Earnings Review - Q3 FY 16

65, Braybrooke Place, Colombo 2, Sri Lanka

research@bartleetreligare.com, +94 11 5220200

09 March 2016

Textured Jersey Lanka PLC (TJL: LKR 29.20)

BRS Research

Increased capacity and savings push up value: BUY

TJL posted its first full quarter consolidation of Ocean India (OCI) in Q3 FY 16 resulting in
78.7% YoY growth in net profit to LKR 672mn and EPS of LKR 1.02 (BRS forecast - LKR 0.83).
EBIT margin was recorded at 12.5% (+3% YoY) and GP margin at 17.5% (+5% YoY), as the
group focused on improving scale and efficiencies, post- acquisition. We forecast an ~8%
decline in TJLs PAT in FY 2017E given the end of the tax holiday in 2016. TJLs plans to double
capacity at OCI would most probably materialize during the next FY, however, we are uncertain of the timeline and have not factored it into our forecasts. Doubled capacity along with
cost savings from multi fuel boiler and steady demand from strategic clients would keep the
groups earnings afloat. We have arrived at a DCF based target price of LKR 35.80 and a total
return of LKR 37.30 (including FY 2016E DPS) with an upside of 27.7% on CMP. Eventhough
the risk free rate increased >200 basis points since the last review, the MPS fell 23% strengthening our BUY call.
All figures in LKR 'mn
Revenue
Revenue growth (%)
Gross profit
Gross profit margin (%)
EBIT recurring
EBIT growth (%)
EBIT margin (%)
Net Profit attributable to Equity Holders
BRS EPS as Adjusted (LKR)
BRS EPS growth (%)
NAV per share (LKR)
DPS (Rs)
Dividend yield (%)
P/E (x)
P/BV (x)
ROCE %
ROE %
Note : Forecast EPS figures are diluted for new share issue

2013
10,951
-10.5%
1,270
11.6%
955
15.4%
8.7%
1,016
1.55
55.2%
8.78
1.24
14.6%
5.5 x
1.0 x
15.6%
18.1%

2014
12,724
16.2%
1,456
11.4%
1,067
11.7%
8.4%
1,165
1.78
14.7%
9.73
1.30
8.2%
8.9 x
1.6 x
17.0%
19.2%

2015
13,678
7.5%
1,621
11.9%
1,210
13.4%
8.8%
1,342
2.03
14.1%
10.65
1.30
5.4%
11.9 x
2.3 x
18.0%
20.0%

2016E
17,956
31.3%
2,877
16.0%
2,002
65.4%
11.2%
2,005
3.03
49.5%
14.30
1.50
5.1%
9.6 x
2.0 x
23.3%
23.9%

2017E
19,776
10.1%
3,072
15.5%
2,043
2.0%
10.3%
1,846
2.65
-12.6%
14.65
1.70
5.8%
11.0 x
2.0 x
19.7%
18.5%

2018E
21,109
6.7%
3,384
16.0%
2,278
11.5%
10.8%
2,111
3.03
14.3%
15.89
2.00
6.8%
9.6 x
1.8 x
20.7%
19.9%

Head of Research - Nikita Tissera

Senior Research Analyst - Jennita Fernando

Trading snapshot
Market cap (LKR mn)

20,322

Market cap (USD mn)

139

Outstanding equity shares (mn)

696

Public Holding (%) -Dec'15

40.17%

52-week High/Low (LKR)

35.90/23.90

YTD ASPI return (%)

-13.92%

YTD Stock return (%)

-17.75%

Beta

1.15

Valuation Summary
CMP (LKR)

29.20

Intrinsic value (LKR)

35.78

DPS (LKR)

1.50

Total return (LKR)

