IPO Note on Oimex Electrode Limited Date: November 5, 2017

IPO Issue size ( No. of Shares) (mn): 15

Offer Price (BDT): 10 IPO Issue Size (BDT mn): 150
IPO Information Company Overview
Face Value 10.0 Oimex Electrode Limited (OEL) is engaged in manufacturing
Offer Price 10.0 and marketing of different types of electrodes, wire and tarkata
Authorized Capital (BDT mn) 500.0 which are sold entirely in local market.
Pre IPO Paid up Capital (BDT mn) 308.9 Company Profile:
 Incorporation: September 18, 2005
Post IPO Paid up Capital (BDT mn) 458.9
 Commercial Operation: March 21, 2010
IPO Issue size (No. of Shares) (mn) 15.0  Key Personnel: Mrs. Khairun Nesa Lucky (Chairman,
IPO Issue Size (BDT mn) 150.0 13.66%); M A Maleque (Managing Director, 26.00%)
Oversubscribed 33.2 Times  Plant Location: Pipulbaria, Daulatpur, Kushtia,
Lock-in Free Share on First Trade Day (mn) 11.25 Bangladesh.
Issue managers MTB Capital Limited  Number of Employees: 256
Auditor Ahmad & Akhtar Business Profile:
Oimex Electrode Limited (OEL) carries out the business of
2013- 2014- 2015- 2016- manufacturing and selling of Welding Electrodes, Wire (G. I.
14 15 16 17A Wire) and Tarkata (Nail) in local market. The company is not
Financial Information (BDT mn): exporting any product currently and has no plan of export in
Net Sales 127 387 410 418 near future. The company uses own distribution network to
Gross Profit 34 115 122 124 distribute its products nationwide and does not use any agent
or dealer.
Operating Profit 28 110 112 114
Production Capacity:
Financial Exp. 9 13 11 11 2013-14 2014-15 2015- 2016- 2017- 2018-
Profit After Tax 12 59 64 65 16 17E 18E 19E*
Assets 232 497 666 757 Installed 5,140 5,874 7,342 7,342 7,342 10,927
Debt 81 71 130 142 (in MT)
Equity 28 168 459 508 Actual (in 1,836 5,141 6,600 6,609 6,940 8,195
Retained Earnings 27 86 150 199 MT)
Cash & Cash Eqiv. 8 101 24 19 Utilization 36.0% 88.0% 89.9% 90.0% 94.5% 75.0%

Dividend (C/B)% -/- -/- -/- -/10 *Projected capacity attainment will be delayed as company didn’t get the IPO fund as predicted
and to date CAPEX is also insignificant. We assume that the IPO project will commence its
Margin: operation from 2018-19 and accordingly forecast their utilization in coming years.
Revenue Breakdown (as on 30th June, 2016):
Gross Profit 26.5% 29.7% 29.7% 29.7%
Particulars Revenue (BDT mn)
Operating Profit 22.4% 28.5% 27.3% 27.3%
Welding Electrode 57.40
Pretax Profit 14.4% 23.9% 23.5% 23.5%
G.I.Wire 141.44
Net Profit 9.4% 15.2% 15.7% 15.4% Tarkata (Nail) 211.33
Growth:
Revenue Breakdown
Sales 28.5% 205.6% 6.1% 1.9%
Gross Profit 28.3% %
242.0% 5.9% 1.9%
Operating Profit 31.4% 288.8% 1.7% 1.9% 13.99%
Net Profit 46.5% 396.2% 9.0% 0.6%
Profitability:
51.52%
ROA 5.1% 11.9% 9.6% 8.5% 34.48%
ROE 42.1% 35.0% 14.0% 12.7%
EPS (Post IPO, Rest.) 0.26 1.28 1.40 1.41
NAVPS (Basic) 282.3 20.5 14.9 16.9
Leverage: Welding Electrode G.I. Wire Tarkata (Nail)

