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Transcript of Lanka Floortiles Plc - (Tile) - q4 Fy 15 - Buy
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Page 1
Earnings Review Q4 FY 15
20 July 2015
65, Braybrooke Place, Colombo 2, Sri Lanka
[email protected], +94 11 5220200
Lanka Floortiles PLC (TILE:LKR 116.70) Subsidiaries preserve overall margins : BUY
Valuation Summary
Trading Snapshot
BRS Research
Lower CoGs, finance costs and higher contribution from PARQ made TILEs Q4FY15s EPS rise
53% to LKR 5.78. PARQ has been a consistent contributor to TILEs performance in FY 2015,
pushed by subsidiary Swisstek Aluminum. PARQ contributed LKR 111mn for FY 2015
(+112.6% YoY). However, revenue for the year was a modest 5.1% (FY 2015) on the back of
intense competition encountered in both local and export sales. We feel TILE would grow as
a proxy to national growth and more to workers remittances. We have arrived at a TP of
LKR 126 with a total return of LKR 131 (+11.9% to CMP) and maintain BUY.
Local sales are still key and will do so in the forecast period
Local sales continued to dominate TILE revenue with a contribution of 96% for FY 2015. How-
ever, the growth in local sales has contracted since last year, from 12.7% YoY in FY 2014 to
4.4% YoY in FY 2015. Despite intense competition TILE has successfully retained its market
share at 23% in FY 2015. Focus on brand building and loyalty schemes such as Tiler Club and
Lanka Tiles Plus Schemes has gained the TILE brand much popularity during the year. The com-
pany intends on targeting 4 new branches each in FY 2016 and FY 2017 respectively. Export
sales grew 4.1% YoY to LKR 243mn in FY 2015. However, growth in sales and revenue was con-
stricted due to certain delays in exports and a decline in the Australian forex market. TILE
would continue to focus on export performance going forward.
Margins supported by lower costs
EBIT margins for the quarter increased to 25.7% (Q4 FY 15) from 17.7% in Q4 FY 14. The growth
was supported by a 8.2% YoY decline in CoGS. Overall EBIT margin improved during the year
owing to the continuous focus on cost reduction and lower global energy prices in FY 2015.
However, we expect admin costs to escalate on the back of aggressive marketing by the com-
pany. The reduction in gearing from 26% in FY 2014 to 15% in FY 2015 resulted in lower finance
cost, thereby improving net profit margins to 15.7% in FY 2015 (FY 2014 - 12.8%). To remain
competitive in the market TILE would continue to focus on energy and general efficiency in
their product lines.
Valuation: 11.9% total upside with forecasted dividend of LKR 4.50
We see TILEs diversity as a positive given how the variations has added to the overall margin
preservation. Based on a DCF valuation we arrived at a TP of LKR 126.04 (+8.0% to CMP). The
counter is trading at a PER of 7.4x FY 2016E.The sector PER and PBV stands at 20.1x and 2.7x as
at 17.07.2015 respectively.
EPS Trend
For analyst certification and other important disclosures, please refer to the Disclosure and
Disclaimer section at the end of this report.
