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Saturday, September 19, 2009

Blue Bird (India) Ltd:Is it a buy/hold or sell?

Scripscan:Blue Bird (India) Ltd
cmp:27
Code:532781

Story:Blue Bird (India) (BBIL) is a leading manufacturer of paper based notebooks and stationery under its Blue Bird brand. The company's products i.e notebooks and stationery, are designed for educational use, office use and for home and personal use. The Company derives more than 80% of the revenue from the notebook category. Besides this, the company undertakes commercial printing services in a wide variety of areas like product brochures, catalogues & instruction materials, diaries & calendars, magazines & other publications, business forms, and annual reports. The "Blue Bird" brand has a strong presence in western and southern India. BBIL's products principally cater to Western India, including the State of Maharashtra. BBIL is also present in Southern India and is expanding its presence there. AC Nielsen ORG-MARG has estimated that Blue Bird enjoys the highest market share of 48% in the organized notebook market. In November 2006, BBIL came with an IPO of 87.8 lakh shares at Rs 105 per share to finance its two major expansions: one in south and the other in west India.The fortune of the notebook industry is closely tied with the evolving and growing national economy and population. This holds true for BBIL products, since most of the end-users are students, as the Company derives more than 80% of the revenue from the notebook category. With literacy level on the rise, the 7-24 age group (the education pursuing population), which currently has a literate population of 257 million, is estimated to grow to 342 million by 2011, as per the AC Nielsen report. As a result, the notebook market is set to grow from the current Rs 5,100 cr. to Rs 8,208 cr. by 2011.In an industry dominated by the unorganized sector, the company has been able to post consistent growth in the past. Net profit of BBIL rose 42.40% to Rs 7.12 cr. in the Q1 ended June 2009 whereas Sales rose 77.03% to Rs 210.47 cr. in the quarter. For the year ended March 2009, the company had posted net sales of Rs 502.47 cr. and net profit of Rs 15.16 cr. On equity of 35 cr. (Promoters' stake- 52.6%) the EPS stood at Rs 4.33. At Rs 27, the stock is available at a P/E of about 4.5 times expected FY10 earnings (Rs 6). The mkt. cap of the company stands at just 94 cr. against expected sales of Rs 600 cr. for FY10.Going forward, the key to company's success is the growth in student population. With literacy level on the rise, the notebook market is set to grow from the current Rs 5,100 cr. to Rs 8,208 cr. by 2011. This bodes well for companies like blue bird. The blue bird stock at current levels looks undervalued, given its leadership status and also as an education play. Blue Bird India appears a pure value pick, trading at close to one fifth its FY09 sales with a marketcapitalization (m-cap) of Rs 94 cr. and sales of Rs 500 cr. The company is among the largest manufacturers of notebook and printing stationery. It is currently available at a P/E of 4.5x. Further growth could come from the fresh capacities being put up, which is expected to see bottom line contribution starting H2FY10 onwards. Investors can accumulate the Blue Bird stock at this level and add more on declines for good returns over the medium-long term.

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