0 4 Recommendation BUY Delisting Offer Price - Still a long way CMP Rs. 73 Target Price Rs. 89 Sector Stock Details Comm. Trading & Distribution BSE Code 517496 NSE Code Bloomberg Code NA RPGR IN Market Cap (Rs cr) 288 Free Float 26.4% 52- wk HI/Lo (Rs) 79/24 Avg. volume BSE (Quarterly) 54324 Face Value (Rs) 10.0 Dividend (FY 12) NA Shares o/s (Crs) 4.0 Relative Performance 1Mth 3Mth 1Yr Ricoh India 44.9% 89.0% 157.0% Sensex 4.2% 10.5% 9.4% Ricoh India has received a voluntary delisting proposal from Ricoh Asia Pacific Pte Ltd. its promoter company. We believe the delisting price which will be determined through Reverse Book Building process will be considerably higher compared to the CMP on account of improved performance of company in lieu of launch of wide array of products and aggressive marketing strategies. We feel the price determined through reverse book building process should be around Rs.89 which is 12 times FY14 EPS. The delisting process should take 6-8 months and our target price of Rs. 89 per share can generate 22% return from CMP of Rs. 73 in this period. Investment Rationale Strong Parentage Ricoh India Limited is owned by Ricoh company Limited Japan with 73.6% holding in the company. Ricoh Company Japan is a global leader in sophisticated office solutions. The company deals in wide array of products includes copiers, multifunctional and other printers, facsimiles, duplicators and related consumables and services, as well as digital cameras and advanced electronic devices. Ricoh Japan is number one in the global A3 MFP (Multi Function Printers) and operates in around 180 countries. Ricoh Japan has global sales of $24.14 bn and market capitalization of $6.05bn. Shareholding Pattern 30 th June 2012 Foreign Promoters Holding 73.6% Institutional (Incl. FII) 0.18% Corporate Bodies 2.68% Public & others 23.54% Ruchita Maheshwari Research Analyst (+91 22 3926 8023) ruchita.maheshwari@nirmalbang.com Sunil H Jain HOD Retail (+91 22 3926 8195) sunil.jain@nirmalbang.com Year Net Sales (Rscr) Growth EBITDA (Rs cr) The strong parentage of Ricoh Japan is an assurance for the launch of innovative products and with new found focus in Indian operation will drive the top-line growth going forward. Renewed focus of Ricoh Japan in India Ricoh Japan is operating since 1993 in India but had remained low profile till recent past. In last year Ricoh has become more aggressive with new product launches, expansion of distribution network and brand building. The impact of same is also visible in FY12 and Q1FY13 financial performance where the revenue has grown by 45% and 56% respectively. Ricoh Japan has renewed its focus on Indian market and this delisting process could be part of the overall strategy. Margin Adj PAT (Rs cr) Margin Adj EPS (Rs) FY11 296.6 15.6% 28.0 9.4% 16.4 5.5% 4.1 17.6 12.4% FY12 431.5 45.5% 8.9 2.1% -2.6-0.6% -0.7-111.1-2.0% FY13E 647.3 50.0% 32.4 5.0% 7.6 1.2% 1.9 37.9 6.0% FY14E 970.9 50.0% 72.8 7.5% 29.4 3.0% 7.4 9.8 20.1% 23-August-12 Please refer to the disclaimer towards the end of the document P a g e 1 PE (x) ROE
Strengthening Product Line The Ricoh Japan provides an array of image processing equipment and other product and services in keeping with customer centric focus on creating value. To strengthen its product line in India, the company is planning to launch innovative products of its parent company into Indian market. The company is planning to be a major player in the areas of Managed Document Solutions, IT Services, Transaction Printing, Production Printing and Laser Printers. Ricoh Japan has chalked out an aggressive expansion plans through IT dealer/reseller channel into the fast emerging laser printer market in India. For a start, the company has entered into the affordable printer segment which is dominated by HP and Canon. The company has launched three laser printers and A4 MFP in the low-end entry level market. This will increase the revenue growth going forward and will also help Ricoh in gaining market share. The company has also announced its foray into new areas namely unified communications, where it would offer video conferencing facilities and projectors. Ricoh has also entered the IT services market offering Managed Document Services (MDS), which is a combination of Managed Print Services and Document Management Solutions. The company plans to rev up this offering and capture a sizeable market share through a host of aggressive marketing campaigns. This gives us confidence in the company s marketing strategies where it would be able to