Square Pharmaceuticals - Last 12 Months - BRAC · PDF fileSquare Pharmaceuticals 11,158 19.3%...

Parvez M Chowdhury Analyst: Pharmaceuticals and Consumer Goods

[email protected]

Square Pharmaceuticals DSE: SQURPHARMA Bloomberg: SQUARE:BD

Rating: OUTPERFORM February 24, 2010

Leading the Bangladesh Pharmaceutical Industry

Investment positives

Square Pharmaceutical Limited (SPL) is the largest pharmaceutical

company in Bangladesh, with the largest domestic market share of 19.3%, in what is a highly competitive pharmaceuticals market.

Return on equity has been improving, gradually moving up to 19% for

the last couple of years.

Margins have been improving steadily. SPL currently boasts one of the

highest gross margins (51%) in the industry.

Massive expansion plan, which will increase current capacity

significantly.

SPL has been gearing up to transform itself into a big exporting

company focusing on attaining certifications from regulators of developed markets.

SPL has been one of the most resilient stocks in the face of severe

market correction among all the stocks in BRAC EPL coverage universe.

We maintain an OUTPERFORM rating for Square Pharmaceuticals. We also set a 12-month fair value of BDT 3,850. Our recommendation considers the sound business model of the company, future outlook, good corporate governance, and the stock’s resilience despite extreme volatility in the market. Our recommendation is based on an estimated 2012 EPS of BDT 217 and a conservative estimated P/E multiple of 18x. With an estimated dividend yield of 1% in 2011, this target price implies

an estimated total return of 26%.

BDT mn 2010A 2011E 2012E

Net Sales 12,971 15,663 19,141

Ops Income 3,326 3,858 4,764

Net Income 2,497 3,358 4,251

Margins 2010A 2011E 2012E

Gross Margin 51% 51% 51%

Operating Margin 22% 21% 21%

Net Margin 17% 18% 19%

Growth 2010A 2011E 2012E

Revenue Growth 10% 21% 22%

Operating Profit Growth 14% 16% 23%

Net Profit Growth 21% 34% 27%

Per Share BDT 2010A 2011E 2012E

EPS 127 171 217

Dividend 35 42 53

Book Value/Share 660 831 1047

Cashflow BDT mn 2010A 2011E 2012E

NC Working Capital 4,024 4,867 5,621

Capex 1,493 1,471 1,923

Dividend 483 528 827

Valuation 2010A 2011E 2012E

P/E 24.3x 18.1x 14.3x

P/B 4.7x 3.7x 3.0x

ROE 19% 21% 21%

Miscellaneous BDT mn 2010A 2011E 2012E

Total Debt 2,524 1,815 1,427

Cash 270 608 1,797

Debt/Equity 23% 14% 9%

52-week Price Range (BDT) 2,841 - 4,362

Current Price 3,092

12-month Target Price 3,850

Cash Dividend BDT 42

Total Return 26%

Number of Shares MM 20

Free Float 46%

Average daily volume MM BDT 184.1

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Square Pharmaceuticals - Last 12 Months

Mcap (Bn BDT)

Square Pharmaceuticals (DSE: SQURPHARMA; Bloomberg: SQUARE:BD)

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Company Profile

The flagship company of the Square group of industries, Square Pharmaceuticals Limited (SPL) is the largest pharmaceuticals company in Bangladesh. Founded in 1958 and headquartered in Dhaka, Bangladesh, SPL develops, manufactures and markets drugs for humans and the animal world. The company owns and operates modern pharmaceutical factories mainly in Bangladesh and also has a separate division to operate a modern chemical factory which produces and sells basic chemical products. It also has divisions to produce and sell agrovet and pesticide products. It exports its products to Europe, Asia, Africa and South America.

