SRI LANKA EQUITY | MANUFACTURING

EARNINGS UPDATE | 14 OCTOBER 2020

Piramal Glass [PIRA]: BUY [+49%] Naveed Majeed

naveed@asiasecurities.lk
2nd wave fears to drive 3Q, however normalise after +94 11 772 2043
GLAS reported an EPS of LKR 0.38/share, beating our estimates; we upgrade Key statistics
estimates on the beat and maintain our BUY rating with a target price of BBG ticker PIRA SL
LKR 10.00/share (+42.9% upside; +49.4% TSR). According to the company, CSE ticker PIRA.N0000
the results were driven on the back of panic buying by households which led GICS subsector Containers & Packaging
to a strong pickup in demand for packaged foods. We expect the momentum
Price at 13 Oct 20 (LKR) 7.00
to continue into 3Q with the resurgence of COVID-19 in October leading to
52 week Hi/Lo (LKR) 7.00/2.90
more panic buying, however, to normalise after. Margin growth was also
seen in 2Q as we believe a switch to LPG which remains at a relatively low Market cap (LKR mn) 6,651
cost would also have helped with bringing down energy costs. Market cap (USD mn) 36
No. of shares (mn) 950
Panic buying on second wave fears will drive another strong quarter ADT (LKR mn) - 3M 16.8
PIRA saw a sharp pickup in revenues during the quarter, which came in at LKR ADT (USD k) - 3M 90.2
2,230mn (+14.8% YoY, +67.7% QoQ). The company notes that demand for ADT (shares k) – 3M 3,630.4
packaged food witnessed a steep rise due to panic buying by households Free float (%) 26.1
resulting in higher sales of food jars in the domestic segment. We note that
Public float (%) 43.4
domestic sales grew 20.8% YoY to LKR 2,230mn during the quarter. With the
Company website | CSE website
resurgence of COVID-19 in October, we see another round of panic buy driving
another strong quarterly result in 3Q FY21E for GLAS. We upgrade our revenue Source: CSE, Bloomberg, Company data
estimates and expect revenue growth of 6.8% for FY21E. Note: LKR converted at 186 LKR per USD

Valuation summary
Furnace oil prices unchanged; LPG alternative will drive better margins
Price at 13 Oct 20 (LKR) 7.00
GLAS saw its gross margins rebound strongly by 4.7pp YoY to 23.7% (+15.4pp
QoQ). While scale benefits would have played a part, we also believe the Target price (LKR) 10.00
expansion comes from LPG prices remaining relatively low at USD 360/ton for Upside (%) +42.9
propane and USD 350/ton for butane (Compared to ~USD 600/ton highs seen in FY21E DPS (LKR) 0.46
January 2020). As furnace oil prices remain unchanged at ~LKR 96.00/l, we Total return (%) +49.4
believe GLAS’s switch to LPG would have resulted in energy costs savings. Source: Asia Securities

Export sales back up; will continue to recover as global trade normalises Share price movement (indexed to PIRA)
The export segment saw sales stabilise during quarter despite limitations in
LKR
vessel availability to India, USA, and East Africa. During the period, PIRA saw 8.00
its Export segment revenues flat YoY at LKR 670mn in 2Q FY21 (~28.7% of total
7.00
revenue), compared to LKR 651mn in 2Q FY20. A large part of the export sales
in 2Q FY21 came from an increase in demand for food jars from Australia and 6.00
New Zealand, and water bottles for the Canadian and North American markets. 5.00
We expect a gradual recovery in the export segment as regulations ease off in 4.00
GLAS’s key export markets and global trade normalises. 3.00
2.00
Liquor segment to remain slow in Oct and Nov; we expect recovery in Dec Oct-19 Feb-20 Jun-20 Oct-20
GLAS notes that its liquor segment saw a setback in 2Q with restrictions placed
PIRA ASPI S&P SL20
on social and festive gatherings. With the resurgence of COVID-19, we see
these restrictions drawing on until Nov. Dec being a strong month for liquor
Movement (%) YTD 3M 12M
sales, we expect an easing of restrictions to help a recovery in the segment.
PIRA 56 106 79
We value the share at LKR 10.00. BUY ASPI (5) 19 (1)
We value the share at 11.0x P/E FY21E and arrive at a target price of LKR S&P SL20 (22) 11 (21)
10.00/share (+42.9% upside; +49.4% TSR). BUY. Source: CSE, Bloomberg