garner sizeable portion of market share and increase its top-line going forward. For this, the company has acquired Momentum Infocare, a Noida based company in H2FY12 to get into IT related products. Increasing Distribution Network Ricoh India operates through a wide network of 16 branches, 5 area offices and 500 dealers of which 300 dealers focus on the MFP product line and have well-trained sales and after sales service force. The company plans to add 500 dealers taking the total to 1000 to enhance its reach among various industry verticals in the country. According to industry estimates, the total market size of laser printers in India (2011) is pegged at 13.4 lakh units and is growing at the rate of more than 12% annually. With Ricoh's wide range of product lines and established channel support packages, we are confident that the company will be able to rapidly expand their business opportunities and increase their customer base going forward. Delisting of Ricoh India Ricoh India has received a delisting proposal from Ricoh Asia Pacific Pte Ltd to acquire the public shareholding of 26.4% or 10497791 shares. The Floor price is Rs. 53.79 per share. The process of acquisition of share is through Reverse Book building. Acording to us delisting process should take 6-8 months as the company will require: 1) Shareholder Approval 2) FIPB Approval 3) SEBI Approval At current market price Ricoh Asia Pacific has to spend Rs.76cr or $14mn to delist the share. 23-August-12 Please refer to the disclaimer towards the end of the document P a g e 2
We believe the delisting price which will be determined through Reverse Book building process will be considerably higher compared to the CMP on account of improved performance of company in lieu of launch of wide array of products and aggressive marketing strategies. Q1FY13 Result Rs. in crores Particulars Q1FY13 Q1FY12 YoY% Q4FY12 QoQ Net Sales 97.56 62.56 55.9% 164.00-40.5% Other Operating Income 0.00 0.12 0.00 Total Income 97.56 62.68 55.7% 164.00-40.5% Raw Material Consumed 0.00 0.00 0.00 Purchase of traded goods 112.36 45.83 145.1% 94.23 19.2% Stock Adjustment -47.30-8.63 447.8% 12.48-479.0% Employee Expenses 27.73 16.21 71.1% 17.08 62.4% Other Expenses 29.23 15.43 89.4% 23.41 24.9% TOTAL EXPENDITURE 122.02 68.84 77.2% 147.19-17.1% EBITDA -24.46-6.16 297.0% 16.80-245.6% Interest 3.04 0.41 639.3% 2.45 24.3% Other Income 0.34 0.18 92.7% 0.96-64.7% EBDT -27.16-6.40 324.6% 15.32-277.3% Depreciation 1.97 1.46 35.0% 2.10-6.6% PBT -29.13-7.85 270.9% 13.21-320.5% Tax 0.00 0.00 0.00 Fringe Benefit Tax 0.00 0.00 0.00 Deferred Tax -0.91 0.20-554.7% -0.16 466.7% Reported Profit After Tax -28.22-8.05 250.5% 13.37-311.1% Extra-ordinary Items 0.00 0.00 0.00 Adjusted Profit After Extra-ordinary item -28.22-8.05 250.5% 13.37-311.1% EPS (Unit Curr.) -7.10-2.02 3.36 Equity 39.77 39.77 39.77 EBITDAM -25.1% -9.8% 10.2% EBDTM -27.8% -10.2% 9.3% PATM -28.9% -12.9% 8.2% Source: Company & Nirmal Bang Research Analysis: The Company reported negative profit in Q1FY13 in spite of the sales grown by 55.9% YoY as the company has given VRS (Voluntary Retirement Scheme) of Rs. 10.3 crores which is included in Employee expenses as against nil expenses in Q1FY12. Due to currency fluctuation, Other Expenses include a loss of Rs. 7.5 crores as compared to exchange fluctuation loss of Rs. 0.29 crores in Q1FY12. The EBITDA was also marred due to the significant depreciation of rupee which increased the cost of material imported but the company was not able to increase the price of product in local market. Q1 is seasonally weak quarter. 23-August-12 Please refer to the disclaimer towards the end of the document P a g e 3
Valuation & Recommendation Ricoh Japan is a global leader in sophisticated office solutions with revenue of $24.14 bn and market cap of $6.05 bn. The Ricoh Japan has increased its focus in Indian operation and had chalked out aggressive plans to triple its revenue to Rs. 1000 crores by FY13, from FY11 level; which is quite aggressive in our view. We have projected a growth of 50% YoY to Rs. 647 crores in FY13E and Rs. 971 crores in FY14E. Being a strong player globally, gives us immense confidence on the company s strategies to compete with already established players like HP and Canon in Indian market. The company has launched various models in affordable printer segment where the company was lagging behind its competitors. The company is also launching products in the new areas and is also increasing its channel partners from current 500 to 1000 by the end of FY13 