BALMER LAWRIE & CO. LTD.

January 16, 2012

BSE Code:

523319

NSE Code:

BALMLAWRIE

Reuters Code:

Balmer Lawrie & Co. Ltd (BLC) is a multi-product, multi-location company

engaged in a range of manufacturing, marketing and service businesses. The
Company is the market leader in Industrial packaging, and is one of the largest
IATA affiliated travel agencies in India. BLC to its credentials carries, nearly 50
years of rich business and over the years it has cemented its position in both
the manufacturing and service sectors.

Investors Rationale

The company is in the process of expanding its Logistic Infrastructure

facilities to cater to the rising demand given that container freight stations (CFS)
division attracts higher margin. Logistics Industry is expected to grow rapidly at a
Compounded Annual Growth Rate (CAGR) of approximately 9% from $100 billion
to over $140 billion during FY11-FY15 respectively. CFS business is expected to
grow at a CAGR of 22% over FY11-FY13E led by operational of new Facilities and
better utilization of CFSs.

BLC

operates with high cash generation and well diversified business

model, with no major capex, providing the necessary hedge to its operations as a
decline in one segment will be offset by a growth or consistency of figures in
other segments.

Balmer Lawrie has healthy balance sheet with net cash & cash equivalent

BLMR.BO

Bloomberg Code:

BLCL:IN

Market Data
Rating

BUY

CMP (`)
Target (`)

503

684
~36%

Potential Upside
Duration
52 week H/L (`)
All time High (`)
Decline from 52WH (%)
Rise from 52WL (%)
Beta
Mkt. Cap (` mn)
Enterprise Value (` mn)

Long Term
690/461
754
27.1
9.1
0.30
8,193.9
10,070.9

Fiscal Year Ended

FY10A

FY11A

FY12E

FY13E

Revenue (`mn)

19,638.1

23,279.9

27,935.9

32,405.6

Net Profit(`mn)

1,197.9

1,283.2

1,644.7

1,848.5

162.9

162.9

162.9

162.9

EPS (`)

73.5

78.8

101.0

113.5

PE (x)

6.8

6.4

5.0

4.4

P/BV (x)

1.4

1.3

1.0

0.8

Share Capital

of `3,041.9 million. The company carries a proven track record of strong

EV/EBITDA (x)

8.1

7.4

5.0

4.3

dividends pay-out, a total dividend of 260% had been recommended in FY11,

ROE (%)

21.1

20.1

20.5

18.7

which works out to 5.1% yield, at the current market price.

ROCE (%)

11.9

12.5

16.0

16.1

Shareholding Pattern
Promoters

SENSEX

BLC

Sep11

Jun11

Dec-11

Nov-11

Oct-11

Sep-11

Aug-11

Jul-11

Jun-11

subsidiaries both domestically and abroad, with eight strategic SBUs located
across the country, BLC is well poised to utilize this strong network to leverage
its operations and tap under-penetrated markets.

May-11

The firm has a wide-spread network of manufacturing units and

700
650
600
550
500
450
400
Apr-11

22,000
20,000
18,000
16,000
14,000
12,000
Feb-11

process of creating an online portal for tourism to boost its tours and travel
business. Balmer Lawrie also plans to develop dedicated packages for outbound
tourism, the focused packages will be in place by March 2012.

One year Price Chart

Mar-11

Company is banking big on its Travel & Tour business and is in

Jan-11

The

Diff.

