June22, 2015

Initiation
Pakistan Research

Textiles
KTML: Hefty portfolio value make it more than just a textile company

KTML PA

BUY

Price Target: PKR85/Share

Closing Price: PKR64.6/Share
Key Data
68.3 21.3

12m Price Range (PKR)

15,861.0

Market Cap (PKR mn)

245.5

Outstanding Shares (mn)

0.6

Avg. Daily Volume mn (6m)

KTML

Highest margins offered in Elixir Textile Universe: The gross margins of KTML are higher than
both NML and NCL. Average gross margin of KTML clocked in at 15.6% during the last five
years, against average gross margins of NML (14.8%) and NCL (14.1%). KTML was able to
maintain its margins during 9MFY15 as well, while the margins of its peers faltered.
Investments produce bulk of the contribution to our TP: KTML holds a majority stake in MLCF
and its value contributes PKR61/sh (after applying 30% portfolio discount) in our TP of PKR85.
Over the year, MLCF has significantly deleveraged its books owing to its improved cash flows
from operations and has recently resumed dividend payments after a decade long hiatus.
Presently, KTML is not only receiving dividend income from MLCF, but is gradually booking
one-off gains due to robust increase in share price of MLCF.

1Yr Relative Performance

(%)
320

Kohinoor Textile Mills Ltd. (KTML) is a fully vertical integrated textile company, having a
presence in both the local and export markets. Its core operations comprise of spinning,
weaving, and home textiles. KTML is also the holding company of Maple Leaf Cement
th
Factory (MLCF), which is the 5 largest cement manufacturer in terms of capacity. The
improved cash flow generations and profitability of MLCF has been instrumental in driving
the share price of KTML. KTML is currently trading almost at par to its portfolio value (after
applying a 30% discount), while the value of its core operations is yet to be priced in. We
expect standalone FY15 and FY16 EPS to clock in at PKR7.9 and PKR6.2. Our Jun-16 PT of
PKR85/sh offers an upside potential of 32%. BUY!

KSE-100 INDEX

270

One off gain expected in 4QFY15: In April-15, KTML sold 15mn shares of MLCF and will book a
non-recurring pre-tax gain of PKR752mn (PKR3.06/sh) in 4QFY15 earnings.

220
170
120

Source: Elixir Research

Jun-15

Apr-15

Feb-15

Dec-14

Oct-14

Aug-14

Jun-14

70

Making foray into equity market: KTML has recently made a strategic long-term investment
of PKR1bn in Maple Leaf Capital Limited (MLCL) in order to participate in the growing equity
market of Pakistan. We believe, KTML will use the additional cash flow of PKR902mn
generated from sale of MLCF to make additional investment in Maple Leaf Capital.
KTML Financial Highlights

AC

Ali Raza
aliraza@elixirsec.com
(+92-21) 3569 4622

FY12A

FY13A

FY14A

FY15E

FY16E

FY17E

EPS
DPS (PKR)
BV/share

0.6
0.0
33.4

2.0
2.0
35.3

4.8
2.0
40.1

7.9
2.0
47.0

6.2
2.0
51.2

7.4
2.0
56.6

PER (x)
Dividend Yield
PBR (x)
EV/EBITDA

108.3
0.0%
1.9
10.2

32.7
3.1%
1.8
8.7

13.6
3.1%
1.6
12.3

8.2
3.1%
1.4
10.6

10.4
3.1%
1.3
9.5

8.7
3.1%
1.1
8.8

ROA
ROE
EBITDA growth
Net Profit growth

0.9%
1.8%
-2.0%
-70.0%

3.2%
5.7%
17.7%
230.9%

7.4%
12.6%
-24.0%
141.4%

11.3%
18.1%
49.4%
65.4%

8.3%
12.7%
10.6%
-20.8%

9.5%
13.8%
4.9%
19.3%

Source: Elixir Research

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

Initiation

KTML
Initiate with BUY; 32% upside to target price of PKR85
We have valued KTMLs core operations and investment portfolio separately and have arrived
at a Jun-16 Price Target of PKR85/sh. Using sum of part-of-parts technique, core operations of
KTML contributes PKR24/sh to our value of KTML while investments (MLCF and MLCL)
contribute PKR61/sh. To value core operations, we have used FCFF methodology assuming
cost of equity of 14%, WACC of 12% and terminal growth of 2%. However, to incorporate value
from investments, we have taken 30% discount on Elixirs target price of MLCF (PKR70/sh) and
book value of MLCL. Our Price Target for KTML offers potential upside of 32% at last closing.
KTML Valuation
PKR Mn