Source: Company data and BRS Research
TILE Price Vs ASPI Movement
Head of Research- Nikita Tissera
Asst. Manager - Nusrath Mohideen
Market cap (LKR mn) 6,191
Market cap (USD mn) 46
Outstanding equity shares (mn) 53.1
Public Holding (%) -Mar 15 29.15%
52-week High/Low (LKR) 119.40/87.00
YTD ASPI return (%) -3.73%
YTD Stock return (%) 6.09%
Beta 0.94
All figures in LKR (mn) 2012 2013 2014 2015 2016E 2017E
Revenue 3,567 4,559 5,091 5,350 5,705 6,047
Revenue growth (%) 18.8% 27.8% 11.7% 5.1% 6.6% 6.0%
Gross profit 1,145 1,305 1,639 1,928 2,071 2,176
EBIT recurring 760 787 900 980 1,014 1,058
EBIT margin (%) 21.3% 17.3% 17.7% 18.3% 17.8% 17.5%
Profit attributable to equity holders 598 632 652 839 842 864
BRS EPS Adjusted (LKR) 11.28 11.92 12.29 15.82 15.87 16.28
NAV per share (LKR) 52.25 59.67 66.88 77.40 88.77 100.55
DPS (LKR) 4.00 4.10 4.00 4.50 4.50 4.50
Dividend yield (%) 6.1% 5.9% 5.0% 3.9% 3.9% 3.9%
P/E (x) 5.8 x 5.8 x 6.5 x 7.3 x 7.4 x 7.2 x
P/BV (x) 1.2 x 1.2 x 1.2 x 1.5 x 1.3 x 1.2 x
ROE % 26.9% 21.3% 19.4% 21.9% 19.1% 17.2%
Debt/equity (%) 24.7% 44.0% 35.3% 18.1% 16.8% 15.6%
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
20
40
60
80
100
120
140
14-Jul-13 14-Jan-14 14-Jul-14 14-Jan-15 14-Jul-15
LKR
TILE ASPI
4
6
8
10
12
14
16
18
2012 2013 2014 2015 2016E 2017E
LKR
CMP (LKR) 116.70
Intrinsic value (LKR) 126.04
DPS (LKR) 4.50
Target price based on total return (LKR) 130.54
Valuation method DCF
Total return % 11.9%
Rating Buy
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Page 2
Lanka Floortiles PLC (TILE)
Company profile
Company Information Note
20 July 2015
Source: TILE Annual Reports and BRS Research
65, Braybrooke Place, Colombo 2, Sri Lanka
[email protected], +94 11 5220200
Lanka Floortiles PLC (TILE) is engaged in the manufacture
and sale of glazed ceramic floor tiles. The ownership of
the company which belonged to the CT Holdings group
under its subsidiary Lanka Ceramics (CERA) was divested
(76.11%) to Royal Ceramics Lanka PLC (RCL) on the 6th
of
May 2013.
3,567
6,047
28%
12% 5%
7% 6%
2012 2013 2014 2015 2016E 2017E 2017E
Revenue LKR'mn % Growth (2012-2017E)
505
598 6% 3%
29% 0.28% 3%
2012 2013 2014 2015 2016E 2017E 2017E
Profit attributable to equity holders LKR'mn Growth
(2012-2017E)
864
Year Ending 31 March 2012 2013 2014 2015 2016E 2017E
Summary Information
BRS EPS (LKR) adjusted 11.28 11.92 12.29 15.82 15.87 16.28
BRS EPS growth (%) 18.5% 5.7% 3.1% 28.7% 0.3% 2.6%
P/E (x) 5.8 x 5.8 x 6.5 x 7.3 x 7.4 x 7.2 x
Reported EPS (LKR) 11.28 11.92 12.29 15.8 x na na
P/E on reported EPS (x) 5.8 x 5.8 x 6.5 x 7.3 x na na
Sector P/E (x) 17.3 x 10.2 x 13.6 x 21.1 x na na
NAV per share LKR adjus ted 52.25 59.67 66.88 77.40 88.77 100.55
P/BV (x) 1.2 x 1.2 x 1.2 x 1.5 x 1.3 x 1.2 x
Sector P/BV (x) 1.0 x 1.7 x 1.8 x 2.6 x na na
DPS LKR 4.00 4.10 4.00 4.50 4.50 4.50
Dividend yie ld (%) 6.1% 5.9% 5.0% 3.9% 3.9% 3.9%
FCFF (LKR mn) (237) (191) 437 1,559 570 772
FCFE (LKR mn) 199 125 164 1,165 569 759
CFPS LKR (3.34) (1.71) (1.34) 17.43 4.35 6.99
P/CFPS (x) nm nm nm 6.6 x 26.8 x 16.7 x
