Analysis on Monno Ceramic Industries Limited (MCIL)

Company Profile:
Monno Ceramics was incorporated in Bangladesh on 21st April, 1981. Currently the company is listed in both DSE and CSE.
The company is in the business of producing high quality Porcelain and Bone China tableware products.
Chairman: Mr. Harunar Rashid Khan, Managing Director: Mrs. Afroza Khan, Compoany Secretary: Mr. Md. Ekramul Haque
Banker: Sonali Bank Ltd. (Local Office, Motijheel)
Auditor: A. Wahab & Co. Chartered Accountants
Factory: Islampur, Dhamrai, Dhaka; Employees: 2283
Industry Overview:
Categories: The ceramic industry of Bangladesh can be divided into three categories: (i) Tableware, (ii) Sanitary ware (iii) Insulator.
Market Size: Size of the ceramic industry is Tk. 20 billion. (Source: The Financial Express, 17 July,2014)
The present investment in the countrys ceramic industry is roughly Tk. 5000 crore and total annual capacity of ceramic tableware
manufacturing companies is 222 mn pieces, tiles 687 lakh square meter and sanitary ware 1.14 lakh metric tons. (Source: Dhaka Tribune, 20
April, 2014)

Industry Structure: Gas-based, labor-intensive, skills-oriented business. The industry is quite concentrated industry forming an
oligopolistic structure as there are few big players in the market. As per BCWMA, some 16- 20 ceramic producing plants are now in
operation in Bangladesh that created 5 lakh direct and indirect jobs. (Source: Dhaka Tribune, 20 April, 2014)
Major Players: Shinepukur, Monno, Standard, Bengal Fine, Peoples, FARR, Artisan, Paragon and National Ceramic are major players in
the ceramic tableware market. Only Shinepukur, Monno and Standard are listed in the capital market. Shinepukur can be termed as
the market leader overall & in export (60% export market share) and exports its product to more than 28 countries of Asia, Africa,
Australia, Europe and Latin & Central America.
Raw Materials Import: Bangladesh has no major internal sources of raw materials like white clay & sand. Mainly imported from China,
Rumania, Indonesia,India and Germany. (Source: The Financial Express, 17 July,2014)
Uninterrupted Gas Supply: Essential demand for the industry. Once the gas supply is interrupted, production cant be resumed until
10 to 12 hours all the products which were under process will be ruined.
Exports: Bangladesh (Shinepukur, Monno, FARR, Artisan) currently exports ceramic products to about 50 countries including, the US,
the EU and Canada, tiles to India, Nepal and Bhutan, and sanitary wares to the Middle East, specially the UAE. (Source: The Financial Express,
17 July,2014)

Main destination of Ceramic product abroad is EU (75% of total ceramic export goes to EU). (Source: The Financial Express, 10 February, 2013)
Though US govt. suspended GSP facility in June last year, export from ceramic industry rose by 26% to US$ 47.5 million in FY'14,
compared with US$ 37.7 million a year ago. (Source: Export Promotion Bureau)
Global economic crisis has significant adverse affect on the industry as substantial portion of the total production is exported to
different countries. China, Thailand & Sri Lanka are the major competitors of Bangladesh in the international market.
Govt. Incentives: Ceramic is declared as a Thrust Sector in the Industrial Policy of Bangladesh. In 2014-15 Budget, govt. has reduced
customs duty of certain inputs of the ceramics industry to make the local industry competitive against imported products.
Business Overview:
Monno Ceramic Industries Limited started production in 1985 and received its first export order in the year 1986. Currently exports
to more than 25 countries including USA (17%), France (16%), UK (11%), Germany (10%), Italy (10%), Australia (7%) etc.
It was the largest and most successful ceramic company in Bangladesh during the 1990s and early 2000. It lost the overall top
position gradually to Shinepukur Ceramics Ltd. after the same started production in 1999.
Market leader in the domestic market: Monno BDT 415 mn, Shinepukur BDT 151 mn.
55-65% of its revenue comes from local sales (BDT 415 mn in 2013-14) while 35-45% comes from export sales (BDT 277 mn in 2013-14).
Production Capacity: 22 mn pcs. p.a.; 62% capacity utilization (13.57 mn pcs.)
The companys total capacity remained at the same level over the last few years and no expansion plan were expressed by the board
of directors.
Financial Statement Review (AR 2013-14):
Revaluation of Assets: BDT 1817 mn increased, done in 2011-2012 for Land (BDT 1154 mn), Building (BDT 203 mn), Plant &
Machinery (BDT 459 mn). After revaluation, asset was BDT 2970 mn which was BDT 1152 mn before revaluation.
Depreciation: 98% is charged in COGS & 2% in Operating Expenses. BDT 44.64 mn of which BDT 16.58 mn charged in Income
Statement and BDT 28.06 mn charged directly in Balance Sheet thus keeping the NPAT positive.
The company has leased plant & machinery with WDV of BDT 81.79 mn
Investments: BDT 113.20 mn (9.84%) in Monno Fabrics Ltd. (an associate company), currently in the OTC market.