FY16E

FY17E

FY18E

FY19E

FY20E

FY21E

Assumptions:
Risk Free Rate

7.0%

Risk Premium

7.0%

WACC

12%

Cost of Equity

14.0%

Terminal Growth

2.0%

FCFF
Discount Factor
Discounted FCFF

PV of FCFF

2,665

PV of Term. Value
Net Debt

8,412
5,244

Jun-16 Equity Value

5,832

No. of Shares (Mn)

321

570

642

715

763

1,435

321

509

513

510

486

818

246

Core value per share

24

Portfolio value per share

61

Target Price

85

Business Description
KTML was incorporated by the Saigol family in 1953 and is a part of Kohinoor Maple Leaf
Group (KMLG). The principle activity of KTML is manufacturing of yarn, processing and
stitching of cloth and trade of textile products. The operations of the company broadly fall
under three divisions namely Spinning, Weaving, and Processing & Home Textile. KTML has a
diverse customer base with sales in both local and export markets. Export sales have averaged
about 55% of its total sales in the last five years. In FY14, the major chunk of companys
exports was contributed by sales to America (~58%), followed by Europe (~36%).
Apart from its core business, KTML is the parent company of Maple Leaf Cement Factory
th
(MLCF) and Maple Leaf Capital Limited (MLCL). MLCF is the 5 largest cement manufacturer of
Pakistan in terms of capacity, has a market share of approximately 8% in Ordinary Portland
Cement and it is also the largest producer of White Cement in the country. Presently, the
stake of KTML in MLCF stands at 55.2%.

Elixir Securities

June 22, 2015

Initiation

KTML
Sales by Geography As at FY14

Higher proportion of exports in sales mix

Export Sales

4%

Local Sales

PKR Mn.

20%

16,000

14,000
12,000

44%

10,000
8,000
6,000

4,000

32%

2,000
FY10

FY11

FY12

FY13

Pakistan

FY14

America

Europe

Asia, Africa, Australia

Source: Company Accounts, Elixir Research

Source: Company Accounts, Elixir Research

Stand-alone 9MFY15 result remained strong on all fronts

On stand-alone basis, KTML posted a net profit of PKR 1.03bn (EPS: PKR4.19/sh) in 9MFY15
compared to a net profit of PKR 473mn (EPS: 1.93/sh) in the same period last year. Core
earnings stood at PKR 588mn, translating into EPS of PKR2.4/sh, up 43% YoY. Gross margins
increased by an impressive 3.2pp, and clocked-in at 17.3%. Steady topline ( 2.7% YoY) due to
grant of GSP+ status and lower cost of sales ( 1.1% YoY) due to reduced raw materials prices
resulted in improved margins. Moreover, income from non-operating sources grew by 6.1x
YoY during the period, mainly due to resumption of dividends by MLCF (DPS: PKR1/sh by MLCF
in 2QFY15). KTML also declared an interim cash payout of PKR1/sh in 2QFY15.
Quarterly Gross Margins Trend

Quarterly Sales Trend

PKR Mn.

PKR Mn.

