IPO Note: Zaheen Spinning Ltd (ZSL) Date: March 25, 2015

IPO Note: Zaheen Spinning Ltd (ZSL)
IPO Information
Face Value
Offer Price
Authorized Capital (BDT mn)
Pre IPO Paid up Capital (BDT mn)
Retained Earnings (BDT mn)
Post IPO Paid up Capital (BDT mn)
IPO Issue size ( No. of Shares) (mn)
IPO Issue Size (BDT mn)
Issue managers
Auditor
Credit Rating (CRAB)
Income Data BDT mn
Net Sales
COGS
Gross Profit
Operating Profit
Financial Expenses
PAT
Operating Activities mn
Inventories
Account Receivables
Account Payables
Working Capital
Balance sheet BDT mn
Asset
Liabilities
Equity
Paid up
Margins
Gross Margin
Operating Margin
Net profit Margin
Return
ROE
ROA
Growth
Revenue Growth
Operating Profit Growth
Net Profit Growth
Per Share BDT
EPS (Post IPO)
NAV (Diluted)
NOCF (Diluted)
Debt & Cash BDT mn
Total Debt
Long Term Debt
Times Interest Earned
Debt/Equity×
Date: March 25, 2015
10
10
1000
528
108
648
12
120
MTB Capital Ltd
Mohammad Ata Karim & Co.
BBB3 (LT), ST-3 (ST)
2012
400
337
62
51
33
14
2012
204
16
3
126
2012
551
180
372
93
2012
16%
13%
3%
2012
4%
2%
2012
6%
8%
-31%
2012
0.21
6.56
0.44
2012
174
84
1.6
0.5
2013
456
384
79
55
22
29
2013
227
24
2
320
2013
706
100
607
528
2013
16%
12%
6%
2013
5%
4%
2013
14%
8%
117%
2013
0.45
10.00
0.89
2013
93
75
2.7
0.2
2014A
714
600
114
97
10
86
2014Q2
159
50
2
381
2014Q2
762
97
665
528
2014A
16&
14%
12%
2014A
16%
14%
2014A
57%
76%
197%
2014A
1.32
12.30
1.39
2014A
84
66
10.9
0.1
BDT Mn
Mn
BDT
BDT
BDT
86
65
1.32
26.40
33.00
BDT
12.30
2.00
24.60
Company Profile:

100% export oriented company producing 100% cotton
yarn of different counts

Incorporation: July 22, 2007
Commercial Operation: February 15, 2010
Converted into a Public limited company: August 14, 2012

Factory: Jhawgara, Araihazar & Narayanganj, Bangladesh
Employees: 498.

Management: Farida Khanam (Chairman, 7.59%),
A.M. Badruzzaman Khashroo (Managing Director, 18.02%)
Business Profile:

Producing 100% cotton yarn from different counts,
normal or high bulk

Installed Capacity:
4,105,200 lbs., Utilization: 95.59% (3924291 lbs.)

Market Share: Bhai Bhai Spinning (19%), Raya Spinning
(9%), Intimate Spinning (10%), R.K Spinning (6%), Pakiza
Spinning Mills Ltd (17%).

Raw materials sources (Cotton): India.

Expansion Project:
Cost: BDT 854 mn
Estimated Revenue: BDT 6050 mn
Project Capacity: 20, 694 ring spindles
Employment Generation: 446 persons
Project Life: 10 years
Project Financing: Loan from MTB at 16% rate of interest
Project IRR: 53%
Post IPO Securities holding:
Shareholder Type
IPO offering
Directors/Sponsors
Pre IPO Placement
Total
No. of Shares(mn)
12
33
20
65
% Holding
18%
51%
31%
100%
IPO Fund Utilization Plan:
Particulars
Expansion Project
IPO Expenses
TOTAL
Amount
108 mn
12 mn
120 mn
%
90
10
100
*Total Project Cost: BDT 854 mn, Plant & Machinery Cost: BDT 108 mn
Bangladesh Textile Industry Overview:

Bangladesh RMG Exports compared to Total Exports:
Earning Based Valuation
NPAT (FY 2014A ):
No of Shares
EPS
Price @ 20x P/E
Price @ 25x P/E

NAV Based Valuation
NAV (2014 Q3):
P/ NAV Multiplier
Value
BDT

The RMG sector of Bangladesh provides 4 mn direct jobs
(80% of them are women), contributes 15% of the GDP, 5%
of National Income and fetched BDT 24,492 mn (81%) of
Bangladesh’s total exports (2013-14) (BGMEA).
After China & EU, Bangladesh is the largest exporter in
RMG in the $1.1 trillion Global Apparel Market (2013).It
Disclaimer: This document has been prepared by EBL Securities Ltd. (EBLSL) for information only of its clients on the basis of the publicly available information in the market and own research. This
document has been prepared for information purpose only and does not solicit any action based on the material contained herein and should not be construed as an offer or solicitation to buy or sell or
subscribe to any security. Neither EBLSL nor any of its directors, shareholders, member of the management or employee represents or warrants expressly or impliedly that the information or data of the
sources used in the documents are genuine, accurate, complete, authentic and correct. However all reasonable care has been taken to ensure the accuracy of the contents of this document. EBLSL will not
take any responsibility for any decisions made by investors based on the information herein.
IPO Note: Zaheen Spinning Ltd (ZSL)







