BOC Bangladesh (October 2011)

7/31/2019 BOC Bangladesh (October 2011)

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BOC Bangladesh Limited(DSE: BOC; Bloomberg: BOC:BD)

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Revenue and Margin

BOC achieved 17.4% annual revenue growth and 29.3% annual earningsgrowth in the last six years. We projected revenue to grow at 13.6%

annually and earnings to grow at 13.0% annually over the next six years.Profit growth will be slightly lower relative to revenue growth as we expectthe operating efficiency to slow down in coming years. In 2010, BOCachieved 41.9% gross margin and 25.7% operating margin, the highest inthe last decade. High sales volume lowered fixed cost per unit and helpedthe company achieve economies of scale. Capacity utilization was 94.8%in aggregate level (combining all the revenue generating segments ofBOC). With capacity of electrodes already being increased in 2011 andmore to be added by 2013, BOC may not be able to achieve the same levelof operating efficiency as in 2010. Higher depreciation per unit (because ofadditional capacity) may result in lower gross margin in following years.

Revenue growth is expected to remain steady and post double-digit growthin the following years. Electrode unit will generate bulk of the companystotal revenue. Electrodes are primarily consumed for welding purpose in

construction and industrial sector. Annual Real GDP growth was around6% in the last decade and is expected to be even higher in the currentdecade. The government has already planned to achieve double-digit GDPgrowth rate by 2017. With higher economic growth in sight, there will bemore activity in real-estate, construction and manufacturing sector. It willdrive revenue growth for the electrode unit.

Revenue from dissolved acetylene and oxygen will continue to providechallenge to the management. Acetylene has been posting negativevolume growth over the last eight years with capacity utilization dipping to33% in 2010; it was 78% in 2003. In absence of any feedback from themanagement of the company, we considered steady 4% decline in annualsales volume (which is the CAGR of volume in last six years) of acetyleneand 6% rise in its unit price in the coming years.

Liquid oxygen is an important input for the ship breaking industry. Theindustry suffered a big set-back last year as the government imposed newrequirement of obtaining No Objection certificate from the Department ofEnvironment. Demand for liquid oxygen and compressed oxygen fellbecause of lack of activity in this industry. However, contribution of the twosegments is relatively small to the total revenue. Growth in electrode salesand other segments including hospital care and other industrial gases willfuel companys revenue.

2006 2007 2008 2009 2010 2011E 2012E 2013E 2014E 2015E 2016E 2017E

Revenue 21.5% 6.0% 24.9% 9.8% 16.6% 15.2% 13.4% 14.1% 14.1% 11.4% 12.9% 12.9%

Gross Profit 21.6% 7.5% 21.2% 33.0% 20.9% 11.2% 10.6% 11.3% 15.6% 11.4% 12.9% 12.9%

Operating Profit 12.4% 28.9% 25.6% 43.6% 35.9% 6.0% 9.6% 9.8% 18.2% 11.8% 14.3% 14.0%

Earnings 26.3% 33.8% 36.3% 69.7% 9.5% 8.2% 8.0% 8.5% 17.4% 12.4% 14.3% 15.2%

EBITDA 39.2% -5.0% 18.5% 33.1% 28.8% 7.0% 11.0% 10.8% 16.7% 11.6% 12.4% 13.0%

Table 2: Growth Rates

Source: Annual Report, BRAC EPL Research, October 2011

2006 2007 2009 2010 2011E 2012E 2013E 2014E 2015E 2016E 2017E2008

Gross Margin 33.9% 34.4% 40.5% 41.9% 40.5% 39.5% 38.5% 39.0% 39.0% 39.0% 39.0%33.4%

Operating Margin 13.8% 16.8% 22.0% 25.7% 23.6% 22.8% 22.0% 22.8% 22.9% 23.2% 23.4%16.9%

Net Income Margin 10.4% 13.2% 22.2% 20.9% 19.6% 18.7% 17.7% 18.3% 18.4% 18.7% 19.1%14.4%

EBIT Margin 13.8% 16.8% 22.0% 25.7% 23.6% 22.8% 22.0% 22.8% 22.9% 23.2% 23.4%16.9%