19.5%
15.6%

15.0%

11.9%

3,600

7.7%

Source: PBS, Elixir Research

3QFY14

1QFY14

4QFY15E

3QFY15

2QFY15

1QFY15

4QFY14

3QFY14

2QFY14

1QFY14

4QFY13

0.0%
3QFY13

3,000
2QFY13

5.0%

1QFY13

3,200

2QFY14

10.0%

3,400

16.4%

15.3%

14.9%

4QFY15E

3,800

17.0%

3QFY15

20.0%

2QFY15

4,000

1QFY15

25.0%

4QFY14

4,200

Source: Company Accounts, Elixir Research

Home Textiles division showing remarkable performance

Home textile division is the highest contributor in terms of revenue, and had a 46% share in
KTMLs total sales in FY14. It produces a wide range of high-quality home textile products such
3

Elixir Securities

June 22, 2015

Initiation

KTML
as bed sheets, duvets, pillows, curtains and decorative fabrics. Between FY10-14, gross
margins of this division averaged at 9.9%, but now have improved remarkably to an average of
19.2% in 9MFY15. The performance mainly improved due to 1) decline in cost of raw materials
resulting from depressed cotton prices, and 2) uptick in volumes owning to materialization of
GSP+ status. Going forward, we believe that the divisions gross margins would remain
buoyant. In addition, KTML does have excess capacity of almost 50% to cater increased orders
on this front.
Home Textiles sales and gross margins on the rise

Excess capacity in Home Textiles to support growth

Hometextile Capacity

Home Textiles Sales

Home textile Prodcution

Home Textiles GM %

PKR Bn.

Mn. Sq. Mtrs

45

8,000

25%

40

7,000

20%

35

6,000

30

15%

5,000

25

10%

4,000

20
15

3,000

10

2,000

FY10

FY11

FY12

FY13

FY14

5%
0%
FY10

FY15E FY16E

FY11

FY12

FY13

FY14

FY15E FY16E

Source: Company Accounts, Elixir Research

Source: Company Accounts, Elixir Research

Spinning margins expected to normalize

nd

Spinning division is the 2 highest contributor in terms of revenue, and had a 35% share in
companys total sales in FY14. From FY10 till FY13, gross margins of this segment averaged at
21.4%. However, after changes in China's Cotton Policy in 2014, margins have started to
decline and touched a low of 7% in 4QFY14. Afterwards, owing to steep decline in raw cotton
prices ( 20% YoY), margins have recovered somewhat in FY15. We expect spinning margins
to gradually gain momentum but don't expect a repeat of hay days witnessed during FY10FY13, at least in the next one year.
Spinning division gross margins witness gradual recovery

Quarterly Operating Profit Trend of Spinning division

Spinning Capactity

30.0%

Spinning Production

25.4%

75

25.0%

70

20.2%

65

19.9% 20.0%

20.0%

60
55

13.9%

15.9%

17.0%

15.0%

50
45

10.0%

40

FY10

FY11

FY12

FY13

Source: Company Accounts, Elixir Research

Elixir Securities

FY14

FY15E

FY16E

FY10

FY11

FY12

FY13

FY14

FY15E FY16E

Source: Company Accounts, Elixir Research

June 22, 2015

Initiation

KTML
Addition of new looms to reflect in earnings contribution going forward
Weaving division contributes approximately ~19% to KTMLs topline. In January-15, KTML
increased this divisions production capacity by adding 48 new High Speed Air Jet looms -taking
the total number of looms to 252. According to companys 3Q report, the new looms are
running at full efficiency and will result in reduction in overall production costs. In terms of
capacity, this division maintained an average utilization level of 88% during FY10-14. To
improve utilization, the company plans to bring furnace oil backup engines which will reduce
inconsistencies in the power supply. Management expects these engines to come online by
the start of CY16.

Highest margins offered in Elixir Textile Universe

Since significant volatility exists in prices of cotton and yarn, so KTML buys cotton
intermittently in order to safeguard itself from inventory losses. This is contrary to the
industry-wide practice of other textile players who tend to go for long fixedprice contracts. In
addition, KTML has also reduced its reliance on cotton by incorporating synthetic fibers in its
raw material mix. The current cotton-synthetic ratio of KTML stands at 70:30. KTML has
maintained an average gross margin of 15.6% in the last five years, which is the highest among
Elixirs Textile Universe. Average gross margins of NML and NCL stood at 14.78% and 14.10%
respectively. Interestingly, KTML was also able to maintain its margin in the recent difficult
times, against its peers whose margins faltered. During 9MFY15, gross margins of KTML
clocked in at 15.84%, compared to gross margins of 14.31% and 13.18% posted by NML and
NCL, respectively.
Gross margin trends of KTML, NML and NCL
NML

