Amtex, the latest in a refreshingly surprising series of new public offerings this year, has nearly everything what an investor needs: a healthy balance sheet, an attractive business model with an ability to pass on input prices and a reference price that offers pretty attractive valuation when compared with the leading industry players in Pakistan.
The offering in question is to raise Rs793 million, for which the company intends to offer 61 million shares through the book building process, followed by the IPO, with the base price of Rs13 per share.
This puts Amtexs stock at an implied price-to-earning multiple of 3.4x, compared with its peer Nishat Mills Limited that is currently trading at a multiple of 8.5x. The stock also appears attractive in terms of its price-to-book multiple, which stands at a discount of 63 percent, against the industry average of 0.7x
With the intention of balance sheet optimization, 40 percent out of the total proceeds will be utilized for the retirement of long-term debt financing facility (including partial retirement of Sukuk) while the remaining 60 percent will be used to meet the firms working capital requirement.
AMTEX has posted consistent performance in the past. With revenue CAGR of approximately 27 percent over the last four years, the company has enjoyed gross margins of over 20 percent. The firms attractive margins are chiefly a result of its DTR (Direct to Retail) business model - heavily tilted towards direct dealing with retailers instead of intermediaries/importers.
The company has largely benefited from currency weakness in the recent years, and it is projected to grow as an export-based entity. This can be gauged from the fact that it is one of the few companies that enjoys the 1-percent additional duty drawback given to those whose export growth exceeds 15 percent year-on-year.
This growth can gather pace if the government succeeds in signing a GSP agreement with the EU, which promises zero-rated duty to the exporters. But, knowing that the exports of value added textile plunged by more than 10 percent in 1HFY10, the firm will have to make serious efforts to achieve its projected revenues.
Given the flurry of IPOs since January, its too early to say if Amtex would be the biggest textile offering of 2010. Its even harder to assess if it would be the most loved of the new lot of scrips this year. But Amtex could be as close as one can get for now.
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AMTEX: Financial Forecast
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Rs (mn) FY08A FY09A FY10E FY11E FY12E
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Sales 10,043 14,120 16,907 20,594 23,879
Gross Profit 2,283 3,389 3,931 4,910 5,779
PAT 673 921 1,249 1,713 2,253
EPS 2.79 3.81 5.17 7.1 9.33
GP Margin 23% 24% 23% 24% 24%
ROE 14% 13% 13% 16% 18%
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Source: AMTEX