37.28

Valuation method

DCF valuation

Total return %

27.7%

Rating

Buy

Source: Company data and BRS Research

Net revenue growth steered by consolidation

TJLs net revenue grew 48% YoY to LKR 5.57bn in Q3 FY 16, mainly derived from the first full
quarter consolidation of Ocean India. On a company basis however, top line grew by 4.6% YoY.
Steady demand from TJLs main clients (M&S, Intimissimi) and stable selling prices also aided in
top line growth. As mentioned in earlier reviews, TJL is certain about doubling capacity at
Ocean India in the near term, although a timeline is not specified. Hence, we have not factored
it into our forecast. Further, the probable GSP+ restoration would add to TJLs volumes, as a
result of higher demand for locally produced fabric. We estimate net revenue growth of 31.3%,
10.1% and 6.7% from FY 2016E to FY 2018E respectively.
Margins improve on efficiencies and scale, post-consolidation
The companys post- acquisition margins have improved notably, supported by increased
economies of scale and efficiencies. Stable yarn prices along with steady selling prices also held
margins high. The GP margin was recorded at 17.5% compared to 12.8% in Q3 FY 15 while an
EBIT margin of 12.5% was achieved against 9.4% a year earlier. We assume yarn prices will hold
at current levels with minimum fluctuations while savings from multi fuel boiler plant will kick
in from Q4 FY 16 as envisaged. We forecast GP margins at ~16% and EBIT margins at ~11% in
the forecast period.
Valuation upside expands as MPS falls; maintain BUY
Our DCF based TP is at LKR 35.80 and dividend inclusive total return is at LKR 37.30 with a
27.7% upside on CMP. Despite the ~2.3% increase in risk free, the upside expanded given the
~23% fall in MPS since the last review. On relative valuations, the stock is trading at forward
PER of 9.6x (FY 2016E EPS LKR 3.03) and 11x (FY 2017E EPS LKR 2.65) based on CMP. The
manufacturing sector PER stood at 16.5x as at 08.03.2016.
For analyst certification and other important disclosures, please refer to the Disclosure and
Disclaimer section at the end of this report.

TJL Price Vs ASPI Movement

TJL (LKR)

ASPI
TJL

40

8,500
ASPI

35

7,000

30

5,500

25

4,000

20

2,500

15

1,000

Apr-14

Oct-14

Mar-15

Sep-15

Mar-16

Trends in Margins
GP margin

EBIT margin
Gross profit margin (%)

18.0%

18.0%

EBIT margin (%)

15.0%

15.0%

12.0%

12.0%

9.0%

9.0%
6.0%

6.0%
2013

2014

2015

2016E
Page2017E
1

2018E

Company Information Note

65, Braybrooke Place, Colombo 2, Sri Lanka
research@bartleetstock.com, +94 11 5260200

09 March 2016

Textured Jersey Lanka PLC (TJL)

Company profile
TJL is one of the largest fabric manufacturers
in the country involved in the business of weft
knit fabrics. TJLs top clients (Intimissimi, Victorias Secret, Marks & Spencer and Decathlon) contribute ~65% of its turnover. The
company acquired Quenby Lanka; a leading
fabric printer for a consideration of USD
3.5mn and Ocean India; a knit fabric manufacturer for USD 15mn. The new acquisitions are
poised to lead TJL to the next growth phase.

Revenue Growth LKR 'mn% (FY 2013-18E)