NCL

KTML

25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
FY10

FY11

FY12

FY13

FY14

9MFY15

Source: Company Accounts, Elixir Research

Increasing contribution from MLCF to support the bottom line

th

KTML holds 55.2% of stake in MLCF, which is the 5 largest cement producer in Pakistan. It has
a installed capacity of 3.36mn tons. MLCF is also the largest producer of white cement with a
90% market share. Over the years, MLCF has significantly deleveraged its books owing to its
improved cash flow from operations. The company is also considering installing a 15 MW coalfired power plant to hedge against increasing power costs. After a long hiatus, MLCF
announced a cash dividend of PKR1/sh in 2QFY15 result. In future, we expect MLCF to pay
regular dividends which shall augment KTMLs other income.
5

Elixir Securities

June 22, 2015

Initiation

KTML

MLCFs higher profitability will enhance KTML's other income

MLCFs operating profit & financial charges

MLCF Operating Profit

MLCF Financial Charges

MLCF EPS

10.0

PKR Mn.

MLCF DPS
8.2

8.1

7,000

8.0

6.5

6.1

6,000

5.4

6.0

5,000
4.0

4,000
3,000

2.0

2,000

3.0

2.5

2.0
0.9

FY11

FY12

FY13

FY14

1,000

FY15E

FY16E

FY17E

(2.0)

FY11

FY12

FY13

FY14

FY15E

FY16E

FY17E

(4.0)

(3.4)

Source: Company Accounts, Elixir Research

Source: Company Accounts, Elixir Research

Healthy financial position to enable dividend payout

KTML has gradually deleveraged during the past five years with its total debt/asset ratio
declining from 50% in FY10 to 30% in FY14. Consequently, financial charges have also
decreased by 47% between FY10-FY14. As of March 15, the total debt/ratio has further dipped
to 27%. Furthermore, GoP has recently slashed the rates offered on Export Refinance Facility
and Long Term Financing Facility to 4.5% and 6%, respectively. We expect lower financing
rates to further ease the financial burden. Going forward, reduced debt burden in an
environment of low interest rates will improve cash flows for the company, enabling regular
dividends payout in future. In 2QFY15, KTML resumed dividend payments after a decade and
paid an interim dividend of PKR1/sh.
Debt/Asset ratio following a decreasing trend

EBIT & financial charges

Total debt to asset

EBIT

PKR Mn.

Financial Charges

60%

1,700

52%
50%

1,500

1,300

45%
38%

40%

33%

1,100

30%

30%

900
700

27%

20%

500

10%

300

FY10

FY11

FY12

FY13

FY14

FY15E

0%

FY10

Source: Company Accounts, Elixir Research

Elixir Securities

FY11

FY12

FY13

FY14

FY15E

Source: Company Accounts, Elixir Research

June 22, 2015

Initiation

KTML
Investment Thesis
We expect FY15 EPS to clock in at PKR7.9/sh, which is a decade high, thanks to buoyant core
profits and one off gains from sale of 2.9% MLCF share. We expect steady growth in core
profits from here on, while improving prospects of cement industry gives a hedge for those
interested in MLCF to buy its parent company. KTML is currently trading at FY15/FY16 PER of
8.2x/10.4x. Our Jun-16 PT of PKR85/sh offers an upside potential of 32%. BUY!
Target Price Breakup and Portfolio Investments at Market Value

100
4

Core Textile

90

MLCL

80
70

24

60

Portfolio
Inv.

50

93

MLCF

40
65.85
30

61

20
10
0
Target Price Contribution Break-up

KTML Current Mkt Price

Portfolio Inv. at Mkt. Value

Source: Elixir Research

Elixir Securities

June 22, 2015

Initiation

KTML

Financials
Income Statement
PKRmn
Net Sales
COGS
Gross Profit
Operating costs
EBITDA
EBIT
Other Income
Finance Cost
Net Profit Reported
EPS (PKR)
DPS (PKR)

