SIDDIQSONS TIN PLATE LIMITED(STPL : KAR)
May 10, 2018
Analyst Briefing
GROUP PROFILE
Siddiqsons Group traces its roots back to 1959 through establishment of Siddiqsons Limited, a textile unit which has grown to become a Denim Dynasty in Pakistan. Since then the Group has expanded into Tinplate, Energy and Construction & Real Estate
Siddiqsons Tin Plate Limited is the first and only Tin Plate Industry in Pakistan. Established in 1999, in
collaboration with SOLLAC of France and MITSUBISHI CORPORATION of
Japan. It operates a 120,000 tons per annum Electro Tin Plating (ETP) plant
catering to clients within the Consumer Goods and Business-to-
Business segments
Siddiqsons Limited, was established in 1959. It has established to become
a Denim Dynasty and is recognizedby WGSN as Asia's top denim
manufacturers. The company has a fully integrated vertical setup which
includes Spinning Division, Knit Denim Division, Garment Division and
Denim Division
Siddiqsons Energy is the Power Sector Development division of Siddiqsons
Group with the mandate to establish Coal and Renewable Energy IPPs for a sustainable energy-secured future of Pakistan. It is developing a 330 MW sub-critical Thar coal power plant at Thar Block-II, along with 200 MW of Solar and 35 MW of Hydro projects
Triple Tree Associates was incorporated by Siddiqsons, which further diversified its holdings into
Real Estate. Since then the company established itself as a formidable
competitor in the market with several real estate and construction projects under its belt including Ocean Mall
and Tower, the tallest building of Pakistan in 2014
FOREIGN SPONSORS – ArcelorMittal (France)
ArcelorMittal Packaging is one of the founding sponsors of Siddiqsons Tinplate Limited, owning 9% stake in the company.
Arcelor Mittal Packaging is one of the subsidiaries of ArcelorMittal S.A, the largest steel producer in the world. It is present in 60 countries and has an industrial footprint in 18 countries
ArcelorMittal Packaging has the production capacity of over 1.6 million tons of Packaging steel i.e. ETP, whereas the group has annual crude steel production of 98.1 million tons
The group has extensive product portfolio which includes Finished, semi-finished, long and flat products, such as hot-rolled coil, cold-rolled coil, coated steel products, tinplate and heavy plate, as well as billets, blooms, rebars, wire rod, sections, rails, sheet piles and drawn wire
3
ArecelorMittal Packaging’s Director
98 million tons per
annum of capacity
Mr. Jean Pierre Gugenheim is a nominee Director of M/s ArcelorMittal Packaging International of France for Siddiqsons Tinplate Limited
France
Spain
Belgium
Largest Steel
Producer in the World
Production Facilities
COMPANY OVERVIEW
Siddiqsons Tin Plate Limited is the first and only Tin Plate producer in Pakistan.
The Company was established in 1996, in collaboration with SOLLAC of France and Mitsubishi Corporation
Arcelor Mittal Packaging (formerly SOLLAC), a world renowned steel and mining company is a 9% shareholder of STPL and has
representation on its board
The factory is located at special industrial zone, Windhar, Baluchistan
The project has a capacity to produce 120,000 tons per annum of Tin Plate, which is primarily used for making cans and
containers for packaging of cooking oil, fruits, foods, vegetables, sea foods, beverages, paints, lubricant oil and other
edible products
Key customers of the Company Include Dalda Foods, Pakistan Oil Mills, Punjab Oil Mills, Latif Ghee Mills, IFFCO, Shujaabad Agro,
Zamin Containers, Meezan Oil, Associated Industries, Rehan Can
4
Key Products Major Clients
Siddiqsons Tin Plate Limited
Siddiqson Limited15.3%
Arcelor Mittal Packaging (France)
9.3%
Other Sponsors42.2%
General Public33.2%
PATTERN OF SHAREHOLDING
OPERATIONAL HIGHLIGHTS
6
Market size 76,000
Installed capacity 120,000
YearQty. Produced CAPU Qty. Dispatched Market Share
2015 24,327 20% 24,404 32%
2016 24,471 20% 24,676 32%
2017 19,051 16% 25,466 34%
2018 (3Q) 14,251 16% 17,520 31%
- The operational viability can only be ensured by increasing the CAPU, since there is already a significant supply gap in the market.
