Weekender February 17 th, 2012 Index Closing Chg Chg(%) Sensex 18289.35 540.66 3.0% Nifty 5564.3 182.70 3.4% Auto 10319.2 605.84 6.2% Bankex 12736.09 749.17 6.2% Cap Goods 11106.78 813.26 7.9% Cons Durables 6647.43 478.60 7.8% FMCG 4153.2 22.29 0.5% Healthcare 6375.3 28.20 0.4% IT 6266.87 216.65 3.6% Metal 12572.46 208.10 1.7% Oil & Gas 8644.71-125.94-1.4% Power 2363.28 185.95 8.5% Realty 2079.72 192.23 10.2% World Index Closing Chg(`) Chg(%) Dow Jones 12904.08 13.62 0.1% Nasdaq 2959.85 32.62 1.1% Hang Seng 21491.62 707.76 3.4% Nikkei 225 9384.17 437.00 4.9% FTSE 100 5907.54 55.15 0.9% Brazil Bovespa 66141.70 611.21 0.9% Russia RTS 1650.74 47.49 3.0% Mexico Bolspa 38212.24-30.04-0.1% Singapore Strait 3000.59 40.59 1.4% As on Friday 4pm Top Gainers Closing Chg(`) Chg(%) Lanco Infratech Ltd. 22.65 6.4 39.4% IndiabullsFinService 235.3 56.05 31.3% HDIL 122.85 26.4 27.4% Jain Irrigation 118.1 21.55 22.3% IRB Infrastructure D 208.15 36.85 21.5% As on 17th Feb,12 Top Losers Closing Chg(`) Chg(%) TTK Prestige L 2944-264.9-8.3% Cipla 321.65-27.35-7.8% Educomp Solutions 234-15.65-6.3% Suzlon Energy Ltd. 29.05-1.7-5.5% Sun TV Network Ltd. 322-18.5-5.4% As on 17th Feb,12 Metal Closing Chg Chg(%) Gold($/oz) 1732.28 10.28 0.6% Silver($/oz) 33.55-0.03-0.1% Aluminium($/MT) 2118.00-133.50-5.9% Copper($/MT) 8286.00-451.50-5.2% Lead($/MT) 1985.00-205.75-9.4% Zinc($/MT) 1958.75-189.50-8.8% As on Friday 4pm Date DII(cash) FII(Cash) FII(FO) 13-Feb-12-261.2 343.3-1066.18 14-Feb-12 52.3 647.6-393.96 15-Feb-12 NA 1146.7-642.3 16-Feb-12 NA NA 1650.73 17-Feb-12 NA NA 679.08 NA- Not Available ADR's Closing Chg($) Chg(%) Infosys 59.41 3.11 5.5% ICICI Bank 39.1 1.2 3.2% HDFC BANK 34.87 1.02 3.0% Tata Motors 27.83 1.58 6.0% Wipro 11.26-0.06-0.5% As on Thursday SNAP SHOT During the week ended 17 th February 2012 market continued its uptrend for the seventh consecutive week with key benchmark indices Sensex and Nifty gaining 3.0% and 2.9% respectively on the back of positive news flows on domestic as well as Global front. Expectations grew that Greece would secure a longawaited bailout next week boosted investor s sentiment. Meanwhile, January headline WPI inflation fell to 26- month low to 6.6% y-o-y (vs. 7.5% in December), broadly in line with expectations. Core inflation also eased. However, headline inflation is still flattered by last year's high base for food prices. The Reserve Bank of India (RBI) will take some comfort from the numbers, but would likely prefer to await a few more data points and the delivery of a tight budget before cutting the policy rate. The government s disinvestment kitty is set to gain respectability towards the fag end of the fiscal with the empowered group of ministers (EGoM) on disinvestment headed by Pranab Mukherjee agreeing in principle for auction of 5% share in the Oil and Natural Gas Corporation (ONGC).The government also announced the new telecom policy (NTP) allowing operators to hold higher spectrum, pay uniform licence fee across services besides permitting liberal merger and acquisition, with a view to provide quality services at affordable prices. High volatility is expected in a truncated trading week as traders roll over positions in futures & options (F&O) segment from the near-month February 2012 series to March 2012 series. The Empowered Group of Ministers headed by Finance Minister Pranab Mukherjee is reported likely to meet on 24 February 2012, to consider changes in the natural gas allocation policy. The initial public offer (IPO) of Multi Commodity Exchange (MCX), India's biggest commodity exchange by turnover, opens for bidding on Wednesday, 22 February 2012. 5590 5530 5470 5410 5350 5381.6 5390.2 5416.05 Nifty 5531.95 5521.95 5564.3 3-Feb 6-Feb 7-Feb 8-Feb 9-Feb 10-Feb Global Economic Update United States: US Mortgage Bankers Association s Index decreased by 1.0% For the week ended February 10, 2012 compared to prior
