January 8, 2014

Initiation
Pakistan Research

Household Goods
TGL: A potential two-bagger

TGL PA

BUY

Price Target: PKR67/Share

Closing Price: PKR29.6/Share
Key Data
29.6 17.0

12m Price Range (PKR)

2,049.9

Market Cap (PKR mn)

69.3

Outstanding Shares (mn)

0.4

Avg. Daily Volume mn (6m)

Better quality allowed market penetration: Industry sources establish that Tariq Float has
generally been accepted by market participants as being of better quality than GHGLs float
glass. This has allowed TGL to aggressively expand its market share post-expansion.

1Yr Relative Performance

TGL

(%)
180

KSE-100 INDEX

160
140
120
100
80

Source: Elixir Research

Jan-14

Nov-13

Sep-13

Jul-13

May-13

Mar-13

60

Jan-13

Tariq Glass Industries Ltd. (TGL) has managed to become a leader in the float glass market
within six months of inaugurating its new 181ktpa plant. The company previously operated
only in the container glass and tableware segment. Despite predatory pricing by Ghani Glass
(GHGL) to limit TGLs market penetration, TGL, helped by its superior quality, has
successfully captured ~50% of float glass market share. The current market standing is now
apparently well accepted and respected by these two players and resultantly both increased
float glass prices by 24% in Nov-13. The current increase has merely recouped cuts post
TGL's COD and inflationary impact of price freeze during the preceding two years is yet to be
passed on. Recent price increase coupled with volumetric growth from an expanding
product portfolio is likely to bring about strong earnings growth for TGL. We expect FY14
and FY15 EPS to clock in at PKR7.95 and PKR10.80, up 50% and 36% YoY. TGL is currently
trading at a cheap FY14/FY15 PER of 3.7x/2.7x. Our Dec-14 PT of PKR67/sh offers a stellar
upside potential of 127%. BUY!

End of predatory pricing to benefit TGL: Owing to the high market penetration accomplished
by TGL in a very short time span, GHGL ended the price war and apparently accepted TGL's
market share. Resultantly, both companies collectively increased prices by 24% in Nov-13.
This, coupled with a recent 7% increase in tableware prices, shall allow strong margin
expansion during 2HFY14. We expect TGL's gross margins to rise to 22.7% in 4QFY13 from
14.9% in 1Q, which would still be 6pp lower than pre-predatory pricing gross margins of GHGL.
Expanding product portfolio and focus on exports to improve utilization: TGL recently started
producing colored-float glass and is also planning on commencing production of CVD coated
reflective glass and mirror glass. In addition to this, TGL is also focusing on exporting its surplus
production to India and Middle East. We expect that TGL shall achieve capacity utilization of
75% in the float segment by 4QFY14 and have assumed the same as peak utilization level.
TGL Financial Highlights

AC

Syed Nasir Rizvi

snarizvi@elixirsec.com
(+92-21) 3569 4679

FY11A

FY12A

FY13A

FY14E

FY15E

FY16E

EPS
DPS (PKR)

2.07
1.00

4.22
-

5.30
-

7.95
-

10.80
5.00

11.79
6.00

BV/share

23.8

29.3

36.4

44.4

55.2

62.0

PER (x)
Dividend Yield
PBR (x)

14.3
3%
1.2

7.0
0%
1.01

5.6
0%
0.81

3.7
0%
0.67

2.7
17%
0.54

2.5
20%
0.48

EV/EBITDA

4.8

4.8

10.5

3.4

2.2

1.8

ROA
ROE
EBITDA growth

8%
13%
4%

9%
16%
51%

7%
16%
-17%

8%
20%
196%

11%
22%
33%

12%
20%
4%

Net Profit growth

Source: Elixir Research

1%

104%

26%

50%

36%

9%

Please refer to the last page for Analyst Certification and other important disclosures.

Initiation

TGL
Initiate with BUY
TGL is currently trading at a cheap FY14/15 PER of 3.7/2.7x. We have valued TGL using FCFE
and have used cost of equity of 17% with a terminal growth rate of 3%. Our Dec-14 Price
Target of PKR67/sh offers stellar potential upside of 127%. Strong gains expected from
volumetric growth coupled with end of predatory pricing make TGL a compelling investment
opportunity. BUY!!
TGL Valuation
PKR Mn
Assumptions:
Risk Free Rate
Risk Premium
Cost of Equity
Terminal Growth