Financial summary
In LKR mn 2Q FY20 2Q FY21 YoY % FY20 FY21E YoY %
Revenue 1,942 2,230 +14.8 7,531 8,043 +6.8
EBITDA 381 548 +43.8 1,590 1,999 +25.8
Recurring net profit 74 360 +389.1 389 866 +122.7
Diluted recurring EPS (LKR) 0.08 0.38 +389.1 0.41 0.91 +122.8
ROE (%) 9.5 13.3 +3.8pp 8.5 17.7 +9.2pp
P/E (x) 16.5 10.9 17.1 7.7
EV/EBITDA (x) 5.3 4.9 5.3 4.2
P/B (x) 1.5 1.4 1.4 1.3
Source: Company data, Asia Securities | Note: Historical interim ROE, P/E, EV/EBITDA on a TTM basis

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Estimate revisions
In LKR mn FY21E - O FY21E – N %Δ FY22E - O FY22E – N %Δ FY23E - O FY23E – N %Δ
Revenue 6,710 8,043 +19.9 7,270 8,067 +11.0 7,881 8,532 +8.3
EBITDA 1,188 1,999 +68.3 1,442 1,573 +9.1 1,694 1,656 -2.2
Recurring net profit 141 866 +514.4 347 448 +29.0 583 547 -6.2
Diluted recurring EPS (LKR) 0.15 0.91 +508.2 0.37 0.47 +27.4 0.61 0.58 -5.6
DPS (LKR) 0.07 0.46 +551.6 0.18 0.24 +30.9 0.31 0.28 -9.0
ROE (%) 3.0 17.7 1+4.7pp 7.2 8.6 +1.4pp 11.5 10.0 -1.5pp
P/E (x) 23.5 7.7 9.8 14.9 5.9 12.2
EV/EBITDA (x) 4.2 4.2 3.6 5.4 3.0 5.1
P/B (x) 0.7 1.3 0.7 1.2 0.7 1.2
Source: Company data, Asia Securities | Note: O – Old estimate, N – New estimate

Key ratios
FY2018 FY2019 FY2020 FY2021E FY2022E FY2023E
Revenue growth (%) 0.5 8.5 1.8 6.8 0.3 5.8
EBITDA growth (%) 19.4 (6.7) 7.0 25.8 (21.3) 5.3
Recurring net profit growth (%) (29.2) 0.7 12.3 122.7 (48.3) 22.2
Recurring diluted EPS growth (%) (29.2) 0.7 12.3 122.8 (48.3) 22.2

EBITDA margin (%) 23.4 20.1 21.1 24.9 19.5 19.4

Net margin (%) 5.0 4.7 5.2 10.8 5.5 6.4

Recurring diluted EPS (LKR) 0.36 0.36 0.41 0.91 0.47 0.58
DPS (LKR) 0.18 0.18 0.20 0.46 0.24 0.28
Tan. BVPS (LKR) 4.49 4.68 4.92 5.37 5.61 5.90

OCF (LKR mn) 861 1,255 1,620 1,173 1,107 1,515

Unlevered FCF (LKR mn) 238 646 592 771 703 1,089
Levered FCF (LKR mn) (429) 268 521 502 158 407

OCF/EBITDA (%) 54.1 84.5 101.9 58.7 70.4 91.5

Unlevered FCF/EBIT (%) 27.4 76.4 68.4 61.5 87.4 125.9
Levered FCF/Recurring net profit (%) (124.6) 77.4 133.9 57.9 35.3 74.5

Net debt/equity (x) 0.0 0.1 0.6 0.4 0.4 0.3

Net debt/EBITDA (x) 0.1 0.3 1.9 1.2 1.2 1.0
EBITDA/interest (x) 8.5 18.0 7.6 4.8 4.5 4.3

ROA (%) 6.0 5.9 6.7 10.6 6.0 6.5

ROE (%) 8.1 8.0 8.5 17.7 8.6 10.0
P/E (x) 19.3 19.2 17.1 7.7 14.9 12.2
EV/EBITDA (x) 5.5 5.8 5.3 4.2 5.4 5.1
P/B (x) 1.6 1.5 1.4 1.3 1.2 1.2
Dividend yield (%) 2.6 2.6 2.9 6.5 3.4 4.0
Dividend payout (%) 49.7 49.4 48.8 50.0 50.0 49.0
Source: Company data, Asia Securities