GDR's Closing Chg($) Chg(%) RIL 33.26-0.69-2.0% SBI 97.5 10.35 11.9% L&T 29.9 2.85 10.5% Banking Data Credit growth 43656.4 986.6 2.3% Deposit growth 58279.1 1553.2 2.7% ECONOMIC CALENDAR Date Economic Data Previous 22-Feb MBA Mortgage Applications -1.00% 22-Feb Existing Home Sales 4.61M 23-Feb Initial Jobless Claims 348K 23-Feb 24-Feb 3426K 315K 24-Feb GDP (YoY) 0.80% 24-Feb Index of Services (MoM) 0.60% 24-Feb Exports 2.50% 24-Feb Construction Investment -0.70% 20-Feb 23-Feb 12/30/201 1(`Crs) UNITED STATES Continuing Claims New Home Sales UNITED KINGDOM GERMANY JAPAN Chg(`Crs) AdJ Merchnds Trade Bal. Japan Buying Foreign Stocks Chg(%) - 567.6B - 63.8B week rise of 7.5%. The group refinancing gauge increased by 0.8% and purchases Index decreased by 8.4% for the same period. US Housing Starts rose 1.5% to a 699,000 annual rate in January from 689,000 in recorded in the month of December. Initial Jobless claims increased by 13,000 to 348,000 from earlier week revised figure of 361,000 for the week ended February 11, 2012. Continuing claims decreased by 100,000 to 3.426 million for the week ended Feb 04, 2012 from earlier revised claims of 3.526 million of previous week. UK & Europe: UK s inflation slowed to the least in 14 months in January. Consumer prices rose an 3.6% after a 4.2% gain in the month of December. UK s jobless claims rose more than forecast in January.The number of people claiming jobless benefit rose by 6900 to 1.6 million. Germany GDP rose 1.5% on YoY basis and dropped 0.20% on QoQ basis for the fourth quarter of calendar year 2011. Asia: Bank of Japan kept its Target rate unchanged at 0.10% during their meeting held on 14 th Feb. Japan Investors were net sellers of foreign bonds and securities during the week ended Feb.10 having net sale of 113.2 billion Yen. CURRENCY, CRUDE & G-SEC USD-JPY USD - INR 79.4 78.9 78.4 78.44 78.43 78.94 79.04 49.6 49.5 49.3 49.2 49.4 49.3 49.3 49.2 77.9 77.57 49.2 77.4 13-Feb 14-Feb 15-Feb 16-Feb 17-Feb 49.0 13-Feb 14-Feb 15-Feb 16-Feb 17-Feb 103.1 102.5 101.8 101.2 100.5 Crude($/bbl) 102.78 102.31 101.8 100.91 100.74 13-Jan 14-Jan 15-Jan 16-Jan 17-Jan Govt.Yield 8.40% 8.34% 8.30% 8.22% 8.19% 8.20% 8.15% 8.16% 8.10% 8.00% 20-Jan 27-Jan 3-Feb 10-Feb 17-Feb 2
KOKUYO CAMLIN LTD (Kokuyo Camlin) CMP (17/02/12): `39 Rec: BUY Target: `50 Upside: 28.2% Eq. Capital (FV `1): `6.89 Crs Market Cap: `269 Crs Shareholding: Promoters-64.20%, FII-5.92%, Public & Others-22.90%, FIs & MFs-6.99% 52-w H/L: `85.90/29.90 COMPANY PROFILE Kokuyo Camlin Ltd., formerly Camlin Ltd, is one of the leading manufacturers of consumer products, such as art materials and stationery. Established in 1931, the company offers a wide range of products (over 2000 products), such as artist materials, hobby colors, scholastic colors, scholastic stationery products, office products and writing instruments under the Camel and Camlin brands. Japanese stationary and furniture major Kokuyo acquired 50.3% stake in Camlin in October 2011 in a deal valued at `366 Crs (average cost per share `105.06). Kokuyo Camlin's principal products include artist colors, wooden pencils and writing instruments. The Company's subsidiaries include Camlin North America, Inc., Camlin International Ltd. and Camlin Alphakids Ltd. Kokuyo Camlin is the first company in India to adhere to Art & Creative Materials Institute s world standards in toxicity certifications. Manufacturing Units The company s manufacturing facilities are spread across 4 locations - Tarapur, Vasai and Taloja in Maharashtra and Samba, Jammu in Jammu & Kashmir. Majority of the products are manufactured at these manufacturing plants and the balance is procured from various small scale units who cater to the company s requirements under strict supervision and quality control. INVESTMENT POSITIVES Prospects of demand for stationery products look good The `10,000 Crs (~US$2.2 billion) Indian stationary market has grown very fast in the last few years with the entry of writing companies Cello, Reynolds, Linc and Luxor, ITC (which has introduced Classmate notebooks and allied products). European and American