SPL offers a range of pharmaceutical products, which include alimentary preparations, anesthetics, antiallergy preparations, antidiabetic preparations, antihaemorrhagic, antiparasite preparations, aromatase inhibitor, bone calcium regulator, cardiovascular preparations, CNS preparations, drugs for urinary incontinence, eye and ear preparations, haematinics, and lipid modifying preparations. The company also provides local anesthetics, other antibacterials, beta-lactam antibiotics, penicillins and cephalosporins, NSAIDs and antigout preparations, quinolone antibiotics, respiratory tract preparations, systemic antifungal, antiviral and antiprotozoal agents, systemic hormone, systemic sex hormone, thyroid therapy, topical preparations, vitamins and minerals, and water purification products. In addition, its animal health products consist of livestock, poultry, and aqua products. Further, the company offers agro chemical products comprising insecticides, nematicides, fungicides, herbicides and public health insecticides, as well as active pharmaceutical ingredients.

Industry and Competition

The pharmaceutical sector, which is widely regarded as a “hi-tech” industry, is the most developed among the manufacturing industries in Bangladesh. Roughly 250 companies are operating in the market. According to IMS, a US-based market research firm, the retail market size is estimated to be around BDT 55 billion, which grew by 16.8% in 2009. The market size in 2008 was BDT 47 billion with a growth of 6.9%. The actual size of the market may vary slightly since IMS does not include the rural market in their survey. The retail market is about 90% of the total market. In that respect, the total market size is more than BDT 60 billion. The market is expected to reach BDT 100 billion in 2011.

One of the fastest growing sectors, Bangladesh’s pharmaceutical industry is the third largest tax paying industry in the country. Bangladeshi pharmaceutical firms focus primarily on branded generic final formulations using imported APIs. Branded generics are a category of drugs including prescription products that are either novel dosage forms of off-patent products produced by a manufacturer that is not the originator of the molecule, or a molecule copy of an off-patent product with a trade name. About 80% of the drugs sold in Bangladesh are generics and 20% are patented drugs. The country manufactures about 450 generic drugs for 5,300 registered brands which have 8,300 different forms of dosages and strengths. These include a wide range of products from anti-ulcerants, flouroquinolones, anti-rheumatic non-steroid drugs, non-narcotic analgesics, antihistamines, and oral anti-diabetic drugs. Some larger firms are also starting to produce anti-cancer and anti-retroviral drugs.

The market is expected to reach BDT 100 billion in 2011

Part of the Square group of industries, Square Pharmaceuticals,

is the largest pharmaceutical company in Bangladesh


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Local companies and MNCs based in Bangladesh produce 95%-97% of the drugs and the rest are imported. Although about 250 pharmaceutical companies are registered in Bangladesh, less than 100 actively produce drugs.

The domestic market is highly concentrated and competitive. However, the local manufacturers dominate the industry as they enjoy approximately 87% of market share. Another notable feature of this sector is the concentration of sales among a very small number of top companies. The top 10 players control around two-thirds of the market while the top 15 companies cover 77% of the market.

Square Pharmaceuticals is the stand out market leader with a market share of 19.3% and domestic revenues of BDT 11.2 billion in the four quarters from April 2009 to March 2010. Square’s nearest competitors are Incepta

Pharmaceuticals and Beximco Pharmaceuticals with market shares of 8.5% and 7.6% respectively. Incepta and Beximco had BDT 4.9 billion and BDT 4.4 billion in domestic sales for the last four quarters. Although a number of MNCs are operational in Bangladesh, no MNC is among the top ten in terms of domestic sales.

The most important therapeutic group in the Bangladeshi market is Systemic Antibiotics. These account for almost 30% of the market. The second therapeutic group, Anti-acids, is much less relevant in terms of market share, as well as from a public health perspective. Vitamins, Analgesics, Mineral supplements, Cough and Cold preparations and muscle relaxants also figure prominently. It is to be noted that typical developed-market therapeutic groups like those addressing diabetes, cardiovascular diseases, allergies or psychological disorders also are among the most important in Bangladesh, whereas HIV/AIDS and Anti-malarial drugs are not.