Debt Ratio 34.9% 14.2% 19.5% 18.8% Competitors: Linde Bangladesh Limited, Bd Welding
Debt-Equity 2.87 0.42 0.28 0.28 Electrodes, Navana Welding Electrode Limited, Jamuna
* Jul ’16-Mar ’17 financials data were derived through backward calculation from the recent EPS disclosure for Welding Electrode Limited, Hyder Machinery Electrodes
the year ended on June, 2017. NAV were derived from 2016-17 yearly disclosure.
Limited ACL) etc.
Post IPO Securities Holding:
IPO Fund Utilization Plan:
Shareholder Type No. of Shares (mn) % Holding Particulars Amount (BDT, mn) Date of completion (approx.)
Sponsor/Director 19.1 41.71% Capital 85.00 Within 12 months of
Other than Sponsors 11.8 25.60% Machineries & receiving IPO fund
(Private Placement) Equipment
Institutional 6.0 13.08% Partial loan 50.00 Within 3 months of
Mutual Fund 1.5 3.27%
repayment receiving IPO fund
Individual 6.0 13.08%
NRBs 1.5 3.27% IPO expense 15.00 -
Total 45.9 100% Total 150.00 -

1 EBL Securities Limited Research

 IPO Note on Oimex Electrode Limited Date: November 5, 2017
IPO Issue size ( No. of Shares) (mn): 15
Offer Price (BDT): 10 IPO Issue Size (BDT mn): 150
As a consequence of new machineries, company capacity will
Prices of Wire Rod (Per MT in USD)
increase by 3,414MT in 1st year and then it will reach to
3,585MT in succeeding years. Projected implementation date 550 525 520
of the aforesaid plan is after 12 months of IPO fund acquisition. 475 480 475 480 460 475 475
500

Capital Raising History: 450 410

380
Allotment Date of Allotment No. of Shares BDT 400

1st 18/09/2005 40,000 400,000 350

2nd 20/12/2013 60,000 600,000 300

3rd 20/07/2014 2,800,000 28,000,000 250

4th 09/10/2014 5,300,000 53,000,000 200

Oct-16

Nov-16

Dec-16

Jan-17

Feb-17

Mar-17

Apr-17

May-17

Jun-17

Jul-17

Aug-17
5th 24/08/2015 21,082,000 210,820,000
6th 30/06/2016 1,610,000 16,100,000
*In all cases consideration was cash.
Source: RecycleINME and EBLSL Research
As on date, the company doesn’t have any subsidiary or
associate company. Comparison among recently listed companies:
Post IPO Issue Re EPS 1st Day P/E Current
Lock-In Free Share (Prospectus Issue Date: August 7, 2017):
Scrips Paid Up Size (mn While Closing (listing Price
Trading Day Lock-In Free Shares Tradable Shares (mn) Shares) Listing Price day)
6th Nov, 2017 3.75m 11.25m ETL 1,200 17 1.40 23.50 16.8 22.00
7th Feb, 2018 1.88m 13.13m YPL 590 20 0.90 31.80 35.3 26.70
FORTUNE 970 22 1.06 60.10 56.7 60.20
7th May, 2018 1.87m 15.00m
PDL 1,130 75 0.88 27.00 30.7 23.70
7th Aug, 2018 11.75m 26.75m
SHEPHERD 1,242 20 0.57 53.10 93.2 40.90
7th Aug, 2020 19.14m 45.89m
NURANI 830 43 0.76 19.70 25.6 22.50
Industry Overview BBSCABLES 1,200 20 2.34 90.30 38.6 139.20
AAMRANET 530 15 2.50 138.40 55.4 115.5
Welding products have become the major supporting elements
OEL 459 15 1.41 - - -
since the industrialization of Bangladesh. Welding products are
generally used in real estate, automobiles industry, ship Performance of Oimex Electrode’s competitors listed in DSE:
construction etc. Some local companies like Linde Bangladesh Company Price Paid Rev EPS P/E P/NAV
Ltd., Jamuna Group, Navana and Bangladesh Welding produce up (mn)*
electrodes in our country. The welding consumables market (mn)
LINDEBD 1,220.9 152.2 2,356.4 54.40 22.44 5.55
holds a significant market share in the welding industry of our
BDWELDING 18.9 429.2 14.17 -0.96 n/a 1.55
country. Electrodes and filler metals are the key consumables
OEL - 458.9 341 1.41 - -
that are frequently used in different welding process.
The demand of welding products is highly dependent on the *Revenue of LINDEBD has been shown according to the Q2 (6m), 2017 disclosure
and EPS has been shown according to Q3 (9m) (Annualized), 2017 disclosure while
consumption of steel in various end-use industries. The key revenue & EPS (Annualized) of BDWELDING and OEL have been shown according
end-use industries include Shipyards, marine equipment, to the Q3 (9m), 2016-17 disclosure.
container, Steel construction, Waste management, Investment Insight
petrochemical, oil and gas industry etc. In Bangladesh, the
consumption of steel is increasing and it will continue as Investment Positive
Bangladesh Govt. has undertaken several infrastructural  Demand for welding consumables in Bangladesh has been
project that requires steel to complete the construction. experiencing significant growth due to the constant
Apparent steel consumption in Bangladesh is as follows, technology advancements and substantial growth in the
end-use industries.
Apparent Steel Consumption ('000 MT) 4,209
4,500  The company is planning to import new machineries and
4,000
equipment using the proceeds of IPO. The required total
3,500
2,798 cost is BDT 85.0 million. It will increase their production
3,000
2,390 2,533 capacity by 3,414 MT in the first year and then by 3,584 in
2,500 2,064
1,916 the corresponding years. It will generate additional
1,726
2,000
revenue of BDT 87.16 mn (approximately) utilizing 75% of
1,500 925 905
1,000
817 installed capacity.
500
 The company will repay its loan with the IPO proceeds
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 (around BDT 50.0 million) that will decrease their financial
expense as well. Total outstanding loan up to Q3, 2016-17
Consumption of Steel
is BDT 142 million. It will reduce financial expense by BDT
Source: Steel Statistical Yearbook, 2016 by World Steel Association and EBLSL
Research.
4.2mn (approximately).
Considering the increasing trend in the demand of steel, it can  The company’s profit margin has been on the increasing
be expected that demand for electrodes will increase following trend which indicates their increasing efficiency. Gross
same momentum. profit margin has revolved around 30% whereas Net profit
Major raw material of electrode is Wire Rod which is mainly margin has been hovering around 15%. Their major
imported from India in our country. Price trend of wire rods in competitor, Linde Bangladesh enjoys Gross Profit Margin
India is as follows: of around 46.9% and Net Profit Margin of around 18.3%

