Colony Textile Analysis

December 19, 2013

TEXTILE IN FOCUS

SUITE # 204-205, 2nd Floor, Business & Finance Center, Opp State Bank of Pakistan, I.I. Chundrigar Road Karachi, PABX: 9221-32461468-70 Fax: 9221-32473951 www.pearlsecurities.com

COLONY MILLS LIMITED ~ Small cap scrip with a big cap

Key Data KATS Code Market Price (PKR) Market Cap (PKR mn) 52 w eeks dailiy volumes (m) 52 w eeks High/Low (PKR) 3Month High/Low (PKR) 3 Month dailiy volumes (m) Free Float (%) Outstanding Shares (m) Weight in Index (%)

18-Dec-13 CML 5.19 1,267 1.11 5.82/3.72 5.82/3.72 1.39 30.0% 244 0.02

Synopsis: With the European Union’s decision to grant Pakistan Duty-Free trade in Europe, we have been highlighting certain textile companies that are now in a position to expand operational performance and in turn provide greater profitability. In this report we will like to focus on Colony Textile Mills (CML), with primary expertise in manufacturing quality yarn products in a variety of ranges. Favorable trade with EU, possibility of growth: GSP+ status of trade with EU nations is expected to enhance industry exports by USD 1.5-2bn annually. This significant enhancement will allow for direct growth prospects for relatively all firms in the sector. CML having 0.4% of total textile exports market share, is expected to benefit from the recent grant by being able to expand revenue by USD 810mn annually. With CML’s focus in Yarn products, the company holds 2.3% market share of all Yarn exports. As status approval is implemented since the start of Jan’14, we anticipate final FY14 results to see Top-Line to be supplemented by an additional PKR 420-525mn in sales revenue. Improved yarn exports in FY13:

210 200 190 180 170

1Q Cotton Yarn exports (USDmn)
202 202 197 187 188 188

According to trade statistics, Cotton Yarn exports in FY13 increased substantially by 24% while yarn of other materials increased by 11% YoY, primarily owning to favorable trade policy in China and better than expected sales...