Company Update Rating matrix Rating : Buy Target : 4 Target Period : 12-18 months Potential Upside : 38% What s changed? Target Changed from 418 to 4 EPS FY17E Changed from 2.2 to 2.3 EPS FY18E Changed from 26.2 to 25. Rating Unchanged Key financials crore Net Sales 112.9 133. 158.6 186. EBITDA 27.3 35.5 45.2 53.8 Net Profit 19.2 26.4 31.8 39.2 EPS ( ) 12.2 16.9 2.3 25. Valuation summary P/E 23.7 17.2 14.3 11.6 Target P/E 32.7 23.7 19.7 16. EV / EBITDA 16.5 12.9 1. 8.1 P/BV 4.5 3.7 3.1 2.6 RoNW 19.5 2.2 22.1 22.8 RoCE 26.5 23.6 28.1 31.2 ROIC 29.8 26.5 31.2 32.2 Stock data Stock Data Market Capitalization 455 crore Total Debt (FY16) 13 crore Cash and Cash Equivalent (FY16) 9 crore EV 458 crore 52 week H/L 424 / 13 Equity Capital 15.7 Face Value 1 MF Holding (%).9 FII Holding (%) 9.1 Research Analyst Chirag J Shah shah.chirag@icicisecurities.com Shashank Kanodia shashank.kanodia@icicisecurities.com May 27, 216 Control Print (CONPRI) 29 Firmly placed, on robust growth trajectory In Q4FY16, Control Print (CPL) reported a healthy performance with sales growing 12% YoY to 34.3 crore, EBITDA coming in at 9.1 crore (EBITDA margin 25.6%) and PAT at 7.1 crore. High PAT was supported by extraordinary income worth 1 crore For FY16, sales, EBITDA and PAT were at 133 crore, 35.5 crore and 26.4 crore, respectively. EPS for FY16 was at 16.9/share On the balance sheet, however, working capital got a bit stretched with FY16 net working capital days coming in at 219 days (199 days in FY15) resulting in build-up of marginal debt on CPL s books Niche business model, increasing usage, application to drive growth Control Print (CPL) is a leading coding and marking player domestically with manufacturing capability in printing machines, spare parts & associated consumables (ink). These are required to print essential real time product details like manufacturing date, expiry date, batch number, maximum retail price, etc, on any manufacturing product. It is used across sectors like personal care, food & beverages, pharmaceuticals, construction materials (steel, cement), extruded products (cable, wire, pipes), etc. Thus, with stringent legal requirements on display of details on manufactured products, better inventory management & counterfeit prevention and CPL s focus on increasing the application of coders and markers, CPL is on a strong footing with robust prospects, going forward. Prominent player in oligopolistic market CPL is a prominent player in the four player oligopolistic industry. As per industry sources, the domestic coding and marking industry size is pegged at ~ 55-6 crore. The main players are Videojet with a market share of ~29%, Domino Printech at ~33%, Markem-Imaje at ~22% and Control Print at ~16%. The industry has grown at a CAGR of ~15-16% (1.2-1.5x nominal GDP growth rate) in the past decade and is expected to grow at a CAGR of ~12-13% in FY15-18E. CPL is strong in the industrial and packaging segment. It realises 5% of its revenues from industrial customers (steel, metal, cables & wires, pipes, cement) with key clients being Tata Steel, UltraTech etc. CPL realises the balance 5% of its sales from the packaging sector with key clients like HUL among others. Increasing share of consumables, margin accretive In FY12-16, sales grew at a CAGR of 18.9% while PAT grew at a CAGR of 33.2% in FY12-16 primarily on the back of 13 bps expansion in EBITDA margin. Margin expansion in FY12-16 was primarily on account of a change in product mix in favour of consumables, which is a high margin product with growing base of installed printers. Share of consumables in FY12 gross sales was at 49% while the same in FY16 was at 71%. We expect the share of consumables to further increase to ~75% by FY18E, driving the expansion in margins from 26.4% in FY16 to 28.