Because Bangladesh API capacity is insignificant, pharmaceutical companies import approximately 80% of their APIs. Coupled with the necessity to import machines, it is one of the main disadvantages in terms of cost when compared to India. The leading manufacturers are therefore

Figure 1: Market share

Top Ten67%

MNCs13%

Others20%

Top Companies

Revenue April 09 - March 10

(MM BDT)

Market

Share

Revenue 2009

(MM BDT)

Market

Share

Square Pharmaceuticals 11,158 19.3% 10,701 19.5%

Incepta Pharmaceuticals 4,919 8.5% 4,524 8.2%

Beximco Pharmaceuticals 4,415 7.6% 4,239 7.7%

Opsonin Pharmaceuticals 2,817 4.9% 2,614 4.8%

Eskayef Pharmaceuticals 2,788 4.8% 2,520 4.6%

Acme Laboratories 2,717 4.7% 2,640 4.8%

Renata Limited 2,623 4.5% 2,495 4.5%

ACI Limited 2,466 4.3% 2,460 4.5%

Aristopharma 2,355 4.1% 2,240 4.1%

Drug International 2,283 3.9% 2,132 3.9%

Sanofi-Aventis 1,700 2.9% 1,634 3.0%

GlaxoSmithKline 1,266 2.2% 1,229 2.2%

Novo Nordisk 1,005 1.7% 878 1.6%

Sandoz 936 1.6% 908 1.7%

Novartis 675 1.2% 558 1.0%

Others 13,691 23.7% 13,158 24.0%

Total 57,815 100.0% 54,929 100.0%

Source: IMS, BAPI and BRAC EPL Research, February 2011

Table 1: Domestic retail market share of companies Source: BAPI and BRAC EPL Research, February 2011

Square Pharmaceuticals has 19.3% market share in the local market


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going into API manufacturing, focusing mainly on Antibiotics, but also other drugs, such as anti-cancer drugs. For many APIs, the domestic market is too small to justify an API manufacturing plant. This stresses the fact that whereas several Bangladeshi manufacturers have the know-how to manufacture APIs, the initial investment and the production scale required are high. This means that in order to establish API manufacturing e.g. for Antiretroviral APIs in Bangladesh, the manufacturers would need to be sure of their access to several export markets.

Performance so far this year

Square’s performance in 1H11 has been very consistent. The performances in both the quarters have been nearly identical. Net sales for 1H11 grew 24% YoY, while those for 2Q11 grew 6% QoQ. Operating profit for 1H11 grew 15% YoY while it again grew 6% QoQ in 2Q11. Net profit after tax actually increased by 30% YoY, thanks to 292% growth in profit from associate undertakings. Net profit after tax remained virtually unchanged QoQ. Without the extraordinary profit from associate companies, profit after tax increased by 21% YoY while it dropped 1% QoQ.

Sales and Margin

Because of its dominating presence throughout the country, SPL has enjoyed steady growth in sales volume. Cost of sales as percentage of sales has also been declining gradually over the year, improving gross margin. However, operating expense as a percentage of sales have been

Performance in the first half has been very consistent

BDT Mn 1H11 1H10 YoY 2Q11 2Q10 YoY 1Q11 1Q10 YoY 2Q11 1Q11 QoQ

Net Sales 8,042 6,476 24% 4,136 3,302 25% 3,906 3,174 23% 4,136 3,906 6%

COGS 4,448 3,427 30% 2,270 1,741 30% 2,177 1,686 29% 2,270 2,177 4%

Gross Profit 3,595 3,049 18% 1,866 1,561 20% 1,729 1,488 16% 1,866 1,729 8%

Operating Expenses 1,411 1,153 22% 742 573 29% 670 580 15% 742 670 11%

Profit from Operations 2,183 1,896 15% 1,124 988 14% 1,059 908 17% 1,124 1,059 6%

