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    Odel Re Re

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    Shashika Mihiran
    Odel PLC (ODEL) reported a 21% increase in earnings for the first half of fiscal year 2012, reaching Rs. 122.2 million, supported by a 13% rise in revenue to Rs. 1.733 billion from increased sales volumes and a 51% reduction in income tax expenses. While gross and operating margins remained stable or declined slightly, finance expenses rose 53% due to additional borrowing to fund store expansion. The company plans to open three new stores by the end of 2011 to reach a total of 19 outlets. Earnings are projected to increase 25% for fiscal year 2012, reaching Rs. 262 million, as ODEL is well positioned to benefit from strong projected growth in Sri Lanka's fashion retail market.

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    Odel Re Re

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    Shashika Mihiran
    124 views2 pages
    Odel PLC (ODEL) reported a 21% increase in earnings for the first half of fiscal year 2012, reaching Rs. 122.2 million, supported by a 13% rise in revenue to Rs. 1.733 billion from increased sales volumes and a 51% reduction in income tax expenses. While gross and operating margins remained stable or declined slightly, finance expenses rose 53% due to additional borrowing to fund store expansion. The company plans to open three new stores by the end of 2011 to reach a total of 19 outlets. Earnings are projected to increase 25% for fiscal year 2012, reaching Rs. 262 million, as ODEL is well positioned to benefit from strong projected growth in Sri Lanka's fashion retail market.

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    Odel PLC (ODEL) reported a 21% increase in earnings for the first half of fiscal year 2012, reaching Rs. 122.2 million, supported by a 13% rise in revenue to Rs. 1.733 billion from increased sales volumes and a 51% reduction in income tax expenses. While gross and operating margins remained stable or declined slightly, finance expenses rose 53% due to additional borrowing to fund store expansion. The company plans to open three new stores by the end of 2011 to reach a total of 19 outlets. Earnings are projected to increase 25% for fiscal year 2012, reaching Rs. 262 million, as ODEL is well positioned to benefit from strong projected growth in Sri Lanka's fashion retail market.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    124 views2 pages

    Odel Re Re

    Uploaded by

    Shashika Mihiran
    Odel PLC (ODEL) reported a 21% increase in earnings for the first half of fiscal year 2012, reaching Rs. 122.2 million, supported by a 13% rise in revenue to Rs. 1.733 billion from increased sales volumes and a 51% reduction in income tax expenses. While gross and operating margins remained stable or declined slightly, finance expenses rose 53% due to additional borrowing to fund store expansion. The company plans to open three new stores by the end of 2011 to reach a total of 19 outlets. Earnings are projected to increase 25% for fiscal year 2012, reaching Rs. 262 million, as ODEL is well positioned to benefit from strong projected growth in Sri Lanka's fashion retail market.

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    of 2

    Sri Lanka Equities

    John Keells Stock Brokers (Pvt) Ltd.


    A JKSB Research Publication

    QUARTERLY HIGHLIGHTS
    October 2011

    Lourdeena Kudaliyanage [email protected]

    Odel PLC (ODEL)


    Rs. 32.10
    ODEL 1H FY2012 NBVPS (Rs.) Issued Capital (Shares 'mn) Voting Market Capitalisation Rs. 'mn Forecast earnings to equity FY12E Rs. 'mn FY 12E EPS Rs. PER (x) 11.79 145 4,653 T his 6 mths Apr -Sep 11 262 Previous Apr - Sep 10 1.81 Change (%) 17.78

    ODEL 1H PROFIT
    Revenue (Rs. M) 1,733 1,528 13 Gross Operating Net Profit Profit Profit (Rs. M) (Rs. M) (Rs. M) 684 199 122 587 194 101 17 2 21