7%

10%

21,109

31%
7%

16%

10,951

2013

2014

2015

2016E

2017E

2018E

2018E

Trend in Return

ROCE/ROE

ROCE %

ROE %

26%
22%
18%
14%
10%
2013

150

2014

2015

2016E

2017E

2018E

Cotton Prices - USD cents per lb

130

110

90

70

50
Oct-12 Mar-13 Aug-13 Jan-14 Jun-14 Nov-14 Apr-15 Sep-15 Feb-16

Source: TJL Annual Reports and BRS Research

Summary Information
BRS EPS As Adjusted (LKR)
BRS EPS growth (%)
P/E (x)
Reported EPS
Sector PE (x)
NAV per share (LKR)
P/BV (x)
Sector PBV (x)
DPS (Rs)
Dividend yield (%)
FCFF ( LKR)
FCFE (LKR mn)
CFPS (LKR mn)
P/CFPS (x)
Mkt price (LKR)
Weighted average shares (LKR mn)
Average mkt cap (LKR mn)
Enterprise value (LKR mn)
EV/Sales
EV/EBITDA
Income Statement (LKR mn)
Revenue
Gross profit
EBITDA recurring
Depreciation and amortisation
EBIT recurring
Net Interest expense
Exceptionals/non-recurrings
Tax expense
Net income
Minorities & preference dividends
Profit attributable to equity holders
Statement of Financil Position (LKR mn)
Cash and cash equivalents
Inventories
Trade receivables
Fixed assets
Total assets
Trade payables
Interest bearing debt -short term
Interest bearing debt -long term
Total liabilities
Shareholders equity
Minorities
Total equity
Net debt (cash)
Total capital employed
Casf flow (LKR mn)
Cash flow from operations
Net working capital
Capital expenditure
Free cash flow
Investing cash flows
Equity capital
Dividends paid
Net borrowings
Other financing cash flows
Net cash flow
Key ratios
Revenue growth (%)
EBIT growth (%)
Gross profit margin (%)
EBITDA margin (%)
EBIT margin (%)
Net profit margin
ROCE %
ROE %
Payout ratio (%)
Debt/equity (%)
Net debt/equity (%)
Gearing (%)
Interest cover (x)

2013

2014

2015

2016E

2017E

2018E

1.55
55.2%
5.5 x
1.55
10.2x
8.78
1.0 x
1.8x
1.24
14.6%
1,938
1,293
0.95
9.0 x
8.50
655
5,568
3,730
0.3 x
2.9 x

1.78
14.7%
8.9 x
1.76
13.6x
9.73
1.6 x
1.8x
1.30
8.2%
1,558
1,472
0.35
45.2 x
15.80
655
10,349
8,279
0.7 x
6.0 x

2.03
14.1%
11.9 x
2.02
21.1x
10.65
2.3 x
2.6x
1.30
5.4%
928
871
(0.27)
nm
24.10
661
15,924
14,032
1.0 x
9.1 x

3.03
49.5%
9.6 x
na
na
14.30
2.0 x
na
1.50
5.1%
3,144
2,386
0.44
nm
29.20
681
19,894
18,070
1.0 x
6.1 x

2.65
-12.6%
11.0 x
na
na
14.65
2.0 x
na
1.70
5.8%
2,328
2,279
1.86
15.7 x
29.20
696
20,322
17,207
0.9 x
5.3 x

3.03
14.3%
9.6 x
na
na
15.89
1.8 x
na
2.00
6.8%
2,037
1,931
1.67
17.5 x
29.20
696
20,322
16,046
0.8 x
4.6 x

10,951
1,270
1,276
(321)
955
45
2
1,016
1,016

12,724
1,456
1,383
(316)
1,067
90
(14)
(40)
1,165
1,165

13,678
1,621
1,550
(340)
1,210
58
(9)
(29)
1,342
1,342

17,956
2,877
2,974
(972)
2,002
37
(60)
2,005
2,005

19,776
3,072
3,271
(1,228)
2,043
55
(252)
1,846
1,846

21,109
3,384
3,470
(1,192)
2,278
121
(288)
2,111
2,111

2,197
1,795
1,383
2,289
7,866
1,633
360
2,115
5,750
5,750
(1,837)
6,110

2,122
1,925
1,281
2,179
8,435
1,818
52
2,064
6,371
6,371
(2,070)
6,423

1,915
1,961
1,454
2,409
8,746
1,442
23
1,711
7,035
7,035
(1,892)
7,057

2,226
3,028
2,243
6,012
13,918
3,364
154
249
4,175
9,743
9,743
(1,823)
10,146

3,518
2,920
2,163
5,773
14,775
3,460
154
249
4,578
10,197
10,197
(3,115)
10,600

4,678
3,088
2,288
5,637
16,103
3,660
154
249
5,048
11,056
11,056
(4,275)
11,459

2,012
662
2,012
(122)
(668)
(601)
621

1,834
213
1,834
(897)
(707)
229

1,239
(594)
1,239
(610)
(859)
(178)