Other Income 161 107 50% 68 55 23% 93 52 78% 68 93 -27%

Allocation for WPPF 109 90 21% 56 48 17% 53 42 25% 56 53 6%

EBIT 2,235 1,913 17% 1,136 995 14% 1,100 918 20% 1,136 1,100 3%

Financial Expenses 114 160 -29% 74 86 -14% 40 74 -45% 74 40 84%

PBT 2,121 1,753 21% 1,062 909 17% 1,059 844 25% 1,062 1,059 0%

Income Tax 495 409 21% 253 212 19% 241 196 23% 253 241 5%

PAT 1,627 1,344 21% 809 697 16% 818 648 26% 809 818 -1%

P/L from Associate Undertaking 185 47 292% 95 25 287% 89 23 297% 95 89 7%

Minority Interest 1 1 59% 0 0 78% 0 0 42% 0 0 9%

NPAT 1,810 1,391 30% 904 721 25% 907 670 35% 904 907 0%

EPS 92.3 70.9 46.1 36.7 46.2 34.2 46.1 46.2

2006 2007 2008 2009 2010 2011 2012 2013

Gross Sales (BDT Mn) 8,252 9,958 12,024 13,585 15,034 18,155 22,187 27,898

Cost of Sales/Sales 55% 54% 54% 52% 49% 49% 49% 49%

Operating Costs/Sales 12% 14% 15% 14% 15% 16% 16% 16%

Net Margin 16% 15% 13% 15% 17% 18% 19% 19%

Table 2: Comparative performance in 1H11

Table 3: Sales and margins

Source: Company Reports and BRAC EPL Research, February 2011



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creeping up slightly in the last few years because of the intense competition in the industry. We expect this trend to stabilize in the near future. Because of the ever growing contribution from its associate companies, net margin is increasing, which we expect to stabilize after a while.

Majority Investments

It may be noted that SPL’s management has not only maintained profitability in its core pharmaceuticals business, but has also sprouted a number of other businesses in-house. After profitable commercial operations of its businesses commenced, SPL spun off subsidiary businesses, such as Square Textiles, to monetize the investments. The company has a number of such businesses in the pipeline.

There are currently three companies in which SPL has made a majority investment.

Square Cephalosporins: SPL holds 99.48% of Square

Cephalosporins Ltd. (SCL). SPL also has BDT 400 million as share money deposit in SCL on top of the BDT 95,000,000 equity holding. The subsidiary has become profitable very quickly after it went into operation in 2007. SCL owns a modern pharmaceuticals factory and produces and sells pharmaceuticals, drugs and medicines.

Square Biotechs: SPL holds 99.25% of Square Biotechs Ltd. (SBL).

SBL was established to carry on the business of inter alia manufacturing, sales and distribution of all kinds of biotechnological medicines or drugs. The company has not yet become profitable.

Square Multi Fabrics: SPL holds 99.50% of Square Multi Fabrics Ltd.

(SMFL). Besides the equity holding of BDT 9,900,000 SPL also has BDT 150,000,000 as share money deposit in the company. SMFL was established to carry on the business of manufacturing and marketing all types of knit fabrics, yarn, garments for gents, ladies and children. This company also has not become profitable yet.

Name % Owned by SPL Market Value (BDT Mn)

Square Pharmaceuticals 100.00% 53,754

Square Cephalosporins 99.48% 7,365

Square Biotechs 99.25% 66

Square Multi Fabrics 99.50% 249

Square Textiles 46.45% 6,085

Square Hospitals Ltd. 49.56% 3,882

Square Knit Fabrics Ltd. 48.84% 1,628

Square Fashions Ltd. 48.46% 2,095

NHFIL 5.22% 230

CDBL 2.89% 10

United Hospitals 0.86% 12

Pioneer Insurance 10.00% 219

Table 4: Subsidiaries and Associates of Square Pharmaceuticals


SPL previously spun off profitable subsidiaries to monetize investment


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Minority Investments

Square Textiles

Square Knit Fabrics

Square Fashions

Square Hospitals

United Hospitals

National Housing and Finance

Pioneer Insurance

Central Depository Bangladesh Limited (CDBL)

Square Informatix

Investment in Marketable Securities

The currently holds marketable securities amounting to BDT 221 million with an unrealized gain of BDT 167 million.

