Kokuyo Camlin Limited (CAMLN)
September 7, 2015 CMP: ₹99 Time Horizon – 12 Months Target: ₹135
Key Data (In ₹ Mn.) FY14 FY15 FY16E FY17E Bloomberg Code CAMLN IN Net Sales 4,704 5,439 6,391 7,620 V NSE Code KOKUYOCMLN EBITDA 26 168 304 495 BSE Code 523207 EBITDA Margin 0.6% 3.1% 4.8% 6.5% Sector Cons. Discretionary EPS (₹) (0.8) 0.5 1.1 2.5 A Industry Home & Office Prod. EV/Sales 2.1 1.8 1.6 1.3 Face Value (₹) 1.0 EV/EBITDA 383.6 59.9 33.1 20.3 L BV per share (₹) 21 P/E (x) (128.1) 198.3 87.4 39.9 Dividend Yield (%) 0.0% Price Performance CY12 CY13 CY14 YTD U 52 Week L/H(₹) 50 / 127 Absolute 54% -28% 76% 67% Market Cap. (₹ mn.) 9,965 Relative 26% -35% 45% 72% E
Shareholding Pattern (as on Jun’15) Relative stock performance (Sep’14=100) 205 Jun-15 Mar-15 Dec-14 Sep-14 P Promoters 75.0% 75.0% 75.0% 75.0% 170 FII 0.5% 1.5% 2.8% 3.2% I 135 DII 0.3% 0.0% 0.0% 0.0% 100 C Bodies Corporate 4.0% 3.6% 3.3% 3.2% Others 20.3% 20.0% 18.9% 18.6% 65 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 k Total 100% 100% 100% 100% CAMLN Nifty Source: Company, Anand Rathi Research, Bloomberg
Analyst: Narendra Solanki Anand Rathi Research [email protected] Kokuyo Camlin Limited (CAMLN)
Two of the oldest brands ‘Kokuyo’ & ‘Camlin/Camel’ with unmatched consumer connect, strong brand equity Kokuyo Camlin Limited is over 80 years old company started in 1930s as Dandekar & Co. which got renamed as Camlin during 1941. Over the years, the Company has become synonymous with quality products for schools, offices and niche art markets. The Company has two of the most recognized and endearing brands in the country – CAMEL and CAMLIN. In 2012, Kokuyo S & T Ltd. Japan acquired majority stake in Camlin and rechristened the company as Kokuyo Camlin Limited. Kokuyo is a Japan based company with more than 100 years old history. It is a leading marketer in stationery, institutional furniture and catalogue sales and has presence in many countries in Asia. The vast range of products manufactured and marketed by the Company include inks, colors, writing instruments, technical and drawing instruments, office stationery, markers, fine art, notebooks and scholastic and hobby art materials. During the latest financial year 2015 the company has reported a growth of 15.6% in its revenues at ₹5,439 million as against ₹4,704 million in FY14. The growth was mainly due to increase both volume and realizations of certain products. Its EBITDA margins improved 250 basis points to 3.1% in FY15 at ₹168 million as against 0.6% in FY14 at ₹26 million and PAT margins improved 260 basis points to 0.9% at ₹49 million in FY15. The overall improvement in profitability of the company was due to lower cost of materials owing to product mix, decrease in cost of operation. In 2013, the company has embarked upon an ambitious mission to build up its capacities, capabilities and competencies and had raised funds for construction of state of the art manufacturing plant at Patalganga Industrial Area of MIDC. The construction has already started in January 2015 and management expects this plant to be operational by 2016. Kokuyo (parent) is continuously streamlining its Indian operations and has implemented various systems to improve operational and manufacturing competitiveness of the company. It is now focusing on introducing new and innovative products to the market through its network of 1500 dealers/distributors and 300000 retailers. In past it is has introduced Kokuyo notebooks in the Indian markets with remarkable success. We expect CAMLN to further improve its profitability in years to come and continue to grow its business through its existing product franchise as well as launch of new innovative products from its parent company. We initiate our coverage on Kokuyo Camlin Limited with a BUY rating and a target price of ₹135 per share. 2 Anand Rathi Research Kokuyo Camlin Limited (CAMLN) build over more than 80 years of history came together…