EBITDA Margin 20.9% 23.5% 27.0% 29.8% 27.7% 27.1% 26.3% 26.9% 27.0% 26.9% 26.9%22.3%

Table 3: Margin Ratios

Source: Annual Report, BRAC EPL Research, October 2011

Capacity Production UtilizationYear

32,558 19,825 60.9%2004

32,558 21,103 64.8%2005

41,572 31,529 75.8%2006

33,258 25,108 75.5%2007

33,258 25,656 77.1%2008

33,458 27,771 83.0%2009

33,458 31,725 94.8%2010

Table 1: Total Capacity Utilization

Electrode unit will continuegenerating most of the companys

revenue

. Acetylene has been experiencingnegative volume growth over the last

eight years

Source: BRAC EPL Research, October 2011

Oxygen sales have also suffer fromregulations in ship breaking industry


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In fact the management of BOC has launched project ASSERT in 2010with aggressive growth strategy, aimed at doubling revenue and profit by2015. Based on their target, revenue and profit are expected to grow at14.9% annually over the next five years. However, we projected aconservative revenue growth rate of 13.7% over the same period.

Apart from project ASSERT, BOC also implemented HPO (HighPerformance Organization) program in 2009 to lower its operating cost.Operating expense to sales went down from 22.1% in 2004 to 16.3% in2010. However, we expect the ratio to increase marginally in coming yearsbecause of capacity addition. Moreover, there has been a hike in oil priceas well as power tariff recently; it may increase the level of operatingexpense if the company is unable to pass on the cost to the endconsumers. In 2010, fuel & power accounted for 4.2% of cost of goods sold(COGS) while delivery & vehicle running expenses accounted for 20.2% oftotal operating expense.

COGS and Raw Materials

The chart below shows the purchasing cost of major raw materials of BOCand their respective weightings. Raw material accounts for almost three-fourth of the total COGS. In 2008, there was a steep rise in raw materialcost; wire price almost doubled in that year and BOC was able to pass onlya portion of it to the end consumers. COGS was 66.6% in 2008, muchhigher compared to 59.5% and 58.1% in the next two years. 2009 and2010 were two exceptional years when the raw material cost (per unit)declined and the company achieved very high sales volume. The two-foldimpact of higher capacity utilization and lower purchasing costs resulted invery high gross margins and operating margins. However, we do notexpect such favorable conditions to continue in the following years. Weprojected COGS to increase and hover around 61% in future years.

Positive Net Cash Balance and No Leverage

BOC is a cash rich company with no leverage. Cash balance totaled BDT1.1 billion as on Dec 30, 2010 and there is no interest bearing debtoutstanding on their balance sheet. The company invests most of the cashin local fixed deposit accounts and earns interest income. Interest rate hasrisen in the economy following liquidity crisis in the countrys financialsector. Moreover the government is pursuing a contractionary monetarypolicy to curtail inflation. As a result, companies with positive net cashbalance, such as BOC, will benefit from upward movement in interest rate.More importantly, there is no exposure of the cash balance to the volatilecapital market of the country.

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

2003 2004 2005 2006 2007 2008 2009 2010

Priceper'000M

T

Calc ium Carbide (6%) Wire (59%) Blended Powder (23%)

Chart 1: Purchase price of major raw materials

BOC has no outstanding debt andhas huge positive net cash balance,

most of which is invested in FixedDeposits; there is no exposure to thevolatile capital market of Bangladesh

Source: Company Data, BRAC EPL Research, October 2011

Last year the management of BOChas set target to double revenue and

profit by 2015

Operating performance haveimproved significantly over the years.However the improvement is likely to

slow down in coming years

Raw material accounted for almostthree-fourth of the total COGS in

2010. Any adverse movement in thepurchase price will lower the gross

margin, which took place in 2008


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High Pay-Out Ratio

BOC has consistently maintained a high payout ratio (over 60% in the lasteight years) which is expected to continue in the future. In 2010, they paidout 80% of their earnings. In 2011, the company already paid out BDT 25per share as interim cash dividend, which is more than 100% of its half

yearly EPS of BDT 23.5 per share.

