IPO Note Dragon Sweater and

Spinning Limited
Key Comps

Date: 22/03/2016
Offer Price

Ticker: DSSL

10.00
Premium

Post IPO EPS

(Audited)

Pre- IPO EPS

(Audited)

0.89
1.48
Number of Secu- Free Float Number of Securities
rities (MN)
(MN)

100.00

40.00

Post-IPO
NAV

Post IPO Sponsor % Public %

Audited P/E

1.07
Compnay vs
Industry

11.28
Audited
Income
Y-o-Y

11.26
Annualized
Vs Audited
Growth

40.11
Current
Quarter
Y-o-Y

DSSL

2.66%

20.0%

10.4%

11.23

9.34

0.89

Textile

8.20%

-13.70%

9.30%

10.80x

12.50x

1.0x

Post IPO EPS

(Annualized)

Year end

59.89 December
Post IPO Post IPO
Audited Annualized
P/E
P/E

Latest
Q No.
3
P/B

Dragon Sweater and Spinning Limited (DSSL) is a 100% composite

export oriented spinning and sweater manufacturing company. It was
incrporrated as a public limited company on 16th June, 1999. Its factory is
located at Chandul, Miah Bazar, Comilla, Bangladesh and corporate office
at 25/2, DIT Road, Malibagh Chowdhury Para, Dhaka-1219, Bangladesh.
DSSL has two operating segments, One is spinning and the other segments engages in manufacturing and exporting of readymade sweater,
pull over and wearing apparels of all kinds out of wool, cotton,
synthetic, fibers, acrylics and others. DSSL is producing and supplying
sweaters to worlds biggest renowned buyers like Wal-Mart, C&A, Zara,
Macys, KMart, Lidel, Next, Bufalo, Primark etc.
The company sources its raw materials from diversified channels and have
an efficient distribution channels to ensure supply at the right time. DSSL
holds no subsidiary or associate company. The recent initiative of going
public is meant to expand the current capacity , especially in the spinning
and Knitting section.

Products of DSSL
DSSL produce only white color yarn or sweater from cotton and has not
engaged in dyeing, printing, finishing or any other washing procedure.
Major products are V Neck, Y Neck, Waist Coat, Round Neck, High
Neck, Pullover with Hood etc. while the Y neck, waist coat and round
neck segment contributes approx. 60% of the total revenue for DSSL.

Raw Material & Supplier

The major raw material for DSSL are yarn and accesories . It sources its
raw material both from local and foreign suppliers. Some of the key suppliers are Purbani Synthetic, Jiangsu Guo Thai Int. and Daystar Accessories Co.

Major Competitors
Zahintex Industries Limited
Matrix SweaterLimited
R.N. Spinning Mills Limited
Diganta Sweater Limited
Tamishna Sweater Limited
Tung Hai Knitting and Dyeing Limited

Major Suppliers
Name of Suppliers
Purbani Synthetic
Dekko Accessories Ltd.
M & U Packing Ltd.
Netco Asia
Shepherd Industries
Jiangsu Guo Thai Int.
Banero Textile Mills Ltd.
Marubeni Hong Hong
Daystar Accessories Co.

Name of Raw Materials

Yarn
Accessories
Packing Materials
Yarn
Yarn
Yarn/Fiber
Yarn/Fiber
Yarn/Fiber
Accessories

Competitive nature of the Industry

There are 730 entities operating in the sweater industry of Bangladesh. The industry fetched $2.83 foreign currency in 2014-15 fiscal
year out of the total RMG contribution of $31 billion. Sweater
industry in Bangladesh faces predicaments due to seasonality as
since the other producer segments in the RMG industry has demand for their products through the whole seasons while sweater
manufacturers have to rely on single. This led some small sweater
manufacturers to shut down their operation in last few years.
Despite the hitches the industry is planned to export $8 billion
within 2020.

IPO Note Dragon Sweater and

Spinning Limited
Investment Facts

Key Financials (mn

BDT)

DSSL have a five year CAGR in revenue as 9.39%% & Net profit
CAGR of 37.20%.

The majority of the revenue comes from two major buyers. Primark
(29% of total revenue) and Walmart (51%) of total revenue composition.

The company has a tax liability of 12,127,779 which ascended from

previous years tax assessment. The company has made tax provision
of 9,625,346. The difference of 2,502,433 has been kept as contingent tax liabilities as the company belief outflow of resources will not
be required to settle the obligation. The NAV will be reduced by
0.04 if claim arise in future.