History of the Company Period Key Events 1931 Started operations with Horse brand ink powders and tablets, followed by Camel ink. 1946 Dandekar and Company re-christened as Camlin. 1947 Ventured into pain balm, chalks, rubber stamp pads, gums and adhesives. 1962 Entered into art material market with oil, water and poster colors, geometry boxes and oil pastels. 1974 Tarapur factory started manufacturing of wooden pencils. 1982 All- India Camel Color Contest (AICCC) started. 1984 Camlin Fine Chemicals & Pharmaceuticals divisions started with a plant for drug intermediaries & antioxidants at Tarapur. 1987 Got listed on Bombay Stock Exchanges. 1989 Collaboration with Pilot Corp, Japan for manufacturing 0.5mm high polymer leads. 1995 Taloja plant was set up as part of marketing collaboration with Winsor and Newton (UK). 1998 AICCC registered 3 million entries for the contest. 2002 Specially ink group formed for ink development and manufacturing. 2003 Camlin Exam- school stationery brand was launched. 2008 Camlin Alphakids, a 100% subsidiary, opened a pre-school in Mumbai. 2010 Formed Partnership with Hayleys Consumer Products Ltd for distribution of products in Sri Lanka. 2011 Japan's Kokuyo entered into a deal to acquire 50.3% stake in the company for ₹3.6 bn. 2012 Kokuyo S & T Ltd. Japan acquired majority stake in Camlin Ltd. and rechristened the company as Kokuyo Camlin Limited. Kokuyo Camlin starts restructuring its processes. The company initiated a program for building Capacity, Capability and 2014 Competency. 2015 Kokuyo Camlin starts construction of its new integrated manufacturing facility.
3 Anand Rathi Research Kokuyo Camlin Limited (CAMLN)
…with extensive product portfolio of over 2500 SKUs that address the wide & varied needs of its three broad segments.
CAMLN Business Segment Products Wise
School & Education Fine Art & Hobby Materials Office Stationery products products Notebooks Art Materials Gum & Paste Drawing Books Art Pastels Markers & Marker Inks Pencils & Pens Artists Oil Colors Scissors Fountain Pen & Ink Artists Acrylic Colors Staplers Color Pencils Canvas & Brushes Other Office Products Accessories Sketch Pens Painting Medium Plastic/Wax Crayons Water Color pencils Water Colors 3D Glitter, Sparkle Poster Colors Fabrica Coneliner Oil Pastels Hobby Mediums & Geometry Box Brushes, Others Technical Instruments, etc
4 Anand Rathi Research Kokuyo Camlin Limited (CAMLN)
Broad segmentation of stationery industry by type and use.
Stationery Segmentation by Type Stationery Segmentation by Use
Notebook & Paper Writing Instruments School Stationery Office Stationery
Computer & Daily use
Stationery industry includes a wide range of paper products, writing instruments, computer and daily used stationery like staplers, erasers, binders, punch machine, children stationery and other related items. Global market for Writing and Marking Instruments is projected to reach US$17.5 billion by 2020, driven by product innovations, growing penchant for luxury writing instruments and increasing literacy rates in emerging countries. Asia-Pacific represents the largest and the fastest growing market worldwide with a CAGR of 7% over the analysis period. Growth in the region is led by increased emphasis on education, large base of students and corporates, and growing demand for quality writing gear.
5 Anand Rathi Research Kokuyo Camlin Limited (CAMLN)
India stationery segment market size
Stationery Industry segment Market size (₹ Bn.) Segment - Products wise market
Computer & Daily use Office 24% Stationary, 50 School Notebooks & Stationary, Paper 51% Writing 90 Instruments 25%
Source: Company, Anand Rathi Research Source: Company, Anand Rathi Research
The Indian stationery industry is very heterogeneous comprising of a wide array of products ranging from pens to printing to notepads to inks to colors and many more. The industry is highly fragmented one, with the unorganized sector constituting almost 85%. The industry is also highly fragmented in terms of regions, with a large number of small units scattered all over the country. In terms of usage, the industry is broadly divided into office stationery and school stationery of which school stationery market is estimated to be around ₹90 billion while office stationery market is estimated to be around ₹50 billion. On product wise segmentation, Notebook & Paper products contributes around 51% while Writing Instruments and Computer and Daily use contributes 25% and 24% respectively.
