C.M.P: Rs.3555.00 1 Year Comparative Graph Stock Data Sector 3M India Ltd 3M India Ltd Diversified Face Value Rs. 10.00 52 wk. High/Low (Rs.) 4250.95/1775.00 Volume (2 wk. Avg.) 879000 BSE Code 523395 Market Cap (Rs.In mn) 40047.08 Share Holding Pattern V.S.R. Sastry Equity Research Desk vsrsastry@firstcallindiaequity.com Dr. V.V.L.N. Sastry Ph.D. Chief Research Officer drsastry@firstcallindia.com Target Price: Rs.4017.00 BSE SENSEX SYNOPSIS BUY Dec 23 nd, 2010 3M India Ltd is fundamentally a science-based company producing thousands of imaginative products. A leader in scores of markets from health care and highway safety to office products and abrasives and adhesives. 3M India Ltd has shown a good performance yearly with net sales of Rs 2956.57 million from Rs 2081.21 million with a change of 42.06%. The OPM and NPM for the quarter stood at 12.96% and 7.62% against 10.90% and 6.36%. Net Sales and PAT of the company are expected to grow at a CAGR of 8% and 14% over 2009 to 2012E respectively. The EPS for the quarter stood at Rs 20.00 from Rs 11.75 with face value of Rs 10/- each. Net Profit after tax stood at Rs 225.25 million from Rs 132.38 million with 70.15%. Financials (Rs.in.mn) FY10 FY11E FY12E Net Sales 10991.83 11761.26 12937.38 EBIDTA 1583.80 1847.85 2019.70 PAT 928.37 1095.85 1199.11 EPS 82.41 97.28 106.45 P/E 43.14 36.54 33.40 F I R S T C A L L R E S E A R C H 1
Peer Group Comparison Name of the company CMP(Rs.) Market Cap.(Rs.Mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%) 3M India Ltd 3555.00 40047.08 82.41 43.14 9.09 0.00 Aditya Birla Nuvo 834.55 85966.70 39.88 20.93 1.90 50.00 Balmer Lawr 584.00 9511.10 75.74 7.71 2.06 230.00 DCM Shriram Inds 78.10 1358.80 0.00 0.00 0.67 45.00 Q2 FY 11 Results Update 3M India Ltd has shown a good performance yearly with net sales of Rs 2956.57 million from Rs 2081.21 million with a change of 42.06%. The Operating profit for the quarter stood at Rs 383.18 million from Rs 226.80 million with a change of 68.95%. The profit after tax stood at Rs 225.25 million from Rs 132.38 million with 70.15%.The EPS for the quarter stood at Rs 20.00 from Rs 11.75 with face value of Rs 10/- each. The equity capital for the Quarter stood at RS 112.65 million. The OPM and NPM for the quarter stood at 12.96% and 7.62% against 10.90% and 6.36%. Quarterly Results - standalone (Rs in mn) As At Sep-10 Sep-09 %change Net sales 2,956.57 2081.21 42.06 PAT 225.25 132.38 70.15 Basic EPS 20.00 11.75 70.15 2
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Break up Expenditure Total expenses incurred during the quarter Rs 2584.02 million i.e., 83% of the total sales. Consumption of raw materials occurred 29% of the total expenditure, employees cost was 15% and Purchase of traded goods were 36% depreciation for the quarter was very less of only 2%. 4
Segmental Revenue 3M India has various segments of which most of the revenue has come from Industrial and Transportation Business consisting of 47%. Particulars Q2 FY 11 (Rs in Mn) Industrial & Transportation Business 1,387.83 Display & Graphics Business 477.41 Health Care Business 405.22 Safety, Security & Protection Services Business 337.63 Consumer & Office Business 246.99 Others 78.32 Total 2,933.41 5
Company Profile 3M is fundamentally a science-based company producing thousands of imaginative products, a leader in scores of markets - from health care and highway safety to office products and abrasives and adhesives. Their success begins with their ability to apply their technologies - often in combination - to an endless array of real-world customer needs. Of course, all of this is made possible by the people of 3M and their singular commitment to make life easier and better for people around the world. 3M Businesses Consumer and Office Business Supplies an array of products that keep homes cleaner, offices organized and buildings well-maintained, we're home to some of the world's best-known brands, including Scotch, Post-it, Scotch-Brite and Scotchgard. They've created many product categories and are a leader in the markets they serve. Their recent product breakthroughs include Post-it Super Sticky Notes in unique shapes and colours - ideal for use on a broad range of non-paper surfaces; and a new family of Scotch-Brite cleaning products, which give consumers the right scrubbing power for a host of cleaning jobs and have given us entry into a large and growing market. Display and Graphics Business They are a world leader in films that brighten the displays on electronic products, such as flat-panel computer monitors, cellular phones, personal digital assistants and liquid crystal display (LCD) televisions. They're also a leader in touch screens and touch monitors; optical components used in projection televisions; reflective sheeting for transportation safety; materials and systems for producing high-performance, attention-getting graphic images. 6
Electro and Communications Business They're a leading supplier of innovative solutions to the electrical, electronics and communications industries. Their products enable the efficient transmission of electrical power and speed the delivery of information and ideas. They successfully compete in numerous market segments, including electrical utilities; electrical construction, maintenance and repair; OEM electrical and electronics; computers and peripherals; consumer electronics; and telecommunications (central office, outside plant and enterprise). Additionally, they supply the aerospace, military, automotive and medical markets. Health Care Business 3M Health Care is a global leader in medical and oral care products, and drug delivery and health information systems. They supply innovative and reliable products that help health care professionals improve the quality of care. Industrial and Transportation Business They strive to understand the diverse market segments - construction, food and beverage, metal fabrication, oil and gas, woodworking and more - that make up the industrial marketplace. They then use that knowledge to provide innovative products and other solutions that make industrial customers more competitive. Their market-focused, customer-centric approach increases their efficiency and makes it easy for customers to do business with us. With our global technology, manufacturing and marketing network, they partner with both multinational and local customers. 7
