Kassim family-owned Expack plans to raise Rs.700mn via IPO offering 15% stake

• To offer 83.3mn shares priced at Rs.8.40
• Listing application already submitted to CSE
• IPO proceeds to be used for capacity expansions 

Sri Lanka’s largest corrugated cartons manufacturer Expack Corrugated Cartons (Pvt) Ltd. plans to raise up to Rs.700 million offering 15 percent stake in the company through an initial public offering (IPO) on the Colombo Stock Exchange (CSE) to partly fund its production expansion plans.

The proposed IPO offers 83.3 million ordinary voting shares at Rs.8.40 per share with an aim to raise Rs.700 million. For prospective investors, it presents an immediate upside of around 32 percent on the value per share of Rs.11 derived from the discounted cash flow (DCF) valuation.  Capital Alliance Limited (CAL) and Asia Securities function as joint managers and financial managers to the issue.

The Kassim family-owned company has already submitted a listing application to the CSE and the proposed IPO is likely to be scheduled on the third week of October, according to sources.

While transforming itself from a traditional manufacturer to a full-service corrugated cartons supplier, Expack has been able to cement the market leadership in the country’s diverse corrugated cartons market with seven large and 22 small players over the last 5 years, accounting for 18.7 percent of the market share.

According to latest financial data, the company’s revenue rose to Rs.4.8 billion in the 2021 financial year (FY), from Rs.4.6 billion a year ago.

The company also returned to black in the FYposting Rs.205 million in earnings recovering from a loss in the previous FY, due to pandemic -related challenges and a fire accident that occurred at a plant of its subsidiary firm.
The export revenue accounted for 52 percent of the company’s revenue in FY21. In particular, the Expackis one of the largest corrugated carton players in Maldives, followed by a notable presence in Qatar, India, Australia, USA, Madagascar, Seychelles and Reunion Island.

As the maximum capacity of the current facility is projected to reach over the coming years, Expack plans to construct a new plant with an estimated investment of Rs.2.98 billion, which would enhance its monthly capacity to 4000MT from the current 2750 MT. 

Accordingly, the company expects to utilise the IPO proceedings of Rs.700 million for this venture, while the remainder will be funded through internally generated funds and debt.

Expack plans to phase out production in the current facility and to fully utilise the new plant in FY25, and consequently, the company’s market share is expected to rise beyond 25 percent. Accordingly, the company projects a revenue of Rs. 7.6 billion in FY2024 with export revenue accounting to around 59 percent of it. 
The company is also expected to maintain an average pay-out ratio of around 50 percent with a dividend yield (post-IPO) of around 8.8 percent on average over the next 5- years.

With a client base in excess of 600, Expack provides services to different sectors including leading corporates and popular brands across a wide range of sectors including FMCG, consumer durables, apparel, tea and fisheries  driven by its innovative-focused manufacturing approach.  

The company also offers custom carton designing facilities for special usage cartons. For 2020 General Election, the firm was chosen to design technically complex ballot boxes and to supply 12,350 ballot boxes to the Election Commission.

Further, its fully-owned subsidiary, Neptune Papers offers recycling solutions with cyclical waste management process which supplies paper waste collected through its recycling services to recycled paper manufacturers, using state-of-the-art machinery. It is currently the largest collector and aggregator in the country’s waste paper recycling market with close to 20 percent market share while contributing over 30 percent to the Group’s revenue. 
As the largest and a fast-growing player in the recycling space, Neptune is expected to significantly increase its contribution to Ex-pack’s growth trajectory. (NF)