% by FY18E. Lean balance sheet, strong return ratios warrant re-rating! CPL has a lean balance sheet with gross debt of 13 crore as of FY16. The company has strong double digit return ratios (FY16 RoE at 2%, RoCE at 24%). With robust demand drivers in place, on the back of stringent legal requirements over display of necessary details, better supply chain management and CPL s focus on increasing the application of coders and markers, CPL is on a strong footing with robust prospects, going forward. We expect sales and PAT to grow at a CAGR of 18.3% and 21.8%, respectively, in FY16-18E. We value CPL at 4, i.e. 16x P/E (.7x PEG) on FY18E EPS of 25./share and assign a BUY rating to the stock. ICICI Securities Ltd Retail Equity Research
Revenues mainly consist of manufactured goods, which comprise ~76% ( 87 crore) of total sales in FY15, services that comprised ~6% ( 7 crore) and traded goods, which constituted the remaining ~18% ( 21 crore) in FY15. Control Print has recently concluded a bonus issue, issuing one bonus share for every two shares previously held in the company Company Analysis CPL is a leading coding and marking industry player with manufacturing capability in printing machines (printers), spare parts and associated consumables (ink). CPL started its journey in 1991 by venturing into the inkjet printer market and was primarily a distributor of Videojet printers. In 28, CPL ended its association with Videojet and started indigenous manufacture of printers in India under its own brand name although in technical collaboration with various international agencies like KBA Metronic (Germany) and Macsa. CPL commenced production at its Nalagarh plant in July 27. It includes production of inkjet printers, large character printers, thermal transfer over printers and consumables. After attaining a sizeable printer base with assured consumables demand (high margin business), CPL finally turned around its operations in 213. EBITDA margins improved to ~19%. CPL has recently commissioned a new manufacturing facility in Guwahati (capex 25 crore) and will be largely manufacturing high margin consumables from the said facility Robust revenue growth with increasing share of consumables! Revenue growth has been robust in the past, with sales increasing at a CAGR of 18.9% in FY12-16. Going forward, with adequate capacity amid robust product demand outlook and a good printer base, we expect CPL to clock revenue growth of 18.3% CAGR in FY16-18E. Exhibit 1: Sales trend ( crore) 25 crore 2 15 1 112.9 134.5 164.3 192.3 5 Sales can be broadly classified into three main segments viz. printers (coders and markers), consumables (associated ink) and services. Exhibit 2: Sales break-up absolute numbers ( crore) Printer sales have grown at a CAGR of 9% over FY12-16 to 27 crore in FY16. Consumables sales have grown at a CAGR of 31% over FY12-16 to 96.5 crore in FY16 crore 2 18 16 14 12 1 8 6 4 2 17.3 14.4 12. 7.1 139. 6.2 115.8 96.5 84.1 67.6 19.1 24.3 27. 28.4 29.8 FY14 Printers Consumables Services In FY16, on a gross basis, printer sales were at 27 crore, consumables sales at 96.5 crore while services sales were at 12 crore. ICICI Securities Ltd Retail Equity Research Page 2
Exhibit 3: Sales break-up share (%) % 1 9 8 7 6 5 4 3 2 1 6.7 6.1 8.9 9.1 9.3 72.8 72.8 71.2 73. 74.7 2.6 21. 19.9 17.9 16. FY14 Printers Consumables Services Exhibit 4: EBITDA & EBITDA margins trend Share of consumables is on the rise with percentage share increasing from 49% in FY12 to 71% in FY16. This is further expected to improve, going forward, to 75% by FY18E. Margin expansion to drive EBITDA & PAT, going forward We expect EBITDA to grow at a healthy rate of 23.2% CAGR in FY16-18E on account of expansion in margins to the tune of 16 bps in FY16-18E. We expect CPL to clock EBITDA margins of 27.5% in FY17E and 28.