Matco Foods Limited (MFL) - 1st IPO of 2018

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Matco Foods Limited (MFL) - 1st IPO of 2018
« on: March 23, 2018, 12:11:10 PM »
Matco Foods Limited (MFL) - 1st IPO of 2018
One of the largest rice exporter of the Pakistan, Matco Foods Limited (MFL), is all set to be listed
at the Pakistan Stock Exchange. The Company is issuing 29.14 million ordinary shares (25% of
post issue paid-up-capital) at a floor price of Rs 26/share. The first phase of 75% of the total offering
(21.85 million shares) will be offered to Institutional Investors and High Net Worth Individuals
through book-building that would be taken place from January 23 to 24, 2018. Whereas in second
phase, remaining 25% (7.28 million shares) will be offered to the general public at the Strike
Price which will be determined through the Book Building Process from January 29 to 30 2018.

About the Company
Matco is leading agri business in South Asia with over 50 years of experience in the rice industry
and a global portfolio of more than 150 customers. The Company is one of the largest rice
exporter from Pakistan and its flagship brand "Falak Basmati Rice" is available in more than 40
countries worldwide and its private label brands being exported to over 60 countries worldwide.
The company is standing at an annual processing capacity of 134,700 metric ton. This includes
five rice milling and processing plants in total at Karachi and Sadhoke that constitutes paddy drying,
storage, husking, processing and packaging facilities. The company had also established rice
paddy drying and husking plant in 2010 at Sadhoke district to reduce wastage and paddy drying
losses. In 2012, the company successfully sold its 20% stake to International Finance
Corporation, which is a World Bank Group Company.

Purpose of the IPO
The purpose of this IPO offering is to generate Rs 757.72 million, which will be utilized in the
expansion of the company's rice glucose/syrup and rice protein plant. In case of excess amount
generation, the company is intended to pay-off its currently existing loans. According to the
prospectus, the IPO will facilitate in expansion of the plant's production capacity of Rice Glucose
/ Syrup production capacity from 10,000 metric ton per annum to 30,000 metric ton per annum.

Earnings grew at CAGR of 15% during FY14-17
Company earnings surge at a 4 year CAGR of 15% during FY14 -17 to Rs 269 million (EPS: Rs 2.31)
in FY17 against Rs 177 million (EPS: Rs 1.52) in FY14 due to growth in revenue and better margin
on account of market development, extensive distribution reach and expanding product
portfolio. We expect company to post growth of 31% in FY18 as profit after taxation to clock at
Rs 353 million (EPS: Rs 3.03) in FY18 mainly driven by better revenue and exchange gains expected
on account of recent devaluation of currency. Furthermore we expect Rice Glucose / Syrup
production would enhance earnings in FY19 on account of high margin of around 20% in this segment.

Although company is expanding in higher margin product but still company has involved in high
risk commodity product business, as Matco exports representing more than 90% of the total
sales volume which has relatively low pricing power. To recall, we have already witnessed earning
per share of Rs 0.03 during FY16 due to lower rice prices internationally. Thus, we suggest
cautious stance to investors with subscription on floor price. As no listed peer available, we have
used market PE of 9.8x on FY18 earnings of Rs 3.03/share with indicative fair value of Rs
41/share, offering upside potential of 24% from floor price.


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