Mkt price 65.10 69.50 79.80 115.00 116.70 116.70
Weighted a vera ge sha res (mn) 53.1 53.1 53.1 53.1 53.1 53.1
Average mkt ca p (LKR mn) 3,454 3,687 4,233 6,101 6,191 6,191
Enterpri s e value (LKR mn) 3,842 4,729 5,102 5,505 5,313 4,887
EV/Sa les 1.1 x 1.0 x 1.0 x 1.0 x 0.9 x 0.8 x
EV/EBITDA 4.3 x 4.9 x 4.7 x 4.6 x 4.4 x 3.9 x
Income Statement (LKR mn)
Revenue 3,567 4,559 5,091 5,350 5,705 6,047
Gross profi t 1,145 1,305 1,639 1,928 2,071 2,176
EBITDA recurring 895 967 1,093 1,194 1,199 1,241
Deprecia tion a nd a morti s ation (134) (180) (193) (214) (185) (183)
EBIT recurring 760 787 900 980 1,014 1,058
Interest income - - - 24 - -
Interest expense (29) (120) (126) (49) (46) (57)
Share of a ssocia tes /(los s) 10 9 52 111 97 99
Exceptiona ls/non-recurrings - - - - - -
Ta x expense (142) (75) (174) (226) (224) (237)
Net income 598 632 652 839 842 864
Minori ties & preference dividends - - - - - -
Profi t attributable to equi ty holders 598 632 652 839 842 864
Statement of Financial Position (LKR mn)
Ca sh a nd ca sh equiva lents 35 81 75 847 1,078 1,448
Inventories 782 1,464 1,474 1,137 1,516 1,607
Trade receiva bles 690 1,006 1,148 899 1,137 1,339
Investment property - - - - - -
Long term investments - - - - - -
Fixed as sets 2,260 2,486 2,584 2,533 2,520 2,488
Goodwi l l - - - - - -
Inta ngible as sets - - - - - -
As socia tes 261 270 309 493 590 690
Tota l ass ets 4,284 5,539 5,725 6,012 6,944 7,675
Trade paya bles 575 659 464 536 695 669
Interest bearing debt -short term 305 876 764 361 382 404
Interest bearing debt -long term 379 517 488 384 407 430
Tota l l ia bi l i ties 1,512 2,374 2,177 1,906 2,234 2,341
Shareholders equi ty 2,772 3,166 3,548 4,106 4,709 5,334
Minori ties - - - - - -
Tota l equi ty 2,772 3,166 3,548 4,106 4,709 5,334
Net debt (cas h) 649 1,312 1,177 (102) (288) (614)
Tota l capi ta l employed 3,456 4,559 4,800 4,851 5,499 6,169
Casf flow (LKR mn)
Ca sh flow from operations 260 125 567 1,685 596 716
Net working capi tal (412) (687) (348) 573 (458) (318)
Ca pi tal expendi ture (659) (408) (237) (129) (171) (151)
Free cas h flow (399) (283) 330 1,556 425 564
Investing ca sh flows (837) (404) (237) (197) (171) (151)
Equi ty capi tal - - - - - -
Dividends pa id (53) (239) (244) (212) (239) (239)
Net borrowings 462 427 (157) (349) 45 45
Net cas h flow (177) (91) (71) 925 231 371
Key ratios
Revenue growth (%) 18.8% 27.8% 11.7% 5.1% 6.6% 6.0%
EBIT growth (%) 7.7% 3.5% 14.4% 8.8% 3.5% 4.3%
Gross profi t margin (%) 32.1% 28.6% 32.2% 36.0% 36.3% 36.0%
EBITDA margin (%) 25.1% 21.2% 21.5% 22.3% 21.0% 20.5%
EBIT margin (%) 21.3% 17.3% 17.7% 18.3% 17.8% 17.5%
ROCE % 28.7% 19.6% 19.2% 20.3% 19.6% 18.1%
ROE % 26.9% 21.3% 19.4% 21.9% 19.1% 17.2%
Pa yout ra tio (%) 35.5% 34.4% 32.5% 28.4% 28.4% 27.6%
Debt/equi ty (%) 24.7% 44.0% 35.3% 18.1% 16.8% 15.6%
Net debt/equi ty (%) 23.4% 41.5% 33.2% -2.5% -6.1% -11.5%
Gea ring (%) 19.8% 30.6% 26.1% 15.3% 14.4% 13.5%
Interest cover (x) 26.5 x 6.5 x 7.1 x 19.9 x 22.1 x 18.5 x
1,058
760 3%
14%
9% 4%
4%
2012 2013 2014 2015 2016E 2017E 2017E
