In line with the ongoing regional expansion and capacity enhancement strategy, Textured Jersey Lanka PLC (TJL) has announced the 100% acquisition of Ocean Mauritius Limited (parent company of Ocean India) for a consideration of USD 15.0mn (c. LKR 2.0bn). 50% of the consideration price shall be paid in cash whereas the balance USD 7.5mn shall be settled in issuing shares of TJL to the selling shareholders. Pursuant to the above, the Board of Directors of TJL has decided to issue 35,197,368 ordinary voting shares of TJL by way of a share swap.
Ordinary voting shares will be issued at LKR 28.5 and an exchange rate of USD/LKR 133.75 shall be considered for the above transaction. Subsequent to the share issue number of shares held by Brandix Group will be 223,466,079 increasing the stake to 32.11%.
As a result of the above transaction Brandix Lanka shareholding in TJL will increase beyond the 30% mark (currently 29.81%) resulting in the trigger of a mandatory offer at LKR 28.5. Pacific Textured Jersey Holdings has expressed interest in selling down 10% of its stake. However, Brandix Lanka and Pacific Textured Jersey Holdings has agreed to act in concert within the meaning of the Mergers and Acquisition Code to maintain a collective shareholding in TJL of not less than 51% for a period of 5 years from 1st April 2015.
Following the acquisition of Quenby Lanka in May 2015 and the recent acquisition of Ocean India will see an increase in the capacity of TJL enabling the company to cater the growing customer demand and adding value to the shareholders in the long run. Currently TJL’s bottom line stands at LKR 1.3bn is expected to improve with the additional volumes deriving from the acquisition of Ocean India and the value additions stemming from the acquisition of Quenby.
Being on a conservative note we assume the impact of the acquisition of Quenby Lanka and Ocean India will be effected in the 2HFY16. With multi fuel boiler reaching its envisaged capacity levels in FY16 coupled with the synergies deriving from the expansion strategies effected we expect increased revenue, improved margins and the bottom line is expected to reach c. LKR 1.9bn in FY16E recording a 40% growth (LKR 1.3bn in FY15).
We expect a fair value for TJL to be LKR 34.0 (average of discounted cash flow based value of LKR 37.5 and PER based price of LKR 29.7) resulting a capital gain of 24% with a dividend yield of 5%