FY15E

FY16E

FY17E

FY18E

FY19E

FY20E

9
0.5
8

336
1.5
266

491
2.5
331

663
3.5
383

732
4.5
361

963
5.5
406

10.0%
7.0%
17.0%
3.0%

FCFE
Discount Factor
Discounted FCFE
PV of FCFE
1,755
PV of Term. Value
2,987
Cash Balance
193
Dec-14 Equity Value
4,936
No. of Shares (Mn)
73*
Dec-14 Price Target
67
Source: Elixir Research
* Adjusted for potential dilution

Tariq Glass is engaged in the production of glass products

Tariq Glass Industries Ltd. is engaged in the production and sale of glass products including
glass containers, tableware and float glass with annual combined production capacity of
~280ktons per annum. Its production facility is situated in the outskirts of Lahore. The
company markets its products under the Toyo Nasic, Omroc, Nova and Tariq Float
brand names.

TGL recently commissioned its float glass plant

In 2010, TGL decided to enter the float glass market by investing in a 550tpd
(181ktons/annum) float glass plant. Total capital expenditure for this project amounted to
PKR3.5bn and was financed by a combination of debt and equity. The company issued 46.2mn
right shares for this purpose in FY11. The plant was commissioned during 4QFY13 and the
company is marketing its float glass under the Tariq Float brand name.

GHGL is the primary competitor in the float glass market

According to industry sources, annual demand for float glass in Pakistan is estimated to be
around 250ktons per annum. Prior to TGLs entry into the float glass market, there was a
shortage of locally produced float glass. Ghani Glass Ltd. (GHGL) was the primary producer and
market leader with surplus demand being fulfilled by imported products. GHGL enjoyed
healthy margins on the product due to lack of competition coupled with high prices of
imported glass. Owing to flourishing demand, GHGL expanded its production facility from
2

Elixir Securities

January 8, 2014

Initiation

TGL
~110ktons to ~293ktons in FY12. This, combined with TGLs recent entry into the market, has
now a created a slight oversupply of float glass in the country.
GHGL enjoyed healthy margins prior to FY12

GHGL Float glass capacity and production trend

KTons
350

Float Capacity

Float Production

GHGL Gross Margins

33%

31%

300

30.5%

28.7%

29%

250

28.8%

28.6%

27%

200

25%

150

23%

22.9%

22.5%

21%

100

19%
50

17%

FY13

FY12

FY11

FY10

FY09

FY08

FY13

FY12

FY11

FY10

FY09

15%
FY08

Source: Company Accounts, Elixir Research

Source: Company Accounts, Elixir Research

Predatory pricing reduced margins

Despite cost pressures, GHGL had not increased prices of float glass since FY12 in anticipation
of TGLs entry into the market. In fact, after TGLs float glass plant came online in 4QFY13,
GHGL employed a predatory pricing strategy to limit TGLs market penetration and further
reduced its ex-factory prices from ~PKR45/kg to ~PKR34/kg. TGL, being a new entrant and
price taker, had to price its product at the reduced rate in order to gain access to the market.
Lower prices combined with higher depreciation and finance costs resulted in lower margins
and earnings for TGL. TGL posted gross margin of 13.9% between 4QFY13-1QFY14, down 5.7pp
relative to 19.6% during the same period last year (when the float glass plant had not been
commissioned).
TGLs realized gross margins plunged after float glass expansion

GHGL reduced float glass prices in 4QFY13

PKR/ton

Average Ex. Factory Float Glass Prices

42,641

44,254
39,404

34,591

19.3%

20%

20.47%
17.6%

15.1% 14.9%
15%
10.2%
10%

9.0%

5%

Elixir Securities

Source: Company Accounts, Elixir Research

January 8, 2014

1QFY14

FY13

FY12

FY11

FY10

FY09

FY08

FY13

FY12

FY11

FY10

0%

Source: Company Accounts, Elixir Research

TGL Gross Margins

25%

29,595

FY09

50,000
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0

Initiation

TGL
Better quality allowed market penetration
Company and industry sources establish that Tariq Float has generally been accepted by
market participants as being of better quality than GHGLs float glass. Some sources also
indicate that TGLs product is comparable, if not better, than the much higher priced imported
glass, which is priced around PKR85/kg. This, coupled with rigorous marketing efforts, has
allowed TGL to aggressively expand its market presence after commencing production.
Company sources indicate that TGL has already captured ~50% of the float glass market from
GHGL and imported products and has successfully solidified its position as a key player in the
industry.

Price war has ended now

Owing to the high market penetration accomplished by TGL in a very short time span, GHGL
has apparently acknowledged TGLs strong position in the float glass market and ended the
price war. The two companies collectively increased prices by 24% to PKR42/kg in Nov-13. The
current price increase has merely recouped cuts post TGL's COD and inflationary impact of
price freeze during the preceding two years is yet to be passed on.