6 Anand Rathi Research Kokuyo Camlin Limited (CAMLN)
Demographic trends supportive of stationery market in India…
100% Demographic trends for share of Discretionary Discretionary 75% Expenses Expenses average household consumption: (53%) (70%) Rising discretionary 50% expenditure. Necessities 25% Necessities High probability of premium (47%) (30%) purchases. 0% 2005 2025 Rise in the average household Food, Beverages & Tobacco Apparel Housing Utilities income. Household Products Personal products & Services Transportation Communication Education & Recreation Healthcare Source: Mckinsey, Anand Rathi Research India with its rapidly burgeoning economy is underpinning growth for the office stationery market. A growing middle-class coupled with higher government spends on education is driving growth in the school and education segments. Households that can afford discretionary spending is likely to go up to 94 million by 2025 from present around 10 million with its middle class growing from ~50 million to 583 million by 2025. India is one of the fastest rising market in the world with a huge potential to tap as its current stationery market is highly un organized and fragmented. 7 Anand Rathi Research Kokuyo Camlin Limited (CAMLN)
…with CAMLN best placed to muster through current phase on back of its strong brand recall and upcoming plant.
Sales (₹ Mn.) & Sales Growth CAMLN Margins Profile 6,000 18% 10.0%
5,000 15% 6.5%
4,000 12% 3.0%
3,000 9% -0.5% FY10 FY11 FY12 FY13 FY14 FY15 2,000 6% FY10 FY11 FY12 FY13 FY14 FY15 -4.0%
Sales Sales Growth (RHS) EBITDA Margins PAT Margins Source: Company, Anand Rathi Research Source: Company, Anand Rathi Research CAMLN has grown at a CAGR of ~10.5% since FY10 despite increase in competition from both organized and unorganized players in the market. Even Indian stationery industry has witnessed competition from MNC companies which have aggressively launched products in the market directly or through some partnership. However due to intense competition and high cost of manufacturing, the company has witnessed decline in margins in past which has prompted management to undertake cost rationalisation and improve manufacturing process which has been visible for the company in its latest quarterly results. The company has also invested in to set up and integrated manufacturing plant to increase its capacity at Patalganga MIDC. The plant is expected to be operationalized by mid 2016.
8 Anand Rathi Research Kokuyo Camlin Limited (CAMLN)
Which is expected to drive operating margins higher for the company
Sales (₹ Mn.) & EBITDA Margins projections
8,000 7.5%
6,500 5.0%
5,000 2.5%
3,500 0.0%
2,000 -2.5% FY13 FY14 FY15 FY16E FY17E
Sales (₹ Mn.) EBITDA Margin (RHS) Source: Company, Anand Rathi Research
We expect CAMLN to grow its revenues at a CAGR of 18% in next few years on back of improved market conditions for Indian stationery market which is fuelled by industrial growth and expansion in the education sector., rising literacy rates, greater organized retailing and increasing income levels. On profitability front, we expect company to continue to improve its profitability due to efficiency in operations, reduction in raw materials cost in the short run while positive operating leverage due to its new integrated manufacturing facility coming online in medium to long run.
9 Anand Rathi Research Kokuyo Camlin Limited (CAMLN)
Valuation and Recommendation:
With Indian stationery market expected to grow at Relative stock performance (Sep’14=100) around 10% per annum in years to come due to 205
increase in literacy rate, rising discretionary 170 expenditure amongst other, CAMLN stands as one of 135 the key beneficiaries. 100 The company’s cost rationalisation process, upcoming 65 new integrated plant and extensive dealer networks Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 are expected to drive volumes and margins going CAMLN Nifty ahead for the company.
At CMP the stock is trading at 1.6x FY16E and 1.3x Source: Bloomberg, Anand Rathi Research FY17E EV/Sales.