Authorized Capital: BDT 500 mn, Paid Up Capital: BDT 239 mn.
Shareholding Structure: Sponsor/Director: 55.81% (Monno Welfare Foundation 42%, Mrs. Afroza Khan 12.03%), Public: 27.42%, Institute: 16.71%
(ICB Unit Fund 9.43%), Foreign & NRI: 0.36%.
Reserve & Surplus: The company has BDT 249 mn in reserve & surplus (excluding revaluation reserve of BDT 1790 mn)
Amalgamation: Monno Jutex Industries Ltd. and Monno Printing & Packaging Ltd. has been amalgamated previously by issuing BDT
23.08 mn and BDT 13.70 mn worth shares and increasing paid-up capital.

EBLSL Research: M Shahryar Faiz, Head of Research (shahryar@eblsecurities.com) and Shahriar Azad Shashi, Research Associate (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.

Analysis on Monno Ceramic Industries Limited (MCIL)

Loan: Long-term (from Sonali Bank) BDT 21.48 mn, Short-term BDT 376.79 mn (from Sonali Bank, Mercantile Bank, Uttara Finance),
Temporary Loan (from associate cos./ MD) BDT 53.02 mn
Financial Charges: Effective rate stands at around 13.67% on its short & long terms loans and leased assets (65.61/480.05)
Tax Rate: 35%. There is rebate allowable on profit attributable from export. Effective tax rate has been 27.99% and 22.56% in 201314 and 2012-13 respectively.
Directors remuneration, bonus & perquisites amounted to BDT 6.70 mn!
NPAT: BDT 2.54 million, EPS: BDT 0.11, NOCFPS: BDT 1.52. [Negative growth/ earnings in Q4] Current Market Price: BDT 28.80.
NAV per share (with revaluation): BDT 95.19 (without revaluation): BDT 20.39

Investment Concerns:
Complying the Bangladesh Accounting Standards (BAS) is required to get approval from BSEC for any kind of capital raising as BSEC
has been very strict on BAS compliance and rejected several proposals on this ground recently. The company got qualified opinion
by the Auditor A. Wahab & Co. Chartered Accountants on 2 counts for non-compliance of BAS:

The company did not charge depreciation on revalued assets in the Income Statement (rather charged the same in the Balance
Sheet directly) and thus overstated NPAT & EPS. In fact, there NPAT & EPS will be negative, if depreciation charged properly. (EPS
may stand at around BDT -1.17 instead of BDT 0.11)

The company did not consider Deferred Tax properly in its financial statements.
Many of the Directors are not holding 2% shares individually, though sponsors/directors are collectively holding more than 30%.
Uninterrupted gas and electricity (BDT 79.57 mn bill in 2013-14) is a necessity for the ceramic industry as 380 degree Celsius temperature
needs to be maintained round the clock and a single interruption hampers the whole batch & needs 12 hours to return to previous
optimal temperature.
Revenue growth has slowed down while operating expenses have gone up in the last 3 years which shows lack of strategy/
operating efficiency.
The times interest earned ratio is very low (1.06x) implying a threat of not meeting up all its financial charges in time (EBIT: BDT 69.32 mn,
Financial Charges: BDT 65.61 mn). This figure will be below 1.0x (inability to service debt) if full depreciation is duly accounted for in the Income Statement.