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Income statement
In LKR mn FY2018 FY2019 FY2020 FY2021E FY2022E FY2023E
Revenue 6,816 7,398 7,531 8,043 8,067 8,532
Operating expenses (5,224) (5,913) (5,942) (6,043) (6,494) (6,875)
EBITDA 1,592 1,485 1,590 1,999 1,573 1,656
Depreciation and amortization (723) (639) (724) (746) (768) (792)
EBIT 869 846 866 1,254 805 865
Interest income 1 1 0 0 0 0
Interest expense (328) (336) (371) (269) (245) (181)
Associate/JV income - - - - - -
FX gain/loss - - - - - -
Other non-operating income/expenses - - - - - -
Profit before tax 541 510 495 984 560 684
Income tax expenses (197) (164) (106) (118) (112) (137)
Profit for the year 344 346 389 866 448 547
Minority interest - - - - - -
Preferred dividends - - - - - -
Recurring net profit 344 346 389 866 448 547
Source: Company data, Asia Securities

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Balance sheet
In LKR mn FY2018 FY2019 FY2020 FY2021E FY2022E FY2023E
Assets
Non-current assets
Property, plant and equipment 6,021 5,992 6,538 6,194 5,829 5,464
Intangible assets 23 22 - - - -
Goodwill - - - - - -
Equity method investments - - - - - -
Interest earnings investments - - - - - -
Other investments 5 3 3 3 3 3
Other non-current assets 2 1 56 56 56 56
Total non-current assets 6,050 6,018 6,597 6,253 5,888 5,523

Current assets
Accounts receivable 1,513 1,537 1,163 1,873 1,879 1,987
Inventories 1,686 2,261 2,086 2,235 2,669 2,637
Prepaid expenses - - - - - -
Other WCA - - - - - -
Cash and cash equivalent 122 233 166 235 169 309
Restricted cash - - - - - -
Short term interest earning investments - - - - - -
Other short-term investments - - - - - -
Other current assets 76 120 146 146 146 146
Total current assets 3,398 4,152 3,560 4,488 4,862 5,078

Total assets 9,449 10,170 10,157 10,741 10,750 10,601

Liabilities
Non-current liabilities
Long term borrowings 1,991 1,939 1,639 1,639 1,339 839
Employee benefits 176 179 190 190 190 190
Other non-current liabilities 495 661 793 793 793 793
Total non-current liabilities 2,661 2,778 2,621 2,621 2,321 1,821

Current liabilities
Accounts payable 836 1,252 991 1,142 1,228 1,300
Accrued expenses - - - - - -
Other WCL - - - - - -
Short term borrowings 49 38 45 45 45 45
Other current liabilities 1,638 1,655 1,829 1,829 1,829 1,829
Total current liabilities 2,523 2,946 2,865 3,016 3,102 3,174

Total liabilities 5,184 5,724 5,486 5,638 5,423 4,995

Equity
Common equity 1,526 1,526 1,526 1,526 1,526 1,526
Preferred equity - - - - - -
Retained earnings 2,738 2,919 3,144 3,577 3,801 4,080
Other reserves - - - - - -
Minority interest - - - - - -
Total equity 4,264 4,446 4,670 5,103 5,327 5,606

Total equity and liabilities 9,449 10,170 10,157 10,741 10,750 10,601
Source: Company data, Asia Securities

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Cash flow statement
In LKR mn FY2018 FY2019 FY2020 FY2021E FY2022E FY2023E
Cash flows from operating activities
EBITDA 1,592 1,485 1,590 1,999 1,573 1,656
Other non-cash items - - -
Change in working capital (723) (158) 41 (708) (354) (4)
Tax paid - - - (118) (112) (137)
Other (7) (71) (11) - - -
Cash generated from operating activities 861 1,255 1,620 1,173 1,107 1,515

Cash flows from investing activities

Capex on PPE & intangibles (623) (609) (1,028) (402) (403) (427)
Proceeds from disposals 0 1 - - - -
Net (acquisition)/disposal of subsidiaries - - -
Net (acquisition)/disposal of EMIs - - - - - -
Dividends received 0 0 - - - -
Interest received 1 - - 0 0 0
Other 25 4 1 - - -
Cash used in investing activities (597) (605) (1,027) (402) (403) (426)

Cash flows from financing activities

Issuance/(repurchase) of common shares - - - - - -
Issuance/(redemption) of preference shares - - - - - -
Drawdown/(repayment) of debt (338) (49) 299 - (300) (500)
Dividends paid to common shareholders (242) (169) (168) (433) (224) (268)
Dividends paid to preferred shareholders - - - - - -
Interest paid (328) (329) (370) (269) (245) (181)
Dividends paid to minority interest - - - - - -
Other - 1 0 - - -
Cash from financing activities (908) (547) (239) (703) (769) (949)