2 EBL Securities Limited Research

 IPO Note on Oimex Electrode Limited Date: November 5, 2017
IPO Issue size ( No. of Shares) (mn): 15
Offer Price (BDT): 10 IPO Issue Size (BDT mn): 150
because of their different business stature and hence, not  Even though actual production has increased by 28.38% in
comparable with Oimex Electrode Limited. the 2015-16 period, sales has experienced a growth of
 Listed companies enjoy preferential tax benefit and Oimex only 6.1% due to price adjustment in their products.
Electrode Limited will have access to the same privilege.
 The company has already declared 10% stock dividend for Five Year's Restated Post IPO EPS (BDT)
2016-17 period. 1.55 EPS 1.40 1.41
1.28
1.25
Investment Concern
0.95
 Major portion of raw materials of the company is being
imported from India that arises country concentration risk 0.65
and thus creates country risk highly as any trade barriers
or other turmoil of the country can create hindrance in 0.35 0.18 0.26
importing the raw materials and thus can affect the
0.05
overall production process. Moreover, as the company is 2012-13 2013-14 2014-15 2015-16 2016-17
fully dependent on imported raw materials, the company
is highly exposed to exchange rate risk as change in Profitability Margins of Oimax Electrode Ltd.
GP Margin OP Margin PBT Margin NPAT Margin
exchange rate can significantly affect the cost structure of 32.00%
29.00%
the business. 26.00%
 Cost of goods sold (COGS) of the company has remained 23.00%
around 70% over last three years. Among the raw 20.00%
17.00%
materials, use of wire rods is major (almost 76%) and raw 14.00%
materials are mainly imported from India. As price of wire 11.00%
rods in India is showing an increasing trend, it may lead to 8.00%
5.00%
increase of COGS and thus decrease of the profitability. 2012-13 2013-14 2014-15 2015-16 2016-17 A

Relative Valuation and Pricing:

Pricing Based on Relative Valuation

EPS Multiple Value (BDT)
Sector Forward P/E 1.41 23.72 33.45
Peer Forward P/E 1.41 21.96 30.96
Sensitivity Analysis
Price @20(x) PE 1.41 20.00 28.20
Price @25(x) PE 1.41 25.00 35.25
Price @30(x) PE 1.41 30.00 42.30
Price @35(x) PE 1.41 35.00 49.35
Price @40(x) PE 1.41 40.00 56.40
NAV Based Pricing
NAV Multiple Value (BDT)
NAV (Basic) 16.96 2.25 38.16

3 EBL Securities Limited Research

IPO Note on Oimex Electrode Limited Date: November 5, 2017
IPO Issue size ( No. of Shares) (mn): 15
Offer Price (BDT): 10 IPO Issue Size (BDT mn): 150

Statement of Comprehensive Income (BDT, mn)

