#9

O-erations Jaffna

Mr. C Pad"anathan [email protected] 021 5"71155

Contacts 's [email protected] 011 2131000 Ms. Sanji a Ranjith u"ar [email protected] 021 5"71155

Rathnapura

)$B Securities /Pvt0 1td Mr. +ndrajith 1o uhetti#e [email protected] 045 2230#00

5th %loor& '() )uilding& Ampara

40& 'awam *awatha& +olombo 02 Mr. Ravi $e Mel [email protected] 0"3 2224245

)$B Securities /Pvt0 1td


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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 orimplied, 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 specificpurpose. Prices, opinions and estimates reflect our judgment on the date of original publication and aresubject to change at any time without notice. NDBS reserves the right to change their opinion at any pointin time as they deem necessary. There is no guarantee that the target price for the stock will be met or thatpredicted business results for the company will be met. NDBS accepts no liability whatsoever for anydirect or consequential loss or damage arising from any use of these reports or their contents. Referencesto tax are based on our understanding of current law and Inland Revenue practices, which may changefrom time to time.

Any recommendation contained in this document does not have regard to the specific investmentobjectives, financial situation and the particular needs of any specific addressee. This document is for theinformation of addressee only and is not to be taken as substitution for the exercise of judgment byaddressee. The information contained in any research report does not constitute an offer to sell securitiesor the solicitation of an offer to buy, or recommendation for investment in, any securities within Sri Lankaor 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 applicablelaws of any jurisdiction and none of the research reports is directed to any person in any country in whichthe 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 asanticipate, believe, estimate, expect, and similar expressions as they relate to a company or itsmanagement are not guarantees of future performance. The investments in undertakings, securities orother financial instruments involve risks. Any discussion of the risks contained herein should not beconsidered 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 effecttransactions in securities mentioned herein and may also perform or seek to perform broking, investmentbanking and other financial services for these companies.

alumex initial public offering 28.02.2014

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