Dividend Yield

BOC paid BDT 35 per share as dividend in 2010; dividend yield was 5.1%in the year which was only second to British American Tobacco with 6.0%yield. Dividend yield for the market was about 2% at the same time.However, BOC already paid out BDT 25 per share as interim dividend for2011 and final dividend is projected at BDT 10 per share. Yield for finaldividend is only 1.6% with current market price of BDT 636.30. Totaldividend yield will be 5.5%, considering both interim and final dividend.

Strong Resilience

BOC has been one of the most resilient stocks of the Dhaka StockExchange (DSE) in 2011. The stock exchange has been suffering from

prolonged market correction since December 2010. The general index ofDSE (DGEN) is down by 30.5% YTD while BOC retraced by only 8.1% inthe same period. BOC also outperformed the market in the longer horizon.Table 4 shows the three year and five year return of BOC and DGEN.

Implementation Risk of Capacity Enhancement Project

The new expansion project of the electrode unit is expected to beoperational by the start of 2013. Currently BOC is operating over fullcapacity with 119.4% utilization rate in 2010. Electrode sales has been themajor driver of revenue in the last two years and increased activity in theconstruction, real state and manufacturing sector will drive future revenue.

In case the capacity is not increased timely, BOC will struggle to meet theincreased demand and will lose an opportunity to increase revenue.

Price of raw materials

As seen earlier, raw material prices play a significant role in determiningthe level of COGS which in turn determines the gross margin. We assumedCOGS would increase from the current level of 58% (in 2010) to reach 61%in coming years. However if there is any abrupt price hike of raw materials(like in 2008), the COGS may exceed our projection in case the company isunable to pass on the cost to its customers.

60.0

70.0

80.0

90.0

100.0

110.0

De c- 10 Fe b- 11 Mar -1 1 May-1 1 Ju n- 11 Ju l-1 1 Se p- 11

BOC DGEN

Chart 2: Relative Performance of BOC and DGEN

Source: DSE, BRAC EPL Research, October 2011

BOC has one of the highest dividendyield in the market. It already paid

out BDT 25 per share as interimdividend for 2011 which is more than

100% of its half yearly earnings

BOC DGEN

YTD -8.1% -30.5%

3 Year 105.4% 92.0%

5 Year 477.9% 281.2%

Table 4: Price return of BOC:

Capacity Production UtilizationYear

13,000 10,569 81.3%2002

13,000 10,990 84.5%2003

2004 14,500 8,543 58.9%2005 14,500 10,019 69.1%

19,000 16,102 84.7%2006

15,200 12,356 81.3%2007

15,200 12,262 80.7%2008

15,400 14,062 91.3%2009

15,400 18,382 119.4%2010

Table 5: Electrodes Capacity Utilization

Source: Company Data, October 2011

Source: DSE, BRAC EPL Research, October 2011


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Valuation

We have estimated nine-month forward fair value of BOC at BDT 720.00per share as on June 2012. With current market price of BDT 633.00 pershare, the fair value implies 13.7% capital gain. Together with expecteddividend yield of 1.6%, total return will be 15.3% in nine months.

(Valuation method is given in the following page).

Half-Year 2011 Results

BOC recently disclosed their half-yearly earnings for 2011. Revenuegrowth in the six month period was 21.0% compared to the same periodlast year while earnings posted only 7.9% growth. COGS was 59.1% in1H11 compared to 57.3% in 1H10, which resulted in lower growth of grossearnings relative to revenue. Operating expense to sales ratio alsoincreased to 17.0% in the first six months of the year; it was 15.8% in thesame period last year. We projected gross margin and operating margin tofall slightly in 2011 and so far the half yearly results does reflect thescenario. Net profit margin in 1H11 was 19.3% while our projection standsat 19.6% for the full year.

Upcoming Events

The company just completed their third quarter for 2011; operating result isdue within this month. According to the quarterly financial data (availablesince 2009), earnings is spread evenly throughout all quarters with the

fourth quarter yielding the highest revenue. Table 7 shows the quarter wisebreakdown of revenue over the last two years.

