Monbat

Monbat, the largest lead-acid battery producer in Bulgaria, booked the best year in history in FY2016, comment ELANA Trading analysts in their FY2016 research report on the company. Sales added 8% y/y to BGN 266.5m and net profit surged 20.3% y/y to BGN 26.5m. EBITDA expanded 18.3% y/y to BGN 44.3m. Excellent performance was due to rising volumes (13% y/y to 2.9 million batteries) in a supportive LME lead environment. The Company’s new inventory management system allowed it to profit from surge in lead prices.

Margins recovery visible

Margins recovered with EBITDA margin adding 160 bps y/y to 16.9% for FY2016 and growing further to 18.9% in Q1’17, according to preliminary data. Still, some margin erosion was present in the seasonally active periods for the Company aka Q3 and Q4 as lower priced materials got used out.

Octa Light – a drag on the bottom line

Ongoing negative development with Monbat’s investment in LED lighting producer Octa Light, however, limited net income margin’s expansion. Octa’s feasibility led to the first ever qualified auditor’s opinion on Monbat’s 2016 results. Thus, in April 2017, the Company initiated a restructuring program in Octa to improve commercialization and scaling. Management does not expect further write offs on the project but the restructuring to outline future options for Monbat in Octa.

Focus on new strategic projects

Monbat has laid out preliminary plans to grow organically over the next 5 years via new technology solutions. The Company published 5 year forecasts which entail 10% CAGR of revenues, 2x in profits, 25% EBITDA margin expansion and 50%+ net profit margin expansion by 2021.

In 2016, Monbat finalized its lead acid batteries capacity expansion both on the starter and stationary units. Going forward, Monbat envisions two strategic projects development over the next 5 years – a tin extraction project and alternative technology (potentially Li-Ion) batteries and energy management solution.

The tin project is expected to go live at end of 2017 or the start of 2018. The alternative batteries project’s market and feasibility study should be finalized in H1’17. Initial prototypes are scheduled for the start of 2018 while mass production expected as early as Q2 2019, according to management guidance.

2017 CAPEX of c. EUR 8m to be primarily focused on the tin project. The latter is expected to deliver most of the incremental EBITDA margin expansion in 2018 and 2019. Alternative batteries to deliver incremental EBITDA margin expansion post 2019. No immediate details on the overall investment budget for the two projects available.

Read in detail in ELANA Trading equity research report