SIDDIQSONS TIN PLATE LIMITED (STPL : KAR)

Transcription

1 SIDDIQSONS TIN PLATE LIMITED (STPL : KAR) Analyst Briefing May 10, 2018

2 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 Limited, was established in It has established to become a Denim Dynasty and is recognized by 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 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 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

3 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 ArecelorMittal Packaging s Director Mr. Jean Pierre Gugenheim is a nominee Director of M/s ArcelorMittal Packaging International of France for Siddiqsons Tinplate Limited Belgium Largest Steel Producer in the World 98 million tons per annum of capacity Spain Production Facilities France 3

4 COMPANY OVERVIEW Siddiqsons Tin Plate Limited 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 Key Products Major Clients 4

5 PATTERN OF SHAREHOLDING Siddiqson Limited 15.3% General Public 33.2% Arcelor Mittal Packaging (France) 9.3% Other Sponsors 42.2%

6 OPERATIONAL HIGHLIGHTS Year Market size 76,000 Installed capacity 120,000 Qty. Produced CAPU Qty. Dispatched Market Share ,327 20% 24,404 32% ,471 20% 24,676 32% ,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. 6

7 PROJECT SNAPSHOT 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 Capacity of CRM Financing Required Machinery Supplier Project Completion Date Raw Material Procurement Cold Rolled Mill Project 200,000 MT p.a. PKR 6 billion (financed by 70% debt and 30% equity) CISRI (Beijing, China) 30/06/2020 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 7

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 producers around the world In-house production allows the producer to provide a diversified range of tin plate products so as to cater to the needs of various 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 8

9 KEY INVESTMENT HIGHLIGHTS DEMAND ANALYSIS 1 Domestic Demand 2 Export Potential 3 Untapped Market 4 Import Substitution 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 ,272 24,835 47, ,788 22,095 55, ,881 25,420 55, ,126 24,474 57, ,129 24,380 76,509 4M ,451 6,456 28,907 Source: Customs Import Data 1 2 Competitiveness Consistent & Superior Quality of Tin 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 Cost Efficiencies to provide Price Competitiveness Through the vertical integration the Company will be able to save HRC to CRC spread The additional spread of USD 105/ton may be partially passed onto clients to gain the market share

10 KEY INVESTMENT HIGHLIGHTS DEMAND ANALYSIS 1 Domestic Demand 2 Export Potential 3 Untapped Market 4 Import Substitution 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 Duty Structure USD/ton Imported ETP Prime ETP Secondary Cost Duty Other Exp Conversion HR-CR Conversion CR-ETP Wastage 83 Total 1,114 1,054 Current Spread Post-CRC - $17/ton Current Case CRC-ETP ,131 + $105/ton Post CRC Expansion HRC-CRC-ETP ,009 Flat-Steel Type Sub-Category % ETP Prime 17% Secondary 26% CR Prime 17% HR Prime 5%

11 KEY INVESTMENT HIGHLIGHTS DEMAND ANALYSIS 1 Domestic Demand 2 Export Potential 3 Untapped Market 4 Import Substitution 76,000 MT/annum 100,000 MT/annum 15,000 MT/annum 8,000 MT/annum Local Sales Scenario USD/ton Imported ETP in Pak ETP Prime ETP Secondary Cost Duty Other Exp Conversion HR-CR Conversion CR-ETP Wastage 83 Total 1,114 1,054 *Middle East Post-CRC + $105/ton Total Market Potential 199,000 MT/annum Post CRC Expansion HRC-CRC-ETP ,009 Export Sales Scenario USD/ton Imported ETP in ME * ETP Prime (Chienese) Cost 900 (FOB China) Duty Ocean Freight upto Dubai 25 Conversion HR-CR Conversion CR-ETP Wastage Total 925 Post-CRC + $32/ton - 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. Our Export Pricing HRC-CRC-ETP 650 (C&F Khi.)

