ICICI - Blue Bird (India) Ltd

Background

Blue Bird (India) Ltd was incorporated in 1999 as Anil Apporv Printers & Manufacturers Private Ltd and the name of the company was changed Blue Bird in 2005. The company is engaged in making student/ exercise books and stationery, commercial printing and publications. Mr Nitin P Sontakke and Ms Vidya N. Sontakke are the promoter-directors of the company. Mr Sontakke is a diploma holder in Printing Technology and is in this business since 1975. Ms Sontakke is a graduate in science. Promoters’ and other key employees holding will be 52.6% and18.9% of the post issue paid-up equity capital respectively.
The issue

Issue Size: 8,775,000 fresh issue of equity shares of Rs 10 each fully paid-up of which
Employee Reservation: Nil
Net Issue to the Public:8,775,000 equity shares of Rs 10 each fully paid-up
Objectives of the issue

The objective of the issue is to raise capital to set up new manufacturing facilities and expand existing facilities; replenish 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 licence; capital expenditure for setting up of new regional sales offices, repayment of existing long term debts, augmentation of long term working capital and for general corporate purposes.

Key Investment Rationale

High growth opportunities
Blue Bird derived 87.9% of its revenue from student/ exercise books and stationery for FY06. Growth in demand for these products derives from growth in economy, increase in rates of education and increase in government outlay for the education sector. GDP has been showing a consistent growth rate of 6-7% in last five years and per capita spending on education has also increased from 1.2% of GDP in 1983 to 4.4% of GDP in 2003.

Size of the market for student/ exercise books and stationery is estimated at approximately Rs 8000 crore and is growing at approximately 20% as per AC Nielson ORG MARG survey report commissioned by the company. Organized players have 20% market share and unorganized players have 80% market share. Apart from growth due to increase in demand BBIL has growth opportunities from increase in market share of the organized sector. Being in organized sector the company has advantages of superior quality products, automated production processes, economies of scale and greater marketing resources.

Market leader in paper-based notebook industry
Blue Bird is the market leader with a 48% share in organized segment of the paper-based notebook industry. The total size of this segment is estimated at Rs 743 crore. Due to higher market share BBIL would be the maximum beneficiary of growth in the organized sector.

Nationwide sales and distribution network
Blue Bird has 18 regional sales and marketing offices. Out of this 9 are in Maharashtra, and the remaining 9 are in other different parts of the country. The company is strengthening its network further and has plans to open additional 10 such offices in FY07, 20 in FY08 and 10 in FY09. BBIL expects to have a total of 118 regional offices by FY11.

New plant in south India
The company is setting up a new plant in south India, which will further enhance its market share in that region and also save on transportation costs.

Key concerns

Export obligation
The company has imported some of its equipment under Export Promotion Capital Goods (EPCG) scheme and has export obligation of Rs 52.6 crore by March 18, 2014. In case the company is not able to fulfil these obligations, it will have to make payment of Rs 14.4 crore towards custom duty saved. The company also intends to import machinery under EPCG scheme for the additional manufacturing facility. This will create further export obligations and contingent liabilities for the company.

Financials

Operating income has grown by 21.2% to Rs 400.9 crore for FY06 from Rs 330.8 crore in FY05. EBITDA has grown by 51.7% to Rs 53.0 crore from Rs 34.9 crore. PBT has grown by 42.6 % to Rs 39.3 crore from Rs 27.5 crore. PAT has grown by 42.2% to Rs 25.1 crore from Rs 17.7 crore. The company made an EPS of Rs 10.0 for FY06. For FY06 the company had a RoNW of 49.8% and RoCE of 17.0%.

Valuations

The issue price of Rs 90-105 discounts its FY06 earnings of Rs 7.2 per share on the diluted post-issue share capital by 12.6x - 14.6x. Navneet Publications, which is in the same line of business, is currently trading at Rs 57.5 at a P/E of 13.3x. Valuations of shares at the issue price band are reasonable and growth prospects also look good. We recommend subscription to the issue.

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