Safety, Security and Protection Services Business They're a leader in several large and fast-growing markets, including personal safety, security and facilities protection. Their major products include personal protection product components, laminates that are used to help prevent counterfeiting of documents, reflective materials for personal safety, window films, cleaning and protection products for commercial establishments, roofing granules for asphalt shingles, and fire protection products that help protect against the spread of fire, smoke and toxic fumes. Brands of 3M India Ltd 8
Financials Results 12 Months Ended Profit & Loss Account (Standalone) Value(Rs. in million) FY10A (12m) FY11E (12m) FY12E (12m) Net Sales 10991.83 11761.26 12937.38 Other Income 76.06 83.67 92.03 Total Income 11067.89 11844.92 13029.42 Expenditure -9484.09-9997.07-11009.71 Operating Profit 1583.80 1847.85 2019.70 Interest -5.63-10.80-11.88 Gross Profit 1578.17 1837.05 2007.82 Depreciation -169.46-164.00-177.12 Profit before Tax 1408.71 1673.05 1830.70 Tax -480.34-577.20-631.59 Profit after Tax 928.37 1095.85 1199.11 Equity Capital 112.65 112.65 112.65 Reserves 4293.27 5389.12 6588.23 Face Value 10.00 10.00 10.00 Total No. of Shares 11.27 11.27 11.27 EPS 82.41 97.28 106.45 9
Quarterly Ended Profit & Loss Account (Standalone) Value(Rs. in million) 31-Mar-10 30-Jun-10 30-Sep-10 31-Dec-10E Net Sales 2624.97 2904.19 2,956.57 3193.1 Other Income 45.47 15.78 10.63 11.06 Total Income 2670.44 2919.97 2,967.20 3204.15 Expenditure -2207.3-2406.03-2,584.02-2730.1 Operating Profit 463.14 513.94 383.18 474.05 Interest -1.15-1.14-3.41-3.48 Gross Profit 461.99 512.8 379.77 470.58 Depreciation -44.67-35.9-41.07-38.05 Profit before Tax 417.32 476.9 338.7 432.52 Tax -138.48-158.43-113.45-145.33 Profit after Tax 278.84 318.47 225.25 287.19 Equity Capital 112.65 112.65 112.65 112.65 Face Value 10.00 10.00 10.00 10.00 Total No. of Shares 11.27 11.27 11.27 11.27 EPS 24.75 28.27 20.00 25.49 10
Key Ratios Particulars FY10 FY11E FY12E No of Shares 11.27 11.27 11.27 Market Price 3555.00 3555.00 3555.00 EPS (Rs.) 82.41 97.28 106.45 EBITDA Margin (%) 14.41% 15.71% 15.61% PAT Margin (%) 8.45% 9.32% 9.27% P/E Ratio (x) 43.14 36.54 33.40 ROE (%) 22.50% 21.01% 18.71% ROCE (%) 42.50% 38.57% 34.28% EV/EBITDA (x) 25.29 21.67 19.83 Debt-Equity Ratio 0.00 0.00 0.00 Book Value (Rs.) 391.12 488.40 594.84 P/BV 9.09 7.28 5.98 PBT Margin (%) 12.82% 14.23% 14.15% 1. Net Sales & PAT 11
2. P/E Ratio 3. EV/EBDITA 12
4. P/BV Outlook and Conclusion At the current market price of Rs.3555.00, the stock is trading at 36.54 x FY11E and 33.40 x FY12E respectively. Price to Book Value of the stock is expected to be at 7.28 x and 5.98 x respectively for FY11E and FY12E. Earning per share (EPS) of the company for the earnings for FY11E and FY12E is seen at Rs.97.28 and Rs.106.45 respectively. On the basis of EV/EBITDA, the stock trades at 21.67 x for FY11E and 19.83 x for FY12E. We expect that the company will keep its growth story in the coming quarters also. We recommend BUY in this particular scrip with a target price of Rs.4017.00 for Medium to Long term investment. 13
Industry Overview The global economic crisis that began in the latter part of the calendar year 2008 significantly impacted economic growth. The Indian Government took action and managed the situation effectively, through a combination of financial stimulus packages and strong economic policies. Though the period January 1, 2009 to December 31, 2009 has been challenging with a significant slowdown, your Company maintained top line at the same level during this period last year, as a result of operational excellence, our localization efforts, our focus on innovative R&D and working closely with our customers to provide solutions that meet their specific requirement. Inflation, exchange fluctuations and general slowdown continued to put tremendous pressure on our overall margins. Increase in industrial production in the last quarter of the calendar year 2009 and projected GDP growth in 2010-11 are signs of improvement in the Indian economy OUTLOOK Results for the period January 1, 2010 to March 31, 2010 indicate that the overall outlook for our next accounting year April, 2010 to March, 2011 looks positive. The appreciating rupee against all major currencies, recovery in the automotive sector, higher industrial production, sustained investments in infrastructure by the State and Central Governments & focus on health care, gives us confidence that India s GDP will continue to grow robustly in the future. Company will continue to focus on its localization efforts, innovative R&D, the development of new customer segments and the expansion of current market segments to secure competitive growth. 14
Disclaimer: This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable but do not represent that it is accurate or complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it s affiliates shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provide for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. 15
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