1H'2010 2011E1H'2011Revenue Growth 11.4% 15.2%21.0%

COGS 57.3% 59.5%59.1%

Gross Margin 42.7% 40.5%40.9%

Operating Expense to Sales 15.8% 16.9%17.0%

Operation Margin 26.9% 23.6%23.9%

Earnigns Growth 3.5% 8.2%7.9%

Net Margin 21.6% 19.6%19.3%

Table 6: Comparison of Half-Year Result with Ful l Year Projection

Source: Quarterly Report, BRAC EPL Research, October 2011

2009 2010

First Quarter 24.9% 23.5%

Second Quarter 25.3% 24.4%

Third Quarter 23.2% 24.8%

Fourth Quarter 26.5% 27.2%

Table 7: Quarter wise Revenue

Source: Quarterly Report, October 2011


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Valuation Method

We have used DCF valuation and relative valuation (Price/Earnings multiplebased) in deriving the fair value of the BOC Bangladesh. Our DCF valuationgave us a fair value of BDT 715.90 per share as at June 2012. We haveconsidered a discount rate of 15.0% and a terminal growth rate of 6.0%

while using DCF valuation.

For relative valuation, we have used historical trailing multiples at which BOCshares have traded over the last four years. Chart 3 (on next page) shows thehistorical P/E multiple of BOC. Average P/E multiple was 15.3x over the lastfour years while we used a P/E multiple of 15.0x for our valuation purpose. Wealso compared this multiple with similar companies across the region in table 11(on next page). There is only one listed company in DSE, BD Welding, withoperations similar to BOC. However BD Welding is trading at a very high P/Emultiple of 200.4x based on latest quarterly results. Based on estimated 2011EPS of BDT 47.50, the relative price of BOC stands at BDT 712.47 per share.

Using the average of the two values, the fair value of BOC Bangladesh standsat BDT 720.00 per share as at June 2012. Our estimated fair price implies aforward P/E multiple of14.0xover 2012E earnings. With current price of BDT633.00, the fair price implies 13.7% price return in the next nine months. Finaldividend for 2011 is projected at BDT 10 per share, which will provide 1.6%dividend yield at the current market price. Combining the two, the total return isexpected to be 15.3% over the next nine months.

(BDT million) 2011 2012 2013 2014 2015 2016 2017

EBIT 870.9 954.8 1,048.7 1,239.8 1,386.2 1,584.1 1,806.1

Cash Income Tax (215.6) (236.3) (259.5) (306.8) (343.1) (392.1) (447.0)

Depreciation 150.3 178.2 206.7 225.5 249.3 253.6 269.8

Change in working capital (139.1) (108.5) (38.0) (145.1) (105.0) (115.0) (130.5)

Cash Flow from operation 666.5 788.2 957.8 1,013.4 1,187.4 1,330.7 1,498.3

Capital Expenditure (300.0) (400.0) (350.0) (250.0) (400.0) (300.0) (250.0)

FCFF 366.5 388.2 607.8 763.4 787.4 1,030.7 1,248.3

Terminal Value 14,702.7

Net Cash Flow 366.5 388.2 607.8 763.4 787.4 1,030.7 15,951.0

Discount rate 15.0% NPV (June 2012): 9,820.7

Terminal growth rate 6.0% Cash & Cash Equivalent: 1,074.4

No. of shares (millions) 15.2 Interest bearing Debt 0.0

NPV per share (2011 end) 715.90 Total Equity Value: 10,895.1

Table 8: Discounted FCF


Using DCF and relative valuation, wearrived at a fair value of BDT 720 per

share at June 2012. With projecteddividend yield of 1.6%, our fair price

will yield a total return of 15.3% innine months, based on the current

market price

Table 9: Relative Valuation

2011 Estimates EPS 47.50

Multiple used 15.0x

Relative Price 712.47

Table 10: Fair Value and Return

Fair Value (at June 2012) 720.00

Current Market Price (Aug 7, 2011) 633.00

Price Return 13.7%

Cash Dividend per share 10.00

Dividend Yield 1.6%

Total Return 15.3%


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Sensitivities

We assess the sensitivities of our valuation to key assumptions. DCF value ismost sensitive to change in terminal growth rate and discount rate. With regardsto our key inputs (Terminal Growth 6% & Discount Factor 15%), per share valueranges from BDT 468 to BDT 1,964 for different combinations of terminalgrowth (4%-8%) and discount rate (11%-19%) as shown in the table below.