The company declared 5% cash dividend (except sponsors/ directors: 55.81%). This will require BDT 5.29 mn against NPAT of BDT 2.54 mn,
208% payout. That is, the company is paying dividend from its reserves.
The company is small compared to its peer Shinepukur in terms of paid-up capital (SPCERAMICS: BDT 1470 mn, MONNOCERA: BDT
239 mn; 1/6th) and Revenue (SPCERAMICS: BDT 1705 mn, MONNOCERA: BDT 692 mn; 1/3rd)
Management dynamism/ efficiency and professional management/ corporate governance needs to be expedited/ strengthened for
business growth as the company has been stagnant for past few years.
The Q1 EPS of 2014-15 is halved compared to that of Q1 of 2013-14 (From BDT 0.16 to BDT 0.08). Currently trading at 90x forward
P/E considering the annualized EPS of BDT 0.32.
Investment Positives:
The company is still the second largest company in the ceramic tableware industry with an annual production capacity of 22 million
pieces. Annual capacity of the whole industry is 222 mn pieces, the company actually has 9.91% of the total industrys total capacity.
As per the accounts of 2013-14 the companys actual capacity utilization stands at 6.17% of the total industry capacity.
The companys average capacity utilization based on last five years data is around 62%. Considering unutilized capacity of 38%, the
company has scope to increase profitability with uninterrupted gas supply and professional management. If the company can produce
to its 80% capacity its revenue may grow by almost 31%.
The company may get the benefits of supportive policy stances: thrust sector, customs duty reduction, rebate on export etc.
The stock is currently trading at approximately 31% discount from its 52 weeks high price.

2.00

1.90

15-year EPS Trend

1.79

1.49
1.50

1.20
1.02

1.00
0.54

0.59

0.71
0.49

0.41

0.50

0.35

0.24

0.32
0.11

0.08
2000
(0.50)

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

(0.23)

EBLSL Research: M Shahryar Faiz, Head of Research (shahryar@eblsecurities.com) and Shahriar Azad Shashi, Research Associate (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.

Particulars
Local Sales
Export Sales
Total Revenue
COGS
Gross Profit
Administrative Expenses
Selling Expenses
Operaing Expenses
Operaing Profit
WPPF
EBIT
Finance Cost
EBT
Income Tax
EAT

2010
394,401,723
419,384,787
813,786,510
(644,054,563)
169,731,947
(39,384,183)
(34,793,563)
(74,177,746)
95,554,201
(241,101)
95,313,100
(90,491,074)
4,822,026
(984,365)
3,837,661

2011
436,329,430
389,759,448
826,088,878
(648,470,059)
177,618,819
(43,099,661)
(31,043,197)
(74,142,858)
103,475,961
(1,698,447)
101,777,514
(67,808,581)
33,968,933
(3,771,737)
30,197,196

2012
452,284,142
326,339,707
778,623,849
(620,436,256)
158,187,593
(39,243,755)
(30,062,881)
(69,306,636)
88,880,957
(962,567)
87,918,390
(68,667,048)
19,251,342
(2,335,148)
16,916,194

2013
483,289,003
270,700,903
753,989,906
(610,073,859)
143,916,047
(37,589,806)
(27,691,492)
(65,281,298)
78,634,749
(538,689)
78,096,060
(67,322,281)
10,773,779
(2,430,932)
8,342,847

0.28

1.86

0.71

0.35

(1.17)

0.11

Gross Asset
Depreciation
Net Fixed Assets
Investment
Non-Current Assets

304,293,762
84,500,000
388,793,762

1,022,384,137
(705,536,814)
316,847,323
84,500,000
401,347,323

2,943,219,802
(783,871,192)
2,159,348,610
113,195,959
2,272,544,569

2,969,844,793
(799,430,185)
2,170,414,608
113,195,959
2,283,610,567

3,005,365,445
(844,075,120)
2,161,290,325
113,195,959
2,274,486,284

3,005,365,445
(844,075,120)
2,161,290,325
113,195,959
2,274,486,284

2,150,649,000
113,196,000
2,263,845,000

Raw & Other Auxiliary Materials

Finished Goods
Stores & Spares
WIP
Materials In Transit
Inventories
Trade & Other Receivables
Advances, Deposits
Cash and Cash Equivalents
Current Assets
Total Assets

71,442,633
39,360,093
76,346,850
135,985,024
5,437,100
328,571,700
75,131,831
95,505,959
33,886,290
533,095,780
921,889,542

82,548,872
59,639,249
57,074,878
138,636,641
4,580,730
342,480,370
78,558,614
152,005,356
37,373,032
610,417,372
1,011,764,695

73,026,585
54,120,255
37,165,322
112,589,462
4,947,619
281,849,243
173,020,680
292,933,050
19,833,371
767,636,344
3,040,180,913

83,260,390
50,673,273
34,106,295
117,609,279
12,014,717
297,663,954
172,899,480
265,596,578
23,792,567
759,952,579
3,043,563,146