Institutional

15.3%

16.3%

(0.97)

General Public

18.8%

18.6%

0.23

Others

65.9%

65.2%

0.74

Diversified business model ~ hedge against downtrend

This public sector conglomerate offers a wide and diversified array of services that is bifurcated in five broad segments namely Industrial
Packaging, Logistics Infrastructure and Services, Travel and Tours, Greases and Lubricants and Others (Tea, Leather Chemicals and
Refinery and Oil Field Services). The diversified business model of BLC provides the hedge to its earning against downtrend in one or
more sectors. Of these segments the biggest revenue growth driver is the Travel and Tours segment followed by the Logistics
Infrastructure and Services sector. BLC operates 8 Strategic Business Units (SBUs) and has more than 30 manufacturing facilities spread
across the country.
Volume growth fuels up sales

Segmental Contribution Q2 FY'12

Greases &
Lubricants
16%

Others
3%

Travel & tour

42%

Segmental Contribution Q1 FY'12

Industrial
Packaging
20%

Greases &
Lubricants
17%

Logistic
Infrastructure
& Services
19%

Others
3%

Industrial
Packaging Logistic
23% Infrastructur
e & Services
19%

Travel & tour

38%

Leadership position in Industrial Packaging Business

BLC is Indias leading manufacturer of metallic steel drums holding the largest market share in the country. Thought this segment
th
contributes less than 1/5 to the companys overall revenue, it has garnered a huge reputation within industrial circles, and is
considered to be the largest manufacturer of industrial package containers. The firm manufactures 165, 200 and 210 ml steel drums that
are utilized for safe packing, transport and storage of goods. Utilizing its strong R&D facilities and 6 manufacturing units (Mumbai,
Kolkata, Chennai, Panipat , Silvassa and Asaoti) it is able to provide a comprehensive series of drums to its diversified client base that
ranges from food, Lubricating, Additives, Transformer Oil,Bitumen companies to Chemical companies.
BLC has an in-house technology and product development center engaged in designing and developing of new products/equipments.
The product range in the Industrial packing segment consists of:

Plain Steel Drums

Lacquer Lined Drums
Composite Drums
Gavanised Drums
Asepton Drums
Conical Drums

Logistics Infrastructure and Services ~ offers escalation prospective to BLC

The Company has considerable experience in the logistics sector where its involvement dates back to the nineteenth century. It has
the distinction of being the only major PSU to offer comprehensive logistic based services and features amongst the top ten logistics
service providers in the country. The logistics segment of Balmer Lawrie is further sub-divided into the logistics infrastructure segment
and logistics services segment. Under the logistics infrastructure segment, the firm offers warehousing and distributing services and
maintains 3 state of the-art CFS. Due to its superior infrastructure it is able to offer value added services such as palletisation, shrink
wrapping, labeling, re-bagging, repacking, sorting, inland transportation, supply chain management and container repair facilities. The
company is heading in the direction to serve as a one-stop shop for its customers EXIM needs. As part of its logistic services segment,
the firm offers air freight services, ocean freight services, air chartering, ship chartering, express cargo movement and projects logistics
management. This firm has a world-wide network in over 50 countries, managed by professionals in the logistics field that will
certainly prove to be a crucial contributor to the firms future prospects. Currently this segment contributes almost 20% to total
revenue and this figure is expected to increase in the future. The company is in the process of expanding these facilities to cater to the
rising demand given that CFS division attracts higher margin. Logistics Industry is a sunrise industry which is forecast to grow rapidly at
a CAGR of approximately 9% from $100 billion to over $140 billion during FY11-FY15 respectively. BLC is well poised to reap rich
dividend from the escalation prospective available in Logistic Infrastructure and Services. CFS business is expected to grow at a CAGR
of 22% over FY11-FY13E led by operational of new Facilities and better utilization of CFSs.

Expanding its Logistic infrastructure facility

Location

Stations

Warehousing

Navi Mumbai

20 acres, expanding to 26 acres

60,000 sq.ft each for Imports and exports

chennai

adding 12 acres

40,000 sq.ft for storage area

Kolkata

10 acres, expanding to 16.5 acres

40,000 sq.ft. covered warehouse

Travel and Tours largest contributor towards revenue

Nearly 40% of the firms revenue comes from this segment and much of the companys overall fortunes will depend on this sector. BLC
operates its Tours & Travel business from ~19 branches located across the country. This segment of Balmer Lawrie had the unique
distinction of handling the Commonwealth Youth games in 2008. The firm has a large base of IATA approved agents (2500) and over
15000 non IATA approved agents to tap this largely fragmented industry. Revenues and profits from this firm have grown at a healthy
rate over the last 5 years (Revenue CAGR of 18% and profit CAGR of 20% from 2007-2011) and this is mainly due to the companys
widespread network all over India.
The company is banking big on its Travel and Tours business and is in process of creating an online portal for tourism to boost its tours
and travel business. Balmer Lawrie also plans to develop dedicated packages for outbound tourism, the focused packages will be in
place by March 2012.