Expanding product portfolio and focus on exports to allow volumetric growth

After successful penetration in the float glass market, TGL has started producing and selling
colored-float glass during 2QFY14 which is a higher value product and is priced at ~PKR60/ton.
The company is also planning on commencing production of CVD (Chemical Vapor Deposition)
coated reflective glass and mirror glass which are higher-priced variants of float glass.
Successful marketing of these products shall allow TGL to gain an even higher share of the
market in Pakistan. In addition to this, the company is also focusing on exporting its surplus
production to neighboring regions such as India and the Middle East. We expect TGL to
achieve optimum capacity utilization of 75% in the float segment by 4QFY14 and
conservatively assume that capacity utilization shall continue at the same level post-FY14.
Note that float glass plants can technically achieve 80% utilization levels.

Tableware prices have also been increased

TGL holds a strong reputation in its tableware business and produces a wide variety of
products including glass cups, mugs, goblets and ashtrays. The company operates at close to
optimum capacity in this segment (FY13 utilization: 71%) and has little room for volumetric
growth. Margins on these products had remained relatively stable during the last three years
hovering between 18-20%. However, increased costs during FY13 were not entirely passed on
by the company resulting in lower margins (9MFY13: 16%). TGL has recently increased
tableware prices by 7% in Dec-13 to pass on the increased costs during the year.

Expect strong earnings ramp-up in the remaining part of FY14

Increase in both float glass and tableware prices coupled with volumetric growth on the back
of an expanding product portfolio shall allow strong earnings growth for TGL in the remaining
part of the current fiscal year. We expect EPS to clock in at PKR1.18, PKR2.69 and PKR3.14
during 2Q, 3Q and 4QFY13, up 1.1x, 1.8x and 5% YoY. This shall take FY14 EPS to PKR7.95, up
50% YoY. In addition to this, we believe that gross margins shall come in at 16.1%, 21.4% and
22.7% during the three quarters. Margins shall post strong recovery in the second half of FY14
due to better gas availability post-winter and realization of the full impact of the price
increase.

Elixir Securities

January 8, 2014

Initiation

TGL
Gross margins shall also improve

PKR/share

TGL Gross Margin

22%

2.00

18%

1.50

16%

1.00

0.79

0.97

1.18

0.94

16.1%
14.9%

14.8%
12.8%

1QFY13A

4QFY14E

1QFY14A

3QFY14E

10%

2QFY14E

0.00

4QFY13A

12%

3QFY13A

0.50

2QFY13A

16.5%

14%

0.57

1QFY13A

17.5%

2QFY14E

20%

1QFY14A

2.50

4QFY13A

2.69

3QFY13A

3.00

22.7%
21.4%

3QFY14E

3.14

2.98

24%

2QFY13A

3.50

4QFY14E

Expect better earnings in the upcoming quarters

Source: Company Accounts, Elixir Research

Source: Company Accounts, Elixir Research

*Tax reversal realized during 4QFY13

Growth to continue post-FY14

We expect FY15 EPS to clock in at PKR10.8, up 36% YoY, on the back of better margins and
capacity utilization relative to FY14 average due to full year impact of higher prices new glass
variants. In addition to this, bottom-line shall also be supported by debt repayments and lower
finance costs in FY15. Subsequent to FY15 we expect earnings growth to materialize and post a
modest 5-year CAGR of 7% between FY16-FY20.
Capacity utilization to improve in FY14 and FY15
In FY14

Expect better margins in the near future

KTons
300

TGL Gross Margins

24%
22%

TGL Capacity

TGL Production

250
22.2%

20%
18%

22.0%

22.0%

21.9%

19.1%

200
150

16%

100

Source: Company Accounts, Elixir Research

Elixir Securities

FY18E

FY17E

FY16E

FY13A

FY18E

FY17E

FY16E

FY15E

10%
FY14E

50

FY13A

12%

FY15E

15.1%

FY14E

14%

Source: Company Accounts, Elixir Research

January 8, 2014

Initiation

TGL
PT adjusted for dilution from share issue
TGL currently owes USD2mn to Qinhuangdao Yaohua Glass Machine Manufacture Co. Ltd. for
supply of equipment for its float glass plant. The company has an option to issue 4.2mn fully
paid ordinary shares to the supplier against these dues. It has already taken shareholder
approval in this regard and is awaiting regulatory approvals. We believe that TGL shall manage
to issue the shares by the end of 2014 and have accordingly adjusted our PT for this potential
dilution.