PROJECT SNAPSHOT
7
Importing TMBP isn’t feasible when compared to in-house production due to
price competitiveness, higher lead times (approx. 3 months) and inconsistent
quality
Huge inventory levels are required w.r.t thickness, width and temper to meet
market requirement, giving rise to higher working capital and inventory carrying
cost
As part of its business growth and to achieve cost efficiencies, STPL is
pursuing backward integration by installing a Cold Rolled Complex (“CRC”) with
a capacity of 200,000 MT p.a.
A major portion of TMBP produced (i.e 120,000 MT) will be utilized in-house to
increase the current capacity utilization of tin plating. Direct sales of CRC will
be done in the local market for the excess production
Installation of CRC will enable STPL to enhance its supply locally and to export
markets such as KSA, Dubai and Sri Lanka, Turkey and different European
destinations. (demand of over 1,200,000 tpa)
The approx. capex for the project is estimated to be at PKR 6 billion which will
be financed by a mix of 70% debt and 30% equity raised via rights issue
Cold Rolled Mill Project
Capacity of CRM 200,000 MT p.a.
Financing Required PKR 6 billion (financed by 70% debt and 30% equity)
Machinery Supplier CISRI (Beijing, China)
Project Completion Date
30/06/2020
Raw Material Procurement
HRC being the raw material for CRC is easily available and will be mainly procured through imports. HRC is subject to an import duty of 5%
Key Benefits Increase in capacity utilization of tin plating
Reduction in conversion cost of tin plate due to increased capacity utilization
Lower rate of import duty on HR Coils as compared to TMBP
Production with consistent and controlled quality
8
IN-HOUSE PRODUCTION OF TMBP, A GLOBAL PRACTICE
Having in-house production of Tin Mill Black Plate (TMBP) is a global practice amongst tier 1 and tier 2 tin plate producersaround the world
In-house production allows the producer to provide a diversified range of tin plate products so as to cater to the needs ofvarious clients
Having a variety of products allows the manufacturer to get larger purchase orders and become a supplier of choice
Name of Company Country HQ In-house TMBP Production
Arcelor Mittal Luxembourg Yes
Posco South Korea Yes
Nippon Japan Yes
Royal Industries Indonesia Indonesia Yes
Tata India India Yes
Youfu Industries China Yes
Domestic Demand1 Export Potential2 Untapped Market3 Import Substitution4
KEY INVESTMENT HIGHLIGHTS – DEMAND ANALYSIS
76,000 MT/annum 100,000 MT/annum 15,000 MT/annum 8,000 MT/annum
Total Market Potential 199,000 MT/annum
Historic Demand
Qty (MT)Year ETP-Imports STPL Sales Total 2013 22,272 24,835 47,1072014 33,788 22,095 55,8832015 29,881 25,420 55,3012016 33,126 24,474 57,6002017 52,129 24,380 76,509
4M2018 22,451 6,456 28,907
Source: Customs Import Data
Competitiveness
Cost Efficiencies to provide Price Competitiveness
Through the vertical integration the Company will beable to save HRC to CRC spread
The additional spread of USD 105/ton may be partiallypassed onto clients to gain the market share
2
Consistent & Superior Quality of Tin1
Lead time for imported ETP is around 3 months STPL ensures prompt delivery within 15 days Imported Tinplate needs to be scrapped if found
defective STPL provides facility to replace defective material if
found defective
USD/ton Imported
ETP PrimeETP
SecondaryCost 930 750Duty 158 195
Other Exp 26 26
Conversion HR-CR
Conversion CR-ETP
Wastage 83
Total 1,114 1,054
Domestic Demand1 Export Potential2 Untapped Market3 Import Substitution4
76,000 MT/annum 100,000 MT/annum 15,000 MT/annum 8,000 MT/annum
Total Market Potential 199,000 MT/annum
Pricing - Imported Tinplate vs. Domestic Pricing
Flat-Steel Type Sub-Category %ETP Prime 17%
Secondary 26%CR Prime 17%HR Prime 5%
Duty Structure
Current Case
CRC-ETP790135
26
180
1,131
Post CRC Expansion
HRC-CRC-ETP65033
26120
180
1,009
- $17/ton
+ $105/ton
Current Spread
Post-CRC
KEY INVESTMENT HIGHLIGHTS – DEMAND ANALYSIS
USD/ton Imported ETP in Pak
ETPPrime
ETPSecondary
Cost 930 750
Duty 158 195Other Exp 26 26
Conversion HR-CRConversion CR-ETP
Wastage 83Total 1,114 1,054
Domestic Demand1 Export Potential2 Untapped Market3 Import Substitution4
76,000 MT/annum 100,000 MT/annum 15,000 MT/annum 8,000 MT/annum
Total Market Potential 199,000 MT/annum
Local Sales Scenario
Post CRC Expansion
HRC-CRC-ETP65033
26120
180
1,009
+ $105/ton Post-CRC
KEY INVESTMENT HIGHLIGHTS – DEMAND ANALYSIS
Export Sales Scenario
USD/ton Imported ETP in ME*
ETP Prime(Chienese)
Cost 900 (FOB China)
DutyOcean Freight upto Dubai 25
Conversion HR-CRConversion CR-ETP
WastageTotal 925
Our Export Pricing
HRC-CRC-ETP650 (C&F Khi.)
