Walton Hi-Tech Industries Ltd.

Company Background Company

Summary
Walton Hi-Tech Industries Ltd. (WHIL) is the largest manufacturer of refrigerator, freezer, air
conditioner, television, and other electronic home appliances in Bangladesh. WHIL has two
different home grown brands named “Walton” and “Marcel”. WHIL is the sole supplier of these Post IPO No. of Shares (Mn) N/A
two brands. Walton is the most renowned consumer electronic brand in Bangladesh and it is the Post-IPO Paid-up Capital (Mn BDT) N/A
largest and second largest market shareholder in refrigerator and television segment respectively.
Pre-IPO Paid-up Capital (Mn BDT) 3,000
Compared to Walton, Marcel is yet to grow as a brand.
New Shares Issued (Mn) N/A
WHIL was incorporated in April 2006 as a private limited company, and started its commercial IPO Proceeds (Mn BDT) 1,000
operation in 2008. It was converted into a public limited company in 2018. WHIL has neither any
holding company nor any subsidiary. Face Value 10
Market Lot 100
Walton Hi-Tech’s FY19 product wise revenue contribution is given below:
Free Float N/A
Product Name Revenue Contribution Accounting Year End June
Refrigerator 88.0% Auditor Mahfel Huq & Co.
Air Conditioner 4.5% Issue Manager AAA Finance & Investment Ltd.
Others
Television 0.3%
6.1% Mn BDT 2015A 2016A 2017A 2018A 2019A
WHIL also manufactures compressor for air conditioner and refrigerator. But the revenue Revenue, Net
Home Appliance 1.1%
contribution from compressor sales is not reported separately since ~99% of the compressor is Income Statement 20,996 26,566 31,931 27,330 51,773
internally used as a raw material of refrigerator and air conditioner for Walton and Marcel. With Cost of Goods Sold (14,091) (17,376) (20,585) (19,323) (30,806)
the inauguration of WHIL’s compressor plant, Bangladesh has emerged as the 15th compressor Gross Profit 6,905 9,190 11,346 8,007 20,968
manufacturing country in the world while 2nd in SAARC. Operating Expenses (991) (1,539) (1,796) (2,115) (4,068)
WHIL’s production capacity and utilization in FY 2019 are given below: Operating Profit 5,913 7,651 9,551 5,892 16,900
Finance Expenses (502) (878) (1,462) (1,929) (1,494)
Product Name Installed Capacity (Unit) Actual Production (Unit) Capacity Utilization (%)
105.8% Non-Operating Income 183 139 149 40 98
Refrigerator 1,750,000 1,851,058
x Air Conditioner 50,000 50,903 101.8%
Profit Before WPPF 5,594 6,912 8,238 4,003 15,504
Television 300,000 273,277 91.0% Contribution to WPPF (266) (329) (392) (191) (738)
Compressor 1,000,000 900,000 90.0% Profit Before Tax 5,328 6,583 7,845 3,812 14,766
IPO Details Income Tax Expense (302) (368) (500) (289) (1,005)
Walton Hi-Tech Industries Ltd. will raise BDT 1,000 Mn as initial public offering (IPO) through Profit after tax 5,026 6,214 7,345 3,523 13,761
book building method. The fund will be used for its existing Balancing, Modernization, Restated EPS - Pre IPO 16.8 20.7 24.5 11.7 45.9