In case of P/E multiple valuation, we used 2011E EPS and 15x multiple. Forvarious range of P/E multiple (7x - 23x) and different level of earnings estimate,per share price ranges from BDT 358 to BDT 1,012 as shown in table 13 in thenext page. The different level of earnings around the base EPS of BDT 47.50 isgiven by 2.5%, 5% and 7.5% standard deviation of the projected earnings.

Companies RegionStock

ExchangeCurrency

Market

Price

EPS

(TTM)P/E

BOC India India Natl India INR 302.05 10.98 27.5x

BOC Pakistan Pakistan KSE PKR 106.50 11.99 8.9x

Linde AG Germany XETRA EUR 103.40 6.63 15.6xYingde Gases Hong Kong HKG HKD 7.54 0.41 18.4x

Praxair, Inc America NYSE USD 94.21 5.13 18.4x

Air Liquide France EPA EUR 87.76 5.24 16.7x

17.6xAverage of multiples:

Table 11: Comparative companies

Source: Bloomberg Businessweek, October 2011

Table 12: Implied Per Share Value at different Terminal Growth & Discount Rate

Terminal Growth Rate

DiscountRate

Legend:

XXX Price within 52 weeks High-Low range

XXX Price range within key inputs

52 week high-low: 506.60 863.00

Current Price: 636.30

4% 5% 6% 7% 8%

11% 979 1,101 1,272 1,528 1,955

12% 857 945 1,063 1,227 1,473

13% 763 829 914 1,026 1,18414% 689 739 802 884 992

15% 628 667 716 777 855

16% 577 609 647 694 752

17% 534 560 591 628 673

18% 498 519 544 574 609

19% 466 484 505 529 557

0.0

3.0

6.0

9.0

12.0

15.0

18.0

21.0

24.0P/E (Trailing)


Chart 3: PE band (Trailing) for BOC Bangladesh


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A full set of financial statement (income statement, cash flow statement andbalance sheet) is given in Appendix-2 (page 10 and 11) while important ratios

are given in Appendix-3 (page 12).

Table 13: Implied Per Share Value at different projected EPS and P/E multiple

2011E EPS

P/Emultiple

43.94 45.12 46.31 47.50 48.69 49.87 51.06

7.0x 308 316 324 332 341 349 357

9.0x 395 406 417 427 438 449 460

11.0x 483 496 509 522 536 549 562

13.0x 571 587 602 617 633 648 664

15.0x 659 677 695 712 730 748 766

17.0x 747 767 787 807 828 848 868

19.0x 835 857 880 902 925 948 970

21.0x 923 948 973 997 1022 1047 1072

23.0x 1011 1038 1065 1092 1120 1147 1174

Legend:

XXX Price within 52 weeks High-Low range

XXX Price range within key inputs

52 week high-low: 506.60 863.00

Current Price: 636.30


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Review of 2010 results

The total revenue of BOC reached BDT 3.2b in 2010, 16.6% higher than BDT2.7b in 2009. The growth in revenue mostly generated from the electrodesegment which recorded 20.9% revenue growth last year and accounted for61.8% of the companys total revenue. Table 14 shows the revenue breakdown

and growth of the various segments that BOC operates. ASU gases sufferedfrom 4.9% negative volume growth but its 15.3% price increase ensured 9.7%revenue growth for the segment.

Gross profit margin was 41.9% in 2010, the highest since 42.3% in 2001.Higher capacity utilization resulted into economies of scale and helped thecompany lower the cost of sales. Gross profit growth in 2010 was 20.9%, whichequals last five years average growth rate. Higher volume sales also resultedinto much higher operating profit growth in 2010. Operating expense to saleswent down from 18.4% in 2009 to 16.3% in 2010 owing to higher production. Ithelped the company achieve the highest operating margin of 25.6% in the lastdecade.

