Earnings Review Q4 FY 15

65, Braybrooke Place, Colombo 2, Sri Lanka

research@bartleetreligare.com, +94 11 5220200

20 July 2015

BRS Research

Lanka Floortiles PLC (TILE:LKR 116.70)

Head of Research- Nikita Tissera

Asst. Manager - Nusrath Mohideen

Subsidiaries preserve overall margins : BUY

Lower CoGs, finance costs and higher contribution from PARQ made TILEs Q4FY15s EPS rise
53% to LKR 5.78. PARQ has been a consistent contributor to TILEs performance in FY 2015,
pushed by subsidiary Swisstek Aluminum. PARQ contributed LKR 111mn for FY 2015
(+112.6% YoY). However, revenue for the year was a modest 5.1% (FY 2015) on the back of
intense competition encountered in both local and export sales. We feel TILE would grow as
a proxy to national growth and more to workers remittances. We have arrived at a TP of
LKR 126 with a total return of LKR 131 (+11.9% to CMP) and maintain BUY.

Trading Snapshot
Market cap (LKR mn)

6,191

Market cap (USD mn)

46

Outstanding equity shares (mn)

53.1

Public Holding (%) -Mar 15

All figures in LKR (mn)
Revenue

2012

2013

2014

2015

3,567

4,559

5,091

5,350

2016E

2017E

5,705

6,047

29.15%

52-week High/Low (LKR)

119.40/87.00

Revenue growth (%)

18.8%

27.8%

11.7%

YTD ASPI return (%)

-3.73%

Gross profit

1,145

1,305

1,639

1,928

2,071

2,176

YTD Stock return (%)

6.09%

EBIT recurring

760

787

900

980

1,014

1,058

Beta

EBIT margin (%)

21.3%

17.3%

17.7%

18.3%

17.8%

17.5%

Profit attributable to equity holders

5.1%

6.6%

6.0%

598

632

652

839

842

864

BRS EPS Adjusted (LKR)

11.28

11.92

12.29

15.82

15.87

16.28

NAV per share (LKR)

52.25

59.67

66.88

77.40

88.77

100.55

0.94

Valuation Summary

DPS (LKR)

4.00

4.10

4.00

4.50

4.50

4.50

CMP (LKR)

116.70

Dividend yield (%)

6.1%

5.9%

5.0%

3.9%

3.9%

3.9%

Intrinsic value (LKR)

126.04

P/E (x)

5.8 x

5.8 x

6.5 x

7.3 x

7.4 x

7.2 x

DPS (LKR)

P/BV (x)

1.2 x

1.2 x

1.2 x

1.5 x

1.3 x

1.2 x

ROE %

26.9%

21.3%

19.4%

21.9%

19.1%

17.2%

Debt/equity (%)

24.7%

44.0%

35.3%

18.1%

16.8%

15.6%

Source: Company data and BRS Research

Local sales are still key and will do so in the forecast period
Local sales continued to dominate TILE revenue with a contribution of 96% for FY 2015. However, the growth in local sales has contracted since last year, from 12.7% YoY in FY 2014 to
4.4% YoY in FY 2015. Despite intense competition TILE has successfully retained its market
share at 23% in FY 2015. Focus on brand building and loyalty schemes such as Tiler Club and
Lanka Tiles Plus Schemes has gained the TILE brand much popularity during the year. The company intends on targeting 4 new branches each in FY 2016 and FY 2017 respectively. Export
sales grew 4.1% YoY to LKR 243mn in FY 2015. However, growth in sales and revenue was constricted due to certain delays in exports and a decline in the Australian forex market. TILE
would continue to focus on export performance going forward.

