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By Indika Sakalasooriya
“Equity is sometimes costlier than borrowings and it’s more troublesome”, these were the opening remarks of a brief interview Mirror Business had with the flamboyant Chairman and Managing Director of Softlogic Holdings, Ashok Pathirage, who holds a reputation for risk taking.
This was in fact a response to a question posed by the Mirror Business on the pricing of the Softlogic Initial Public Offering (IPO) which has already been announced.
Softlogic has announced that it is offering 139 million shares each at Rs.29, to raise Rs.4 billion, making it one of the biggest in the recent history of the Colombo bourse.
However, there has been some uproar among brokers and analysts about the IPO price at which the share is being offered, as the same share was offered at Rs.7.20 in a private placement deal one and a half years back.
“The price difference is solely done on valuations. During the time we went for a private placement, the forecasted profit was around Rs.150-200 million. But for the year ended March 2010/11 we have made Rs.855 million after tax profit” Pathirage said.
“The IPO price is based on the expected net profit for FY 2011/12, which we anticipate to be Rs.1.8 billion. Our valuations are based on 12 times of P/E of the conglomerate sector. We are in fact giving our share at a 40 percent discount to the current P/E levels of conglomerates” Pathirage added.
According to a five-year forecast of the company, the post tax profit is expected to go up to Rs.1.8 billion in 2012 and to Rs.2.7 billion in 2013. The expected profit in 2014 is Rs.3.1 billion.
“In that sense our share is undervalued. If we wanted, we would have raised Rs.4 billion by way of private placements, and nobody would have raised these questions” he remarked.
According to un-audited financial statements of the Softlogic Holdings, for the year ended March 31, 2011, the group has recorded revenue of Rs. 10.5 billion compared to a revenue of Rs.4.8 billion in the previous year.
As per the balance sheet (un-audited), the company’s current portion of interest bearing borrowings is Rs. 8.3 billion and it also has Rs.2.7 billion worth of short term borrowings. Total assets of the company stand at Rs.27 billion.
According Pathirage, majority of IPO proceedings will be utilized for retiring short term debts.
“About Rs.3 billion IPO money will be used for short term debt settlement and the rest on some of the long term commitments. He also said that retiring of debt will strengthen the balance sheet of the company and it will make easier for the firm to obtain finances for future expansions.”
When asked why the biggest IPO in the recent times is going for a listing in the Diri Savi Board of the Colombo bourse, Pathirage said that the company made about Rs.46 million loss in 2007/2008.
“This has made us to list our share at first in the Diri Savi. But soon after the listing of shares we will move into the main board” Pathirage stressed.
Softlogic Holdings currently operates in six sectors; ICT, automobiles, retail, healthcare, leisure and finance.
When asked about the core business or the cash cows of the group, Pathirage said ICT, healthcare and retail are those which bring the bulk of the revenue.
“Many think that healthcare is a long term investment. But I have a different view. Our hospitals are well established and it is only The Central which has to come out of woods. Last year, The Central made a Rs.200 million loss but this year we are hoping it will make about Rs.200 million in profits, as the hospital is breaking even and making money” Pathirage pointed out.
He also said that Softlogic Holdings expects to increase its thrust on the retail sector, as the firm is planning to add up another 150 showrooms islandwide.
Softlogic Holdings has been collecting the local agencies of number of international brands from mobile phones to clothing. The company boasts of brands like Nokia, Dell as well as Nike, Levis and Mango.
Disclosing his plans for the company’s leisure sector, Pathiage said he is looking at owning 1000 rooms within the next five years.
Softlogic has entered into a management agreement with Switzerland-based Movenpick Hotels and Resorts. It also recently bought over the former Ceylinco group owned, Hotel Ceysands for Rs.925 million.
When asked whether would continue on the risk taking business strategy even after the IPO, Pathirage said “I am going to be aggressive and dynamic as I’ve been in the past five years. If you look at my track record you’d see that I have not grown organically. This is how I am planning to create shareholder value”.
http://print.dailymirror.lk/business/127-local/45470.html
“Equity is sometimes costlier than borrowings and it’s more troublesome”, these were the opening remarks of a brief interview Mirror Business had with the flamboyant Chairman and Managing Director of Softlogic Holdings, Ashok Pathirage, who holds a reputation for risk taking.
