Adam Investments a medium term buy - Capital Trust Research

Monday, 19 May 2014 00:00 -     - {{hitsCtrl.values.hits}}

Capital Trust Research has recommended Adam Investments Ltd’s Initial Public Offering (IPO) as a medium term buy. Adam Investment’s issue of 133.3 million shares at Rs. 3 each officially opens today. The Company aims to raise Rs. 400 million. Adam Investments Limited (AINV) was incorporated in 2011 by Deshabandhu Dr. Ali Asger Shabbir Gulamhusein. The companies that function under AINV are; Adam Apparels (Pvt) Ltd, a premier manufacturer and exporter of garments for leading global fashion labels, Adam Metals (Pvt) Ltd, one of the oldest manufacturers of metal hardware items in the island, Network Communications (Pvt) Ltd (NETCOM) an IT / Electronics company. The group recently inaugurated two new companies, namely Adam Automobiles (Pvt) Ltd and Adam Air conditions (Pvt) Ltd. AINV also holds 39.8% of Orient Garment Plc (OGL) and gained board control during January 2014 and accounts for it as a subsidiary. Capital Trust Research said considering the rapid turnaround in OGL under the new management and the economic revival in key apparel export markets we expect massive growth in revenue and profits from the apparel sector which contributes the bulk of the group revenue. It said the ICT sector holds tremendous potential with very a low penetration level, and NETCOM is well positioned to reap benefits as a total ICT solutions provider. Furthermore we expect volume growth in the sale of Air Conditioners considering the growth in the construction sector. “Majority of IPO proceeds will be utilized towards the end of FY2014 thus its returns will get reflected from 2015 onwards. Hence, based on forecasted earnings for FY2015 the share is issued at a forward PE of 8.63x [7.48x based on FY2016F]. Considering the future growth potential of the company and the management strength we expect the share to generate lucrative returns in the medium to long term. Thus we recommend investors to subscribe for this issue of shares,” Capital Trust said. Capital Trust Research has also made the following salient observations in its analysis. Transformation of OGL: Under AINV management (which has three decades of experience in the apparel industry) OGL has ended its loss making trend and has reported a profit of Rs. 115 m in the first quarter of operations under new management. (Under the previous management OGL incurred a loss of Rs. 445 m for the nine months) Improved production capacity: Including OGL, AINV operates eight garment factories with a production capacity of 17.9 m pieces per annum, with over 5,000 employees A strong order book: A large clientele of celebrated international labels such as BHS, Mothercare, Next, Tommy Hilfiger, Sainsbury, Tesco, Ralph Lauren, etc. All 57 production lines are fully booked till August 2014. Owns the license to operate an external gateway for international communication and for International Simple Voice Resale (ISVR). Estimated value of the license is Rs. 100 m. The group’s investments are all in the high growth sectors in the economy.