99,841,605
59,279,870
41,774,016
129,547,781
16,721,432
347,164,704
146,096,915
271,192,189
29,485,260
793,939,068
3,068,425,352

99,841,605
59,279,870
41,774,016
129,547,781
16,721,432
347,164,704
146,096,915
271,192,189
29,485,260
793,939,068
3,068,425,352

87,310,000
52,790,000
39,412,000
113,489,000
18,950,000
311,951,000
124,031,000
343,187,000
35,942,000
815,111,000
3,078,956,000

Short Term Borrowings

Current Portion of LTD
Trade & Other Paybles
Accrued Expenses
Unclaimed Dividend
Provision for Income Tax
Liabilities for Other Finance
Current Liabilities
LTD
Deferred Liability
Non Current Liabilities
Total Liabilities
Paid UP Capital
Revenue Reserve
Total Equity
Total Liabilities and Equity
NAVPS

361,562,287
14,744,000
85,789,174
17,708,986
13,334,615
11,631,772
49,765,120
554,535,954
75,096,392
10,702,745
85,799,137
640,335,091
135,000,000
146,554,452
281,554,452
921,889,543
21

319,461,933
16,744,000
175,103,079
25,531,141
8,159,714
15,403,509
82,764,100
643,167,476
46,495,294
10,350,276
56,845,570
700,013,046
162,000,000
149,751,648
311,751,648
1,011,764,694
19.24

374,926,876
18,177,062
110,137,410
39,017,192
7,885,873
23,069,684
121,331,873
694,545,970
27,368,170
13,188,989
40,557,159
735,103,129
239,280,200
2,065,797,584
2,305,077,784
3,040,180,913
21.54

382,176,967
16,744,000
74,943,693
35,662,620
9,043,685
25,500,616
158,619,037
702,690,618
19,309,368
13,188,989
32,498,357
735,188,975
239,280,200
2,069,093,970
2,308,374,170
3,043,563,145
21.68

376,786,535
16,744,000
120,402,375
24,619,082
10,421,553
26,489,909
197,380,901
772,844,355
4,734,152
13,037,986
17,772,138
790,616,493
239,280,200
2,038,528,659
2,277,808,859
3,068,425,352
20.40

376,786,535
16,744,000
120,402,375
24,619,082
10,421,553
26,489,909
197,380,901
772,844,355
4,734,152
13,037,986
17,772,138
790,616,493
239,280,200
2,038,528,659
2,277,808,859
3,068,425,352
20.40

378,872,000
6,486,000
129,628,000
25,147,000
10,365,000
27,394,000
197,987,000
775,879,000
10,749,000
12,711,000
23,460,000
799,339,000
239,280,200
2,040,337,000
2,279,617,200
3,078,956,200
20.48

13,500,000

16,200,000

23,928,020

23,928,020

23,928,020

EPS

2014 (adjusted)
2014 (reported)
415,302,423
415,302,423
277,125,207
277,125,207
692,427,630
692,427,630
(573,721,753)
(546,208,372)
118,705,877
146,219,258
(42,461,414)
(42,461,414)
(34,438,540)
(34,438,540)
(77,449,993)
(76,899,954)
41,255,884
69,319,304
(176,684)
(176,684)
41,079,200
69,142,620
(65,608,938)
(65,608,938)
(24,529,738)
3,533,682
(3,462,138)
(989,293)
(27,991,876)
2,544,389

2015A

732,404,000
(598,080,000)
134,324,000
(42,408,000)
(31,420,000)
(73,828,000)
60,496,000
(544,000)
59,952,000
(49,104,000)
10,848,000
(3,036,355)
7,811,645
0.33
-

# of shares outstanding
Ratios:
GPM
OPM
NPM
ROE
ROA
ROIC
D/E
Interest Coverage Ratio

20.86%
11.74%
0.47%
1.36%
0.42%
1.60
1.05

21.50%
12.53%
3.66%
9.69%
2.98%
4.28%
1.23
1.50

20.32%
11.42%
2.17%
0.73%
0.56%
0.62%
0.18
1.28

19.09%
10.43%
1.11%
0.36%
0.27%
0.30%
0.18
1.16

17.14%
5.96%
-4.04%
-1.23%
-0.91%
-1.04%
0.17
0.63

23,928,020
21.12%
10.01%
0.37%
0.11%
0.08%
0.09%
0.17
1.05

23,928,020
18.34%
8.26%
0.99%
0.08%
0.06%
0.07%
0.17
1.22