Date: March 25, 2015
has 5,000 factories, compared with 2,500 in Indonesia and
2,000 in Vietnam.
Factors behind growth: cheap labor cost, cheap resources,
supplier capacity and also the government’s supportive
measures.
Bangladesh’s current demand supply gap is about 50% on
cotton based products and around 25% for non-cotton
based products. Therefore, Bangladesh has a huge
untapped demand for fabric production.
Though there is a demand and supply gap in this industry,
new firms are quite discouraged to enter due to high
startup costs and lack of expertise.
As a consequence of electricity crisis, the textile
production capacity has been reduced by up to 30%
Recent Disasters: Last few years some tragic events i.e.,
Tazrin, Rana plaza etc., brought forward the compliance
issues of the garments factories. USA restricted the GSP
facility while European Union (EU) is considering the
fulfillment of compliance issues seriously. This compressed
in the demand scenario as international buyers were
reluctant to place orders at that time. To eliminate this
problem, 150 European brands, retailers and companies
formed an accord to ensure work-place safety in the
country's apparel units industry for a period of 5 years.
Government Incentives: Various initiatives like, tax
benefits, Export Development Fund (EDF) facility, Cash
benefit etc., have been taken to stimulate the export.
Recently, the government has reduced tax at source to
0.30% from the existing 0.80% until June 2015 and also
provides 5% cash subsidy for exporters
A comparison between some listed companies in the
Textile Sector are shown below:
Paid up
Cap
(mn)
MATINSPINN 975
TALLUSPIN
812
Rev
(mn)
NPAT
(mn)
EPS
NAV
2058
1297
391
-40.6
4.02
-0.50
28.69
15.94
MHSML
ZSL
METROSPIN
1325
714
895
219
86
26
2.82
1.32 1
0.44
15.99
12.30
17.33
Companies
781
648
605


ZSL is exposed to Exchange Rate Risk as it procures Raw
Materials from India.
The company has no dividend history.
Financial Review: (2013)

Turnover increased by 14%. Cost of Goods sold was 84% of
sales consistent as in the previous year. Operating
expenses were 4% of Sales compared to 3% in the previous
year

Investment in PPE was BDT 58 mn, 142% more than
previous year’s investment (BDT 24 mn)

NPAT stands at BDT 29 mn, a 117% increase from previous
year. ROA & ROE both increased compared to previous
year.

Interest on Loan was 23%, which was 19% in 2012.

Short Term Loan decreased from BDT 90 mn to 18 mn
while Long Term Loan decreased from BDT 84 mn to 75
mn reducing the Debt Equity ratio to 0.2 times from 0.5
times in 2012

EPS (Post IPO) stands at BDT 0.45 which was BDT 0.21 in
the previous year
Financial Review: (2014A)

NPAT stands at BDT 86 mn, 197% more than the previous
year.

Annualized EPS stands at BDT 1.32 compared to BDT 0.45
in the previous year.
Concluding Remarks:

Dividend of SDL is still pending.

If the current economic situation continues and the
blockade goes on, the textile sector’s production is going
to have an adverse impact on its profitability in the
upcoming time period.
NPAT & EPS (Post IPO) Trend- last 6 years (BDT mn):
Investment Positives:

ZSL’s Expansion of business activities is likely to result in
higher production and hence higher turnover &
profitability.

Declining trend of cotton prices in the global market may
have a positive impact as COGS will be reduced to some
extent.

To support the local manufacturers in the RMG industry,
the government reduced the tax rate to 15%. (Source:
Bangladesh Tax Handbook FY 2013-2014).

5 year CAGR- Sales: 42%, NPAT: 81%.

Operating Cash Flow shows an increasing trend last 3
years.
Investment Negatives:

ZSL is exposed to raw material supply risk as the company
imports Yarn & Chemicals from international market.

Shortage of Gas & Power Supply, political & Labor unrest
and any change in national policies may affect its
productivity/ performance significantly.
EBL Securities Ltd. Research Team:
M. Shahryar
Head of
Faiz
Research
Farah Tasneem Research
Associate
Shahriar Azad
Research
Shashi
Associate
shahryar@eblsecurities.com
farah@eblsecurities.com
shashi@eblsecurities.com
Disclaimer: This document has been prepared by EBL Securities Ltd. (EBLSL) for information only of its clients on the basis of the publicly available information in the market and own research. This
document has been prepared for information purpose only and does not solicit any action based on the material contained herein and should not be construed as an offer or solicitation to buy or sell or
subscribe to any security. Neither EBLSL nor any of its directors, shareholders, member of the management or employee represents or warrants expressly or impliedly that the information or data of the
sources used in the documents are genuine, accurate, complete, authentic and correct. However all reasonable care has been taken to ensure the accuracy of the contents of this document. EBLSL will not
take any responsibility for any decisions made by investors based on the information herein.