EBIT LKR'mn Growth (2012-2017E)
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Page 3 www.bartleetreligare.com
Based on a free cash flow valuation we have arrived at a target price of LKR
126.04 Our valuations are based on the following estimates:
WACC 12.0%
Terminal growth rate 1.5%
Risk free rate 8.24%
Beta 0.94 (based on TILE vs. ASPI share price movement)
Equity risk premium- 5%
BRS Equity Research
Local Vs. Export Sales Performance Q4 FY 15
Valuation estimates
Q4 FY 15 Performance
Sensitivity of Target Price to Risk Free Rate
3% 3%
97% 97%
0%
20%
40%
60%
80%
100%
120%
Q4 FY 14 Q4 FY 15
Local Sales Export Sales
All figures in LKR 'mn Q4 FY 15 Q4 FY 14
Revenue 1,426.8 1,392.7
YoY Growth % 2.4% 11.7%
QoQ Growth % -10.4% -5.5%
Gross profit 589.7 480.7
Gross profit margin % 41.3% 34.5%
Recurring net profit to equity holders 305.9 199.8
YoY Growth % 53.1% -22.6%
QoQ Growth % 21.4% 1.5%
BRS EPS as adjusted (LKR) 5.77 3.77
NAV per share (LKR) 77.40 66.88
Net debt/ equity (%) -2.5% 33.2%
Gearing (%) 15.3% 26.1%
EV/Sales (x) 0.9 1.0
EV/EBITDA (x) 4.2 4.5
Risk free rate
126.04 7.00% 7.50% 8.24% 8.50% 9.00% 9.50%
1.0% 136.35 130.51 122.69 120.15 115.55 111.27
Terminal growth 1.5% 140.70 134.41 126.04 123.33 118.43 113.89
2.0% 145.53 138.73 129.72 126.82 121.58 116.74
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Page 4 www.bartleetreligare.com
Financial Analysis
BRS Equity Research
Income Statement- Lanka Floortiles PLC
Year Ending 31st March
LKR mn 2012 2013 2014 2015 2016E 2017E
Revenue net of tax 3,567 4,559 5,091 5,350 5,705 6,047
YoY growth % 18.8% 27.8% 11.7% 5.1% 6.6% 6.0%
Cost of sales (2,422) (3,253) (3,452) (3,422) (3,634) (3,871)
YoY growth % 25.4% 34.3% 6.1% -0.9% 6.2% 6.5%
Gross profit 1,145 1,305 1,639 1,928 2,071 2,176
YoY growth % 14.0% 25.5% 17.6% 7.4% 5.1% 0.0%
Gross profit margin % 32.1% 28.6% 32.2% 36.0% 36.3% 36.0%
Other operating income 3 38 33 25 27 31
SG & A Expenses (388) (556) (772) (972) (1,084) (1,149)
YoY growth % 1.4% 43.3% 38.8% 26.0% 11.5% 6.0%
Depreciation and amortisation (134) (180) (193) (214) (185) (183)
EBIT including non-recurring items 760 787 900 980 1,014 1,058
Non-recurring items - - - - - -
EBIT excluding non-recurring items 760 787 900 980 1,014 1,058
YoY growth % 7.7% 3.5% 14.4% 8.8% 3.5% 4.3%
EBIT Margin % 21.3% 17.3% 17.7% 18.3% 17.8% 17.5%
EBITDA excluding non-recurring items 895 967 1,093 1,194 1,199 1,241
YoY growth % 4.7% 8.1% 13.0% 9.2% 0.5% 3.5%
EBITDA Margin % 25.1% 21.2% 21.5% 22.3% 21.0% 20.5%
Finance cost (30) (82) (126) (25) (46) (57)
Share of results of associates 10 9 52 111 97 99
Profit before tax 741 715 827 1,065 1,065 1,100
Taxation (142) (75) (174) (226) (224) (237)
Net profit 598 632 652 839 842 864
YoY growth % 18.5% 5.7% 3.1% 28.7% 0.3% 2.6%
Net profit margin % 16.8% 13.9% 12.8% 15.7% 14.8% 14.3%
Reported EPS (Note 1) 11.28 11.92 12.29 15.82 15.87 16.28
BRS EPS adjusted (Note 2) 11.28 11.92 12.29 15.82 15.87 16.28
Source: Company Financial Reports and BRS Equity Research
