Blue Bird (India) IPO Analysis

Blue Bird (India) is a leading manufacturer of paper based notebooks and stationery. The company is raising capital to finance its two major expansions: one in south and the other in west India. It is setting up a second notebook manufacturing and printing unit in south India to address the logistic needs in procuring raw material and delivery of products to retailers in the region at an estimated cost of Rs 45.41 crore. The project is likely to commence in the fourth quarter of fiscal 2008.

To reduce a major portion of outsourcing costs, Blue Bird (India) is expanding capacity at its existing plant at Pune. The project, estimated to cost Rs 26.07 crore, is likely to commence in the third quarter of 2008.

Blue Bird (India)’s Pune plant has a capacity of 51,000 tonnes for notebooks and stationery and 12,500 tonnes for printing and publication with capacity utilisation of 74.3% and 50.9% in FY 2006. Post-expansion, the capacity will increase to 76,000 tonnes and 25,000 tonnes, respectively.

Strengths

The Blue Bird brand is established in west and south India. AC Nielsen ORG-MARG has estimated that Blue Bird enjoys the highest market share of 48% of the total market share controlled by large, organized players in notebooks.

The financial track record is good with continuous growth in sales and profit. The last three-year CAGR up to FY 2006 is 65% in sales and 100% in net profit.

Weaknesses

Strong competition from unorganised local players, which controls 80% of the market.

Growth in sales and profit has been slowing down over the years. In the first-half ended September 2006, sales were up only 18% and net profit 20%. Benefits of the projects will accrue only in the later part of FY 2008.

Valuation

In October 2006, Blue Bird (India) privately placed 1,225,000 equity shares at a price of Rs. 98 per share.

The first-half annualised earning per share based on the post-issue equity capital is Rs 8.6 (FY 2006 EPS: Rs 7.2). At the lower price band of Rs 90, PE stands at 10.4 times, and at the higher band of Rs 105 PE is 12.2. The nearest comparable company Navneet Publications enjoys TTM PE of 13.5.