which will help in expanding their business opportunities and customer base. We believe the delisting price which will be determined through Reverse Book Building process will be considerably higher compared to the CMP on account of improved performance of company in lieu of launch of wide array of products and aggressive marketing strategies. We feel the price determined through reverse book building process should be around Rs. 89 which is 12 times FY14E EPS. The delisting process should take 6-8 months and our target price of Rs. 89 per share can generate 22% return from CMP of Rs. 73 in this period. Risks & Concerns Withdrawal of delisting offer by Ricoh Asia Pacific Pte Ltd. Failure of launch of new products: Any failure in new product launches will lead to lower profitability and our estimates. Currency Fluctuation: As the company does not have its manufacturing facility in India and is wholly dependent on the imports of products, any adverse fluctuation will dampen our projection. Aggressive investment by competitors: Any increase in competition activity will increase the cost for the company and will erode margins going forward. 23-August-12 Please refer to the disclaimer towards the end of the document P a g e 4
Financials Profitability (Rs. In Cr) FY11 FY12 FY13E FY14E Y/E - March Revenues - Net (including OI) 296.6 431.5 647.3 970.9 % change 15.6% 45.5% 50.0% 50.0% EBITDA 28.0 8.9 32.4 72.8 % change in OP -2.5% -68.3% 265.3% 125.0% Interest 0.4 5.8 13.0 17.0 Other Income 1.4 1.7 2.7 3.7 EBDT 29.1 4.8 22.1 59.6 Depreciation 3.6 7.3 10.7 15.8 Extraordinary/Exceptional 0.0 0.0 0.0 0.0 PBT 25.4-2.5 11.4 43.8 Tax 9.1 0.1 3.8 14.5 PAT 16.3-2.6 7.6 29.4 Shares o/s ( No. in Cr.)* 4.0 4.0 4.0 4.0 EPS 4.1-0.7 1.9 7.4 Cash EPS 5.0 1.2 4.6 11.3 DPS (Rs.) 0.0 0.0 0.0 0.0 Operational Ratio FY11 FY12 FY13E FY14E EBITDA margin 9.4% 2.1% 5.0% 7.5% PAT margin 5.5% -0.6% 1.2% 3.0% Price Earnings (x) 17.6-111.1 37.9 9.8 Book Value (Rs.) 33.1 31.1 33.1 40.4 ROCE 19.6% 1.8% 9.5% 19.2% RONW 12.4% -2.0% 6.0% 20.1% Price / Book Value (x) 2.2 2.3 2.2 1.8 EV / Sales 0.9 0.8 0.6 0.4 EV / EBITDA 8.6 33.0 11.0 5.2 Source: Company & Nirmal Bang Research Analysis: The Company reported negative profit in FY12 in spite of the sales grown by 45.5% YoY due to the steep depreciation of Indian Rupee against the US Dollar by a whopping 8% during the year led to significant erosion in the profitability of the company. Ricoh has reported currency fluctuation loss of Rs. 9.98 crores as compared to exchange fluctuation gain of Rs. 0.25 crores in FY11. We feel with the renewed focus on Indian operation by Ricoh Japan, launch of various innovative products and increase in number of channel partners will lead to the substantial jump in the performance for the company going forward. We are of the view that, Ricoh will be able to post the similar kind of operating margin performance in FY14E as it has reported in FY11. We expect the operating margin to be 7.5% in FY14E, on the account of the benefit of economies of scale. 23-August-12 Please refer to the disclaimer towards the end of the document P a g e 5
Disclaimer: This Document has been prepared by Nirmal Bang Research (A Division of Nirmal Bang Securities PVT LTD). The information, analysis and estimates contained herein are based on Nirmal Bang Research assessment and have been obtained from sources believed to be reliable. This document is meant for the use of the intended recipient only. This document, at best, represents Nirmal Bang Research opinion and is meant for general information only. Nirmal Bang Research, its directors, officers or employees shall not in anyway be responsible for the contents stated herein. Nirmal Bang Research expressly disclaims any and all liabilities that may arise from information, errors or omissions in this connection. This document is not to be considered as an offer to sell or a solicitation to buy any securities. Nirmal Bang Research, its affiliates and their employees may from time to time hold positions in securities referred to herein. Nirmal Bang Research or its affiliates may from time to time solicit from or perform investment banking or other services for any company mentioned in this document. Nirmal Bang Research (Division of Nirmal Bang Securities Pvt. Ltd.) B-2, 301/302, Marathon Innova, Opp. Peninsula Corporate Park Off. Ganpatrao Kadam Marg Lower Parel (W), Mumbai-400013 Board No. : 91 22 3926 8000/8001 Fax. : 022 3926 8010 23-August-12 Please refer to the disclaimer towards the end of the document P a g e 6