Note 1: Based on earnings as reported (unadjusted for non-recurring) share data adjusted for splits
Note 2: EPS adjusted for share split, consolidations and non recurring information
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Page 5 www.bartleetreligare.com
BRS Equity Research
Financial Analysis
Statement of Financial Position- Lanka Floortiles PLC
As at 31st March
LKR mn 2012 2013 2014 2015 2016E 2017E
ASSETS
Non- current assets
Property, plant and equipment 2,260 2,486 2,584 2,533 2,520 2,488
Capital work in progress 87 65 24 23 23 23
Intangible assets - - - - - -
Investments in subsidiaries - - - - - -
Investments in associates 261 270 309 493 590 690
Goodwill - - - - - -
Related party loans 166 166 110 80 80 80
Finance lease assets - - 1 - - -
Total non current assets 2,774 2,988 3,028 3,130 3,213 3,281
Current assets
Inventories 782 1,464 1,474 1,137 1,516 1,607
Trade and other receivables 690 1,006 1,148 899 1,137 1,339
Short term investments 4 0.17 - - - -
Cash and cash equivalents 35 81 75 847 1,078 1,448
Total current assets 1,510 2,551 2,697 2,883 3,730 4,394
Total assets 4,284 5,539 5,725 6,012 6,944 7,675
EQUITY
Stated capital 901 901 901 901 901 901
Reserves 1,411 1,804 2,647 2,745 3,348 3,973
Amalgamation reserve 460 460 - 460 460 460
Total equity 2,772 3,166 3,548 4,106 4,709 5,334
LIABILITIES
Non-current liabilities
Borrowings 379 517 488 384 407 430
Deferred income tax liabilities 179 173 379 361 382 404
Retirement benefit obligations 63 78 88 111 122 132
Total non current liabilities 621 768 917 870 904 938
Current liabilities
Trade and other payables 575 659 464 536 695 669
Current income tax liabiities 11 70 33 140 253 329
Borrowings 219 508 379 361 382 404
Bank overdraft 86 368 385 - - -
Dividends payable - - - - - -
Total current liabilities 891 1,606 1,260 1,036 1,330 1,403
Total liabilities 1,512 2,374 2,177 1,906 2,234 2,341
Total equity and liabilities 4,284 5,539 5,725 6,012 6,944 7,675
Source: Company Financial Reports and BRS Equity Research
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Page 6 www.bartleetreligare.com
BRS Equity Research
Financial Analysis
Cashflow Statement - Lanka Floortiles PLC
Year Ending 31st March
LKR mn 2012 2013 2014 2015 2016E 2017E
Cash flows from operating activities
EBIT 760 787 900 980 1014 1058
Depreciation 134 180 193 214 185 183
Gratuity charge 9 1 9 15 16 16
Profit/loss on disposal of property, plant and equipment (2) (4) 3 (1) - -
Provision for slow moviong inventories (31) - - 5 - -
Proportionate interest of the unrealized profit on SCP - - - - - -
and SAL inventories held by LFP 5 - - - - -
Reversal of provision for spares - - - - - -
Exchange loss from foreign currency loan - (12) - - - -
Operating profit before working capital changes 876 951 1,105 1,227 1,215 1,257
Changes in working capital (412) (687) (348) 573 (458) (318)
Cash generated from operations 464 264 758 1800 757 939
Interest paid (29) (120) (150) (49) (46) (57)
Interest received 2 - - 21 - -
Gratuity paid (2) - - (7) (5) (6)
Tax paid (174) (19) (41) (81) (110) (160)
(203) (139) (191) (115) (161) (223)