Expansion Program

In order to meet increasing demand in the domestic as well as foreign markets, SPL has undertaken an ambitious expansion program to be completed in two phases. The first phase, which is already under way, is expected to be completed by 2012 at a total cost of BDT 3.6 billion. We anticipate a 25% cost overrun for a final cost of BDT 4.5 billion. The first phase is expected to nearly double the current capacity. The second phase will start in 2014, completing in 2017 for a total cost of BDT 2.0 billion (including an estimated cost overrun of 25%).

We expect the expansion programs contributing to revenue growth after 2012. We made an assumption that the new plants will operate with an 85% efficiency and after the year of completion, 25% of the capacity will come on line in each of the following four years. Second phase will also do the same.

International Market

Square is one of the leading exporters of pharmaceutical products from Bangladesh. However, the contribution of export to the total sales is still

2008 2009 2010 2011 2012 2013

Local Sales 9,353 11,030 12,915 15,239 18,287 22,859 Export Sales 212 336 365 547 820 1,189 Total Sales 9,566 11,367 13,279 15,786 19,107 24,048

Local Sales Growth 10% 18% 14% 18% 20% 25%

Export Growth 10% 58% 60% 50% 50% 45%

Total Sales Growth 10% 19% 17% 19% 21% 26%

Table 5: Local sales vs export


Ambitious expansion program will increase capacity significantly. But

revenue contribution may come after 2012.


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very small. The company exported BDT 364.5 million worth of pharmaceutical products in FY10 compared to BDT 336.3 million in FY09. The exports are expected to rise in the coming years. Current export destinations include Myanmar, Nepal, Kenya, Libya, Mauritius, Papua New Guinea, Somalia, Sri Lanka, Vietnam, Yemen, Bhutan, Cambodia, Afghanistan, Tanzania, North Korea, Belize, Hong Kong, Mauritania, Philippines, Eritrea, Ghana, Malawi, Malaysia, Surinam, Tajikistan and the UK. In March 2010, the MHRA of UK renewed SPL’s MHRA GMP (Good Manufacturing Practice) certification for three more years.

Liquidity

SPL has a free float of 46%. The stock is quite liquid and traded regularly. Average daily trade for the last 12 months was slightly over 55,000 shares with average daily turnover of BDT 184 million.

Stock Price Resilience

SPL has been one of the most resilient stocks among all the stocks in BRAC EPL coverage universe in the face of severe market correction. The stock price retraced 21% since the start of the market correction in December 6, 2010. The benchmark index DGEN has dropped 35% during the same period.

Outlook

The company has done very well to maintain its margins. However, we anticipate an ever-competitive market where pharmaceutical companies lower prices and give up margins to retain market share. This could affect bottom lines of all pharmaceutical companies in Bangladesh. However, given Square’s market share, it seems to be in a better position than most other companies.

In Bangladesh, the pharmaceutical companies have no power to set prices for “essential drugs”, a list of lifesaving drugs decided by the government. Only the government has the power to decide prices of these drugs and price revisions by the government are few and far between. Therefore, pharmaceutical companies make marginal profits from these drugs.

However, the companies are free to set prices on products outside of this list. So, the companies make the bulk of their profits from these “non-essential” drugs. Even then, they cannot set prices too high as the purchasing power of the population is low. Hence, they are forced to be content with prices lower than they would expect.

We believe if SPL focuses more on the international market, it could overcome some of the problems above. The same drugs that SPL sells for Tk. 10, for example, could be sold at prices several times higher in Australia, the UK or even the USA because of the enhanced purchasing power of consumers in those markets. As a result, we think its sales volume could grow significantly over the years.

On the other hand, because of the strict quality controls and regulations in the developed market such as Europe and the USA, SPL will need to continuously maintain and renovate its manufacturing plants. This means it is expected to have a large outflow in capital expenditure each year. SPL

UK MHRA certification renewed for three years recently

Competition may reduce margins for most players in the long run

Export market could significant boost sales volume


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already has a certification from the UK MHRA, which is essential to enter the UK and European markets. The company will gradually seek more certification from other regulators in developed markets.