4.50

Target price based on total return (LKR)

130.54

Valuation method

DCF

Total return %

11.9%

Rating

Buy

TILE Price Vs ASPI Movement

LKR
140

TILE

ASPI

8,000
120

7,000
6,000

100

5,000

80

4,000
60
3,000

Margins supported by lower costs

EBIT margins for the quarter increased to 25.7% (Q4 FY 15) from 17.7% in Q4 FY 14. The growth
was supported by a 8.2% YoY decline in CoGS. Overall EBIT margin improved during the year
owing to the continuous focus on cost reduction and lower global energy prices in FY 2015.
However, we expect admin costs to escalate on the back of aggressive marketing by the company. The reduction in gearing from 26% in FY 2014 to 15% in FY 2015 resulted in lower finance
cost, thereby improving net profit margins to 15.7% in FY 2015 (FY 2014 - 12.8%). To remain
competitive in the market TILE would continue to focus on energy and general efficiency in
their product lines.

40

2,000

20
14-Jul-13

14-Jan-14

14-Jul-14

14-Jan-15

1,000
14-Jul-15

EPS Trend
LKR
18
16
14
12

Valuation: 11.9% total upside with forecasted dividend of LKR 4.50

We see TILEs diversity as a positive given how the variations has added to the overall margin
preservation. Based on a DCF valuation we arrived at a TP of LKR 126.04 (+8.0% to CMP). The
counter is trading at a PER of 7.4x FY 2016E.The sector PER and PBV stands at 20.1x and 2.7x as
at 17.07.2015 respectively.
For analyst certification and other important disclosures, please refer to the Disclosure and
Disclaimer section at the end of this report.

10
8
6
4
2012

2013

2014

2015

Page 1

2016E

2017E

Company Information Note

65, Braybrooke Place, Colombo 2, Sri Lanka
research@bartleetreligare.com, +94 11 5220200

20 July 2015

Year Ending 31 March

Lanka Floortiles PLC (TILE)

Company profile

11.28

BRS EPS growth (%)

18.5%

2014

2015

2016E

2017E

6,047

7%

28%

12.29
3.1%

15.82
28.7%

15.87
0.3%

16.28
2.6%

6.5 x

7.3 x

7.4 x

7.2 x

11.28

11.92

12.29

15.8 x

na

na

5.8 x

5.8 x

6.5 x

7.3 x

na

na

Se ctor P/E (x)

17.3 x

10.2 x

13.6 x

21.1 x

na

na

NAV per s ha re LKR a djus te d

P/E on re ported EPS (x)

52.25

59.67

66.88

77.40

88.77

100.55

P/BV (x)

1.2 x

1.2 x

1.2 x

1.5 x

1.3 x

1.2 x

Se ctor P/BV (x)

1.0 x

1.7 x

1.8 x

2.6 x

na

na

DPS LKR

4.00

4.10

4.00

4.50

4.50

4.50

3.9%

Di vi dend yi e l d (%)

6.1%

5.9%

5.0%

3.9%

3.9%

FCFF (LKR mn)

(237)

(191)

437

1,559

570

772

FCFE (LKR mn)

199

125

164

1,165

569

759

(3.34)

(1.71)

(1.34)

17.43

4.35

6.99

P/CFPS (x)

nm

nm

Mkt pri ce

65.10

69.50

We i ghte d a vera ge s ha re s (mn)

6%

5.7%
5.8 x

CFPS LKR

Revenue LKR'mn % Growth (2012-2017E)

11.92

5.8 x

Re ported EPS (LKR)

5%

2013

BRS EPS (LKR) a djus te d

P/E (x)

Lanka Floortiles PLC (TILE) is engaged in the manufacture

and sale of glazed ceramic floor tiles. The ownership of
the company which belonged to the CT Holdings group
under its subsidiary Lanka Ceramics (CERA) was divested
(76.11%) to Royal Ceramics Lanka PLC (RCL) on the 6th of
May 2013.

