Equity Valuation Report on MJL Bangladesh Limited

Submitted To:

Md. Yousuf Harun

Associate Professor
Department of Finance & Banking
Jahangirnagar University
Course Code: FNB 502
Course Name: Financial Modeling and Forecasting

Submitted By:

Sayed Ashiqur Rahman

ID: 821
Department of Finance & Banking
Faculty of Business Studies
Jahangirnagar University
Savar, Dhaka-1342

Date of Submission:
November 17, 2022
Company Overview

MJL Bangladesh Limited is a joint venture company between EC Securities Limited (a

subsidiary of East Coast Group), and state-owned Jamuna Oil Company. Being a shining
example of Technology Transfer in the country, MJL Bangladesh Limited was established as
Mobil Jamuna Lubricants Limited in 1998 by Jamuna Oil Company, a subsidiary of the state-
owned Bangladesh Petroleum Corporation and Mobil Corporation. The company was
founded at the initiative of Mobil. In 2003, a Lube Oil Blending Plant was established by the
company; which was the first lube oil factory in Bangladesh. The base oil to blend lubricant
products in the factory comes directly from ExxonMobil. ExxonMobil disinvested from the
company in 2003 which made EC Securities Limited the largest shareholder of the company.

In 2010, MJL Bangladesh Limited entered the stock market by issuing IPO worth 4.60 billion
taka on Dhaka Stock Exchange; setting a record for the second-largest IPO in Bangladesh. In
2013, MJL Bangladesh Limited signed an agreement with AKT Petroleum Ltd to launch a
joint venture in Myanmar to market Mobil branded lubricant in the country. The company
owns Omera LPG which sells liquefied petroleum gas for domestic consumption. MJL
Bangladesh has created direct employment opportunities for more than 150 people with over
2000 associated jobs, to significantly add value addition in lube blending and world-class
lubricants in Bangladesh.

MJL Bangladesh Limited

Market Capitalization -BDT(mn) 28,349.31
Authorized Capital -BDT(mn) 10,000.00
Paid Up Capital -BDT(mn) 3,167.52
Total Shares 316,752,027
P/E (Interim) as on 17-Nov-2022 10.6
P/E (Audited) as on 17-Nov-2022 11.89
EPS (TTM) ৳8.29
Last Dividend Declaration Date 25-Oct-22
AGM Date 26-Dec-22
Dividend Yield 5.59%
Latest Dividend ৳5.00
Market Category A
Market Lot 1
LT: "AAA" & ST:
Credit Rating "ST-1"

Web : http://www.mobilbd.com/
Email : enquiry@mobilbd.com

In 2017, the company gave a 45 percent cash dividend to its shareholders. Its profit in 2017
was 1.9 billion taka. In 2018 profits rose by 14 percent for the company. In 2020, sales of the
company declined for the first time in three years.

Market Overview

The Bangladeshi lubricants market is projected to register a CAGR of over 1% during the
forecast period (2022-2027). Due to the COVID-19 pandemic in the country during the first
half of 2020, the automobile and transportation, and various other industrial sectors have
been affected significantly. For instance, the automobile industry in the country witnessed
uncertainty in 2020 and registered a decline of around 40% in sales during the year.
However, the Automobile industry has seen a slight increase in the year 2021. The market is
expected to see a surge in the forecast period.

In the short term, one of the major factors, like increasing construction activities in the
country, is expected to drive the market. On the flip side, low adoption rates of synthetic
lubricants due to high prices are expected to hinder the growth of the market. The automotive
and other transportation segments dominated the market with a share of around 70% in terms
of demand, and it is expected to grow at a significant rate during the forecast period.

Production Capacity of MJL Limited

At present, MJLBD has the capacity to produce around 150,000 barrels of blended lube a
year and imports about the same quantity of finished lube oil, which is mostly absorbed by
the domestic market. MJLBD’s products are mainly divided into two categories namely
locally blended products and imported finished products. The company caters to the demand
of a wide range of customers from different sectors by providing 17 types of product lines.
Other than ‘Mobil’ branded product, MJLBL has been establishing its own brand ‘Omera’ in
other categories where Omera products will not come in direct competition with Mobil
products.

Assumptions

For the forecasting and valuation of MJL Bangladesh Limited. The annual report data from
the year 2016-2021was considered. While the data for 2022 to 2026 were forecasted.

 As MJL Bangladesh is a defensive company I have forecasted the data using the
historical average and using the Forecast function on MS Excel which is a linear
function to predict the future value by considering the existing value. I have
forecasted, the Balance Sheet and the Income statement for the year 2022-2026.
  To calculate the Beta, I have taken daily historical data of closing stock prices for the
past 2 years starting from 11/17/2022 to 11/16/2020. The data was compared with the
same timeframe of DSEX historical data.
 For calculating CAPM, the Risk-Free rate of return and the Market Premium were
also required. I have considered a 7.74% Risk-Free rate of return from the Bangladesh
Bank website for 5 years and I have also considered a 6% Market premium based on
the historical market premiums of the petroleum oil industry.
 Terminal value assumes a business will grow at a set growth rate forever after the
forecast period. I have assumed a 3% Terminal Growth Rate.
 To Calculate the Total Cash Flow to the Firm, Capex was required. I have used the
following formula for calculating the Capex:
Capex= Fixed Assets at the End of the year - Fixed Assets at the beginning of the year
+ Depreciation.

Discount Rate Calculation

Beta 0.814697659

CAPM MODEL
Risk-Free Rate 7.74%
Market Risk Premium 6%
Discount Rate, r 12.63%

I have used the CAPM model to calculate the discount rate. By using the CAPM formula, r =
Risk-Free Rate + Beta*Market Risk Premium. Here, I have used the discount rate of 12.63%
for the model.

DCF Valuation

I have used the following formula to calculate the total cash flow to the firm:
Total Cash Flow to the Firm = Net profit after tax + Change in Working Capital - Less:
Capital Expenditure + Depreciation
I have used the closing cash flows from previous years to get the opening cash flow of the
current years. The closing cash flows were discounted at the rate of 12.63%.

Recommendations

NPV 31,138,232,713.82
Number of Outstanding Shares 331,643,788.47
Intrinsic share value 93.89 BDT
Current Market Price 89.50 BDT
Recommendation Hold
The intrinsic share value of MJL Bangladesh is 93.89 BDT whereas the current market price
of the share of this company in DSE is BDT 89.50 (17 September 2022). Here, the intrinsic
value is 4.91% higher than the current market price so, I would recommend holding the share.