12 KEY INVESTMENT HIGHLIGHTS DEMAND ANALYSIS 1 Domestic Demand 2 Export Potential 3 Untapped Market 4 Import Substitution 76,000 MT/annum 100,000 MT/annum 15,000 MT/annum 8,000 MT/annum Total Market Potential 199,000 MT/annum Increased capacity utilization will significantly add to the cost efficiencies due to reduction in fixed cost/ton PKR per 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

13 KEY INVESTMENT HIGHLIGHTS DEMAND ANALYSIS 1 Domestic Demand 2 Export Potential 3 Untapped Market 4 Import Substitution 76,000 MT/annum 100,000 MT/annum 15,000 MT/annum 8,000 MT/annum Total Market Potential 199,000 MT/annum Export Potential Qty (MT) Country Demand Saudi Arabia 350,000 UAE 150,000 Srilanka 50,000 Bangladesh 100,000 Iran 125,000 Turkey 450,000 Total 1,225,000 Source: Primary Market Research over last 6 years Targeted demand is <10% of actual demand 1 2 Competitiveness Reduction in Lead Time Currently demand is met by European and Far Eastern Countries From point of order, it takes 75+ days for the order to reach destinations in Middle East STPL can meet their demand within 45 days Freight Savings for regional Customers Middle Eastern customers will save upto USD 30/ton on freight costs

14 KEY INVESTMENT HIGHLIGHTS DEMAND ANALYSIS 1 Domestic Demand 2 Export Potential 3 Untapped Market 4 Import Substitution 76,000 MT/annum 100,000 MT/annum 15,000 MT/annum 8,000 MT/annum Total Market Potential 199,000 MT/annum Untapped Demand 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 upto 15,000 MT of Tinplate by canning products such as: Sea Food Tinned Fruit & Vegetables Cooked/Prepared Meals Tomato Puree Cans Beans/Pea Cans Import Substitution 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

15 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 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, , , , , , , , , ,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%

16 Tinplate (ETP) - Sales Mix MT/A 140, , ,000 40,000 80,000 30,000 34,000 36,000 60,000 40,000 20,000 20,000 20,000 22,000 16,000 16,000 17,600 24,000 24,000 26,400 26,000 20,800 31,200 24,000 36,000 27,200 28,800 40,800 43,200 32,000 48,000-1st Year 2nd Year 3rd Year 4th Year 5th Year 6th Year 7th Year 8th Year Existing Local Market Additional Local (Post Expansion) Export 16

17 CRC- Sales Mix MT/A 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000-32,600 29,840 28,460 25,700 22,940 18,000 20,180 16,200 18,800 18,800 15,300 13,500 11,700 13,800 9,900 11,730 12,420 9,000 9,000 10,350 8,970 6,900 6,900 7,590 5,300 5,300 6,330 8,390 10,450 12,510 13,540 15,600 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

18 1-Jan-15 1-Mar-15 1-May-15 1-Jul-15 1-Sep-15 1-Nov-15 1-Jan-16 1-Mar-16 1-May-16 1-Jul-16 1-Sep-16 1-Nov-16 1-Jan-17 1-Mar-17 1-May-17 1-Jul-17 1-Sep-17 1-Nov-17 1-Jan-18 1-Mar-18 1-May-18 PERFORMANCE HIGHLIGHTS 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 PBT (162) (75) (192) PAT (124) (65) (152) (20) EBITDA (12) 95 (51) Total Assets 2,831 2,678 1,831 1,822 1,650 2,024 2,207 Total Liabilities 1,831 1,743 1,047 1, ,104 1,256 Share Capital Unapp. Profit (2) (22) Net equity 1, EPS (1.58) (0.82) (1.94) (0.26) BVPS % 450% 400% 350% 300% 250% 200% 150% 100% 50% 0% -50% Historic Price Performance Trading Volumes (in 000s) STPL KSE All KSE , , , , , , , ,000 63,306 50,000 31,307 - FY14 FY15 FY16 FY17 9MFY18 18

19 Base-case Vs. Best case Scenario 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 Profit available for appropriation 689 1,859 EPS ROE 17.5% 42% 19

20 Thank You