Balmer Lawrie

Profile
In the initial years there was hardly any business that Balmer Lawrie (BLCL) did not delve into.

The company boasts that it is a “multi-activity, multi-technology, multi-location conglomerate, with global footprints”. And why not, as even today it has a presence in as many as eight different segments: industrial packaging, greases & lubricants, logistics services, travel & tours, logistics infrastructure, leather chemicals, refinery & oilfield services and tea.

In the packaging area, the company is the largest manufacturer of industrial containers in India. Though the company is the leader in this segment, it is not a high-growth area. The standout segment for BLCL is logistics services & logistics infrastructure. In the last fiscal this segment contributed the most to the profit.

Fundamental Performance

Over the past 5 years it has been able to log a phenomenal profit growth rate of 40.47 per cent, while top-line has grown at a more sedate 12 per cent. It is clear, that the cost-cutting measures are bearing fruit. Currently, BLCL has close to Rs 150 crore of cash on its books i.e. Rs 94 per share.
Though the company is fundamentally quite strong, it does lack focus in any particular segment.

Stock Performance

Till 2004 BLCL was a typical PSU stock, it did practically nothing. But in the next 5 years, it has enthralled investors with close to 38.14 per cent annualised return. It is a regular dividend paying company, with a payout ratio of 30 per cent.

Even now the stock is trading at a dividend yield of 4 per cent while its median yield over the past 5 years is very close to 2 per cent. Considering the current stock price of Rs 497.75, the stock is trvroading at 7.62 times its trailing earnings, i.e at a discount of 24 per cent to its 5-year median price/earnings (PE) multiple.

Based on the current price and its fundamental attributes, the stock is a value buy.

History

BLCL was founded by two Scotsmen, George S. Balmer and Alexander Lawrie in 1867. In1972, BLCL became government-owned as a subsidiary of IBP, but in 2001, IBP transferred its holding of 61.8 per cent to Balmer Lawrie Investments.

Balmer Lawrie

A cash-rich business with strong growth record makes Balmer Lawrie an interesting long-term investment idea
Beta 0.89
Institutional holding 18.65%
Dividend Yield 4.5%
P/E 6.7
M-Cap Rs 728.5 cr

THE Rs 730-crore Balmer Lawrie (BLL), a staterun unit with mini-ratna status, is a mid-cap with long-term promise. Headquartered in Kolkata, BLL is a debt-free company with rising dividends every year. It has a healthy record of sales and profits growth, which makes it an ideal investment candidate for long-term investors.

Business:

BLL operates in eight distinct strategic business units including industrial packaging, greases & lubricants, logistics services, engineering & technology, logistics infrastructure, travels & tours, leather chemicals and tea.

The company is India’s largest producer of metal drums used in packaging chemicals and lubricants. Travel & tours services bring in the major share of revenues, while the logistics services account for the highest profits. The company has a wholly-owned subsidiary in the UK carrying out logistics business.

Balmer Lawrie Investments (BLIL), which is 59.67% owned by the government of India, holds a 65.7% stake in the company. It was created in 2001 with a view to divest the government’s stake in Balmer Lawrie. The new UPA government, which is considering selling stakes in profitmaking PSUs, may look at BLL as a divestment candidate as it is a non-core, but profitable, public sector firm.

Growth Drivers:

Balmer Lawrie is a debt-free, steadily growing company with strong presence in all the industries in which it operates. The company has plans to grow inorganically by acquisitions in the areas of travels & tours and logistics and has a budget of Rs 100 crore for this.

During the past five years, the company has grown at a cumulative annual growth rate of 12.6% at topline to Rs 2,007 crore for the year ended March 2009, with the PAT growing at a CAGR of 28.8%. BLL has a strong track record of paying dividends, and during the period its dividend payout has increased at a CAGR of 41.7%

Financials:

The global financial slowdown hasn’t left Balmer Lawrie untouched. Its operating performance stagnated in FY09 and the net profit was propped up by a spurt in nonoperative income. Revenues went up 13.7% in FY09 at Rs 2,007 crore and profits grew by 9.3% to bring in Rs 109 crore.

The services sector did well during the year with travels and tours posting 19% growth and logistics services growing at 21%. Both these businesses posted healthy improvement in profits as against a fall in profit for manufacturing businesses such as industrial packaging and lubricants. With established businesses and very low annual capex, the company has maintained its return on employed capital to beyond 40% for last four years.

Valuations:

The company’s current market capitalization of Rs 728.5 crore is just 6.7 times its annual profit of the year ended March 2009, out of which Rs 150 crore is represented by cash equivalent. The dividend yield works out to 4.5%. We expect the company to post an EPS of Rs 77 in FY10, which discounts the current market price by 5.7 times.