Greases and Lubricants

This is another segment in which the company has a dominant position, being considered amongst the top 10 grease manufacturers in
Asia and the largest in the country with five manufacturing facilities located at Kolkata, Taloja, Silvassa and Sewri(in Mumbai) and
Chennai. In India over 65% of the client base for grease and lubricants consists of automobile companies while, the remaining 35%
consists of industrial and marine companies. This unit generates sales by selling its flagship lubricant Balmerol and grease processing
business and manufacturing services for other companies.
The per capita consumption of lubricants in India is still low compared to the developed countries and thus offers more scope for the
lubricant industry to grow. Currently, India is the sixth largest market in the world and the third largest in Asia after China and Japan.
The SBU achieved its highest ever production, sales /retail sales volume as well as turnover during the year, with an 18% surged in its
revenue over FY10.

Others (Tea, Leather Chemicals and Refinery and Oil Field Services)
Leather Chemicals:
The leather chemical SBU has manufacturing facilities at Chennai & Manali. The Company operates technical service centres at
Chennai, Ranipet, Ambur, Kolkata and Kanpur, the major centres of leather production in India. Globally Leather Trade is valued at
$145 billion and is expected to grow at the rate of 6% per annum to reach $245 billion by 2020. Indias export of Leather & Leather
articles which is currently at $ 3.7 billion is expected to grow to a level of $ 9.8 billion by the year 2020. We believe BLC is well
positioned to be benefitted from the expected surge in demands for Leather Chemicals both from domestic and overseas markets.
Tea:
BLC is engaged in the entire spectrum of tea operations right from sourcing to exports and owns warehousing, tasting, blending and
packing facilities at Kolkata and Coimbatore in India and Bedford in the UK.
Tea blending and engineering services are the least contributors to the revenues and profits. As tea blending division is a commodity
product their returns are quite low and does not justify the capital allocation, especially for this segment. Even the revenues from this
segment have declined by 10% in current financial year. The company may be planning to exit the tea business if these returns do not
justify the investments.
Refinery & Oilfield services:
This SBU of the company focuses on providing environment friendly services centered around prevention & recovery of hydrocarbon
wastes. This activity assumes greater significance with the concerns on twin aspects of environment & safety. The SBU enjoys a market
leadership in In-situ tank sludge cleaning and hydrocarbon recovery having processed more than 100,000 KL of oily sludge during the
last decade. The company is working to expand its tie up with relevant international technology suppliers and to intensify the
marketing of the technologies. Improved business prospects are seen in the coming years.

Banking on strong Dividend pay-out

35,000

40
33.5

30,000

19638.1

15,000

Since last 5 years, Balmer Lawrie has been able to maintain ROE
greater than 20% because of proper cost controls, effective
working capital management and better utilization of resources.
The company is also an effective cash generator and this can be
seen from the fact the cash from operations is equivalent to net
profits with minimal capex. The company expects its profitability
to grow and maintain the competitiveness by improving their
operating efficiencies and increasing productivity.

20

10,000
1,849

FY12E

FY13E

1,283

1,198

5,000

1,645

10
5

0
FY10

FY11
Net Profit

Dividend/sahre

Robust Financial

35,000

7.00%

27,936

6.90%

20,000
15,000

19,638

6.80%
6.60%
6.40%
6.20%
6.00%

5.90%

5.80%
2,262

5,000

1,923

10,000
1,368

`million

6.50%

23,280

25,000

7.20%
7.00%

32,406

30,000

1,275

The firm is highly diversified and can afford to hedge its operations
as a decline in one segment will be offset by a growth or
consistency of figures in other segments.

