Initiating coverage with a ‘Buy’: We initiate coverage on Tariq Glass Ltd (TGL), with a Buy rating and Dec’23 target price of PKR 97.0/sh, offering a potential upside of 36%. With the rising demand for glass products in Pakistan due to changing consumer preferences and rapid urbanization, TGL has recently doubled its Float glass capacity from 550TPD to 1,050TPD, which in our view will support a 4-year (FY23-27E)bottom-line CAGR of 16%.

The company has improved its product mix over the years, with float glass now constituting 71% of total revenue (as at 2QFY23) cushioning its gross margins. Additionally, TGL has exhibited stable gross margins of ~20% over the past 10 years despite the dynamic business environment in the country. Furthermore, rising profitability and improved market penetration have resulted in an average historical 5-year ROCE of 25% against a WACC of 12% and we expect this trend to continue with the expected ROCE of 31% over the projected horizon.

TGL has underperformed the market by around 27% over the last 12 months pretty much in line with other cyclicals including cement and steel that have shed 21% and 31% respectively. We opine this underperformance to have been overplayed, keeping in mind the company’s growth potential and stable margins and believe current levels offer an ideal entry point.

Courtesy – BMA Capital Management Ltd.