3,867
509
(280)
3,587
(1,924)
(925)
(721)
297

3,672
291
(989)
2,683
(989)
(1,392)
1,291

3,469
(104)
(1,055)
2,413
(1,055)
(1,253)
1,161

-10.5%
15.4%
11.6%
11.7%
8.7%
9.3%
15.6%
18.1%
79.9%
6.3%
-31.9%
5.9%
nm

16.2%
11.7%
11.4%
10.9%
8.4%
9.2%
17.0%
19.2%
73.1%
0.8%
-32.5%
0.8%
nm

7.5%
13.4%
11.9%
11.3%
8.8%
9.8%
18.0%
20.0%
64.0%
0.3%
-26.9%
0.3%
nm

31.3%
65.4%
16.0%
16.6%
11.2%
11.2%
23.3%
23.9%
49.4%
4.1%
-18.7%
4.0%
nm

10.1%
2.0%
15.5%
16.5%
10.3%
9.3%
19.7%
18.5%
64.1%
4.0%
-30.5%
3.8%
nm

6.7%
11.5%
16.0%
16.4%
10.8%
10.0%
20.7%
19.9%
65.9%
3.6%
-38.7%
3.5%
nm

Page 2

BRS Equity Research

Financial Performance

Q3 FY 16

All figures in LKR 'mn

Q3 FY 15

Q2 FY 16

5,576

3,768

YoY growth

48.0%

11.6%

16.1%

QoQ growth

39.0%

9.0%

45.3%

Revenue

Gross profit
Gross profit margin

4,011

977

481

622

17.5%

12.8%

15.5%

Recurring Net profit

672

376

468

BRS EPS as adjusted (LKR)

1.02

0.57

0.71

YoY growth

78.7%

23.9%

64.8%

QoQ growth

43.5%

32.3%

127.2%

NAV per share (LKR)

14.35

10.27

13.03

ROCE %

20.5%

15.3%

18.1%

ROE %

22.9%

17.9%

20.9%

-12.8%

-24.3%

-11.3%

8.7%

6.6%

9.2%

1.4

0.9

1.4

Net debt/equity (%)

Gearing
EV/Sales (x)

Valuation Assumptions
Based on a free cash flow valuation we have arrived at a target price of LKR 35.80. Our valuations are based
on the following assumptions:
WACC 14.4%
Terminal growth rate- 3%
Risk free rate - 11% (previous 8.74%)
Beta - 1.15 (based on TJL share price vs. ASPI movement)
Equity risk premium- 5%

Sensitivity of Target price to Risk free rate & Growth rate

Risk free rate (Five year bond rate)

Growth rate

www.bartleetreligare.com

35.78

10.00%

10.50%

11.00%

11.50%

12.00%

2%

36.27

35.41

34.60

33.83

33.10

3%

37.65

36.69

35.78

34.92

34.12

4%

39.30

38.20

37.17

36.21

35.31

Page 3

BRS Equity Research

Financial Analysis
Income statement - Textured Jersey Lanka PLC
Year Ending 31st March
All numbers in LKR 'mn

2013

2014

2015

2016E

2017E

2018E

Net revenue

10,951

12,724

13,678

17,956

19,776

21,109

YoY growth %

-10.5%

16.2%

7.5%

31.3%

10.1%

6.7%

Cost of Sales

(9,682)

(11,268)

(12,057)

(15,079)

(16,704)

(17,725)

Gross Profit

1,270

1,456

1,621

2,877

3,072

3,384

YoY growth %

-4.5%

14.7%

11.3%

77.5%

6.8%

10.1%

Gross profit margin

11.6%

11.4%

11.9%

16.0%

15.5%

16.0%

29

16

27

65

Total SG & A expenses

(344)

(419)

(447)

(940)

(1,037)

(1,114)

Total depreciation

(321)

(316)

(340)

(972)

(1,228)

(1,192)