Elixir Securities

January 8, 2014

Initiation

TGL

Financials

Income Statement
FY10A

FY11A

FY12A

FY13A

FY14E

FY15E

FY16E

FY17E

FY18E

2,071
1,672
399
46
354
247
45
188
2.05
0.58

2,602
2,145
457
91
366
251
42
210
2.07
1.00

3,411
2,713
698
145
554
434
41
423
4.22
-

3,889
3,302
587
128
459
250
94
153
5.30
-

7,329
5,928
1,400
41
1,359
903
205
688
7.95
-

8,539
6,642
1,897
94
1,803
1,328
166
1,151
10.80
5.00

9,021
7,036
1,985
116
1,869
1,375
107
1,257
11.79
6.00

9,529
7,437
2,092
140
1,952
1,439
99
1,327
12.45
6.25

10,066
7,863
2,203
166
2,037
1,502
65
1,424
13.36
6.75

Balance Sheet
PKRmn
Shareholders Funds
Long Term Loans
Current Liabilities
Capital & Liabilities
Net Fixed Assets
Current Assets
Total Assets
Source: Elixir Research

FY10A
618
315
431
1,365
910
455
1,365

FY11A
1,647
218
478
2,342
1,389
953
2,342

FY12A
2,033
859
939
3,831
2,814
1,017
3,831

FY13A
2,524
2,061
1,776
6,361
4,537
1,824
6,361

FY14E
3,075
1,755
2,010
6,840
4,465
2,375
6,840

FY15E
3,823
1,459
1,718
7,001
4,398
2,603
7,001

FY16E
4,294
1,164
1,577
7,035
4,320
2,715
7,035

FY17E
4,740
869
1,538
7,147
4,231
2,916
7,147

FY18E
5,233
574
1,602
7,408
4,129
3,279
7,408

Cash Flow Statement

PKRmn
Net Income
Depreciation
Capex
Work. Cap. Changes
FCFF
Net Debt Repayments
FCFE
Dividends
Net Cash Flows
Source: Elixir Research

FY10A
142
106
201
76
185
133
22
17
5

FY11A
144
115
590
42
680
181
472
23
449

FY12A
293
119
1,525
36
(811)
(775)
(62)
69
(132)

FY13A
367
209
1,878
(909)
(2,056)
(1,853)
(264)
0
(264)

FY14E
551
457
400
(413)
332
195
4
0
4

FY15E
748
475
408
(111)
812
695
9
0
9

FY16E
817
494
416
(63)
901
495
336
347
(10)

FY17E
863
514
424
(66)
951
395
491
416
75

FY18E
926
534
433
(69)
1,000
295
663
433
230

PKRmn
Net Sales
COGS
Gross Profit
Operating costs
EBITDA
EBIT
Finance Cost
Net Profit Reported
EPS (PKR)
DPS (PKR)
Source: Elixir Research

Elixir Securities

January 8, 2014

Initiation

TGL

Financial Ratios
EPS
DPS
BVPS
PER
EV/EBITDA
P/BV
Div Yield
ROCE
ROA
ROE
Gearing
Turnover Growth
EBITDA Growth
Net Profit Growth
Source: Elixir Research