25

15

Robust Financial ~ RoE to be maintain at elevated

levels @ 20%

BLC enjoys a strong balance sheet in the form of cash surplus (after
netting Debt) over `1,158.7 million which would enable it to go for
further capital expenditure.

27935.9

23279.9

23
20,000

30

32405.6

26

Revenue

BLC to its credentials carries the tag of Mini Ratna status that has
always made a cash profit since its inception in 1867 and this is
testament to the firms remarkable operating efficiency (where
profits have been generated regardless of a decline in sales).
Despite difficult economic conditions over the last 3 years, the
profits of the firm have remained undeterred and in fact have
shown a growth even during the economic downturn.

35

30

25,000
`million

Balmer Lawrie is one of the few companies in India, which has

maintained an uninterrupted dividend record for the last 10 years.
The company has an impressive dividend pay-out of 31.2% during
the last five year, which confirms the wealth creation approach of
management. In FY11 the dividend yield stood at 5.1% with a
dividend of `26 per share. Going ahead we expect the same trend
to continue based on the current valuation and assuming a modest
increase in dividend in FY12E. Extrapolating the same, the
dividend per share figure for FY12E and FY13E comes to `30 &
`33.5 per share.
This debt free company with a book value of `392 is valued at cash
and we believe that given the fact that there is no major capital
expenditure we expect a minimum of 300% dividend payout going
forward and this would imply a dividend yield of 6%.

Strong dividend pay-out

5.60%
5.40%
5.20%

FY10
Revenue

FY11
EBIDTA

FY12E

FY13E
EBIDTA Margin %

SWOT Analysis
Strengths

Weakness

Largest manufacturer of steel drums and barrels in India.

BLC emerged as a multi activity, multi technology, multi

Over diversified, leading to lack of focus on any particular

location conglomerate with global footprints- along with

its joint ventures, encompassing diverse interest in
manufacturing sector.
Esteemed clients for greases and lubricants include
Indian Railways and the Indian defence forces.
BLC's travel and tours business is one of the largest IATA
affiliated travel agencies in India.

Lack of technical expertise in certain areas.

BLC does not cultivate tea. It sources tea from others

segment.

leading to a rise in procurement costs.

Tours and travels branches are not evenly spread in India,
if some villagers or person living in small town want to
visit branch for detailed information, person has to travel
a lot for that, branches are spread only in big cities.

Opportunities

Threats

Rise in auto sales will enhance demand for BLCL's greases

and lubricants.
Rise in tourism and hence air travel.
Ownership of tea farms will reduce the company's
expenses on sourcing tea.
Indian roots, global reach, by more diversification
globally they can create a name ininternational market
and thus results in increment of market share.

Excess manufacturing capacity in the packaging industry.

Tender based-supplies leading to thin margins.
Rise in steel and cement prices.
Direct ticket sales between airlines and the customers
might affect BLCL's revenues via commission.

Relative Price Chart

Relative Valuation

20

BLC

GDL

Allcargo

Jan-12

0
Dec-11

14.1

40

Nov-11

16.8

60

Oct-11

8.2

80

Sep-11

4.6

100

Aug-11

2.3

120

Jul-11

5.1

140

Jun-11

131
14.9
2.1

May-11

130
11.3
1.7

Apr-11

503
6.4
1.3

160

Mar-11

Gateway
Distriparks

Feb-11

ALLcargo
Global

Jan-11

CMP
P/E
P/BV
Dividend
Yield (%)
Mcap (bn)

Balmer
Lawrie

Balance Sheet (Standalone)

(`million)

Profit & Loss Account (Standalone)

FY10A

FY11A

FY12E

FY13E

(`million)