This was in fact a response to a question posed by the Mirror Business on the pricing of the Softlogic Initial Public Offering (IPO) which has already been announced.
Softlogic has announced that it is offering 139 million shares each at Rs.29, to raise Rs.4 billion, making it one of the biggest in the recent history of the Colombo bourse.
However, there has been some uproar among brokers and analysts about the IPO price at which the share is being offered, as the same share was offered at Rs.7.20 in a private placement deal one and a half years back.
“The price difference is solely done on valuations. During the time we went for a private placement, the forecasted profit was around Rs.150-200 million. But for the year ended March 2010/11 we have made Rs.855 million after tax profit” Pathirage said.
“The IPO price is based on the expected net profit for FY 2011/12, which we anticipate to be Rs.1.8 billion. Our valuations are based on 12 times of P/E of the conglomerate sector. We are in fact giving our share at a 40 percent discount to the current P/E levels of conglomerates” Pathirage added.
According to a five-year forecast of the company, the post tax profit is expected to go up to Rs.1.8 billion in 2012 and to Rs.2.7 billion in 2013. The expected profit in 2014 is Rs.3.1 billion.
“In that sense our share is undervalued. If we wanted, we would have raised Rs.4 billion by way of private placements, and nobody would have raised these questions” he remarked.
According to un-audited financial statements of the Softlogic Holdings, for the year ended March 31, 2011, the group has recorded revenue of Rs. 10.5 billion compared to a revenue of Rs.4.8 billion in the previous year.
As per the balance sheet (un-audited), the company’s current portion of interest bearing borrowings is Rs. 8.3 billion and it also has Rs.2.7 billion worth of short term borrowings. Total assets of the company stand at Rs.27 billion.
According Pathirage, majority of IPO proceedings will be utilized for retiring short term debts.
“About Rs.3 billion IPO money will be used for short term debt settlement and the rest on some of the long term commitments. He also said that retiring of debt will strengthen the balance sheet of the company and it will make easier for the firm to obtain finances for future expansions.”
When asked why the biggest IPO in the recent times is going for a listing in the Diri Savi Board of the Colombo bourse, Pathirage said that the company made about Rs.46 million loss in 2007/2008.
“This has made us to list our share at first in the Diri Savi. But soon after the listing of shares we will move into the main board” Pathirage stressed.
Softlogic Holdings currently operates in six sectors; ICT, automobiles, retail, healthcare, leisure and finance.
When asked about the core business or the cash cows of the group, Pathirage said ICT, healthcare and retail are those which bring the bulk of the revenue.
“Many think that healthcare is a long term investment. But I have a different view. Our hospitals are well established and it is only The Central which has to come out of woods. Last year, The Central made a Rs.200 million loss but this year we are hoping it will make about Rs.200 million in profits, as the hospital is breaking even and making money” Pathirage pointed out.
He also said that Softlogic Holdings expects to increase its thrust on the retail sector, as the firm is planning to add up another 150 showrooms islandwide.
Softlogic Holdings has been collecting the local agencies of number of international brands from mobile phones to clothing. The company boasts of brands like Nokia, Dell as well as Nike, Levis and Mango.
Disclosing his plans for the company’s leisure sector, Pathiage said he is looking at owning 1000 rooms within the next five years.
Softlogic has entered into a management agreement with Switzerland-based Movenpick Hotels and Resorts. It also recently bought over the former Ceylinco group owned, Hotel Ceysands for Rs.925 million.
When asked whether would continue on the risk taking business strategy even after the IPO, Pathirage said “I am going to be aggressive and dynamic as I’ve been in the past five years. If you look at my track record you’d see that I have not grown organically. This is how I am planning to create shareholder value”.
http://print.dailymirror.lk/business/127-local/45470.html