EBIT including non-recurring items

955

1,054

1,201

2,002

2,043

2,278

Other operating Income

Non-recurring items

(14)

(9)

1,276

1,383

1,550

2,974

3,271

3,470

YoY growth %

5.6%

8.3%

12.1%

91.9%

10.0%

6.1%

EBITDA margin

11.7%

10.9%

11.3%

16.6%

16.5%

16.4%

955

1,067

1,210

2,002

2,043

2,278

15.4%

11.7%

13.4%

65.4%

2.0%

11.5%

8.7%

8.4%

8.8%

11.2%

10.3%

10.8%

49

103

25

90

58

37

55

EBITDA excluding non-recurring items

EBIT excluding non-recurring items

YoY growth %
EBIT margin

Non operating income

Finance Income / (Cost)

45

121

Recurring profit before tax

1,014

1,205

1,371

2,065

2,098

2,399

YoY growth %

53.4%

18.8%

13.7%

50.6%

1.6%

14.3%

Income tax expense

(40)

(29)

(60)

(252)

(288)

Profit after taxation

1,016

1,165

1,342

2,005

1,846

2,111

YoY growth %

61.8%

14.7%

15.1%

49.5%

-7.9%

14.3%

Earnings per share - unadjusted (1)

1.55

1.76

2.02

3.03

2.65

3.03

Earnings per share - BRS adjusted (2)

1.55

1.78

2.03

3.03

2.65

3.03

Source: Company Financial Reports and BRS Equity Research

Note 1: Based on earnings as reported (unadjusted for non-recurring) share data adjusted for splits and consolidations
Note 2: EPS adjusted for share split, consolidations and non recurring information
Note 3 : Forecast EPS figures are diluted for new share issue

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Page 4

BRS Equity Research

Financial Analysis

Statement of Financial Position - Textured Jersey Lanka PLC

As at 31st March
All numbers in LKR 'mn

2013

2014

2015

2016E

2017E

2018E

2,289

2,179

2,409

6,012

5,773

5,637

780

864

152

152

152

Non Current Assets

Property Plant & Equipment
Investment in Subsidiary
Capital work in progress

68

Intangible Assets

41

57

52

78

78

78

Receivables & Prepayments

93

92

91

179

173

183

2,491

3,108

3,416

6,421

6,175

6,049

Inventories

1,795

1,925

1,961

3,028

2,920

3,088

Receivables and Prepayments

1,383

1,281

1,454

2,243

2,163

2,288

2,197

2,122

1,915

2,226

3,518

4,679

5,375

5,327

5,330

7,497

8,600

10,055

7,866

8,435

8,746

13,918

14,775

16,104

2,797

2,797

2,850

3,853

3,853

3,853

19

19

19

19

19

1,865

1,865

Current Assets

Short-term investment
Cash and Cash Equivalents

Total Assets
Equity
Stated Capital
ESOP Fund

Foreign Exchange Equalisation Reserves

909

1,092

1,240

1,865

2,044

2,462

2,925

4,005

4,460

5,318

5,750

6,371

7,035

9,743

10,197

11,056

249

249

249

96

114

165

165

165

Retained Earnings

Non Current Liabilities

Borrowings
Deffered Tax

68

Retirement Benefit Obligation

55

98

132

223

310

368

123

194

246

637

723

782

Current Liabilities
Trade and Other payables

1,633

1,818

1,442

3,364

3,460

3,660

Tax payable

20

240

451

Borrowings

360

117

117

117

Bank overdrafts

52

23

37

37

Dividend payable

1,993

1,870

1,465

3,538

3,855

4,266

7,866

8,435

8,746

13,918

14,775

16,104

Total Equity and Liabilities

37

Source: Company Financial Reports and BRS Equity Research

www.bartleetreligare.com

Page 5

BRS Equity Research

Financial Analysis
Cash flow - Textured Jersey Lanka PLC
Year Ending 31st March
All numbers in LKR 'mn