    21%

    EPS (Rs.)* 0.84 0.69 21

    * Based on current share count

    ODEL reported moderate earnings growth for 1HFY12, +21% YoY to Rs. 122.2m, supported by 1) steady top line growth (+13% YoY ) boosted by increased sales volumes across all brands; and 2) a significant reduction in income tax expenses (-51% YoY ), following a decrease in the corporate tax rate from 35% to 28% coupled with a reversal in deferred tax provision. Net margins remained flat at 7%. Group turnover reached Rs. 1.7bn in 1HFY12, +13% YoY, driven primarily by increased sales volumes as a result of stable growth in same store sales coupled with contribution from newly opened stores in Kandy and Wattala. Gross margins remained broadly stable during the quarter at 39% (vs. 38% in 1HFY11), while operating margins dipped slightly to 11% (vs. 13% in 1HFY11) due to an increase in both administrative and distribution expenses, +30% YoY and 19% YoY respectively. Management attributes the increase in operating expenses to 1) higher promotional and advertising costs related to new store openings; 2) investment in knowledge capital (as part of the companys strategy of benchmarking itself against international competition in terms of store layouts, service levels, ambience, etc); and 3) an increase in head count, in-line with the expansion in store count. Finance expenses rose sharply in 1HFY12, +53% YoY to Rs. 44.7m, as the company incurred additional bank borrowings in order to fund its store expansion. The company plans to further extend its retail reach over the medium term through a series of well timed store openings in urban and semi urban cities in Colombo and outstation cities. It intends to open three new stores during the year, taking its total store count to 19 outlets by end Dec 2011. Despite its relatively aggressive capital expenditure plans, ODEL maintains a healthy balance sheet with Rs. 15m in cash and bank balances as at 1HFY12. Its gearing ratio was 74% as at end September 2011. ODELs 1HFY12 inventory turnover reduced to 1.7x (lower than the FY11 value of 2.5x) as the company has begun to hold inventory for its two new Kandy stores, which are scheduled to be opened later this year. Its receivables collection period amounted to 21 days in 1HFY12, while its payment period was 56 days, taking its cash operating cycle to ~183 days. The company announced an interim dividend of Rs. 0.25 per share, payable on 11th
    85

    Indexed performance of ODELagainst ASPI for 1HFY12


    Rs.

    ASPI - Indexed

    ODEL - Indexed

    115

    105

    95

    November 2011.

    Earnings Outlook
    75

    We project Sri Lankas fashion retail market to record a strong growth trajectory over 2012-16E, driven by favourable operating conditions in the country. Domestic demand should see a sharp upturn, as rising disposable incomes and higher affluence levels

    This document is published by John Keells Stockbrokers (Pvt.) Limited for the exclusive use of their clients. All information has been compiled from available documentation and JKSBs own research material. Whilst all reasonable care has been taken to ensure the accuracy of the contents of this issue, neither JKSB nor its employees can accept responsibility for any decisions made by investors based on information contained herein.

    2 l John Keells Stock Brokers (Pvt) Limited l Odel PLC

    translate to increased footfall at stores and an incremental increase in average basket values for fashion retail operators. Tourism related sales proceeds should also remain strong over the medium term, with the government targeting 2.5m visitors by 2015E. ODEL has, in our view, successfully established a unique brand identity in Sri Lankas highly fragmented fashion retail industry, and hence does not have any close competitors in the overall market in terms of scale, ambience, and quality/range of clothing offered. As such, we believe it should be a prime beneficiary of the projected industry growth. Given the companys strong growth potential, we conservatively project FY12E full year earnings to reach Rs. 262m (+25% YoY), with a strong pickup in sales volumes during 3QFY12 which is typically the strongest quarter for the company. This translates to an FY12E EPS of Rs. 1.81. At a price of Rs. 32.10, ODEL is trading at a FY12E P/E multiple of 17.8x, at a 34% premium to the FY12E sector average of 13.3x. We believe a slight premium to the sector is warranted, given the companys superior competitive positioning in Sri Lankas fast growing fashion retail market.

    John Keells Stock Brokers (Pvt) Ltd.


    130 Glennie Street Colombo 2 Sri Lanka T. 9411 2421 101-9 F. 9411 2326 863, www.jksb.com
    Company No. PV 89

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