We initiate our coverage on Kokuyo Camlin Limited (In ₹ mn) FY-14 FY-15 FY-16E FY-17E with a BUY rating and a target price of ₹135 per share. EPS (₹) -0.8 0.5 1.1 2.5 P/E (x) - 198.3 87.4 39.9 P/B (x) 4.8 4.7 4.4 4.0 ROE -4% 2% 5% 10% ROCE 0% 6% 11% 18% EV/Sales (x) 2.1 1.8 1.6 1.3
Source: Company, Anand Rathi Research
10 Anand Rathi Research Kokuyo Camlin Limited (CAMLN)
Consolidated Financials:
(In ₹ Mn.) FY-14 FY-15 FY-16E FY-17E (In ₹ Mn.) FY-14 FY-15 FY-16E FY-17E Net Sales 4,704 5,439 6,391 7,620 Liabilities Operating Expense 4,677 5,271 6,087 7,125 Equity Share Capital 100 100 100 100 EBITDA 26 168 304 495 Reserves & Surplus 1,987 2,035 2,149 2,407 Other Income 58 82 80 95 Long-Term Liabilities 131 88 88 (12) Depreciation 89 110 110 122 Other Long-term Liabilities (65) (69) (69) (69) EBIT (4) 141 274 469 Deferred Tax Liability 108 141 141 141 Interest 88 98 104 100 Short-term Liabilities 1,611 1,819 2,095 2,455 Misc. items - - - - Total 3,872 4,114 4,504 5,023 PBT (92) 43 170 368 Assets Tax (14) (6) 56 111 Net Fixed Assets 852 1,084 1,028 1,112 PAT (78) 49 114 258 Long-Term L&A 256 135 135 135 Margins FY-14 FY-15 FY-16E FY-17E Other Non-Current Assets 5 6 6 6 Sales Growth % 7.3% 15.6% 17.5% 19.2% Current Asset 2 2 2 2 Operating Margin % 0.6% 3.1% 4.8% 6.5% Net Margin % -1.7% 0.9% 1.8% 3.4% Total 2,757 2,888 3,333 3,768 Source: Company, Anand Rathi Research
11 Anand Rathi Research Kokuyo Camlin Limited (CAMLN)
Key Risks:
As unorganised players account for almost 80% of the market and failure of CAMLN in executing its strategy may impact its profitability negatively. The company’s raw materials are crude oil derivatives and any significant volatility in crude prices may impact margins negatively for the company.
12 Anand Rathi Research Kokuyo Camlin Limited (CAMLN)
Rating and Target Price history:
CAMLN rating history & price chart CAMLN rating details
205
Date Rating Target Price (₹) Share Price (₹) 170
07-Sep-15 BUY 99 135 135
100
65 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15
Source: Bloomberg, Anand Rathi Research Source: Bloomberg, Anand Rathi Research
NOTE: Prices are as on 04th Sep 2015 close.
13 Anand Rathi Research Kokuyo Camlin Limited (CAMLN)
Disclaimer:
Research Disclaimer and Disclosure inter-alia as required under Securities and Exchange Board of India (Research Analysts) Regulations, 2014
Anand Rathi Share and Stock Brokers Ltd. (hereinafter refer as ARSSBL) (Research Entity, SEBI Regn No. INH000000834, Date of Regn. 29/06/2015) is a subsidiary of the Anand Rathi Financial Services Ltd. ARSSBL is a corporate trading and clearing member of Bombay Stock Exchange Ltd, National Stock Exchange of India Ltd. (NSEIL), Multi Stock Exchange of India Ltd (MCX-SX), United stock exchange and also depository participant with National Securities Depository Ltd (NSDL) and Central Depository Services Ltd. ARSSBL is engaged into the business of Stock Broking, Depository Participant, Mutual Fund distributor.
The research analysts, strategists, or research associates principally responsible for the preparation of Anand Rathi Research have received compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors, firm revenues.
General Disclaimer: - This Research Report (hereinafter called “Report”) is meant solely for use by the recipient and is not for circulation. This Report does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. The recommendations, if any, made herein are expression of views and/or opinions and should not be deemed or construed to be neither advice for the purpose of purchase or sale of any security, derivatives or any other security through ARSSBL nor any solicitation or offering of any investment /trading opportunity on behalf of the issuer(s) of the respective security (ies) referred to herein. These information / opinions / views are not meant to serve as a professional investment guide for the readers. No action is solicited based upon the information provided herein. Recipients of this Report should rely on information/data arising out of their own investigations. Readers are advised to seek independent professional advice and arrive at an informed trading/investment decision before executing any trades or making any investments. This Report has been prepared on the basis of publicly available information, internally developed data and other sources believed by ARSSBL to be reliable. ARSSBL or its directors, employees, affiliates or representatives do not assume any responsibility for, or warrant the accuracy, completeness, adequacy and reliability of such information / opinions / views. While due care has been taken to ensure that the disclosures and opinions given are fair and reasonable, none of the directors, employees, affiliates or representatives of ARSSBL shall be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including lost profits arising in any way whatsoever from the information / opinions / views contained in this Report. The price and value of the investments referred to in this Report and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide for future performance. ARSSBL does not provide tax advice to its clients, and all investors are strongly advised to consult with their tax advisers regarding taxation aspects of any potential investment.