12%

2012

Summary Information

nm
79.80

6.6 x

26.8 x

16.7 x

115.00

116.70

116.70

53.1

53.1

53.1

53.1

53.1

53.1

Ave ra ge mkt ca p (LKR mn)

3,454

3,687

4,233

6,101

6,191

6,191

Ente rpri s e va l ue (LKR mn)

3,842

4,729

5,102

5,505

5,313

4,887

EV/Sa l e s

1.1 x

1.0 x

1.0 x

1.0 x

0.9 x

0.8 x

EV/EBITDA

4.3 x

4.9 x

4.7 x

4.6 x

4.4 x

3.9 x

Re venue

3,567

4,559

5,091

5,350

5,705

6,047

Gros s profi t

1,145

1,305

1,639

1,928

2,071

2,176

895

967

1,093

1,194

1,199

1,241

(134)

(180)

(193)

(214)

EBIT re curri ng

760

787

900

980

I nte re s t i ncome

I nte re s t expe ns e

(29)

Income Statement (LKR mn)

3,567

EBITDA recurri ng
De pre ci a ti on a nd a morti s a ti on

Sha re of a s s oci a te s /(l os s )

2012

2013

2014

2015

2016E

2017E

2017E

EBIT LKR'mn Growth (2012-2017E)

Exce pti ona l s /non-re curri ngs

10

(120)
9
-

24

(126)
52
-

(185)

1,058

(49)

(46)

111

97

(183)

1,014

(57)
99
-

Ta x e xpens e

(142)

(75)

(174)

(226)

(224)

(237)

Ne t i ncome

598

632

652

839

842

864

Mi nori ti e s & prefe rence di vi dends

Profi t a ttri buta bl e to e qui ty hol ders

598

632

652

839

842

864

Statement of Financial Position (LKR mn)

9%

4%

4%

1,058

14%
760

3%

Ca s h a nd ca s h equi va l ents

35

81

75

847

1,078

1,448

I nve ntori es

782

1,464

1,474

1,137

1,516

1,607

Tra de re cei va bl e s

690

1,006

1,148

899

1,137

1,339

I nve s tme nt prope rty

Long term i nves tments

2,260

2,486

2,584

2,533

2,520

2,488

Goodwi l l

I nta ngi bl e a s s e ts

As s oci a tes

261

270

309

493

590

690

Fi xe d a s s ets

Tota l a s s ets

2012

2013

2014

2015

2016E

2017E

2017E

4,284

5,539

5,725

6,012

6,944

7,675

Tra de pa ya bl e s

575

659

464

536

695

669

I nte re s t be a ri ng de bt -s hort term

305

876

764

361

382

404

I nte re s t be a ri ng de bt -l ong term

379

517

488

384

407

430

Tota l l i a bi l i ti es

1,512

2,374

2,177

1,906

2,234

2,341

Sha re hol de rs e qui ty

2,772

3,166

3,548

4,106

4,709

5,334

2,772

3,166

3,548

4,106

4,709

5,334

649

1,312

1,177

3,456

4,559

4,800

4,851
1,685

Mi nori ti e s
Tota l equi ty
Ne t de bt (ca s h)
Tota l ca pi ta l empl oye d

Profit attributable to equity holders LKR'mn Growth

(2012-2017E)
29%

598

6%

0.28%

3%

864

3%

(288)
5,499

(614)
6,169

Casf flow (LKR mn)

Ca s h fl ow from ope ra ti ons

260

125

567

Ne t worki ng ca pi ta l

(412)

(687)

(348)

Ca pi ta l e xpe ndi ture

(659)

(408)

(237)

Free ca s h fl ow

(399)

(283)

330

I nve s ti ng ca s h fl ows

(837)

(404)

(237)

596

716

573

(458)

(318)

(129)

(171)

(151)

1,556
(197)

Equi ty ca pi ta l

Di vi dends pa i d

(53)

(239)

(244)

(212)

(157)

(349)

Ne t borrowi ngs

505

(102)

425

564

(171)

(151)

(239)

(239)

462

427

(177)

(91)