2013

2014

2015

2016E

2017E

2018E

EBIT

955

1,054

1,304

2,027

2,043

2,278

Depreciation

321

316

340

972

1,228

1,192

31

24

21

Amortisation of Intangible Assets

Amortisation of leasehold lands

(Reversal)/Provision for slow moving items

37

Provision / (reversal of provision) for impairment of inventories

Reversal of Provision for bad and doubtful debt

Profit on disposal of PPE

4
-

(7)

(19)

(0)

(0)

14

Share based payment

19

Exchange translation loss

Exchange gain/loss

(51)

62

79

(3)

(10)

(12)

Reversal of previously written off ESC

Provision for defined benefit obligation

16

16

25

97

100

80

1,290

1,490

1,778

3,096

3,371

3,550

Changes in Working Capital

662

213

(594)

509

291

(104)

Others

232

3,662

3,446

Operating cash flow before changes in working capital

Cash generated from Operations

49

1,952

1,751

1,184

Interest received

79

87

62

58

81

145

Interest paid

(5)

(0)

(3)

(20)

(26)

(24)

(14)

(4)

(3)

(6)

(13)

(21)

(1)

(31)

(77)

2,012

1,834

1,239

3,867

3,672

3,469

(122)

(897)

(610)

Gratuities paid
Tax paid
Net Cash from Operating Activities

3,836

Investing Activities
Additions to capital work in progress

(269)

(280)

Purchase of subsidiary

(1,375)

Purchase of intangible assets

Proceeds from disposal of PPE

Investment in fixed deposit

Net Cash used in investing activities

(122)

0
(897)

0
(610)

(1,924)

(989)

Purchase of property, plant & equipment

(989)

(1,055)

(1,055)

Financing Activities
Net movement in borrowings

IPO Proceeds

IPO costs

Proceeds from issuance of ordinary shares

Dividends paid
Net Cash in financing activities
Increase Decrease In Cash and Cash Equivalents

(601)

53

(721)

(668)

(707)

(859)

(925)

(1,392)

(1,253)

(1,269)

(707)

(806)

(1,646)

(1,392)

(1,253)

621

229

(178)

297

1,291

1,161

Source: Company Financial Reports and BRS Equity Research

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BRS Equity Research

Top 20 shareholders

No. of shares as at
31.12.2015

1 Brandix Lanka Ltd-Number 1 Account

197,000,976

29.81

2 Pacic Textured Jersey Holdings Ltd

195,926,217

29.65

3 HSBC Int Nom Ltd- SSBT- National West Minister Bank PLC as Depository of

47,183,169

7.14

4 Deutsche Bank Ag Singapore-Dss A/C Navis Yield Fund

13,851,460

2.10

5 Melstacorp Limited

12,622,428

1.91

6 Sri Lanka Insurance Corporation Ltd- Life Fund

11,000,000

1.66

7 Citi Bank Newyork S/A Norges Bank Account 2

10,333,853

1.56

8 J.B. Cocoshell (Pvt) Ltd

6,809,330

1.03

9 Addision Private Limited

4,619,300

0.70

10 Nuwara Eliya Property Developers (Pvt) Ltd

4,329,343

0.66

11 Deutsche Bank AG- National Equity Fund

4,000,000

0.61

12 Employees Trust Fund Board

2,859,886

0.43

13 Ms O.D.Gunewardene

2,815,000

0.43

14 Periceyl ( Private ) Limited A/C No. 03

2,694,100

0.41

15 Mellon Bank N.A-Acadian Frontier Markets Equity Fund

2,575,035

0.39

16 Mr. A.R.Gunasekara

2,252,700

0.34

17 Seylan Bank Plc/Arc Capital (Pvt) Ltd

2,187,690

0.33

18 Mcsen Range Private Limited

2,031,400

0.31

19 Nawaloka Piling Private Limited

2,031,400

0.31

20 South Asian Investment (Pvt) Ltd

2,026,000

0.31

Name of the shareholder

First State Asia Pacific Fund A Sub Fund of First State Investment ICVC

Source: TJL interim financial statements

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BRS Equity Research

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