Blue Bird (India) Ltd. IPO

Analysis

Background

• The company was incorporated in the year 1999 as Anil Apporv Printers & Manufacturers Pvt Ltd and it changed its name subsequently to Blue Bird (India) Ltd (BBL) in the year 2005.
• BBL is engaged in the business of manufacturing of paper-based notebook products, commercial printing and publication. Company’s product portfolio includes student/exercise books, stationery products like files, perforated pads, registers, filler papers and other bespoke commercial printing of items such as calendars, diaries, leaflets, product pamphlets, instruction materials and publish books etc.
• BBL has its manufacturing facilities at Pune. Company has converted 38,468 metric tons of processed paper into notebooks during fiscal 2006 and the average production of notebooks per day is approximately 131 metric tons of notebooks. Capacity utilization for the FY 2006 stood at 74.3% for the manufacturing and binding of standard notebooks.
• BBL clientele includes approximately 600 wholesalers/dealers and approximately 9,000 retailers. Commercial printing segment is catering to the needs of various business concerns including entertainment companies, financial institutions, publishers and educational authorities.
• BBL’s income consists primarily of revenues (88%) from the sale of notebooks. Company also generates income(4%) through commercial printing and publication (6%). Since fiscal 2005 it has begun to generate income (2%) through the export of notebooks and printed matter to Ghana, Kenya and South Africa.
• Unorganized regional manufacturers control approximately 80% of Rs. 80,000 million of the Indian stationery market. Only 20% of the market is organized out of which the large players control 15% and the medium sized players control the balance 5%. Of which Rs. 51,000 million is attributable to the sale of notebooks and exercise books.

Objects of the issue are:

• Setting up of new manufacturing facilities for manufacturing of notebooks in southern India.
• Expansion of our existing facility at Pune to increase the capacity of manufacturing of notebooks and printing/publication.
• Replenishing the internal accruals of the Company used for purchase of factory land located at Pune.
• Purchase of existing Registered/Corporate office premises presently on leave and license.
• Capital expenditure for setting up of new regional sales offices.
• Repayment of existing long term debts.
• Augmentation of long-term working capital.
• General corporate purposes.

Strengths:

• Company has the highest market share of 7.2% and is the largest organized player for paper based notebook products as of May 31 2006 (As per AC Nielsen ORG MARG). The second largest player has a market share of 2.55% and the remaining 8 other players have a combined market share of 5.25%.
• Sale of notebooks, which constitutes major portion of income and has increased at a CAGR of 69.5% from Rs. 428.1 million in FY 02 to Rs. 3530 million in FY 06.
• The large-scale versatile manufacturing infrastructure provide BBL an edge over unorganized printers (which control around 80% of the market) in the student/exercise book and allow company to compete more effectively with organized manufacturers by developing efficient and cost-effective processes for different products at short notice.
• Company is planning to focus on products such as diaries and other stationery products designed for personal use. These products involve higher margins. Moreover it also planning to emphasize on commercial printing and publication businesses, which also generate higher margins by taking advantage of existing customer relationships and brand recognition.

Weakness

• Company is allowing approximately 90 days of credit facility to its customer.However it does not enjoy similar favourable terms with its suppliers led to mismatch in realization and payment time and has caused company to experience negative operating cash flow in previous years.
• BBL depends on the sale of notebooks for a predominant proportion of its revenues. During fiscal 2006 and 2005, 87.9% and 89.3% of company’s revenues were derived from sales of notebooks reflecting towards less diversified product mix.
• The prices of printing and writing paper continue on an upward direction. With the absence of long-term contract and stiff competition from local players it may face lower margins going forward.
• The Company has high cost long term borrowings aggregating to Rs. 192.36 million as on March 31 2006. Leading to high interest expenses. Interest coverage ratio of the company decreased during FY 06 to 4.79% from 5.38% in FY 05
• Company has regional concentration as 96.9% and 97.9% of BBL’s revenues during fiscal 2006 and 2005 were derived from sales to customers in the state of Maharastra and western India.

Peer Analysis for the half year ended 30th September 2006

COMPANY	Blue Bird (India) Ltd.	Navneet Publications
Sales	2371 million	2342 million
PAT	151 million	38.8 million
RONW	40.02 %	N.A
EPS	12.08	4.07
NPM	6.4 %	16.56 %
OPM	13.09 %	26.18 %

Valuation

• The net profit of the company has been increasing at a CAGR of 166.6% from Rs. 4.99 million in FY 2002 to Rs. 251.16 million in FY 2006. Total income of the company increased at a CAGR of 66.5% from Rs. 522.5 million to Rs. 4016 million for the same period.
• Company’s net worth as on 30th September 2006 stood at Rs. 752.23 million.While the book value as on 31st March 2006 was at Rs.24.5.
• Post issue Annualized EPS based on 30th September 2006 earnings comes out to be Rs. 8.62. Shares are being offered in the price band of Rs. 90 to Rs. 105. At P/E multiple of 10.4 to 12.2 while industry is trading at a P/E of 13.5.