Revenue
Gross Profit
EBITDA
Operating Profit
Net Income
Total Asset
Total Debt
Total Equity

Receivables composes of a significant amount of total sales. The ratio

hovers around 80% over the last 3 years. It signifies a red flag in its
earnings as most of the sales refers accruals other than cash. Companies poor OCF/Sales ratio of 23.9% in 2014 also supports the conjecture. DSSLs days payable outstanding (16 days) is also too short
relative to its DSO (260 days) . Meaning it is paying its suppliers
more rapidly than it is collecting receivables from its customers.
DSSL is a less levered company with its Debt to asset ratio of 0.31.
This came down from 0.50 level in 2010. The company does not
avail any short term loan facilities from any schedules financial institution. Its debt structure composes of 76% in long term loans and
rest portions in bills payable and other accruals. The company also
maintains a superior working capital (928 mn in 2014) consistently
over the years which minifies the need for additional source of short
term financing.
From the decomposition of its ROE the company derives most of its
returns from its healthy and steady profit margin other than relying
on excess leverage to avail some. This casts a steady sign of sustainable growth for the company.

DSSL purchases spinning from a non listed company, CD Spinning

Mills Ltd which is a 100% common directorship company. The
chairman and managing director also holds directorship position in
this company. The transaction between CD spinning and DSSL has
not been clarified further in the statement which brings up a concern
related to transfer pricing.
The company has a captive power plant with a capacity of 1.20 MW.
Though it has a sanction of 1.20 MW electricity from Rural Electricity Board (REB) it only avails 0.40 as its current requirement is sufficed enough to cover its needs to close. The Company has a sanction of 591,500 cubic Meter gas and its Generator capacity is 1.20
MW. To support the further expansion plan set by the management
DSSL is also purchasing 1400 KVA new generator to support
smooth operation.

2011 2012

2013

2014

639.12
689.43
179.17
191.43
0.00
0.00
118.66
135.46
63.63
80.19
1,241.22 1,371.80
564.05
614.45
677.16
757.35

758.93
203.34
213.36
142.80
86.78
1,648.70
604.57
1,044.13

766.82
208.16
214.04
147.67
89.08
1,624.83
497.34
1,127.49

Profitability

2011 2012

2013

2014

Gross Profit Margin

EBIT margin
ROE

28.03%
18.57%
9.86%

26.79%
18.82%
9.63%

27.15%
19.26%
8.20%

ROE Decomposition

2011 2012

Net Profit Margin

Asset Turnover

27.77%
19.65%
11.18%

2013

2014

9.96%

11.63%

11.43%

11.62%

0.52
1.91

0.53
1.82

0.50
1.68

0.47
1.51

Financial Leverage

2011 2012

Growth
Sales Growth
Gross Profit Growth
Operating Profit Growth
Net Profit Growth

Risk

2013

2014

7.87%
6.84%
14.16%
26.03%

10.08%
6.22%
5.42%
8.22%

1.04%
2.37%
3.41%
2.66%

2011 2012

2013

2014

0.45

0.45

0.37

0.31

2.11

2.47

2.41

2.47

2013

2014

2.7x
0.7x
0.8x
N/M
4.9x

2.7x
0.8x
0.8x
N/M
4.2x

19.37%
24.60%
25.38%
153.11%

Debt to Capital
Interest Coverage

Valuation Metrics

2011 2012

P/CF
PEG
Price/Sales
Dividend Yield
EV/EBITDA

N/M
0.5x
0.4x
N/M
N/M

-15.8x
0.3x
0.4x
N/M
N/M

Major Revenue Drivers

Major Products

Pullover
Cardigan
Other Products

Revenue as on
December 31, Percentage
2014

Y Neck
West Coat

171,770,040
106,251,902

22.40%
13.86%

Round Neck

142,419,764

18.57%

High Neck

121,885,539

15.89%

224,489,917

29.28%

IPO Note Dragon Sweater and

Spinning Limited
Share Holding pattern and Lock In provision
Name

Position

No of Shares held % of Ownership Subscription Date Lock In Period

Mostafa Quamurus Sobhan

Chairman

24,365,358

24.37

16-Jun-99

3 years

Mostafa Golam Quddus

Managing Director

2,235,687

2.24

16-Jun-99

3 years

Fauzia Quamrun Tania

Director

2,163,477

2.16

29-Dec-10

3 years

Fazlutun Nessa

Director

7,166,736

7.17

29-Dec-10

3 years

Tasnia Quamrun Anika

Director

2,013,477

2.01

29-Dec-10

3 years

Shafia Sobhan Chowdhury

Director

2,163,477

2.16

29-Dec-10

3 years

Ownership Structure & Lock In Provision

40.11% share is held by the director & sponsors and all the issued shares (60,000,000) of the issuer at the time of according consent to public offering
shall be subject to a lock-in period of 3(Three) years which will be released at 21.12.2018.

The chairman holds 24.37% of the total shares outstanding. The managing director holds 2.24% ownership of the company and actively manages day
to day operations of the entity. He is also the former president of BGMEA and member of Geneva Convention Child Labor Committee. He is also chairman and key sponsor of Rupali Insurance Company Ltd.

Price Earning Comp

The company has an annualized price earnings of 9.34x at the offer price of BDT 10.0 versus textile industry price earnings of
12.5x. At industry P/E ratio, DSSL could be traded at BDT 13.8. At 15.0x P/E DSSL could be traded at BDT 16.10.

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