Net cash generated from operating activities 260 125 567 1,685 596 716
Cash flows from investing activities
Purchase of property, plant and equipment (659) (408) (237) (129) (171) (151)
Proceeds from sale of property, plant and equipment 37 4 - 2 - -
Purchase of shares in associates - - - - - -
Proceeds from sale of shares in associates - - - - - -
Expenditure incurred on capital work in progress (215) - - (35) - -
Purchance of shares on rights issue - - - - - -
Net cash generated from/(used in) investing activities (837) (404) (237) (197) (171) (151)
Cash flow from financing activities
Return from rights issue - - - - - -
Expenses on reserve capitalization - - - - - -
Dividends paid (53) (239) (244) (212) (239) (239)
Repayment of finance lease (10) - - (3) - -
Proceeds from borrowings 558 948 600 335 200 200
Repayment of borrowings (96) (521) (757) (683) (155) (155)
Net cash generated from/(used in) financing activities 400 188 (401) (563) (194) (194)
Net increase/decrease in cash and cash equivalents (177) (91) (71) 925 231 371
Source: Company Financial Reports and BRS Equity Research
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Page 7 www.bartleetreligare.com
BRS Equity Research
Top 20 Shareholders as at 31st March 2015
Source: Q4 FY 15 TILE statements
Name of shareholder No. of shares %
1 Lanka Walltiles PLC 36,189,195 68.22%
2 Employees Provident Fund 5,295,602 9.98%
3 Mellon-Frontaura Global Frontier Fund LLC 3,255,228 6.14%
4 Royal Ceramics Lanka PLC 1,388,481 2.62%
5 Bank of Ceylon No.1 Account 973,200 1.83%
6 Mr. K.R. Kamon 537,628 1.01%
7 Mr. A. A. Page 433,939 0.82%
8 Rubber Investment Trust Limited A/C NO 1 259,765 0.49%
9 Pinnacle Trust (Pvt) Ltd 214,800 0.41%
10 Deutsche Bank AG-Comtrust equity fund 138,631 0.26%
11 The Sri Lanka Fund 131,267 0.25%
12 Aruna Enterprises (Pvt) Ltd 128,500 0.24%
13 Mr.S.M. Fernando 126,446 0.24%
14 Mrs.A.A. Merchant 125,000 0.24%
15 HSBC Intl nom Ltd - USB Ag Zurich 115,164 0.22%
16 Mr.Y.H. Abdulhessein 104,833 0.20%
17 Mr.S.N. Kumar 100,600 0.19%
18 Mr.H.N. Esufally 87,240 0.16%
19 Mr. M A H Esufally 87,217 0.16%
20 Mrs. B C Sansoni 63,000 0.12%
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Page 8 www.bartleetreligare.com
BRS Equity Research
DISCLAIMER
Important Disclosures
This report was prepared by Strategic Research Limited for clients of Bartleet Religare Securities.
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Stock Ratings
Recommendation
Expected absolute returns (%) over 12 months
Buy
More than 10%
Hold
Between 10% and 0
Sell
Less than 0%
Expected absolute returns are based on the share price at market close unless otherwise stated. Stock recommendations are based on absolute upside (downside)
and have a 12-month horizon. Our target price represents the fair value of the stock based upon the analysts discretion. We note that future price fluctuations
could lead to a temporary mismatch between upside/downside for a stock and our recommendation.
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