Promising future for Alumex

Tuesday, 4 March 2014 01:01 - - {{hitsCtrl.values.hits}}

Alumex, a subsidiary of Hayleys Group, with the plan of being alisted company announced recently a Rs. 836 million share offering including an Initial Public Offering (IPO) where the funds will be used to set up a powder coating plant, which will double its capacity to 3600MT per annum. Being the leader in the aluminium industry with over 50% market share, Alumex going public makes it the third company of its kind to be listed out of the four players in the industry. The Company came under Hayleys when it was acquired in late 2010. In an interview with the Daily FT, Alumex Managing Director Rohan Peris shared recent developments in the company, the reasons for the IPO, and why the public should invest in the company which will have a promising future. By Shabiya Ali Ahlam Q: Can you share few details about Alumex and its position in the industry? A: Alumex has been in establishment since 1988 and its core operation is manufacturing profiles for window systems. While Alumex is the main company, it has two 100% owned subsidiaries – Alco Industries, and Avro Enterprises. Alco Industries is a BOI company that makes extrusions whereas Avro Enterprises brings down accessories such as locks and other systems that goes into making window and door components. In 2010 the company was brought over by Hayleys and has 60% ownership. Subsequent to the IPO Hayleys will have a 51% ownership and will allow Alumex to remain as a subsidiary within the group. With regard to the position in the industry, Alumex has a strong presence in the local market since its establishment and enjoys a market share of 50%. In terms of quality I must say we have been recognised internationally by companies such as AluK of Italy as they have given Alumex the license to manufacture their products for their markets in Sri Lanka. Q: How has the growth been over the years, after the acquisition in 2010? A: The growth has been good. Sales have grown greatly and this year we have reached Rs. 2 billion already. We saw a growth of 11% in revenue and last year we had about a 31% growth in profits. This year too within the 10 months of our financial year Alumex has managed to exceed last year’s profit figures. Q: How has Alumex contributed to the industry? A: We concentrate on quality and every year we try to improve this element and aim at bringing it up to international standards. In the near future we are hoping to go for international accreditation for powder coating and anodising. For this there are two quality certificates offered by quality label organisation in Switzerland, QUALICOAT and QUALANOD. QUALICOAT and QUALANOD ensures that powder coating and anodised aluminium meet the necessary quality requirements making materials fit for construction and both the certifications are accredited to ISO 17025. To uplift our quality standards we will hoping to apply for these two certificates before the end of 2014. Once we are certified by these two quality label organisations we will be recognised internationally as being on par with other international manufacturers. Q: Will you be the first to apply for this accreditation in Sri Lanka?

A: We will be the first. Q: Why the delay in getting this accreditation. Alumex has been in the market for quite some time now? A: Alumex as a company has been concentrating in the local market and once Hayleys took over they were looking for further growth in the country. As you know the Sri Lankan market is limited in terms of quantity. For instance, we have the capacity to supply to the entire local market but due to competition we have about only over 50% of the market share. We are currently utilising only 40% of the capacity of our systems. One of the reasons we are going for the IPO is to bring funding for the powder coating plant. Once we enhance our powder coating capacity we will be able to double our production without any problems and further investment. So to double our production we need these accreditations. Our long term plan is to go overseas. We have already established a distribution channel in Maldives and are currently exporting to India in small quantities. But we are strongly looking and Bangladesh and Burma as our future markets. Once accredited by these organisations we will be able to bid for foreign projects. If anybody in Bangladesh or India receives a bid from Alumex, having the required quality standards will allow us to supply to them. However for Sri Lanka also it will be advantageous since there are many large projects coming up. As these projects are handled by foreign contractors, they will be pleased to note that in Sri Lanka there is a company to supply to them without having to import. With the two accreditations we are benchmarking ourselves with the best. Q: What are the recent developments that have taken place in the company? A: A key development is that we are also coming up with our own designs for windows and doors. However, the design on windows and doors will have to be tested for wind and water resistance by international testing bodies. Once we have such certifications we can markets these designs under our own brand name. This will be a huge step forward since we will be the only ones to have them. Q: Recently the company announced a Rs. 836 million IPO. Could you shed some light on this move and its importance for the company? A: The IPO is important for a number of reasons. It will allow us to be more transparent for the public, for them to know more about our activities. Once they know us better the public will also recognise Alumex as a responsible company. Q: What are the plans for the fund raised? A: The entire IPO is Rs. 836 million and Rs. 250 million will come to the company as new shares and that has been earmarked for the powder coating plant. The other major reason for the IPO is that the Government has offered a 50% reduction in tax for three years if it is done before 31 March 2014. Q: What makes Alumex attractive to the public to invest? A: Our performance throughout the years has been very good. We are a company that does not have debts and our profits are currently at 30% increase.

There are also many construction activities taking place and all these projects will use aluminium. Due to this development there will be a significant demand for aluminium. We are quite excited about the future of the company since we see many opportunities coming up and we are certain we will continue to remain profitable. Q: The offer price is announced as Rs. 14 per share. On what basis was this arrived at? A: This price was arrived at by NDB Investment Bank as they are the financial advisors and managers to the offering. A discounted cash flow was used where a 27% discount was calculated and offer price was announced as Rs. 14 per share. Q: How has the performance of the construction industry been in the recent years? A: Constriction activity is on the rise and last year there has been a significant increase. In 2012 the increase was 21%. It will continue to grow rapidly as the Government plans on putting up a number of hotels to accommodate larger number of tourists. To construct those projects augurs well for our company because all the hotels will be using aluminium. It is expected the construction industry to grow at the rate of 15% in the next ten years and taper down to 10% after that. Q: What is the future outlook for the industry, and what role does Alumex hope to play in that regard? A: Our vision is to be the leading aluminium manufacturer in the region and to supply our own systems. We plan on expanding our extrusion plant and also hope to enhance the size of our extruders to bring in larger profiles to cater to taller buildings. Alumex has a very good future due to the construction industry boom we are seeing in Sri Lanka and we hope to capitalise on that. We hope to attract investors to have confidence in our IPO and buy our shares.