% in FY18E vs. 26.4% in FY16. The improvement in EBITDA margins is expected largely on the back of an improving product mix in favour of high margin consumables and operating leverage benefits that kick in as the capacity utilisation of the current asset base increases. Exhibit 5: PAT & EPS trend crore 6 5 4 3 2 1 24.2 27.3 26.4 35.5 27.5 45.2 28. 53.8 29 28 27 26 25 24 23 % crore 5 4 3 2 1 19.2 12.2 26.4 16.9 31.8 2.3 39.2 25. 3 25 2 15 1 5 /share EBITDA EBITDA Margin 22 PAT EPS ( ) Robust sales growth i.e. 18.3% CAGR in FY16-18E coupled with improvement in EBITDA margins, will drive robust PAT growth. We expect PAT to grow at 21.8% CAGR in FY16-18E to 39.2 crore in FY18E. We expect EPS in FY17E at 2.3/share while the same in FY18E is expected at 25./share. ICICI Securities Ltd Retail Equity Research Page 3
Healthy return ratios profile to sustain Return ratios were healthy in the past due to robust profitability. Going forward, with a high installed printer base and increasing share of consumables, we expect the trend to sustain. We expect CPL to clock RoE of ~22% in FY16-18E and RoCE of ~3% in FY16-18E. Exhibit 6: Return ratios profile 4 3 26.5 23.6 28.1 31.2 % 2 1 19.5 2.2 22.1 22.8 RoE RoCE Exhibit 7: Working capital components (days) trend Working capital deteriorates; build in conservative estimates Working capital has deteriorated with NWC days coming at 219 days as of FY16 vs. 199 days as of FY15. It has largely been on account of increase in receivable days and significant drop in payable days. Going forward, we have built in conservative NWC days for FY17E & FY18E. Exhibit 8: Net working capital days trend days 2 15 1 185 181 12 99 89 81 171 17 17 112 98 97 64 64 64 days 24 22 2 18 16 198 199 219 24 23 5 14 FY14 Inventory days Receivable days Payable days 12 1 FY14 The working capital cycle is elongated largely on account of high inventory days due to indigenous manufacturing of printers domestically. It is not a major cause of concern as debtor days are in control. Also, payables days came in lower in FY16 as the company paid upfront to its suppliers so as to avail cash discounts CPL has marginal debt on its books with FY15 gross debt at 8.2 crore. This, however, has increased to 13.1 crore in FY16 primarily on account of a stretched working capital cycle in FY16. Going forward, we expect it to moderate on account of increasing profitability and controlled working capital cycle. The debt: equity, however, has remained within limits at ~.1x in FY15-18E Exhibit 9: Debt: equity trend 2.11 crore 15 1 5.8.5 11.8 122. 144.3 8.2 13.1 7.1 4.6 Debt Equity Debt: Equity 172.2.3.12.1.8.6.4.2. x ICICI Securities Ltd Retail Equity Research Page 4
Exhibit 1: Product profile (coding and marking systems associated applications, consumables) International Associations KBA-Metronic BA-Metronic Aktiengesellschaft is a medium-size technology company, specialising in the development, design, production, marketing and service of printing and coding systems. It is a subsidiary of the 2.7 billion Koenig & Bauer AG (KBA), the world s third largest print equipment manufacturer, and is located in Veitshöchheim in the Lower Franconia region of Germany. Macsa For almost a century, it has been a forerunner in innovation in laser technology. Currently, with the most superior technology, Masca is unarguably the market leader in this market. ICICI Securities Ltd Retail Equity Research Page 5