3
120
120
893
+ $32/ton Post-CRC- The Cost of conversion would go down since export sell is assumed at 60% CAPU.- Duty will be Zero, if we declare that goods are for export purposes. - Borrowing cost go down drastically since Export Finance Rates will be applicable at 2.5% vs. 8.5%- This price competitiveness is in addition to the lower lead time.- Additional savings in terms of Income Tax would be around $5 per ton.
*Middle East
Domestic Demand1 Export Potential2 Untapped Market3 Import Substitution4
76,000 MT/annum 100,000 MT/annum 15,000 MT/annum 8,000 MT/annum
Total Market Potential 199,000 MT/annum
KEY INVESTMENT HIGHLIGHTS – DEMAND ANALYSIS
Increased capacity utilization will significantly add to the cost efficiencies due to reduction in fixed cost/ton
Capacity Utilization M.Ton Fixed Cost Variable Cost Total Conv. Cost Marginal Cost benefits
20% 24,000 8,340 12,360 20,700 -
30% 36,000 5,560 12,360 17,920 2,780
40% 48,000 4,170 12,360 16,530 4,170
50% 60,000 3,336 12,360 15,696 5,004
60% 72,000 2,780 12,360 15,140 5,560
70% 84,000 2,383 12,360 14,743 5,957
80% 96,000 2,085 12,360 14,445 6,255
PKR per ton
Domestic Demand1 Export Potential2 Untapped Market3 Import Substitution4
KEY INVESTMENT HIGHLIGHTS – DEMAND ANALYSIS
76,000 MT/annum 100,000 MT/annum 15,000 MT/annum 8,000 MT/annum
Total Market Potential 199,000 MT/annum
Qty (MT)Country DemandSaudi Arabia 350,000UAE 150,000Srilanka 50,000Bangladesh 100,000Iran 125,000Turkey 450,000Total 1,225,000
Export Potential
Source: Primary Market Research over last 6 years
Competitiveness
Reduction in Lead Time1
Middle Eastern customers will save upto USD30/ton on freight costs
Currently demand is met by European and FarEastern Countries
From point of order, it takes 75+ days for theorder to reach destinations in Middle East
STPL can meet their demand within 45 days
Freight Savings for regional Customers2
Targeted demand is <10% of actual demand
Domestic Demand1 Export Potential2 Untapped Market3 Import Substitution4
76,000 MT/annum 100,000 MT/annum 15,000 MT/annum 8,000 MT/annum
Total Market Potential 199,000 MT/annum
Pakistan is primarily an agrarian economy, however, due to lack of infrastructure and tin-canning units, most of the agricultural yield is wasted
Pakistan has a potential to utilize upto15,000 MT of Tinplate by canning products such as: Sea Food Tinned Fruit & Vegetables Cooked/Prepared Meals Tomato Puree Cans Beans/Pea Cans
As indicated in the import data, ~8,000 MT of empty cans are imported which include: Aerosol Cans Juice Cans Crab/Prawn/Tuna Meat Cans Beans/Vegetable Cans Sauce/Puree Cans Solvent/Chemical Cans
Untapped Demand Import Substitution
KEY INVESTMENT HIGHLIGHTS – DEMAND ANALYSIS
DEMAND & MARKETSHARE OUTLOOK
Tinplate (ETP) Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Company's Dispatch (MT) 60,000 60,000 66,000 78,000 90,000 102,000 108,000 120,000 120,000 120,000
Capacity Utilization (%) 50% 50% 55% 65% 75% 85% 90% 100% 100% 100%
Historical 5-Year CAGR (%) 11.6% 11.6% 11.6% 11.6% 11.6% 11.6% 11.6% 11.6% 11.6% 11.6%