The two expansion programs, which we discussed earlier are expected to double the production capacity in 2014. Capital expenditure for the projects is expected to be financed internally by the company’s solid cash generation. The company accumulates a large amount of cash at the end of our horizon.

Among the three subsidiaries, Square Cephalosporins is the only one which is fully operational and profitable. Square Biotechs and Square Multi Fabrics are yet to be in full blown production. Although the company guidance was for production to start before 2010, it has been delayed. We expect these two to start production properly in 2011 and add to consolidated revenue.

SPL management seems to be hoping that it will eventually be able to list its subsidiaries. Square Square Textiles, an associate of Square Pharma and a former subsidiary, is now a listed company. Investment in Square Textiles was BDT 183 million on a cost basis and current market value of this investment is more than BDT 12 billion. SPL expects that in time it will be able to list its current subsidiaries in the capital market, allowing it to monetize its investment.

The company’s operating cash flow is higher than its total capital expenditure, which includes expansion and maintenance. Therefore we assume major portion of investing activity to be financed internally. This results in a very low debt to equity ratio.

Existing subsidiaries may present excellent capital gain opportunity


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Valuation

Since Square Pharmaceuticals is involved in a number of subsidiaries and as-sociate companies, a Sum-of-the-Parts (SOTP) valuation appears to be more relevant. We derive value per share for each of these companies using various valuation methodologies depending on the type of business and its relationship with the parent company. We use DCF valuation for Square Pharmaceutical’s standalone business as well as Square Cephalosporins. We also take the mar-ket value of associate companies that are publicly listed. Normalized values are used for privately held companies within the Square group. Two other privately held companies are taken at cost. From our SOTP valuation, we arrive at a fair price of BDT 3,738. Since a few of the companies are yet to become fully operational or profitable, we believe this value is likely to rise once these companies start to make profits. In any case, the value has considerable upside on the current market price of BDT 3,092. We have also used four other leading pharmaceutical companies trading in the DSE for comparison purposes. The average P/E of these companies is 26.4x based on their latest published audited report. At a trailing P/E multiple of 24.3x, SPL is trading at a slight discount to these companies. Using a P/E multiple of 18.0x on estimated 2012 EPS of BDT 217, we arrive at a 12-month fair value of BDT 3,901. Based on both of our valuations, we arrive at a fair value of BDT 3,850. With an estimated dividend yield of 1%, our fair price would provide a 12-month total return of 26%.

Table 6: Sum of the Parts Valuation

Source: Company Data, BRAC EPL Research, February 2011

Table 7: Comparative Valuation*

Source: Company Data, DSE, BRAC EPL Research, February 2011

* All EPS and BVPS figures are from audited reports of latest fiscal year of the respective

Name % Owned Valuation Methodology Market Value Value/Share

Square Pharmaceuticals 100.00% DCF 53,754 2,740

Square Cephalosporins 99.48% DCF 7,365 375

Square Biotechs 99.25% 1x 2010 P/B 66 3

Square Multi Fabrics 99.50% 1x 2010 P/B 249 13

Square Textiles 46.45% Market Value 5,874 299

Square Hospitals Ltd. 49.56% Normalized Valuation 3,882 198

Square Knit Fabrics Ltd. 48.84% Normalized Valuation 1,628 83

Square Fashions Ltd. 48.46% Normalized Valuation 2,095 107

NHFIL 5.22% Market Value 223 11

CDBL 2.89% At cost 10 1

United Hospitals 0.86% At cost 12 1

Pioneer Insurance 10.00% Market Value 207 11

Net Cash (2,255) (115)

Non-Operating Assets 221 11

Total Value 73,332

No. of Shares 20

Value/Share 3,738 3,738

Other Pharmaceuticals Price EPS P/E

Beximco Pharmaceuticals 110 2.98 37.0x

Renata Limited 11,037 365.21 30.2x

ACI Limited 265 30.64 8.7x

GlaxoSmithKline 795 26.88 29.6x

Average 26.4x

Square Pharmaceuticals 3,092 127.29 24.3x

Square Pharmaceuticals EPS

2012 Estimates 217

Multiples 18.0x Value/Share 3,901

Fair Value 3,850

Current Price 3,092

Dividend Yield 1% Total Return 26%


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Table 8: Income Statement


MM BDT 2008 2009 2010 2011E 2012E 2013E

Net Sales 10,554 11,826 12,971 15,663 19,141 24,067

COGS (6,546) (7,013) (7,352) (8,876) (10,809) (13,592)