Elixir Securities

FY10A
2.05
0.58
8.9
14.5
6.8
3.3
2%
15%
11%
25%
0.55
47%
212%
NM

FY11A
2.07
1.00
23.8
14.3
4.8
1.2
3%
11%
8%
13%
(0.17)
26%
4%
1%

FY12A
4.22
29.3
7.0
4.8
1.0
0%
12%
9%
16%
0.31
31%
51%
104%

FY13A
5.30
36.4
5.6
10.5
0.8
0%
9%
7%
16%
1.09
14%
-17%
26%

FY14E
7.95
44.4
3.7
3.4
0.7
0%
10%
8%
20%
0.83
88%
196%
50%

FY15E
10.80
5.00
55.2
2.7
2.2
0.5
17%
13%
11%
22%
0.48
17%
33%
36%

FY16E
11.79
6.00
62.0
2.5
1.8
0.5
20%
14%
12%
20%
0.32
6%
4%
9%

FY17E
12.45
6.25
68.4
2.4
1.5
0.4
21%
15%
12%
19%
0.19
6%
4%
6%

FY18E
13.36
6.75
75.5
2.2
1.2
0.4
23%
16%
13%
19%
0.07
6%
4%
7%

January 8, 2014

Initiation

TGL

Chief Executive Officer

Junaid Iqbal
(92-21) 3569 4617
jiqbal@elixirsec.com

Pakistan Research Team

Institutional Equities

Retail Equities

Azfer Naseem, CFA

Head of Research
(92-21) 3569 4716
anaseem@elixirsec.com

Faisal Bilwani
Head of Equities - FII
(92-21) 3569 3919
fbilwani@elixirsec.com

Muhammad Ali Taufiq

Head of Equity Strategy Retail
(92-21) 3569 3922
alitaufiq@elixirsec.com

Sateesh Balani
(92-21) 3569 4679
sbalani@elixirsec.com

M. Sibtain Mustafa
Head of Equities - LII
(92-21) 3569 3911
smustafa@elixirsec.com

Sikandar Rahim
(92-21) 3569 3914
srahim@elixirsec.com

Ujala Adnan
(92-21) 35694622
Uadnan@elixirsec.com

Jawwad Aboobakar
(92-21) 3565 3182
jawwad@elixirsec.com

Kamran Kaludi
(92-21) 3569 3920
kkaludi@elixirsec.com

Mubashir Anis Silat

(92-21) 3569 4622
manis@elixirsec.com

Muhammad Raza Rawjani

(92-21) 3569 3911
rrawjani@elixirsec.com

Adil Abid
(92-21) 3569 4666
aabid@elixirsec.com

Syed Nasir Rizvi

(92-21) 3569 4622
snarizvi@elixirsec.com

HNW & Family Offices

Harris Ahmed Batla
(92-21) 3569 4706
habatla@elixirsec.com

Khurram Malik
(92-21) 3569 4602
kmalik@elixirsec.com

Ibad-ur-Rehman
(92-21) 3569 4622
irehman@elixirsec.com
Syed Tahseen
(92-21) 3569 4622
tjaved@elixirsec.com

Elixir Securities

Lahore Office
Tahir Maqbool
(92-42) 3577 2643
tmaqbool@elixirsec.com

Islamabad Office
Asim Ghafoor Qureshi
(92-51) 227 2341
aghafoor@elixirsec.com
Faisalabad Office
Syed Baqar Hassan
(92-41) 254 1001-4
sbhassan@elixirsec.com

January 8, 2014

Initiation

TGL

Analyst Certification
The Elixir Research Team certifies that (1) the views expressed in this report accurately reflect their personal views about all of the subject
companies/securities and (2) no part of their compensation was, is or will be directly or indirectly related to the specific recommendations or
views expressed in this report.
Disclaimer
The report has been prepared by Elixir Securities Pakistan (Pvt.) Ltd and is for information purpose only. The information and opinions contained
herein have been compiled or arrived at based upon information obtained from sources, believed to be reliable and in good faith. Such
information has not been independently verified and no guaranty, representation or warranty, expressed or implied is made as to its accuracy,
completeness or correctness. All such information and opinions are subject to change without notice. Descriptions of any company or companies
or their securities mentioned herein are not intended to be complete and this document is not, and should not be construed as, an offer, or
solicitation of an offer, to buy or sell any securities or other financial instruments.
Research Dissemination Policy
Elixir Securities Pakistan (Pvt.) Ltd. endeavors to make all reasonable efforts to disseminate research to all eligible clients in a timely manner
through either physical or electronic distribution such as mail, fax and/or email. Nevertheless, not all clients may receive the material at the same
time.
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Elixir Securities Pakistan (Pvt.) Ltd. may, to the extent permissible by applicable law or regulation, use the above material, conclusions, research or
analysis in which they are based before the material is disseminated to their customers. Elixir Securities Pakistan (Pvt.) Ltd., their respective
directors, officers, representatives, employees and/or related persons may have a long or short position in any of the securities or other financial
instruments mentioned or issuers described herein at any time and may make a purchase and/or sale, or offer to make a purchase and/or sale of
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make markets in securities or other financial instruments described in this publication, in securities of issuers described herein or in securities
underlying or related to such securities. Elixir Securities Pakistan (Pvt.) Ltd. may have recently underwritten the securities of an issuer mentioned
herein.
Other Important Disclosures
Foreign currency denominated securities is subject to exchange rate fluctuations which could have an adverse effect on their value or price, or
the income derived from them. In addition, investors in securities such as ADRs, the values of which are influenced by foreign currencies
effectively assume currency risk.

Copyright 2014, Elixir Securities Pakistan (Pvt.) Ltd. All rights reserved. This report or any portion hereof may not be reproduced,
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10

Elixir Securities

January 8, 2014