By: Elixir Securities Private Limited
Our talks with Tariq Glass Industries Limited management suggest that the tableware furnace, which was initially expected to be re-commissioned in Feb-15, shall remain closed for another two months. To recall, TGL had shut down one its two tableware furnaces in Aug-14 for major rebuild.
The company now intends to expand production capacity of the furnace from 110tpd to 145tpd by installing additional refractory, hence causing the delay in commissioning. The said expansion would increase tableware production capacity by 16% and overall production capacity by 5%. Capital expenditure for the said expansion shall amount to ~PKR100mn.
The delay in furnace commissioning is expected to have a negative EPS impact of PKR3.00 in FY15 (↓33%).
However, we had remained conservative in our earlier estimates for TGL and had incorporated for a gas price increase in Jan-15. We now delay our gas price hike assumption to Apr-15.
Owing to these factors, we have tweaked our assumptions for TGL and revise our FY15/16 EPS estimates by -30%/+1% to PKR6.44/14.25. Owing to the tableware expansion, we increase our Dec-15 PT for the stock to PKR115/sh.
TGL is currently trading at a FY15/16 PER of 8.9/4.0x. We maintain our Buy stance on the script. However, in our opinion, price performance of the stock may hold back over the short term as the sharp expected earnings ramp up will now be extended into FY16.