18.8%

27.8%

11.7%

5.1%

6.6%

6.0%

7.7%

3.5%

14.4%

8.8%

3.5%

4.3%

Gros s profi t ma rgi n (%)

32.1%

28.6%

32.2%

36.0%

36.3%

36.0%

EBITDA ma rgi n (%)

25.1%

21.2%

21.5%

22.3%

21.0%

20.5%

EBIT ma rgi n (%)

21.3%

17.3%

17.7%

18.3%

17.8%

17.5%

ROCE %

28.7%

19.6%

19.2%

20.3%

19.6%

18.1%

ROE %

26.9%

21.3%

19.4%

21.9%

19.1%

17.2%

Pa yout ra ti o (%)

35.5%

34.4%

32.5%

28.4%

28.4%

27.6%

De bt/equi ty (%)

24.7%

44.0%

35.3%

18.1%

16.8%

15.6%

Ne t de bt/e qui ty (%)

23.4%

41.5%

33.2%

-2.5%

-6.1%

-11.5%

Ge a ri ng (%)

19.8%

30.6%

26.1%

I nte re s t cover (x)

26.5 x

6.5 x

7.1 x

Ne t ca s h fl ow

(71)

925

45

45

231

371

Key ratios
Re venue growth (%)
EBIT growth (%)

2012

2013

2014

2015

2016E

2017E

Source: TILE Annual Reports and BRS Research

2017E

15.3%
19.9 x

14.4%
22.1 x

Page 2

13.5%
18.5 x

BRS Equity Research

Local Vs. Export Sales Performance Q4 FY 15

120%
Local Sales

Export Sales

100%

80%

60%
97%

97%

40%

20%

3%

3%

Q4 FY 14

Q4 FY 15

0%

Q4 FY 15 Performance
All figures in LKR 'mn

Q4 FY 15

Revenue
YoY Growth %
QoQ Growth %

Q4 FY 14

1,426.8

1,392.7

2.4%

11.7%

-10.4%

-5.5%

Gross profit

589.7

480.7

Gross profit margin %

41.3%

34.5%

Recurring net profit to equity holders

305.9

199.8

YoY Growth %

53.1%

-22.6%

QoQ Growth %

21.4%

1.5%

BRS EPS as adjusted (LKR)

NAV per share (LKR)

5.77

3.77

77.40

66.88

Net debt/ equity (%)

-2.5%

33.2%

Gearing (%)

15.3%

26.1%

EV/Sales (x)

0.9

1.0

EV/EBITDA (x)

4.2

4.5

Valuation estimates
Based on a free cash flow valuation we have arrived at a target price of LKR
126.04 Our valuations are based on the following estimates:

WACC 12.0%
Terminal growth rate 1.5%
Risk free rate 8.24%
Beta 0.94 (based on TILE vs. ASPI share price movement)
Equity risk premium- 5%

Sensitivity of Target Price to Risk Free Rate

Risk free rate

Terminal growth

www.bartleetreligare.com

126.04

7.00%

7.50%

8.24%

8.50%

9.00%

9.50%

1.0%

136.35

130.51

122.69

120.15

115.55

111.27

1.5%

140.70

134.41

126.04

123.33

118.43

113.89

2.0%

145.53

138.73

129.72

126.82

121.58

116.74

Page 3

BRS Equity Research

Financial Analysis
Income Statement- Lanka Floortiles PLC
Year Ending 31st March
LKR mn

2012

2013

2014

2015

2017E

5,705

6,047

Revenue net of tax

3,567

4,559

5,091

YoY growth %

18.8%

27.8%

11.7%

5.1%

6.6%

6.0%

Cost of sales

(2,422)

(3,253)

(3,452)

(3,422)

(3,634)

(3,871)

