BALMER LAWRIE AND COMPANY
Hello Investors,
Today Nifty closed at the all-time high levels of 6695 and
it is getting harder and harder to find value in the stock market. Value
investors like myself are holding their shares or may be selling them but very few
value investors are buying shares at the moment. I still try to find some
company which have visible value and which are undervalued in this fuming bull market.
I have analyzed lots of companies to find value and only
basket which is still relatively undervalued are public sector companies. Due
to slow and in some cases bad managements, PSU companies are still ignored by
so many investors and that is where i am seeking value.
Balmer Lawrie and company (BLC ) Founded by two
Scotsmen, George Stephen Balmer and Alexander Lawrie, in Kolkata, Balmer Lawrie
& Co. Ltd. started its corporate journey as a Partnership Firm on 1st
February 1867. Today Balmer
Lawrie is a Mini-Ratna I Public Sector Enterprise under the Ministry of
Petroleum and Natural Gas, Govt. of India. Today Balmer Lawrie has seven
business units - Industrial Packaging, Greases & Lubricants, Performance Chemicals, Tours & Travel, Logistics Infrastructure, Logistics Services and Refinery & Oilfield
Services with
offices spread across the country and abroad. I will divide my recommendation
report in 3 different parts
1) Segment wise business
analysis
2) Dividend policy and
analysis
3) Valuation analysis
Business Analysis
Industrial packaging:
BLC is INDIA'S
LARGEST MANUFACTURER OF MS DRUMS , According to the information available BCL
is continue to retail its lead position in termd of market share in this
segment . This drums are mainly use for the packaging in following areas :
·
Lubricating Oils &
Greases
·
Additives
·
Transformer Oil
·
Chemicals & Agro
Chemicals
·
Food & Fruit
Products
·
Bitumen
·
Bitumen emulsion.
This is a bread and butter segment for the company and it gives
real good moat to the company as BLC is market leader in the segment. 2012-13
witnessed a severe fall in demand from the fruit segment and that affected the
bottom line of the company in a minor way. Management is expecting better or
normal performance of this segment this year and next year. A High Throughput Plant is coming up at Taloja (Navi Mumbai).
It will give BLC an edge in this segment .New plant is expected to start in calendar year 2014. This segment was the 3rd
biggest net profit generating segment of the company Outlook for this segment of the business is
very steady and it can generate good cash flow for the in the future
Lubricant and gas
The lubricant market has traditionally been
dominated by PSU Oil Companies on account of their brand value and reach. With
the advent of Multinationals, the nature of the lubricant business has changed
radically from a seller’s to a buyer’s market with brands playing a very
important role.The market comprises two segments - Automotive grades, which
constitute about 60% of the market and Industrial & Marine Grades, which
represent the balance. The industry is very competitive with a large number of
players. MNCs and PSU Oil Companies together control about 74% of the market
share with the balance being shared by several organized and unorganized
players. The market share of the Company in Lubricants stands at 2.9%. In the
Greases segment, however, the Company is a major player having a market share
of around 24%, The Company is targeting 6 % market share in next few years. Company
is spending 1 % of its profit in lubricant and gas R & D every year. I am
not expecting a big jump in revenue in this segment in coming years due to
aggressive marketing and competition by MNC companies .This segment was 3rd
biggest profit generating business for the last financial year and it remains 3rd
biggest revenue generating business for the current 9 months of this 2014
financial year
Performance Chemical
This is comparatively smaller segment of the
company. They mainly produce leather industries related chemicals and now they
are in the process to diversify their business into construction chemicals.
This segment will keep on generating subdued growth in the future.
Logistic Infrastructure and services
In logistic services Sector Company offers
following services
·
Regular Consolidation
services from all major international airports to India
·
Specialization in
handling aerospace refinery & oilfield equipment for over 20 years
·
Chartering of all
types of Aircrafts with transit/over flying permit
·
Association with
experienced IATA agents in more than 40 Countries
·
Provision of door to
door services including Customs clearance activity at all airports/seaports
with dedicated & trained person
·
Specialization in
handling high value time sensitive cargo
·
Handling of sensitive
defence equipment, satellites for the defence forces etc.