Outlook and valuation CPL has a lean balance sheet with gross debt of 13 crore as of FY16. The company has strong double digit return ratios (FY16 RoE at 2%, RoCE at 24%). With robust demand drivers in place, on the back of stringent legal requirements over display of necessary details on manufactured products, better supply chain management by virtue of tracking the coded print on products and CPL s focus on increasing the application of coders and markers, CPL is on a strong footing with robust prospects, going forward. We expect sales and PAT to grow at a CAGR of 18.3% and 21.8%, respectively, in FY16-18E. We value CPL at 4, i.e. 16x P/E (.7x PEG) on FY18E EPS of 25./share and assign a BUY recommendation to the stock. Exhibit 11: What s changed?? Particulars FY17E FY18E Old New % Change Old New % Change Sales 171.8 164.3 (4.4) 22.3 192.3 (4.9) EBITDA 48.1 45.2 (6.1) 6.7 53.8 (11.3) EBITDA Margin % 28. 27.5-5 bps 3. 28. -2 bps PAT 31.7 31.8.4 41.1 39.2 (4.6) EPS 2.2 2.3.4 26.2 25. (4.6) Exhibit 12: Valuation summary Sales Growth PAT Growth PE EV/EBITDA RoNW RoCE ( cr) (%) ( ) (%) (x) (x) (%) (%) FY15 112.9 24. 19.2 35.8 23.7 16.5 19.5 26.5 FY16 134.5 19.2 26.4 38. 17.2 12.9 2.2 23.6 FY17E 164.3 22.1 31.8 2.4 14.3 1. 22.1 28.1 FY18E 192.3 17.1 39.2 23.2 11.6 8.1 22.8 31.2 Exhibit 13: Two year forward P/E (CPL currently trading at 11.6x) 45 4 35 3 25 2 15 1 5 Jan-9 May-9 Sep-9 Jan-1 May-1 Sep-1 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 ( ) Price 11x 9x 8x 6x 5x 3x 2x Source: Reuters, ICICIdirect.com Research ICICI Securities Ltd Retail Equity Research Page 6
Company snapshot 5 45 Target Price: 4 4 35 3 25 2 15 1 5 Feb-7 Aug-7 Feb-8 Aug-8 Feb-9 Aug-9 Feb-1 Aug-1 Feb-11 Aug-11 Feb-12 Aug-12 Feb-13 Aug-13 Feb-14 Aug-14 Feb-15 Aug-15 Feb-16 Aug-16 Feb-17 Source: Bloomberg, Company, ICICIdirect.com Research Key events Date/Year Event 27 Control Print commences production at its Nalagarh plant in July. Includes production of inkjet printers, large character printers, thermal transfer over printers and consumables. 28 CPL ends association with Videojet and starts indigenous manufacturing of printers in India under its own brand name although in technical collaboration with various international agencies like KBA Metronic (Germany) and Macsa 29 CPL allots 48, equity shares of 1/- each aggregating 4,8,/- fully paid-up, to the employees of the company, on exercise of option under employees stock option plan of the company 21 Reports robust performance in FY1. Sales were at 47.7 crore, up 26% from the previous year. Net profit of the company increased significantly eight fold times from 25 lakh in FY9 to 2 crore in FY1 on the back of a good operational performance 212 CPL invests additional amount of 3,7,,/- in its 1% subsidiary Liberty Chemicals Pvt Ltd through subscription of 18,5, equity shares of 1/- each at premium of 1/- against right offer from Liberty Chemicals Pvt Ltd 213 The company allots 3,75, warrants convertible into equity shares of 1/- each at a premium of 43.6/- per share to the promoter of the company on a preferential basis 215 Commences operations in its new plant located at Guwahati. This plant is built on an area of 2.4 acre and shall focus on manufacturing the entire range of consumables for the comprehensive coding and marking solutions product range. The facility will be manufacturing continuous inkjet printer consumables, large character printer consumables, hot quick coder and hot roll coder ink rolls and filters 216 The board allots one bonus shares for every two shares held. This increases the company's share capital from 1.4 crore to 15.7 crore Top 1 Shareholders Rank Name Latest Filing Date % O/S Position (m) Change (m) 1 Silver Plastochem Pvt. Ltd. 31-Dec-15 21.37 3.35. 2 Kabra (Shiva) 31-Dec-15 1.2 1.6. 3 Kabra (Pushpa) 31-Dec-15 9.23 1.45. 4 Kabra (Basant Kumar) 31-Dec-15 8.32 1.3. 5 Sabharwal (Nayana) 31-Dec-15 2.87.45. 6 Joshi (Ritu) 31-Dec-15 2.83.44. 7 Martytime Trimpex Pvt. Ltd. 31-Dec-15 2.3.36. 8 Kabra (Basant Kuamr) HUF 21-Apr-15 2.29.36.24 9 Grosvenor Investment Management Limited 31-Dec-15 1.49.23. 1 Silver Containers Pvt. Ltd. 31-Dec-15 1.1.16. Source: Reuters, ICICIdirect.com Research Recent Activity Shareholding Pattern (in %) Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Promoter 55.8 55.8 55.8 55.8 55.8 FII 9.6 9.1 9.1 9.2 9.1 DII....5.9 Others 34.6 35.1 35.1 34.5 34.1 Buys Sells Investor name Value Shares Investor name Value Shares Union KBC Asset Management Company Pvt. Ltd..5M.1M Silver Plastochem Pvt. Ltd..M.M Kabra (Shiva).M.M Source: Reuters, ICICIdirect.com Research ICICI Securities Ltd Retail Equity Research Page 7
