Balmer Lawrie & Company: Bargain Hunt begins!
21 Dec 2009
Balmer Lawrie & Company (BLC) is a diversified PSU having Mini Ratna status. Its business spans across
Industrial packaging – Manufacturing barrels and drums
Logistics Infrastructure – Container Freight stations and warehousing activities
Logistics Services – Air and related logistics activities
Travels and tours – Ticketing, tours and money changing activities
Greases and Lubricants
Tea blending and packaging
Leather Chemicals
Engineering and Technology services
Stock data (18 Dec 2009) BSE
Share Price (Rs.) 543
52 week high/low (Rs.) 600 / 204
Market Cap (Rs million) 8843
P/S (x) 0.54 P/E (x) 8.75
No. Of Shares (Million Nos.) 16.29
Average Daily Volume (6month) 13,471
The company is aiming to achieve Rs. 2000 crores revenues and Rs. 200 crores in PBT by the end of FY2010.
Amongst the segments, it can be seen that travel and tours contributes ~40% of the total revenues and Logistics Infra and services contribute ~24% of the total.
Considering profit margins, despite tours and travels contributing maximum to the revenues, bulk profits come from Logistics Infra and services (contributing 63% of PBT). This segment has the highest profitability (26% margins) and also the fastest growth whereas travel segment contribute only 14% of PBT and has very low margins of ~3.4%
Greases / lubes and Industrial Packaging segments are moderate growers with growth of ~7% and together contribute ~32% of the revenues.
Tea blending and engineering services are the least contributors to the revenues and profits. As tea blending division is a commodity product their returns are quite low and does not justify the capital allocation, especially for this segment. Even the revenues from this segment have declined by 15% in current financial year. The company may be planning to exit the tea business if these returns do not justify the investments
BLC has grown its sales by 13% CAGR since last 5 years and its net profits by 35% CAGR. The sales and net profits in FY09 were Rs.1636 crores and Rs.101 crores respectively. The company wants to push the sales to Rs.2000 crores by end of FY10 and is also making efforts to achieve PBT of 10% during that time frame.
Since last 5 years, Balmer Lawrie has been able to maintain ROE greater than 22% because of proper cost controls, effective working capital management and better utilization of resources. The company is also an effective cash generator and this can be seen from the fact the cash from operations is equivalent to net profits with minimal capex.
The company also has strong balance sheet with zero debt and has net worth of ~Rs. 390 crores in FY09. It also has substantial cash balance of ~Rs. 248 crores which it can use for expansions or it can payback its shareholders by increasing the dividend. BLC post an attractive dividend yield of ~3.5% and with impressive record increasing dividends.
BLC is setting up a lube and grease manufacturing plant in Indonesia through a 50:50 joint venture with a local company by investing ~US$5m (~Rs. 24 crores)
Key concerns:
BLC is diversified to various businesses and it seems that it requires focusing on its key growth drivers i.e. focusing especially on logistics infra / services, tours and travels, and industrial packaging.
The company also needs to reorganize its business units for better allocation of capital. For example: The returns generated by the tea business do not generate adequate returns on capital.
Valuation:
BLC seems fairly valued with P/E of ~9x, P/S of ~0.6x and P/B of 2.4 (the margin of safety is not there), but when the company is evaluated on segmental basis the stock is valued cheaply especially when the travel business is contributing ~40% (Rs.662 crores) of the revenues. The current IPO of Cox and Kings whose revenues were just ~Rs.155 crores is valued 17 times its sales and similar is the case of Thomas Cook also (5 times its sales). If those companies are getting valuations at this level then Balmer Lawrie should also fetch some decent valuations in the travel business. The price / sales ratio of the whole BLC is ~0.6 indicating that it is largely undervalued.
Other segments like Logistics infrastructure and services, Greases and lubes, and Industrial Packaging should be atleast valued at P/E 10-12 (Gateway Distriparks has P/E of 14, Castrol is available at P/E of 26). So by adding up the numbers, we get the fair value of ~Rs.1500 crore vs. mcap of Rs. ~900 crores for the whole company making a stock at really attractive “BUY”.