Continued…
14 Anand Rathi Research Kokuyo Camlin Limited (CAMLN)
Disclaimer:
Contd…
Opinions expressed are our current opinions as of the date appearing on this Research only. We do not undertake to advise you as to any change of our views expressed in this Report. Research Report may differ between ARSSBL’s RAs and/ or ARSSBL’s associate companies on account of differences in research methodology, personal judgment and difference in time horizons for which recommendations are made. User should keep this risk in mind and not hold ARSSBL, its employees and associates responsible for any losses, damages of any type whatsoever.
ARSSBL and its associates or employees may; (a) from time to time, have long or short positions in, and buy or sell the investments in/ security of company (ies) mentioned herein or (b) be engaged in any other transaction involving such investments/ securities of company (ies) discussed herein or act as advisor or lender / borrower to such company (ies) these and other activities of ARSSBL and its associates or employees may not be construed as potential conflict of interest with respect to any recommendation and related information and opinions. Without limiting any of the foregoing, in no event shall ARSSBL and its associates or employees or any third party involved in, or related to computing or compiling the information have any liability for any damages of any kind.
Details of Associates of ARSSBL and Brief History of Disciplinary action by regulatory authorities & its associates are available on our website i. e. www.rathi.com
Disclaimers in respect of jurisdiction: This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject ARSSBL to any registration or licensing requirement within such jurisdiction(s). No action has been or will be taken by ARSSBL in any jurisdiction (other than India), where any action for such purpose(s) is required. Accordingly, this Report shall not be possessed, circulated and/or distributed in any such country or jurisdiction unless such action is in compliance with all applicable laws and regulations of such country or jurisdiction. ARSSBL requires such recipient to inform himself about and to observe any restrictions at his own expense, without any liability to ARSSBL. Any dispute arising out of this Report shall be subject to the exclusive jurisdiction of the Courts in India.
Copyright: - This report is strictly confidential and is being furnished to you solely for your information. All material presented in this report, unless specifically indicated otherwise, is under copyright to ARSSBL. None of the material, its content, or any copy of such material or content, may be altered in any way, transmitted, copied or reproduced (in whole or in part) or redistributed in any form to any other party, without the prior express written permission of ARSSBL. All trademarks, service marks and logos used in this report are trademarks or service marks or registered trademarks or service marks of ARSSBL or its affiliates, unless specifically mentioned otherwise.
Contd…
15 Anand Rathi Research Kokuyo Camlin Limited (CAMLN)
Disclaimer:
Contd.
Statements on ownership and material conflicts of interest, compensation - ARSSBL and Associates
Answers to the Best of the knowledge Sr. and belief of the ARSSBL/ its Statement No. Associates/ Research Analyst who is preparing this report
ARSSBL/its Associates/ Research Analyst/ his Relative have any financial interest in the subject company? Nature of Interest (if applicable), is given 1 against the company’s name?. NO ARSSBL/its Associates/ Research Analyst/ his Relative have actual/beneficial ownership of one per cent or more securities of the subject company, at the 2 end of the month immediately preceding the date of publication of the research report or date of the public appearance?. NO
ARSSBL/its Associates/ Research Analyst/ his Relative have any other material conflict of interest at the time of publication of the research report or at 3 the time of public appearance?. NO 4 ARSSBL/its Associates/ Research Analyst/ his Relative have received any compensation from the subject company in the past twelve months. NO ARSSBL/its Associates/ Research Analyst/ his Relative have managed or co-managed public offering of securities for the subject company in the past 5 NO twelve months. ARSSBL/its Associates/ Research Analyst/ his Relative have received any compensation for investment banking or merchant banking or brokerage 6 services from the subject company in the past twelve months. NO
ARSSBL/its Associates/ Research Analyst/ his Relative have received any compensation for products or services other than investment banking or 7 merchant banking or brokerage services from the subject company in the past twelve months. NO
ARSSBL/its Associates/ Research Analyst/ his Relative have received any compensation or other benefits from the subject company or third party in 8 connection with the research report. NO 9 ARSSBL/its Associates/ Research Analyst/ his Relative have served as an officer, director or employee of the subject company. NO 10 ARSSBL/its Associates/ Research Analyst/ his Relative has been engaged in market making activity for the subject company. NO
16 Anand Rathi Research