However earnings growth was relatively lower (9.5%) in 2010 mainly becausethe company had significant other income in 2009. Other income to sales was6.1% in 2009, majority of which came from sale of lease land. Other income tosales was 2.5% in 2010 which generated mainly from financial income. Profitbefore tax margin was same in 2010 and 2009 (28.2%) but lower deferred taxincome in 2010 lowered the net profit margin to 20.9% in 2010.

2010 Performance compared to our Estimates

Actual sales revenue in 2010 was 5.0% higher than our projected revenue ofBDT 3,046.6m as the electrode sales surpassed our expectation. COGS andoperating expense to sales was marginally higher than our estimate whilefinancial income was lower than projected. As a result actual profit before tax(PBT) margin was 0.6% lower than our estimate. Higher provision for currenttax in 2010 and lower deferred tax income resulted in 1.5% lower net margincompared to our projection.

Details 2008 2009 2010

Revenue 100.0% 100.0% 100.0%

COGS 66.6% 59.5% 58.1%

Gross Profit 33.4% 40.5% 41.9%

Operating Expenses 16.5% 18.4% 16.3%

Profit From Operation 16.9% 22.0% 25.7%

Other Net Income 1.5% 6.1% 2.5%

Profit before Tax 18.3% 28.2% 28.2%

Provision for Tax 3.9% 5.9% 7.4%

Net Profit 14.4% 22.2% 20.9%

Table 17: Common Size Income Statement (2008-2010)

Details Forecast Actual

Revenue 100.0% 100.0%

Cost of Sales 58.0% 58.1%

Gross Profit 42.0% 41.9%

Operating Expenses 16.0% 16.3%

Operating Profit 26.0% 25.7%

Other Net Income 2.8% 2.5%

Profit before Tax 28.8% 28.2%

Provision for Tax 6.5% 7.4%

Net Profit for the year: 22.4% 20.9%

Table 18: Common-size analysis



Weight Growth

ASU Gases 15.7% 9.7%

Dissolved Acetylene 4.9% -3.9%

Electrodes 61.8% 20.9%Others 17.6% 15.7%

Total 16.6%

2010

Revenue Growth 16.6%Gross Profit Growth 20.9%

Operating Profit Growth 35.9%

Earning Growth 9.5%

EBITDA Growth 28.8%

2010

Gross Margin 41.9%

Operating Margin 25.7%

Net Income Margin 20.9%EBITDA Margin 29.8%

Appendix 1

Table 14: Revenue Composition

Table 15: Growth Rates

Table 16: Margin Ratios

Source: Company Data, BRAC EPL Research,October 2011




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Income Statement



2008A 2009A 2010A 2011E 2012E 2013E

Sales 2,498.6 2,742.8 3,199.4 3,685.2 4,179.2 4,770.3BDT m

Cost of goods sold 1,664.3 1,633.1 1,857.5 2,192.7 2,528.4 2,933.7BDT m

Gross Profit 834.3 1,109.7 1,341.8 1,492.5 1,650.8 1,836.6BDT m

Operating Expenses 413.2 505.1 520.2 621.6 696.0 787.9BDT m

Operating Profit 421.0 604.7 821.7 870.9 954.8 1,048.7BDT m

Other Non-operating Income 1.0 108.7 17.6 3.7 4.2 4.8BDT m

Financial Expenses 36.7 60.2 65.3 86.0 78.1 71.5BDT m

EBT 458.7 773.5 904.6 960.6 1,037.1 1,124.9BDT m

Tax 98.4 162.7 235.2 237.7 256.7 278.4BDT m

PAT 360.3 610.8 669.4 722.8 780.4 846.5BDT m

EBIT (Operating) 421.0 604.7 821.7 870.9 954.8 1,048.7BDT m

EBIT (including other income) 458.7 663.5 904.6 960.6 1,037.1 1,124.9BDT m

EBITDA BDT m 556.5 741.0 954.4 1,021.2 1,133.1 1,255.3

EBITDA (Including Interest Income) BDT m 594.1 799.8 1,037.4 1,110.8 1,215.3 1,331.6