Source: Internet (Valuenotes by Rathin Shah)
21 Dec 2009
Balmer Lawrie & Company (BLC) is a diversified PSU having Mini Ratna status. Its business spans across
Industrial packaging – Manufacturing barrels and drums
Logistics Infrastructure – Container Freight stations and warehousing activities
Logistics Services – Air and related logistics activities
Travels and tours – Ticketing, tours and money changing activities
Greases and Lubricants
Tea blending and packaging
Leather Chemicals
Engineering and Technology services
Stock data (18 Dec 2009) BSE
Share Price (Rs.) 543
52 week high/low (Rs.) 600 / 204
Market Cap (Rs million) 8843
P/S (x) 0.54 P/E (x) 8.75
No. Of Shares (Million Nos.) 16.29
Average Daily Volume (6month) 13,471
The company is aiming to achieve Rs. 2000 crores revenues and Rs. 200 crores in PBT by the end of FY2010.
Amongst the segments, it can be seen that travel and tours contributes ~40% of the total revenues and Logistics Infra and services contribute ~24% of the total.
Considering profit margins, despite tours and travels contributing maximum to the revenues, bulk profits come from Logistics Infra and services (contributing 63% of PBT). This segment has the highest profitability (26% margins) and also the fastest growth whereas travel segment contribute only 14% of PBT and has very low margins of ~3.4%
Greases / lubes and Industrial Packaging segments are moderate growers with growth of ~7% and together contribute ~32% of the revenues.
Tea blending and engineering services are the least contributors to the revenues and profits. As tea blending division is a commodity product their returns are quite low and does not justify the capital allocation, especially for this segment. Even the revenues from this segment have declined by 15% in current financial year. The company may be planning to exit the tea business if these returns do not justify the investments
BLC has grown its sales by 13% CAGR since last 5 years and its net profits by 35% CAGR. The sales and net profits in FY09 were Rs.1636 crores and Rs.101 crores respectively. The company wants to push the sales to Rs.2000 crores by end of FY10 and is also making efforts to achieve PBT of 10% during that time frame.
Since last 5 years, Balmer Lawrie has been able to maintain ROE greater than 22% because of proper cost controls, effective working capital management and better utilization of resources. The company is also an effective cash generator and this can be seen from the fact the cash from operations is equivalent to net profits with minimal capex.
The company also has strong balance sheet with zero debt and has net worth of ~Rs. 390 crores in FY09. It also has substantial cash balance of ~Rs. 248 crores which it can use for expansions or it can payback its shareholders by increasing the dividend. BLC post an attractive dividend yield of ~3.5% and with impressive record increasing dividends.
BLC is setting up a lube and grease manufacturing plant in Indonesia through a 50:50 joint venture with a local company by investing ~US$5m (~Rs. 24 crores)
Key concerns:
BLC is diversified to various businesses and it seems that it requires focusing on its key growth drivers i.e. focusing especially on logistics infra / services, tours and travels, and industrial packaging.
The company also needs to reorganize its business units for better allocation of capital. For example: The returns generated by the tea business do not generate adequate returns on capital.
Valuation:
BLC seems fairly valued with P/E of ~9x, P/S of ~0.6x and P/B of 2.4 (the margin of safety is not there), but when the company is evaluated on segmental basis the stock is valued cheaply especially when the travel business is contributing ~40% (Rs.662 crores) of the revenues. The current IPO of Cox and Kings whose revenues were just ~Rs.155 crores is valued 17 times its sales and similar is the case of Thomas Cook also (5 times its sales). If those companies are getting valuations at this level then Balmer Lawrie should also fetch some decent valuations in the travel business. The price / sales ratio of the whole BLC is ~0.6 indicating that it is largely undervalued.
Other segments like Logistics infrastructure and services, Greases and lubes, and Industrial Packaging should be atleast valued at P/E 10-12 (Gateway Distriparks has P/E of 14, Castrol is available at P/E of 26). So by adding up the numbers, we get the fair value of ~Rs.1500 crore vs. mcap of Rs. ~900 crores for the whole company making a stock at really attractive “BUY”.
Source: Internet (Valuenotes by Rathin Shah)