stationary and art brands such as Faber Castle, 3M and Staples are also trying to consolidate their position in the domestic market. With the increase in per capita income and government s increasing emphasis on education, significant growth in the demand for stationery products is expected going forward. We believe Camlin is well poised to maximize these opportunities with its strong and established brand name along with its strong reach extending to over 150,000 retail outlets and over 50 million households. Moreover there is a growing consciousness among schools and parent to patronise safe products from reputed companies which puts Camlin at the distinct advantage over its peers. Strong retail distribution network - target to double in 2-3 years - touches over 5.5 Crs households Kokuyo Camlin touches over 5.5 Crs households in India and the company has been extending this reach to more consumers every year. The company has a distribution network of 150,000 retailers across India, and has plans to double it in coming 2-3 years. As India grows, this growth will travel from larger cities to smaller cities and class C towns. Camlin is extending its reach. At present, rural sales constitute about 25%-30% of the total turnover of the company and are expected to grow at a much faster pace in the coming years. 3
Camlin-Kokuyo Deal: Win-Win Situation for both the Entities Japanese stationary and furniture major Kokuyo acquired 50.74% stake in Camlin in a deal valued at `366 Crs. The deal is a winning situation for both the companies due to following reasons: The Indian stationary market is valued at US$2.2 billion and is expected to grow at a rate of 25%. Of this the Notebook market alone is worth at `4000 Crs. Hence the aspiration of Kokuyo to enter the growing Indian market got fulfilled. New and diversified products with complete solution for office and schools in the portfolio will be available in the strong 150,000 stores distribution network of Camlin. Manufacturing Hub will be available both in China and India. Access to the strong distribution network of Kokuyo in China and Vietnam to Camlin products. Kokuyo plans to triple the turnover in next 5 yrs key focus is to increase presence in paper stationary and writing instruments Japanese stationary major Kokuyo, has put in place a blueprint that will see the largely school stationary company evolve into a diversified player. The endeavour is to triple the turnover to `1,000 Crs in a span of five years. For this, Kokuyo has identified 3 key areas to push its India business that includes colour products, paper stationary and writing instruments. While the company has been the leader in colour products, it is in paper stationary and writing instruments that the company has lagged. The firm has a small presence in writing instruments in segments such as pencils, pens and ball-point pens though it has done well in markers. In paper stationary, it has primarily operated through tie-ups with companies such as Kokuyo, whose Campus notebooks it has been distributing in India for a while now. Kokuyo Camlin will primarily push the Camel brand in colours, Camlin in writing instruments and Campus in notebooks. The firm has also reconstituted its board and has refurbished its corporate logo to reflect the change in ownership. Increasing capacities at its manufacturing Units To meet the `1000 Crs turnover, Kokuyo Camlin is hiking capacity at its plants located at Taloja, Tarapur and Vasai in Maharashtra and Jammu respectively. It is also looking to double its direct coverage of outlets, which stands at 1.25 lakh, in the next few years. The company may also look at setting up new plants in the future in both writing instruments and paper stationary besides looking at increasing third-party manufacturing tie-ups. Currently, Kokuyo Camlin has 2 third-party manufacturing arrangements for notebooks in Maharashtra. Plans to make India the manufacturing hub realisation to improve going forward The company management has expressed interest that it plans to convert India into a manufacturing hub as the cost of production of stationary products is lower in India in comparison to China and Vietnam, where Kokuyo Camlin has presence. By converting India into a manufacturing hub the company can export to markets in the Middle East and Africa though it s a long-term plan. For now, the focus remains on tapping into the growth opportunities that the local market presents. 4