Gross Profit 4,008 4,813 5,618 6,787 8,332 10,476

Operating Expenses (1,759) (1,884) (2,293) (2,930) (3,568) (4,485)

Profit from Operations 2,249 2,929 3,326 3,858 4,764 5,991

Other Income 346 409 258 734 899 1,132

Allocation for WPPF (104) (138) (158) (199) (246) (310)

EBIT 2,490 3,200 3,426 4,392 5,417 6,813

Financial Expenses (443) (455) (320) (277) (215) (171)

PBT 2,047 2,746 3,106 4,116 5,202 6,642

Income Tax (506) (630) (737) (1,019) (1,288) (1,644)

PAT 1,541 2,116 2,368 3,097 3,915 4,998

P/L from Associate Undertaking (12) (55) 130 264 341 420

Minority Interest (3) (2) (2) (3) (4) (5)

NPAT 1,526 2,058 2,497 3,358 4,251 5,412

Table 10: Balance Sheet


MM BDT 2008 2009 2010 2011E 2012E 2013E

Inventories 2,630 2,406 2,575 3,068 3,733 4,642

Trade Debtors 891 478 512 958 1,188 1,492

Advances, Deposits & Prepayments 330 304 371 500 610 757

Investment in Marketable Securities 33 20 221 221 221 221

Short Term Loan 1,397 609 1,056 1,296 1,296 1,296

Cash and cash equivalents 226 314 270 608 1,797 3,709

Current Assets 5,506 4,131 5,005 6,651 8,847 12,118

Property, Plant & Equipment 5,217 5,462 6,681 7,348 8,798 10,396

Capital WIP 1,148 1,201 634 1,175 1,307 1,458

Investment- Long Term (At cost) 145 145 185 185 185 185

Investment-Associate Undertakings 3,039 3,959 3,900 4,164 4,505 4,924

Pre-operating/Preliminary Expenses 3 7 0 0 0 0

Non-Current Assets 9,552 10,774 11,401 12,872 14,796 16,964

Total Assets 15,058 14,905 16,406 19,523 23,642 29,082

Short Term Bank Loans 3,174 1,712 880 783 705 634

Long Term Loans- Current Portion 446 431 502 310 217 152

Trade Creditors 233 128 103 395 478 541

Liabilities for Expenses 236 94 61 77 94 119

Liabilities for Other Finance 443 615 547 705 856 1,077

Current Liabilities 4,533 2,979 2,093 2,269 2,350 2,523

Long Term Loans- Secured 778 786 1,143 723 506 354

Deferred Tax Liability 225 211 226 226 226 226

Non-Current Liabilities 1,003 998 1,368 949 732 580

Equity 9,507 10,926 12,940 16,298 20,549 25,961

Minority Interest 16 2 4 7 12 17

Total Liabilities and Equity 15,058 14,905 16,406 19,523 23,642 29,082

MM BDT 2008 2009 2010 2011E 2012E 2013E

Cash Flow from Operating Activities 1,593 2,758 2,783 3,046 4,328 5,409

Cash Flow from Investing Activities (2,132) (1,846) (1,493) (1,471) (1,923) (2,168)

Cash Flow from Financing Activities 608 (824) (1,335) (1,237) (1,215) (1,328)

Net Cash Flow 69 88 (45) 338 1,189 1,913

Opening Cash Balance 157 226 314 270 608 1,797

Closing Cash Balance 226 314 270 608 1,797 3,709

Table 9: Cash Flow Statement



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Table 11: Indicators and Ratios