In logistic infrastructure space, company is providing following
services
·
Transportation of
containers to/from Ports
·
Full Container Load
(FCL) delivery
·
DE stuffing, storage
and delivery
·
Handling Over
Dimensional and Out of Gauge containers
·
Handling and
monitoring Reefer Containers
·
Consolidation and
de-consolidation of Less Container Load (LCL)
·
Handling of cargo for
exports
·
Covered warehousing
facility for storage of EXIM cargo
·
Handling and storing
Break Bulk Cargo
·
General & Bonded
Warehousing (covered & open)
·
Tracking of Containers
using RFID and SMS facility
In logistic services segment, company is targeting to open some
new branches from their 22 branches at the moment. In logistic infrastructure segment,
company avail proposal to set up a Multi Modal Logistics Hub in Visakhapatnam
and another in the hinterland of Kolkata. Typically, a Multi-Modal Logistics
Hub is an integrated Logistics Park consisting of a Customs notified Inland Container
Depot, a facility for handling Domestic Cargo, a Railhead, a Truck terminal,
warehousing facilities, both general and cold storage and Container Repair
facilities. To further accelerate and add to the growth of the SBU, the Company
is in the process of setting up three Cold Chain Facilities in different parts
of the country. This segment is the highest profit generating business of the
company and it will remain the highest profit generating business in the future
and I am expecting at least 15 to 20 % jump in their profit in this segment due
to their new initiatives in this area,
Tours and travel:
As one of the largest travel & tour agents in the country
Balmer Lawrie Tours & Travel provides domestic and international travel and
ticketing services to its clients. It is one of the oldest IATA accredited
travel agencies of India.in February 2014, company took over business undertaking the premier holiday brand "Vacation
Exotica" from Vacation Exotica Destinations Private Ltd along with its
employees and business. The takeover is an endeavor by the Company to expand
its value proposition and strengthen its foothold in the Tours Domain. This
segment is the highest revenue (not profit) generating business of the company
and it will remain as the highest revenue generating business of the company. After
took over of Vacation exotica, it will improve companies margin in this segment
as well.
Other Business areas:
BLC is in the process of exiting low margin non-core business.
In this process, company exited its tea plantation business. Company also wants
to enter into the environmental engineering sector which has got big potential
of growth in the future.
DIVIDENT POLICY
From 20 rupees dividend in 2009, company has increased its
dividend to 30.8 rupees (adjusted 3:4 Bonus in 2013) so company is distributing
almost 50 % profit as dividend which is really exceptional in this type of
dismal economy. This gives company almost 5.5 % dividend yield and the current
market price. I am expecting company to give at least 20 rs dividend in 2014
which will give company dividend yield of 6.5 % dividend yield.
Valuation
This is my favorite part of the report.
“No company is a good company at any price. No company is a
bad company at any price.” Howard Marks
I am expecting company to generate EPS of 40 Rupees for the
full financial year 2014 which will give Company 7.6 PE. In this dismal economic
environment , most of the companies in the same businesses are doing really bad
( bilcare , PSU lubricant manufactures , aviation and cargo companies , drum manufactures
) but BLC has been showing almost same results compare to last some years .
Because of the diversified businesses, company is almost recession proof in nature.
They are market leaders in two of the business segments they are operating in,
which gives them additional value (Moat) to their business. Though there are
lots of competition in some of the businesses BLC operate in, they still can
maintain their moat in the future. With the general election in May 2014, if
the out outcome of the election will be growth oriented Modi lead government then
it will give all PSU companies additional boost and I am expecting rerating of
all PSU companies including BLC. Grab this under values , well managed , diversified
, growth oriented , under researched , hidden gem at cheap valuation of 7.6
Expected PE ( Current PE is 6 ) and hold it for next at least 7 to 10 years
for expected compounded annual return of
20 to 22 % ( including reinvested dividends ) .
Bhavdip Sanghavi
Disclaimer: It’s safe to assume that I have vested interest
in the company so my views will be biased .Holding 375 shares @ 290 rupees.