Rehabilitation, and Expansion (BMRE) projects along with adaptation of new technology, loan
repayment, and IPO expenses. A portion of the BMRE funds will be utilized to make payment of Balance Sheet
import documents against machineries and equipment for the BMRE of existing projects of WHIL. Mn BDT 2015A 2016A 2017A 2018A 2019A
The loan repayment consists of partial repayment of BDT 60 million of BRAC Bank Ltd., BDT 60 Non-Current Assets 8,643 14,212 23,274 58,696 60,230
million of The City Bank Ltd., BDT 60 million of Prime Bank Ltd., BDT 70 million of Eastern Bank Property, Plant & Equipment 7,318 9,464 18,623 54,861 57,576
Ltd., and BDT 80 million of Dutch Bangla Bank Ltd. Intangible Assets 25 24 44 40 29
The breakdown of the IPO proceeds is shown below: Investments 100 100 280 794 494
Use of IPO Proceeds Mn BDT % of Proceed Other Non-Current Assets 1,200 4,618 4,326 3,000 2,131
Loan Repayment 330 33.0% Current Assets 11,659 19,062 29,637 23,666 43,198
BMRE of Existing Projects 625 62.5% Inventories 4,411 11,004 16,075 12,305 13,530
Sub Total 955 95.5%
Trade and Other Receivables 2,796 4,359 8,914 8,377 24,480
IPO Expenses 45 4.5%
Total 1,000 100% Advance, Deposit & Prepay 2,756 2,093 1,612 941 3,575
Key Points Short Term Investment 952 827 1,318 902 583
Cash and Cash Equivalents 742 779 1,718 1,142 1,030
 Current size of Bangladesh’s white goods industry is USD 1.7 billion and refrigerator Total Assets 20,302 33,273 52,911 82,362 103,428
segment contributes about 53% of the industry. WHIL’s home-grown brand, Walton is the
Shareholders’ Equity 10,715 16,929 24,274 59,217 72,978
market leader in this segment with 54% of the market share. Television segment forms 18%
of the industry and Walton is the second largest market player in this segment after Sony Share Capital 100 100 100 3,000 3,000
with 27% of the market share. In the air conditioner segment, Walton is yet to establish itself Retained earnings 10,615 16,829 24,174 24,794 38,588
as a trusted brand though the company reported 140% air conditioners sales growth in
FY19. Refrigerator and air conditioner segment grew by CARG 17.4% and CARG 25.0% Revaluation Reserves - - - 31,420 31,391
respectively in the last 5 years. Television sales also rose by 20% in FY19. Along with that, Non-Current Liabilities 749 2,396 4,866 10,024 7,079
WHIL exports to more than 20 countries in the African and South Asian region. USA and Long Term Loan 697 2,346 4,757 9,372 6,195
India are recent additions in this list.
 Compressor demand in Bangladesh reached 3 million in 2019 but all the white goods UNDP Fund 52 50 45 20 95
manufacturers except WHIL are fully dependent on imported compressor for their products. Deferred Tax Liabilities - - 64 633 789
So, WHIL has the opportunity to create a new local compressor market in Bangladesh. Current Liabilities 8,838 13,948 23,771 13,121 23,371
Export market also seems promising for WHIL.
 Bangladesh government is offering incentives to encourage domestic production. WHIL, at Trade and Other Payables 262 529 481 361 877
present, is enjoying VAT exemption on air conditioner, refrigerator and compressor Short Term Loan 7,447 11,085 20,015 8,221 16,371
production. On other products such as television , washing machine and other home Long Term Loan - Current - 708 1,323 3,044 2,837
appliances, 15% VAT is applicable. This exemption is valid till June 2021. Other competitors
like Samsung, LG, Gree, General and others who are mainly import reliant are missing out Provisions and Accruals 1,128 1,622 1,946 1,495 3,287
on this exemption. If government discontinues the exemption after June 2021, WHIL’s gross Total Equity and Liabilities 20,302 33,273 52,911 82,362 103,428
margin will be impacted.
 In 2009, National Board of Revenue (NBR) granted tax waiver for local white goods
Cash Flow Statement
manufacturers. Since then, manufacturers of freezers and refrigerators are enjoying only 5% Mn BDT 2015A 2016A 2017A 2018A 2019A
income tax rate whereas it is 25% and 35% for listed companies and non-listed companies
Operating Activities 2,408 608 119 9,758 408
respectively. In 2010, air conditioner was also included into this tax exemption list. This
waiver is applicable for the next 12 years since the commencement of operation. Investing Activities (5,706) (6,587) (10,762) (4,871) (3,990)
Resultantly, WHIL’s effective tax rate was 6.8% in FY19. However, the 12-year tenure for Financing Activities 2,337 6,016 11,582 (5,628) 3,471
WHIL will finish in April 2020 and the new tax rate will be 10% for WHIL on the
Net Cash Flow (962) 37 939 (740) (112)
Ratios
aforementioned products. Hence, effective tax rate will increase and WHIL’s bottom-line will
be impacted. 2015A 2016A 2017A 2018A 2019A
 Due to its extensive market coverage with 13,000 point-of-sales alongside competitive
Gross Profit Margin 32.9% 34.6% 35.5% 29.3% 40.5%
pricing, WHIL enjoys a lot of benefits over its competitors. WHIL’s 25% revenue comes from
Walton Plaza, which is the main distributor-partner. Op. Profit margin 28.2% 28.8% 29.9% 21.6% 32.6%
 Walton Hi-Tech Industries’ revenue dropped significantly in FY18 due to fall in demand from Net Profit Margin 23.9% 23.4% 23.0% 12.9% 26.6%
its main target market, resulting from low flow of remittance and a devastating flood. Robust
Revenue Growth 28.5% 26.5% 20.2% -14.4% 89.4%
growth in FY19 is driven by the addition of television and home appliances in WHIL.
Previously these products were the parts of another company of the same business group. NPAT growth 59.8% 23.7% 18.2% -52.0% 290.6%
However, we see significant volatility in WHIL’s operating cash flow compared to its sales Receivable Turnover 11.9x 7.4x 4.8x 3.2x 3.2x
revenue which is a concerning factor.
Inventory Turnover 3.2x 2.3x 1.5x 1.4x 2.4x
Debt to Asset 0.4x 0.4x 0.5x 0.3x 0.2x
Comparable & Trading Multiples
Net Debt to Equity 0.7x 0.8x 1.0x 0.3x 0.3x
Trailing P/E multiple of another listed comparable stock in the Engineering sector is given: Return on Asset 31.3% 23.2% 17.0% 5.2% 14.8%
DSE Ticker Market Cap (BDT Mn)* LTM Earnings (BDT Mn)* LTM P/E Return on Equity 61.3% 45.0% 35.7% 8.4% 20.8%
SINGERBD 17,039 1,033 16.3x Effective Tax Rate 5.7% 5.6% 6.4% 7.6% 6.8%
*Source: DSE, BEPL Research