Particulars Year 2012-13 Year 2013-14 Year 2014-15 Year 2015-16 Year 2016-17A

Net Turnover 98,450,400 126,540,200 386,709,515 410,164,512 418,029,263

Cost of Goods Sold 72,276,229 92,959,946 271,880,657 288,548,149 294,080,952
GROSS PROFIT 26,174,171 33,580,254 114,828,858 121,616,363 123,948,311
Other Operating Income 215,207 535,650 6,834,392 7,389,927 7,531,626
Total Operating Income 26,389,378 34,115,904 121,663,250 129,006,290 131,479,937
Operating Expenses: 4,829,600 5,781,500 11,511,379 16,963,452 17,288,720
Administrative Expenses 3,264,200 3,825,300 8,049,502 10,003,670 10,195,487
Selling & Distribution Expenses 1,565,400 1,956,200 3,461,877 6,959,782 7,093,233
PROFIT FROM OPERATIONS 21,559,778 28,334,404 110,151,871 112,042,838 114,191,217
Financial Expenses 7,942,399 9,153,164 13,236,592 10,933,469 11,143,114
PROFIT BEFORE WPPF 13,617,379 19,181,240 96,915,279 101,109,369 103,048,103
Allocation for WPPF 648,447 913,392 4,615,013 4,814,732 4,907,053
PROFIT BEFORE TAX 12,968,932 18,267,848 92,300,266 96,294,637 98,141,051
Deferred Tax 3,291,609 8,365,484 8,525,889
Current Tax 4,863,350 6,393,747 30,089,861 23,722,385 25,050,882
PROFIT AFTER TAX FOR THE YEAR 8,105,582 11,874,101 58,918,796 64,206,768 64,564,280
EPS (Restated, Post IPO) 0.18 0.26 1.28 1.40 1.41
 IPO Note on Oimex Electrode Limited Date: November 5, 2017
IPO Issue size ( No. of Shares) (mn): 15
Offer Price (BDT): 10 IPO Issue Size (BDT mn): 150

Statement of Financial Position (BDT, mn)

Particulars Year 2012-13 Year 2013-14 Year 2014-15 Year 2015-16 Year 2016-17A

ASSETS:
Non-Current Assets: 68,304,571 63,264,059 145,909,524 314,197,783 336,780,189
PPE-Carrying Value 68,304,571 63,264,059 119,519,765 264,432,532 278,837,065
Cap. Work-in-Progress 26,389,759 49,765,251 57,943,124
Current Assets: 145,112,278 168,857,308 350,853,488 352,009,280 420,719,467
Inventories 55,113,358 49,952,361 114,565,735 189,340,227 231,267,907
Trade Debtors 30,786,340 43,460,000 103,550,230 131,447,464 159,162,668
Adv., Depo. and Prepay. 47,612,079 67,276,200
Cash and Cash Equiv. 11,600,501 8,168,747 101,453,790 24,114,278 19,135,027
TOTAL ASSETS 213,416,849 232,121,367 496,763,012 666,207,063 757,499,656
SHAREHOLDERS' EQUITY AND LIABILITIES:
Shareholders' Equity: 15,756,327 28,230,428 168,149,224 459,275,992 507,667,280
Share Capital 400,000 1,000,000 82,000,000 308,920,000 308,920,000
Retained Earnings 15,356,327 27,230,428 86,149,224 150,355,992 198,747,280
Non-Current Liabilities: 124,112,598 119,031,200 221,697,334 62,116,865 87,464,875
LT Loans - Secured 14,112,598 9,031,200 7,585,725 50,459,772 70,324,131
Share Money Deposit 110,000,000 110,000,000 210,820,000
Deferred Tax Liability 3291609 11657093 17140744
Current Liabilities: 73,547,924 84,859,739 106,916,454 144,814,206 162,367,502
Short Term Bank Loans 67,461,644 70,789,719 60,978,922 72,756,696 70,382,248
LT Loans – Cur. Portion 1,216,000 2,159,775 6,916,195 1,347,172
Trade Creditors 325,400 241,400 267,920 325,187 229,316
Current Tax liabilities 4,863,350 11,257,097 37,173,694 56,639,702 79,819,829
Liabilities for Expenses 897,530 805,023 1,721,130 3,361,694 1,921,451
Provision for WPPF 550,500 4,615,013 4,814,732 8,667,486
TOTAL SHAREHOLDERS' 213,416,849 232,121,367 496,763,012 666,207,063 757,499,657
EQUITY AND LIABILITIES
NAV per share (Basic) 393.91 282.30 20.51 14.87 16.43*
No. of Share Out. 40,000 100,000 8,200,000 30,892,000 30,892,000
*NAV is based on Q’3 Financial Statements; NAV as on June 30, 2017 is 16.96
IPO Note on Oimex Electrode Limited Date: November 5, 2017
IPO Issue size ( No. of Shares) (mn): 15
Offer Price (BDT): 10 IPO Issue Size (BDT mn): 150