Number of shares MM 15.2 15.2 15.2 15.2 15.2 15.2m

EPS 23.67 40.14 43.99 47.50 51.28 55.62BDT

DPS 17.70 17.70 35.00 35.00 40.00 40.00BDT

Pay-out Ratio 75% 44% 80% 74% 78% 72%%

Operating Cash Flow 2008A 2009A 2010A 2011E 2012E 2013E

Net Income BDT m 722.8 780.4 846.5Add back non cash expense BDT m 150.3 178.2 206.7

Change in working capital BDT m (139.1) (108.5) (38.0)

Cash Flow from operations BDT m 382.1 1,041.0 691.7 734.0 850.1 1,015.2

Investing Activity

Other investments BDT m 0.0 0.0 0.0

Capital Expenditure BDT m (300.0) (400.0) (350.0)

Cash Flow from Investing BDT m (94.1) (87.1) (236.5) (300.0) (400.0) (350.0)

Financing Acitivity

Increase/(reduction) in debt BDT m 0.0 0.0 0.0

Dividend Paid BDT m (532.6) (532.6) (608.7)

Cash flow from Financing BDT m (259.4) (271.6) (497.6) (532.6) (532.6) (608.7)

Net cash BDT m 28.7 682.3 (42.5) (98.7) (82.5) 56.4

Beginning Balance BDT m 405.9 434.6 1,116.9 1,074.4 975.7 893.2

Cash in Hand BDT m 434.6 1,116.9 1,074.4 975.7 893.2 949.7

Operating Cash Flow per share BDT 25.11 68.40 45.45 48.23 55.86 66.71

Cash Flow Statement

Appendix 2


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MM BDT 2008A 2009A 2010A 2011E 2012E 2013E

Non-current Assets

PPE BDT m 961.2 922.7 1,043.6 1,193.3 1,415.1 1,558.4

Intangible Asset BDT m 5.3 5.9 4.8 4.8 4.8 4.8

BDT m 966.5 928.6 1,048.3 1,198.1 1,419.8 1,563.2

Current Assets

Inventories BDT m 541.3 278.9 361.5 515.9 585.1 667.8

Trade Debtors BDT m 142.0 154.4 200.1 258.0 334.3 333.9

Advance and Deposits BDT m 89.6 107.2 117.6 147.4 167.2 190.8

Cash & Cash equivalent BDT m 434.6 1,116.9 1,074.4 975.7 893.2 949.7

BDT m 1,207.6 1,657.4 1,753.6 1,897.0 1,979.8 2,142.2

Total Assets BDT m 2,174.0 2,586.0 2,802.0 3,095.1 3,399.7 3,705.4

Liabilities & Equities:

Current Liabilities:

Current portion of Finance Lease BDT m 2.2 0.0 0.0 0.0 0.0 0.0

Trade Creditors BDT m 45.6 49.0 59.4 82.9 94.0 107.3

Expense Creditors and accruals BDT m 160.8 175.1 206.3 248.7 282.1 322.0

Sundry Creditors BDT m 54.1 74.9 55.2 92.1 104.5 119.3Provision for Taxation (net of advance taxpayment) BDT m 85.1 129.6 140.1 140.1 140.1 140.1

347.8 428.5 461.0 563.9 620.7 688.7

Non-current Liabilities:

Employee Benefit BDT m 71.2 81.5 114.4 114.4 114.4 114.4

Deferred tax liabilities BDT m 90.3 71.1 64.9 64.9 64.9 64.9

Other non-current liabilities BDT m 153.2 165.8 165.6 165.6 165.6 165.6

314.7 318.4 345.0 345.0 345.0 345.0

Total Liabilities BDT m 662.5 746.9 805.9 908.9 965.7 1,033.7

Shareholder's Equity

Share capital BDT m 152.2 152.2 152.2 152.2 152.2 152.2

Revaluation Reserve BDT m 46.2 20.2 20.2 20.2 20.2 20.2

General Reserve BDT m 1,313.2 1,666.7 1,823.7 2,013.8 2,261.6 2,499.4

BDT m 1,511.5 1,839.1 1,996.0 2,186.2 2,434.0 2,671.7

Total Liabilities & Equities BDT m 2,174.0 2,586.0 2,802.0 3,095.1 3,399.7 3,705.4