Growth Rate Assumed (%) 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% 7.0%
Industry Demand (MT) 99,287 106,237 113,674 121,631 130,145 139,255 149,003 159,433 170,593 182,535
Market Share (%) 60% 56% 58% 64% 69% 73% 72% 75% 70% 66%
CRC (TMBP) Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Company's Dispatch (MT) 40,000 40,000 44,000 52,000 60,000 68,000 72,000 80,000 80,000 80,000
Capacity Utilization (%) 50% 50% 55% 65% 75% 85% 90% 100% 100% 100%
Historical Growth (%) 12.00% 12.00% 12.00% 12.00% 12.00% 12.00% 12.00% 12.00% 12.00% 12.00%
Growth Rate Assumed (%) 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0%
Industry Demand (MT) 1,480,443 1,584,074 1,694,959 1,813,606 1,940,558 2,076,397 2,221,745 2,377,267 2,543,676 2,721,734
Market Share (%) 2.7% 2.5% 2.6% 2.9% 3.1% 3.3% 3.2% 3.4% 3.1% 2.9%
Tinplate (ETP) - Sales Mix
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24,000 24,000 26,400 31,200 36,000 40,800 43,200 48,000
16,000 16,000 17,600
20,800 24,000
27,200 28,800
32,000
20,000 20,000 22,000
26,000
30,000
34,000 36,000
40,000
-
20,000
40,000
60,000
80,000
100,000
120,000
140,000
1st Year 2nd Year 3rd Year 4th Year 5th Year 6th Year 7th Year 8th Year
Existing Local Market Additional Local (Post Expansion) Export
MT/A
5,300 5,300 6,330 8,390 10,450 12,510 13,540 15,600 6,900 6,900 7,590 8,970
10,350 11,730 12,420
13,800
9,000 9,000 9,900
11,700 13,500
15,300 16,200
18,000
18,800 18,800 20,180
22,940
25,700
28,460 29,840
32,600
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
1st Year 2nd Year 3rd Year 4th Year 5th Year 6th Year 7th Year 8th Year
Appliance / House holds Auto & Allied Engineering Sector Commercial Trader
MT/A
CRC- Sales Mix
PERFORMANCE HIGHLIGHTS
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PKR Mn FY12 FY13 FY14 FY15 FY16 FY17 2Q FY18 Net Turnover 2,509 2,771 2,092 2,341 2,119 2,538 1,234 Gross Profit 94.4 179.8 6.7 140 234 310 132 PBT (162) (75) (192) 3 80 159 52 PAT (124) (65) (152) (20) 59 128 31 EBITDA (12) 95 (51) 121 188 239 105
Total Assets 2,831 2,678 1,831 1,822 1,650 2,024 2,207Total Liabilities 1,831 1,743 1,047 1,059 828 1,104 1,256Share Capital 785 785 785 785 785 785 785Unapp. Profit 215 150 (2) (22) 37 135 166Net equity 1,000 935 783 763 822 920 951EPS (1.58) (0.82) (1.94) (0.26) 0.75 1.63 0.40BVPS 12.74 11.91 9.97 9.72 10.47 11.71 12.11
31,307 63,306
108,721
272,283 260,853
-
50,000
100,000
150,000
200,000
250,000
300,000
FY14 FY15 FY16 FY17 9MFY18
Historic Price Performance Trading Volumes (in 000s)
-50%0%
50%100%150%200%250%300%350%400%450%500%
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STPL KSE All KSE 100
Base-case Vs. Best case Scenario
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Particulars (PKR millions)55% CAPU 95% CAPU
Revenue 13,490 23,301
Cost of Sales 11,730 19,976
Operating Profit 1,378 2,997
Financing Cost 475 632
Profit available for appropriation 689 1,859
EPS 3.0 8.1
ROE 17.5% 42%
Thank You
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