Ratio Analysis
Particulars Year 2012-13 Year 2013-14 Year 2014-15 Year 2015-16 Year 2016-17

Liquidity Ratios:
Current Ratio 1.97 1.99 3.28 2.43 2.59
Quick Ratio 1.22 1.40 2.21 1.12 1.17
Operating Efficiency Ratios:
Inventory Turnover Ratio 1.79 2.53 3.38 2.17 1.81
Receivable Turnover Ratio 3.20 2.91 3.73 3.12 2.63
Avg. Collection Period (Days) 112.58 123.64 96.40 115.37 137.07
Inventory Conversion 201.53 142.11 106.65 166.18 199.16
Period(Days)
Operating Cycle (Days) 314.11 265.75 203.05 281.55 336.23
A/C Payable Turnover Ratio 222.12 385.09 1,014.78 887.33 1,282.43
Payables Paym. Period (Days) 1.62 0.93 0.35 0.41 0.28
Operating Profitability Ratios:
Gross Profit Margin (GPM) 26.59% 26.54% 29.69% 29.65% 29.65%
Op. Profit Margin (OPM) 21.90% 22.39% 28.48% 27.32% 27.32%
Pre Tax Profit Margin 13.17% 14.44% 23.87% 23.48% 23.48%
Net Profit Margin (NPM) 8.23% 9.38% 15.24% 15.65% 15.44%
Leverage Ratios:
Total Debt to Equity 5.18 2.87 0.42 0.28 0.28
Debt to Total Assets 38.2% 34.9% 14.2% 19.5% 18.8%
Coverage Ratios:
Times Interest Earned (TIE) 2.71 3.10 8.32 10.25 10.25
Valuation Ratios:
NAVPS (Basic) 393.91 282.30 20.51 14.87 16.96
EPS (Restated, Post IPO) 0.18 0.26 1.28 1.40 1.41
Growth Rates:
EPS Growth Rate 231.93% 46.49% 396.20% 8.98% 1.92%
Sales Growth Rate 3.46% 28.53% 205.60% 6.07% 1.92%
Gross Profit Growth Rate 66.29% 28.30% 241.95% 5.91% 1.92%
EBIT Growth Rate 76.99% 31.42% 288.76% 1.72% 1.92%
Net Income Growth Rate 231.93% 46.49% 396.20% 8.98% 0.56%
Other Data:
Number of shares outstanding 40,000 100,000 8,200,000 30,892,000 30,892,000
DUPONT ANALYSIS:
Net Profit AT/Sales 8.23% 9.38% 15.24% 15.65% 15.44%
Sales/Total Assets 46.13% 54.51% 77.85% 61.57% 55.19%
ROA 3.80% 5.12% 11.86% 9.64% 8.52%
Net Profit AT/Total Assets 3.80% 5.12% 11.86% 9.64% 8.52%
Total Ast./Stockhldrs. Equity 13.54 8.22 2.95 1.45 1.49
ROE 51.44% 42.06% 35.04% 13.98% 12.72%
IPO Note on Oimex Electrode Limited Date: November 5, 2017
IPO Issue size ( No. of Shares) (mn): 15
Offer Price (BDT): 10 IPO Issue Size (BDT mn): 150

DISCLAIMER
This document has been prepared by the Research Team of EBL Securities Limited (EBLSL) for information only of its clients
residing both in Bangladesh and abroad, 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 taken 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.

ANALYST DISCLAIMER
The person or persons named as the author(s) of this report hereby certify that the views expressed in the research report
accurately reflect their personal views about the subject matters discussed. No part of their compensation was, is, or will
be, directly or indirectly, related to the specific recommendations or views expressed in the research report. The views of the
author(s) do not necessarily reflect the views of the EBL Securities Limited (EBLSL) and are subject to change without any
notice. All reasonable care has been taken to ensure the accuracy of the contents of this document and the author(s) will not
take any responsibility for any decisions made by investors based on the information herein.

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