2021 seems to be a busy year for the stock market as IPOs are lined up to fill the appetite of Investors. This time it is Service Global Footwear Limited (SGFL) IPO, which is all set to raise at least PKR 1.55 Billion through Initial Public Offering of its shares.

The IPO is being held to fund its equity investment in Service Long March Tyres (Pvt.) Limited (SLM) for acquiring 18.91%
shareholding. To recall, Service Long March Tyres is a joint venture between Service Group and Chaoyang Long
March China to manufacture Steel Radial Truck and Bus (TBR) tyres of which 85% will be exported to USA and Europe.

What is the Need for an IPO?

In order to assess why IPO is being held, we need to understand the company structure. The Service Group (SRVI), Chaoyang Long March Tyre Co (LM) and Myco Corporation entered into a joint venture in Early 2020 to manufacture ‘All Steel Radial’ tyres (TBR) of trucks, buses and off road vehicles.

The project become more feasible when the United States of America and major European countries placed anti dumping duties on Chinese products. Hence, now the Chinese tyres will be manufactured in Pakistan which will be exported to these countries, instead of direct export from china.

The joint project will manufacture tyres of the right specification and quality standard. The total project cost is estimated at PKR 16.4 billion which will be financed by a Debt: Equity ratio of 50:50.

A bit about Chinese sponsors

Chaoyang Long March Tyre Co is a leading Chinese tyre manufacturer based in Chaoyang and established in 2003. The core expertise of Chaoyang Long March Tyre is the manufacturing of “All Steel Radial” (TBR Tyres) for light, medium & heavy trucks and buses. Chaoyang Long March Tyre current production capacity stands at 3.4million tyres per year and the company exports 60% of its total production to around 90 countries.

Funding Breakup of Service Long March Tyres

Total EquityPKR 8,215 million
Debt (10 Year)PKR 8,215 million
Total fundingPKR 16,430 million

Above is the breakup of the Service Long March Tyres company which will be half financed through equity and half through debt.

In the equity breakup, Service Industries will contribute PKR 2.637 billion (32%), Chaoyang Long March will contribute PKR 3.6 billion (44%) while Service Global footwear will contribute at least PKR 1.55 billion (19%), which will be funded through IPO.

About the Service Long March Tyres Project

The first phase of the Service Long March Tyres is currently in progress estimated to go live by August-2021 with an initial capacity of 600,000 tyres per year. The plant is being set up in Sindh Industrial Trading Estate – Nooriabad, Sindh. In the next phase, capacity will increase to 1.2 million tons per year by 2024 and to 2.4 million tons per year by 2027.

About Service Global Footwear Limited (SGFL)

Service Global footwear was demerged from Service Industries Limited (SRVI) in 2019 and was set up as an export-oriented wholly-owned subsidiary of SRVI.

The purpose of de-merger was to focus on specialization and avail tax and duty exemption of an export-based unit. The subsidiary is currently 100% owned by SRVI, However, with IPO 20% of the Shares will be offered to the general public.

SGFL’s main focus is on the manufacturing, sale, marketing, and export of footwear. The company has had a 40% market share of Footwear export of Pakistan over the last two years.

Service Global Footwear Limited Financials

The export market is the biggest market for SGFL as it has contributed 96% to the total sales revenue over the past 4 years. The company has shown a significant 3-year sales CAGR of 17%.

The largest export markets are Germany (43%), Italy (30%) and USA (9%). Moreover, the export Sales provide hedge against currency devaluation as raw material cost which are currency sensitive account for less than 50% of the total cost, compared to over 90% export to sales ratio. A major buyer of SGFL is Caprice in Germany which procured 1.2Mn pairs of shoes in 2020.

The company has operated at average 90% capacity utilization level while simultaneously working to increase its capacity. One exception was year 2020 where company witnessed 76% capacity utilization due to reduced demandafter COVID19 breakout.

However, SGFL is all set to capture the upbeat demand post-pandemic in 2021. The gross margins have remained steady at around 20% over the last four years rising from 17.7% in CY16. SGFL is expected to continue to post such impressive gross margins given its grip on export sales.

Management of the company expect 2021 Earnings Per Share at PKR 4.2/share

Service Global Footwear IPO Price, Target Price, Outlook

IPO minimum strike price is set at PKR 38/Share while maximum IPO strike price is at PKR53.2/Share.

Analysts are bullish over the long term prospects of the company and increased participation is expected from wide array of investors, both institutional and Individuals.

Various Brokerage Houses have a Target Price of up to PKR 53/Share keeping in view the potential of the company. While analysts have given subscription price of up to PKR 48/share. At PKR 48/Share, the PE ratio comes out at 11x which is justified due to potential growth in the company.

What are Service Global Footwear IPO Dates?

The Book Building (Pre-IPO) portion of Service Global Footwear IPO is scheduled for 7th and 8th of April, 2021 where 30.6 million shares are being offered. The timings are from 9:00 am to 5:30pm. The book runner of the Pre-IPO section is Arif Habib Ltd.

While Retail IPO portion is scheduled for 13th and 14th April where remaining 10.2 million shares will be offered.

Download IPO Registration form

Download IPO Bidding Form

Download IPO Instructions

Download Service Global Footwear IPO Prospectus

Bankers to IPO

  • Bank Alfalah Limited
  • Faysal Bank Limited
  • Habib Bank Limited
  • Habib Metropolitan Bank
  • Allied Bank Limited
  • Meezan Bank Limited
  • Soneri Bank Limited
  • United Bank Limited
  • Askari Bank Limited
  • MCB Bank Limited
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