FY11A
10,693
8,693
2,001
630
1,742
1,371
79
1,073
278
1.13
0.00

FY12A
12,037
10,214
1,824
693
1,488
1,130
596
1,037
488
1.99
0.00

FY13A
11,147
9,310
1,837
729
1,458
1,108
67
841
146
0.60
0.00

FY14E
14,250
12,116
2,134
748
1,716
1,386
52
641
484
1.97
0.00

FY15E
15,302
13,395
1,907
925
1,304
982
872
565
1,170
4.76
0.00

FY16E
15,781
13,088
2,693
1,076
1,948
1,617
1,271
510
1,935
7.88
2.00

FY17E
16,858
14,011
2,847
1,061
2,154
1,786
615
502
1,531
6.24
2.00

FY18E
17,809
14,846
2,963
1,101
2,260
1,862
855
477
1,827
7.44
2.00

FY11A
3,361
3,674
1,853
8,169
17,057
11,154
5,903
17,057

FY12A
4,387
3,685
1,424
6,807
16,303
11,764
4,539
16,303

FY13A
4,515
3,674
680
6,330
15,198
11,196
4,002
15,198

FY14E
4,999
3,674
390
6,258
15,321
10,981
4,340
15,321

FY15E
6,169
3,674
410
5,869
16,122
10,762
5,360
16,122

FY16E
7,858
3,674
786
5,789
18,108
12,281
5,827
18,108

FY17E
8,898
3,674
751
5,610
18,933
12,917
6,016
18,933

FY18E
10,235
3,674
718
5,030
19,657
13,524
6,133
19,657

FY11A

FY12A

FY13A

FY14E

FY15E

FY16E

FY17E

FY18E

1.99
0.00
32.9
32.5
10.7
2.0
0%
11%
3%
6%
1.8
0.67
-49%
4%

0.60
0.00
33.4
108.3
10.2
1.9
0%
11%
1%
2%
1.4
0.63
-2%
-70%

1.97
2.00
35.3
32.7
8.7
1.8
3%
11%
3%
6%
1.3
0.69
18%
231%

4.76
2.00
40.1
13.6
12.3
1.6
3%
11%
7%
13%
1.3
0.91
-24%
141%

7.88
2.00
47.0
8.2
10.6
1.4
3%
11%
11%
18%
1.0
1.01
49%
65%

6.24
2.00
51.2
10.4
9.5
1.3
3%
11%
8%
13%
1.0
1.07
11%
-21%

7.44
2.00
56.6
8.7
8.8
1.1
3%
11%
9%
14%
0.9
1.22
5%
19%

7.86
2.00
62.5
8.2
8.2
1.0
3%
11%
10%
13%
0.8
1.42
4%
6%

Source: Elixir Research

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

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

Elixir Securities

June 22, 2015

Initiation

KTML

Chief Executive Officer

Fawaz Valiaani
(92-21) 3569 4617
fawaz@elixirsec.com

Pakistan Research Team

Institutional Equities

Retail Equities

Taha Khan Javed, CFA

(92-21) 3569 4716
tahajaved@elixirsec.com

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

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

Hassan Raza
(92-21) 3569 4679
hraza@elixirsec.com

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

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

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

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

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

M. Zain-ul-Abedin
(92-21) 3565 3180
mzain@elixirsec.com

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

Syed Nasir Rizvi

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

HNW & Family Offices

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

Islamabad Office
Asim Ghafoor Qureshi
(92-51) 227 2341
aghafoor@elixirsec.com

M. Ibad-ur-Rehman
(92-21) 3569 4622
irehman@elixirsec.com

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

Faisalabad Office
Syed Baqar Hassan
(92-41) 254 1001-4
sbhassan@elixirsec.com

Mubashir Anis Silat

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

Ali Raza
(92-21) 3569 4622
aliraza@elixirsec.com
Syed Tahseen
(92-21) 3569 4622
tjaved@elixirsec.com

Elixir Securities

June 22, 2015

Initiation

KTML

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.
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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
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instruments.
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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 2015, Elixir Securities Pakistan (Pvt.) Ltd. All rights reserved. This report or any portion hereof may not be reproduced,
distributed, published or sent to a third party without prior consent of Elixir Securities Pakistan (Pvt.) Ltd.

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Elixir Securities

June 22, 2015