Financial summary Profit and loss statement Crore (Year-end March) Net Sales 112.9 133. 158.6 186. Other Operating Income. 1.5 5.7 6.3 Total Operating Income 112.9 134.5 164.3 192.3 Growth (%) 24. 19.2 22.1 17.1 Raw Material Expenses 4.7 45.4 52.6 6.6 Employee Expenses 21.3 26.3 32.9 38.5 Other Operating Expense 23.6 27.4 33.7 39.4 Total Operating Expenditure 85.6 99.1 119.1 138.5 EBITDA 27.3 35.5 45.2 53.8 Growth (%) 34.1 29.7 27.4 19.2 Depreciation 1.9 2.7 3.5 4. Interest 1.1 1.6 1.5.7 Other Income 3.6.6.7 1.1 PBT 28. 31.8 4.8 5.3 Exceptional Item 1. -2.3.. Total Tax 7.8 7.7 9. 11.1 PAT 19.2 26.4 31.8 39.2 Growth (%) 35.8 38. 2.4 23.2 EPS ( ) 12.2 16.9 2.3 25. Cash flow statement Crore (Year-end March) Profit after Tax 19.2 26.4 31.8 39.2 Add: Depreciation 1.9 2.7 3.5 4. (Inc)/dec in Current Assets -15.4-16.3-13.2-19.8 Inc/(dec) in CL and Provisions 2.9-1.9 4.5 4.8 Others 1.1 1.6 1.5.7 CF from operating activities 9.7 12.6 28.2 28.9 (Inc)/dec in Investments 2.7 2.7. -8. (Inc)/dec in Fixed Assets -13.2-11.9-1. -4. Others 1.2.4.. CF from investing activities -9.3-8.8-1. -12. Issue/(Buy back) of Equity.8 5.8.. Inc/(dec) in loan funds 3. 4.9-6. -2.5 Dividend paid & dividend tax -4.7-8.8-9.4-11.3 Inc/(dec) in Share Cap -1. -.8.. Others 1.9-4.2-1.6 -.7 CF from financing activities -.1-3. -17. -14.5 Net Cash flow.3.8 1.2 2.4 Opening Cash.8 1.1 1.8 3. Closing Cash 1.1 1.8 3. 5.4 Balance sheet Crore (Year-end March) Liabilities Equity Capital 9.9 15.7 15.7 15.7 Reserve and Surplus 92. 16.3 128.6 156.6 Total Shareholders funds 11.8 122. 144.3 172.2 Total Debt 8.2 13.1 7.1 4.6 Deferred Tax Liability 2.5 2.9 2.9 2.9 Minority Interest / Others.... Total Liabilities 112.5 138. 154.3 179.7 Assets Gross Block 28.6 51.2 56.1 66.1 Less: Acc Depreciation 1.3 13. 16.5 2.4 Net Block 18.3 38.3 39.6 45.7 Capital WIP 15.6 4.9 1. 4. Total Fixed Assets 33.9 43.1 49.6 49.7 Liquid Investments 1.3 7.6 7.6 15.6 Other Investments 5.5 5.5 5.5 5.5 Inventory 56.1 62.4 73.8 86.6 Debtors 26.9 36.4 39.1 45.9 Loans and Advances 3.6 4.5 3.5 3.7 Other Current Assets.4... Cash 1.1 1.8 3. 5.4 Total Current Assets 88.1 15.1 119.4 141.6 Creditors 17.8 13. 17.4 2.4 Provisions 7.4 1.3 1.4 12.2 Current Liabilities & Prov 25.2 23.3 27.8 32.6 Net Current Assets 62.9 81.8 91.6 19. Others Assets.... Application of Funds 112.5 138. 154.3 179.7 Key ratios (Year-end March) Per share data ( ) EPS 12.2 16.9 2.3 25. Cash EPS 21.4 18.6 22.5 27.6 BV 65. 77.8 92.1 19.9 DPS 4. 4.7 5. 6. Cash Per Share (Incl Invst) 1.1 1.2 1.9 3.5 Operating Ratios (%) EBITDA Margin 24.2 26.4 27.5 28. PBT / Total Op. income 24.8 23.6 24.9 26.1 PAT Margin 17. 19.7 19.4 2.4 Inventory days 181.4 171.2 17. 17. Debtor days 87. 99.9 9. 9. Creditor days 57.5 35.7 4. 4. Return Ratios (%) RoE 19.5 2.2 22.1 22.8 RoCE 26.5 23.6 28.1 31.2 RoIC 29.8 26.5 31.2 32.2 Valuation Ratios (x) P/E 23.7 17.2 14.3 11.6 EV / EBITDA 16.5 12.9 1. 8.1 EV / Net Sales 4. 3.4 2.8 2.4 Market Cap / Sales 4. 3.4 2.9 2.4 Price to Book Value 4.5 3.7 3.1 2.6 Solvency Ratios Debt/EBITDA.3.4.2.1 Debt / Equity.1.1.. Current Ratio 3.4 4.4 4.2 4.2 Quick Ratio 1.2 1.8 1.5 1.5 ICICI Securities Ltd Retail Equity Research Page 8
RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/2% for large caps/midcaps, respectively, with high conviction; Buy: >1%/15% for large caps/midcaps, respectively; Hold: Up to +/-1%; Sell: -1% or more; Pankaj Pandey Head Research pankaj.pandey@icicisecurities.com ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai 4 93 research@icicidirect.com ICICI Securities Ltd Retail Equity Research Page 9
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