Camlin Alfakids has plans to open ~ 50 schools by 2013E Camlin Alfakids, the company's wholly-owned unit, follows more of a lease rental model which is asset light. It has plans to open about 50 schools by 2013E. The plan is to create more and more awareness of the Camlin brand from the child hood and further to take advantage of the growing pre school market in Tier 1 cities. VALUATION We believe that Kokuyo (has an annual turnover of ~US$ 3.2 billion) and Camlin have complementary product portfolios and this joint venture will facilitate faster rollout of portfolio of products by Camlin. The company s profits have been inconsistent since last 3-4 years; however with Kokuyo JV and the 3 fold revenue growth target, we are quite POSITIVE about the stock. At the CMP of `39.00, the stock is trading at 15.6x its FY13E EPS of `2.05. We recommend BUY on the stock with a 12-18 months target price of `50, providing an upside of 28.2% from the current levels. FINANCIALS Profit & Loss A/c - ` Crs FY08 FY09 FY10 FY11 Net Sales 213.77 283.11 330.34 358.25 Y-o-Y 32.4% 16.7% 8.4% Total Expenditure 201.5 264.5 303.3 332.5 Raw Material Consumed 57.72 85.05 110.82 126.2 Stock Adjustment -5.5-2.03-9.77 1.02 Purchase of Finished Goods 88.35 104.86 108.4 104.69 Employee Expenses 20.36 22.5 30.83 30.17 Provisions & Write Offs 0 0 0 1.07 Other Expenses 40.54 54.1 63.02 69.34 EBITDA 12.3 18.6 27.0 25.8 Margin 5.8% 6.6% 8.2% 7.2% Depreciation 3.77 4.35 5.17 6.48 EBIT 8.5 14.3 21.9 19.3 Interest 2.61 5.29 5.83 7.31 Other Income 0.58 0.56 0.53 0.08 PBT 6.5 9.6 16.6 12.1 Tax 2.3 2.21 4.1 3.3 Deferred Tax 0.37 1.23 0.43 0.16 PAT 3.83 6.11 12.04 8.59 Margin 1.8% 2.2% 3.6% 2.4% EPS (`) 0.56 0.89 1.75 1.25 Source: Capitaline 5
Registered Office: 124 Viraj, S,V.Road, Khar (W), Mumbai 400 052. Tel. (022) 4082 4082, Fax (022) 2649 7997. research@lmspl.com www.latinmanharlal.com, LMSPL Network: Fort, Mahalaxmi, Parel, Bandra, Santacruz, Vile Parle, Andheri, Malad, Kandivili, Borivali, Bhayender, Ghatkopar, Mulund, Chunabhatti, Jacob Circle, Masjid Bunder, Cotton Green, Thane, Bhiwandi, Panvel, Pune, Sholapur, Nasik, Malegoan, Ahmednagar, Aurangabad, Akola, Mahekar, Nagpur, Surat, Karjan(Baroda), Khambat, Ahmedabad, Rajkot, Surendranagar, Porbandar, Amreli, Bharuch, Anand, Chennai, Vishakhapatnam, Vizianagaram, Palasa, Kakinada, Karnal, Kolkatta, Bhubhaneshwar, Hyderabad, Bangalore, Jafrabad, Chital, Kodinar, Keshod, Gondal, Haryana, Srikakulam, Mehkar (Buldhana, Jamnagar, Bangalore, Jodhpur, Jalgaon, Malkangiri (Orissa), Karimnagar Dist. (Andhra Pradesh). This document is for information only and is meant for the use of the recipient & not for circulation. The information contained in this document has been taken from publicly available information, trade and statistical services & other sources. While the information contained herein is from sources believed to be reliable, we do not hold ourselves responsible for its completeness and accuracy. All opinions and estimates included in this report constitute our judgement as of this date and are subject to change without notice. Investors are expected to use the information contained in this report at their own risk. This report is not and should not be construed as an offer or the solicitation of an offer to buy or sell any securities. M/s Latin Manharlal Securities Pvt. Ltd. and it s affiliates may act as market maker or have assumed an underwriting position in the secureties of companies discussed herein and may sell them to or buy them from customers on a principal basis. 6