YoY growth %

25.4%

34.3%

Gross profit

1,145

1,305

1,639

YoY growth %

14.0%

25.5%

17.6%

7.4%

5.1%

0.0%

Gross profit margin %

32.1%

28.6%

32.2%

36.0%

36.3%

36.0%

38

33

25

27

31

Other operating income

6.1%

5,350

2016E

-0.9%
1,928

6.2%
2,071

6.5%
2,176

SG & A Expenses

(388)

(556)

(772)

(972)

(1,084)

(1,149)

YoY growth %

1.4%

43.3%

38.8%

26.0%

11.5%

6.0%

Depreciation and amortisation

(134)

(180)

(193)

(214)

760

787

900

980

EBIT including non-recurring items

Non-recurring items
EBIT excluding non-recurring items
YoY growth %
EBIT Margin %
EBITDA excluding non-recurring items
YoY growth %
EBITDA Margin %

Finance cost

Share of results of associates

Profit before tax

Taxation

Net profit

760

787

900

980

(185)
1,014

(183)
1,058

1,014

1,058

7.7%

3.5%

14.4%

8.8%

3.5%

4.3%

21.3%

17.3%

17.7%

18.3%

17.8%

17.5%

895

967

1,093

1,194

1,199

1,241

4.7%

8.1%

13.0%

9.2%

0.5%

3.5%

25.1%

21.2%

21.5%

22.3%

21.0%

20.5%

(30)

(82)

(126)

(25)

(46)

(57)

10

52

111

97

99

741

715

827

1,065

1,065

1,100

(142)

(75)

(174)

(226)

(224)

(237)

598

632

652

839

842

864

YoY growth %

18.5%

5.7%

3.1%

28.7%

0.3%

2.6%

Net profit margin %

16.8%

13.9%

12.8%

15.7%

14.8%

14.3%

Reported EPS (Note 1)

11.28

11.92

12.29

15.82

15.87

16.28

BRS EPS adjusted (Note 2)

11.28

11.92

12.29

15.82

15.87

16.28

Source: Company Financial Reports and BRS Equity Research

Note 1: Based on earnings as reported (unadjusted for non-recurring) share data adjusted for splits
Note 2: EPS adjusted for share split, consolidations and non recurring information

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Page 4

BRS Equity Research

Financial Analysis
Statement of Financial Position- Lanka Floortiles PLC
As at 31st March
LKR mn

2012

2013

2014

2015

2016E

2017E

ASSETS
Non- current assets
Property, plant and equipment
Capital work in progress
Intangible assets
Investments in subsidiaries
Investments in associates
Goodwill
Related party loans
Finance lease assets
Total non current assets

2,260

2,486

2,584

2,533

2,520

87

65

24

23

23

261
-

270
-

166

309
-

166

2,774

2,988

493
-

110
1

80

590
80

2,488
23
690
80

3,028

3,130

3,213

3,281

Current assets
Inventories

782

1,464

1,474

1,137

1,516

1,607

Trade and other receivables

690

1,006

1,148

899

1,137

1,339

0.17

Short term investments

Cash and cash equivalents

35

81

75

847

1,078

1,448

Total current assets

1,510

2,551

2,697

2,883

3,730

4,394

Total assets

4,284

5,539

5,725

6,012

6,944

7,675

EQUITY
Stated capital
Reserves
Amalgamation reserve
Total equity

901

901

901

901

901

901

1,411

1,804

2,647

2,745

3,348

3,973

460

460

2,772

3,166

3,548

460

460

460

4,106

4,709

5,334

LIABILITIES
Non-current liabilities
Borrowings

379

517

488

384

407

430

Deferred income tax liabilities

179

173

379

361

382

404

Retirement benefit obligations

Total non current liabilities

63

78

88

111

122

132

621

768

917

870

904

938

Current liabilities
Trade and other payables
Current income tax liabiities
Borrowings
Bank overdraft
Dividends payable