FY10A

FY11A

FY12E

FY13E

162.9

162.9

162.9

162.9

Net Sales

19,638.1

23,279.9

27,935.9

32,405.6

Reserve and surplus

5509.5

6229.7

7,874.4

9,722.9

Expenses

18,363.5

21,911.9

26,013.4

30,144.0

Net Worth

5,672.4

6,392.6

8,037.3

9,885.8

EBITDA

1,274.6

1,368.0

1,922.5

2,261.6

Loan Funds

2,189.8

1,883.2

1,500.0

1,500.0

EBITDA Margin %

6.5

5.9

6.9

7.0

180.7

125.8

130.0

130.0

Depreciation

316.0

314.8

371.5

413.1

Capital Employed

8,042.9

8,401.60

9,667.3

11,515.8

EBIT

958.6

1,053.2

1,551.0

1,848.5

Gross fixed assets

6735.4

7050.1

7,457.2

8,241.8

Interest

0.0

0.0

0.0

0.0

3071.5

3367.9

3,739.4

4,152.5

Other Income

808.2

834.8

850.0

850.0

274.0

460.3

521.3

520.0

1,766.8

1,888.0

2,401.0

2,698.5

3,937.9

4,142.5

4,239.1

4,609.3

Tax

334.9

594.7

756.3

850.0

3.6

1.4

2.0

2.0

Extra ordinary items

234.7

10.1

0.0

0.0

Net Current Assets

4101.4

4257.7

5,426.1

6,904.5

1,197.9

1,283.2

1,644.7

1,848.5

Capital Deployed

8,042.9

8,401.60

9,667.2

11,515.8

6.1%

5.5%

5.9%

5.7%

Share Capital

Net Deferred Tax

Liability

Less: accumulated
depreciation
Capital Work in
Progress
Net Fixed assets
Investment

Profit Before Tax

Profit after Tax

NPM %

Valuation
Key Ratios
FY10A

FY11A

FY12E

FY13E

EBITDA Margin (%)

6.5

5.9

6.9

7.0

NPM (%)

6.1

5.5

5.9

5.7

ROCE (%)

11.9

12.5

16.0

16.1

ROE (%)

21.1

20.1

20.5

18.7

ROA (%)

14.9

15.3

17.0

16.1

EPS (`)

73.5

78.8

101.0

113.5

P/E (x)

6.8

6.4

5.0

4.4

348.2

392.4

493.4

606.9

P/BVPS (x)

1.4

1.3

1.0

0.8

EV/Operating Income(x)

0.5

0.4

0.3

0.3

EV/EBITDA (x)

8.1

7.4

5.0

4.3

BVPS (`)

At the CMP of `503 BLC fairly valued with P/E of ~4.4x, and P/B of
0.8 of its FY13E expected earning evaluating the stock on
segmental basis the stock is valued cheaply especially when the
travel business is contributing ~40% of the revenues. The current
listed companies like Cox and Kings which available at a multiple
of 30 of its earning and similar is the case of Thomas Cook also (13
times its earning). The price / sales ratio of the whole BLC is ~0.6
indicating that it is largely undervalued, the stock looks
undervalued especially when we see on other player is so
diversified as BLC providing the much needed hedge to earning
visibility in these tough times.
Other segments like Logistics infrastructure and services, Greases
and lubes, and Industrial Packaging should be at least valued at
P/E 10-12 (Gateway Distriparks has P/E of 15x, Castrol is available
at P/E of 22). So by adding up the numbers, we get the fair value
of ~ `11,000 million vs. Mcap of ~`8,000 million for the whole
company, considering the diversified business model, tied with
high dividend payout, BLC is attractively placed as compared with
its other counterparts. Thus, we recommend 'BUY with the 1 year
price objective of `684.

Indbank Merchant Banking Services Ltd.

I Floor, Khiviraj Complex I,
No.480, Anna Salai, Nandanam, Chennai 600035
Telephone No: 044 24313094 - 97
Fax No: 044 24313093
www.indbankonline.com

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