Book Value per share BDT 99.32 120.85 131.16 143.66 159.94 175.56

Balance Sheet



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12

2007A 2008A 2009A 2010E 2011E 2012E

Margins:

Gross Margin % 33.4% 40.5% 41.9% 40.5% 39.5% 38.5%

Operating Margin % 16.9% 22.0% 25.7% 23.6% 22.8% 22.0%

Net Income Margin % 14.4% 22.2% 20.9% 19.6% 18.7% 17.7%

EBIT Margin % 16.9% 22.0% 25.7% 23.6% 22.8% 22.0%

EBITDA Margin % 22.3% 27.0% 29.8% 27.7% 27.1% 26.3%

Growth:

Revenue Growth % 24.9% 9.8% 16.6% 15.2% 13.4% 14.1%

Gross Profit Growth % 21.2% 33.0% 20.9% 11.2% 10.6% 11.3%

Operating Profit Growth % 25.6% 43.6% 35.9% 6.0% 9.6% 9.8%

Earning Growth % 36.3% 69.7% 9.5% 8.2% 8.0% 8.5%

EBIT Growth % 25.6% 43.6% 35.9% 6.0% 9.6% 9.8%

EBITDA Growth % 18.5% 33.1% 28.8% 7.0% 11.0% 10.8%

Turnover:

Total Asset Turnover Times 1.2x 1.2x 1.2x 1.2x 1.3x 1.3x

Fixed Asset Turnover Times 2.5x 2.9x 3.3x 3.3x 3.2x 3.2x

Inventory Turnover Times 3.6x 4.0x 5.8x 5.0x 4.6x 4.7x

Return:

ROE % 24.7% 36.4% 34.8% 34.6% 33.8% 33.2%

ROA % 17.2% 25.6% 24.8% 24.5% 24.0% 23.8%

Leverage:

Interest Bearing Debt BDT m 2.2 0.0 0.0 0.0 0.0 0.0

Net Debt BDT m (430.1) (1,116.9) (1,074.4) (975.7) (893.2) (949.7)Debt to Equity % 0.1% 0.0% 0.0% 0.0% 0.0% 0.0%

Debt to Asset % 0.1% 0.0% 0.0% 0.0% 0.0% 0.0%

Other:

COGS to sales % 66.6% 59.5% 58.1% 59.5% 60.5% 61.5%

Operating Exp to Sales % 16.5% 18.4% 16.3% 16.9% 16.7% 16.5%

Effective Tax Rate % 21.5% 21.1% 26.0% 24.8% 24.8% 24.8%

Net Interest Rate Received % 8.8% 7.8% 6.0% 8.0% 8.0% 8.0%


Indicators and Ratios

Appendix 3


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IMPORTANT DISCLOSURES

Analyst Certification: Each research analyst and research associate who authored this document andwhose name appears herein certifies that the recommendations and opinions expressed in the researchreport accurately reflect their personal views about any and all of the securities or issuers discussed therein

that are within the coverage universe.

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compensation is not directly related to specific corporate finance transaction.

General Risk Factors: BRAC-EPL will conduct a comprehensive risk assessment for each company undercoverage at the time of initiating research coverage and also revisit this assessment when subsequent updatereports are published or material company events occur. Following are some general risks that can impactfuture operational and financial performance: (1) Industry fundamentals with respect to customer demand orproduct / service pricing could change expected revenues and earnings; (2) Issues relating to majorcompetitors or market shares or new product expectations could change investor attitudes; (3) Unforeseendevelopments with respect to the management, financial condition or accounting policies alter the prospectivevaluation; or (4) Interest rates, currency or major segments of the economy could alter investor confidenceand investment prospects.

BRAC EPL Stock Brokerage Capital Markets Group

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BOC Bangladesh (October 2011)

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