Net increase/(decrease) in cash (644) 104 355 69 (66) 140

Cash and cash equivalent at BOP 258 (391) (287) 67 136 71
Effect of exchange movements (4) - -
Cash and cash equivalent at EOP (391) (287) 67 136 71 210
Source: Company data, Asia Securities | EMI stands for equity method investments

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Top 10 shareholders – Voting (% held)
Shareholder Sep-19 Jun-20 Sep-20 Δ YoY (pp) Δ QoQ (pp)

Piramal Glass Private Limited 56.45 56.45 56.45 - -

Employees Provident Fund 9.51 9.51 9.51 - -

Employees Trust Fund Board 0.40 0.97 2.02 +1.62 +1.05

Mr M.J. Fernando 0.98 1.13 1.24 +0.26 +0.11

Anverally and sons (Pvt) Ltd A/C No 01 0.97 0.97 0.97 - -

Mr H.M. Udeshi 0.9 0.91 0.91 +0.01 -

Mr N. Perera 0.88 0.88 0.88 - -

Mr K.D. Reddy 0.68 0.68 0.85 +0.17 +0.17

Apposite Trading Pvt Ltd 0.73 0.73 0.73 - -

Cheerful Commercial Private Limited 0.69 0.69 0.69 - -

Source: Company data

6
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 Analyst Certification
I, Naveed Majeed, certify that the views expressed in this report accurately reflect
my personal views about the company. I also certify that no part of my compensation
was, is, or will be, indirectly or directly, related to the specific view or
recommendation expressed in this report.

Company Certification
Asia Securities (Private) Limited has no direct affiliation with the
company/companies covered in this report and does not receive any material benefit
from the company for publishing this report.

Disclaimer
The report has been prepared by Asia Securities (Private) Limited. The information
and opinions contained herein has been compiled or arrived at based upon
information obtained from sources believed to be reliable and in good faith. Such
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Research
Kavinda Perera – Head of Research Mangalee Goonetilleke Naveed Majeed
Strategy | Banks | Insurance | Conglomerates | Consumer | Manufacturing |
Telecommunications Healthcare Energy | Construction
kavinda@asiasecurities.lk mangalee@asiasecurities.lk naveed@asiasecurities.lk
+94 11 772 2044 +94 11 772 2042 +94 11 772 2043

Lakshini Fernando Isuri Munasinghe

Economics | Finance Insurance | Leisure
lakshini@asiasecurities.lk isuri@asiasecurities.lk
+94 11 772 2045 +94 11 772 2036

Semini Mendis Shevon Mendis

semini@asiasecurities.lk shevon@asiasecurities.lk
+94 11 772 2048 +94 11 772 2047

Institutional Sales
Sabri Marikar Shiyam Subaulla Niroshan Wijekoon
Deputy Chairman COO, Equities niroshan@asiasecurities.lk
sabri@asiasecurities.lk shiyam@asiasecurities.lk +94 11 772 2007
+94 11 772 2022 +94 11 772 2011 +94 77 771 3645
+94 77 357 6868 +94 77 350 2016

Anushan Kandasamy Charith Perera Gagani Jayawardhana

anushan@asiasecurities.lk charith@asiasecurities.lk gagani@asiasecurities.lk
+94 11 772 2019 +94 11 772 2015 +94 11 772 2014
+94 77 722 2519 +94 77 359 8937 +94 71 408 4953

Foreign Sales
Lahiru Ariyaratne Udith Wickramasinghe Jeevan Hettigoda
CEO udith@asiasecurities.lk jeevan@asiasecurities.lk
lahiru@asiasecurities.lk +94 11 772 2031 +94 11 772 2080
+94 11 772 2002 +94 71 868 8004 +94 77 378 2661
+94 77 3468103

Retail Sales
Subeeth Perera Priyantha Hingurage Romesh Priyadarshana
subeeth@asiasecurities.lk priyantha@asiasecurities.lk romesh@asiasecurities.lk
+94 11 772 2035 +94 11 772 2033 +94 11 772 2032
+94 71 404 2683 +94 77 350 2015 +94 77 254 8795

Kalana Hewawasam Ashan Silva

kalanag@asiasecurities.lk ashan@asiasecurities.lk
+94 11 772 2028 +94 11 772 2005
+94 77 395 9438 +94 77 045 8028

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