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

Dividend (BDT mn) 358 483 528 827 1,041 1,332

Payout ratio 23% 23% 21% 25% 24% 25%

Number of shares (mn) 15 15 15 20 20 20

Diluted Earning Per Share (BDT) 78 105 127 171 217 276

Dividend per share (BDT) 24 32 35 42 53 68

Diluted Book Value Per Share (BDT) 485 557 660 831 1047 1323

Total Debt (BDT mn) 4398 2929 2524 1815 1427 1140

Debt/Total Assets 0.29 0.20 0.15 0.09 0.06 0.04

Debt/Total Equity 0.53 0.31 0.23 0.14 0.09 0.06

Sales Growth 21% 13% 11% 21% 22% 26%

Earning Growth 5% 35% 21% 34% 27% 27%

Dividend Growth 20% 35% 9% 57% 26% 28%

Dividend Yield 1% 1% 1% 1% 2% 2%

Duty and VAT/Gross Turnover 12% 13% 14% 14% 14% 14%

Cost of Sales/Sales 54% 52% 49% 49% 49% 49%

Gross Profit Margin 46% 48% 51% 51% 51% 51%

Operating Costs/Sales 15% 14% 15% 16% 16% 16%

Operating Margin 19% 22% 22% 21% 21% 21%

Net Margin 13% 15% 17% 18% 19% 19%

Return on Equity 16% 19% 19% 21% 21% 21%

Return on Assets 10% 14% 15% 17% 18% 19%

Effective Tax Rate 25% 23% 24% 25% 25% 25%

NC Working Capital (BDT mn) 4,367 2,981 4,024 4,867 5,621 6,671

Increase in NC Working Capital (BDT mn) 926 -1,387 1,043 843 755 1,050

P/E 39.8x 29.5x 24.3x 18.1x 14.3x 11.2x

P/B 6.4x 5.6x 4.7x 3.7x 3.0x 2.3x

IMPORTANT DISCLOSURES

Analyst Certification: Each research analyst and research associate who authored this document and whose name appears herein certifies that the recommendations and opinions expressed in the research report accurately reflect their personal views about any and all of the securities or issuers discussed therein that are within the coverage universe. Disclaimer: Estimates and projections herein are our own and are based on assumptions that we believe to be reasonable. Information presented herein, while obtained from sources we believe to be reliable, is not guaranteed either as to accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation of the purchase or sale of any security. As it acts for public companies from time to time, BRAC-EPL may have a relationship with the above mentioned company(s). This report is intended for distribution in only those jurisdictions in which BRAC-EPL is registered and any distribution outside those jurisdictions is strictly prohibited. Compensation of Analysts: The compensation of research analysts is intended to reflect the value of the services they provide to the clients of BRAC-EPL. As with most other employees, the compensation of research analysts is impacted by the overall profitability of the firm, which may include revenues from corporate finance activities of the firm's Corporate Finance department. However, Research analysts' compensation is not directly related to specific corporate finance transaction. General Risk Factors: BRAC-EPL will conduct a comprehensive risk assessment for each company under coverage at the time of initiating research coverage and also revisit this assessment when subsequent update reports are published or material company events occur. Following are some general risks that can impact future operational and financial performance: (1) Industry fundamentals with respect to customer demand or product / service pricing could change expected revenues and earnings; (2) Issues relating to major competitors or market shares or new product expectations could change investor attitudes; (3) Unforeseen developments with respect to the management, financial condition or accounting policies alter the prospective valuation; or (4) Interest rates, currency or major segments of the economy could alter investor confidence and investment prospects.

BRAC EPL Stock Brokerage Capital Markets Group

Aminul Haque Head of Capital Markets [email protected] 01730317802

Md. Monirul Islam Research Analyst [email protected] 01730357150

Parvez Morshed Chowdhury Research Analyst [email protected] 01730357154

Ali Imam Investment Analyst [email protected] 01730357153

Asif Khan Investment Analyst [email protected] 01730357158

Md. Ashfaque Alam Research Associate [email protected] 01730357786

Khandakar Safwan Saad Research Associate [email protected] 01730357779

Aasim Tajwaar Matin Research Associate [email protected] 01730727913

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