575

659

464

536

695

669

11

70

33

140

253

329

361

382

404

219

508

379

86

368

385

891

1,606

1,260

1,036

1,330

1,403

Total liabilities

1,512

2,374

2,177

1,906

2,234

2,341

Total equity and liabilities

4,284

5,539

5,725

6,012

6,944

7,675

Total current liabilities

Source: Company Financial Reports and BRS Equity Research

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Page 5

BRS Equity Research

Financial Analysis
Cashflow Statement - Lanka Floortiles PLC
Year Ending 31st March
LKR mn

2012

2013

2014

2015

2016E

2017E

Cash flows from operating activities

EBIT

760

787

900

980

1014

1058

Depreciation

134

180

193

214

185

183

Gratuity charge

15

16

16

Profit/loss on disposal of property, plant and equipment

(2)

(4)

(1)

Provision for slow moviong inventories

(31)

Proportionate interest of the unrealized profit on SCP

and SAL inventories held by LFP

Reversal of provision for spares

Exchange loss from foreign currency loan

(12)

Operating profit before working capital changes

876

951

1,105

1,227

1,215

1,257

Changes in working capital

(412)

(687)

(348)

573

(458)

(318)

Cash generated from operations

464

264

758

1800

757

939

Interest paid

(29)

(120)

(150)

(49)

(46)

(57)

21

Interest received
Gratuity paid
Tax paid

Net cash generated from operating activities

(2)

(7)

(5)

(6)

(174)

(19)

(41)

(81)

(110)

(160)

(203)

(139)

(191)

(115)

(161)

(223)

260

125

567

596

716

(659)

(408)

(237)

(171)

(151)

1,685

Cash flows from investing activities

Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment

37

Purchase of shares in associates

Proceeds from sale of shares in associates

Expenditure incurred on capital work in progress

Purchance of shares on rights issue
Net cash generated from/(used in) investing activities

(215)
(837)

(404)

(129)

(237)

(35)

(197)

(171)

(151)

Cash flow from financing activities

Return from rights issue

Expenses on reserve capitalization

Dividends paid

(53)

Repayment of finance lease

(10)

Proceeds from borrowings

558

948

600

Repayment of borrowings

(96)

(521)

Net cash generated from/(used in) financing activities

400

188

Net increase/decrease in cash and cash equivalents

(177)

(91)

(239)

(244)

(212)
(3)

(239)

(239)

335

200

200

(757)

(683)

(155)

(155)

(401)

(563)

(194)

(194)

(71)

925

231

371

Source: Company Financial Reports and BRS Equity Research

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BRS Equity Research

Top 20 Shareholders as at 31st March 2015

Name of shareholder
1 Lanka Walltiles PLC

No. of shares

36,189,195

68.22%

2 Employees Provident Fund

5,295,602

9.98%

3 Mellon-Frontaura Global Frontier Fund LLC

3,255,228

6.14%

4 Royal Ceramics Lanka PLC

1,388,481

2.62%

5 Bank of Ceylon No.1 Account

973,200

1.83%

6 Mr. K.R. Kamon

537,628

1.01%

7 Mr. A. A. Page

433,939

0.82%

8 Rubber Investment Trust Limited A/C NO 1

259,765

0.49%

9 Pinnacle Trust (Pvt) Ltd

214,800

0.41%

10 Deutsche Bank AG-Comtrust equity fund

138,631

0.26%

11 The Sri Lanka Fund

131,267

0.25%

12 Aruna Enterprises (Pvt) Ltd

128,500

0.24%

13 Mr.S.M. Fernando

126,446

0.24%

14 Mrs.A.A. Merchant

125,000

0.24%

15 HSBC Intl nom Ltd - USB Ag Zurich

115,164

0.22%

16 Mr.Y.H. Abdulhessein

104,833

0.20%

17 Mr.S.N. Kumar

100,600

0.19%

18 Mr.H.N. Esufally

87,240

0.16%

19 Mr. M A H Esufally

87,217

0.16%

20 Mrs. B C Sansoni

63,000

0.12%

Source: Q4 FY 15 TILE statements

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BRS Equity Research

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