Tuesday, September 25, 2007

Buy Balmer Lawire & Co, target Rs 630: Bajaj Capital

Balmer Lawrie is a Government of India company that operates as a diversified conglomerate with interests in logistics, industrial packaging, greases & lubricants, travel & tourism, leather chemicals, tea exports and turnkey projects. It enjoys market leadership in most of its core business segments capturing a high share of government and PSU businesses.
 
In the recent years, the company's focus on the logistics division has led to a strong growth in its profitability. Though logistics contributes approx. 24% to the company's total revenues, it delivers approx. 61% of its total EBIT. The company plans to focus on its core business and expand via organic and inorganic routes. Based on the organic route, the management is targeting Rs. 2000 cr. & Rs. 200 cr. in Revenues & Net Profits respectively by FY10E, implying a CAGR of 41.7% in earnings during FY07-10.
 
To attain market leadership in its core businesses, Balmer Lawrie plans to exit some of its non-core businesses such as tea blending and specialty containers. The company also plans to expand its offerings in key businesses to tap potential clients. Further, Balmer Lawrie's nearly debt free status, comparatively cheap valuations and the possibility of divestment of Government's stake make it an attractive value play.
 
Key Investment Arguments
 
Balmer Lawrie has a market cap of Rs. 754.4cr, average daily volume of 7433 shares for the last six months and net sales of Rs. 1338cr for the trailing twelve months ended 30th June 2007.
 
Its Operating profit and Net profit margins are at 9.5% and 5.5% resp. in FY07. The company has achieved a 5-year CAGR of 14.1% in net sales, 21.6% in EBITDA and 54.4% in net profits. Balmer Lawrie presently trades at a PE multiple of 10.4, Price to Book ratio of 2.8 and Price to Sales ratio of 0.6. Debt-equity ratio is virtually NIL at 0.4 for FY07.
 
Conclusion
 
On the basis of our research, we feel that this is a good stock to buy at the current market price of Rs. 463.10. If everything goes well, the price is likely to appreciate to Rs. 630.0, within a year or so, translating into a gain of about 36%.

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