Tuesday, October 21, 2008

Repro Ind - Q2 results

Index - 10683
CMP - 86.7

I had written here about Repro Industries and my liking for the business and the stock. I had followed that up with analysing the Q1 results here.

The company announced its Q2 results and it is in line with expectations. Sales increased dramatically over last year from Rs 44 crores to Rs 63 crores a increase of 43%. The increase sequentially over the Q1 quarter is about 36%.

The Q2 quarter invariably has higher sales due to the balance sheet printing business however it has lower margins.

The net profit has grown at 10% over last year from 3.8 crores to 4.2 crores. The reduced net profit margin is due to a mark to mark provisioning of Rs 2 crores on forex loss. Minus that the net profit would have moved from 3.8 crores to 5.4 crores a jump of nearly 42% at the operational level.

Half yearly EPS stands at Rs 8.57 per share and the cash EPS stands at Rs 12.26 per share.

I have added more to my position on the stock around the Rs 90 mark. Stock is available around a PE of 5-6 on FY09 profits.

I have uploaded the FY 2008 balance sheet here

8 comments:

Anonymous said...

You have given a correct perspective for this Indian stock and readers will benefit from the information.

man4urheart said...

I read through annual report of this stock and also had a look at its competetors.

You have done a thorough analysis!

But did you notice price has gone no where in last 3-4 years! it is stuck in a range of 70 - 180!

It never acheived its peak of 300 of year 2006!

Does company have any agressive plans for future or earnings going to stay like this?

Ninad Kunder said...

Hi Man4urheart

For me a move from 70 to 180 is fairly good move. Thats nearly 150%return on a two year time horizon. To me that is a fair return expectation.

On the future plans of the company, the reason the company attracted me was the focus on the print process outsourcing model that they have developed over the last few years and the focus on childrens books for World bank funded programs.

I dont see the slowdown affecting this segment and there would increased business opportunities. Also the depreciating rupee will be a advantage to the company.

Cheers

Ninad

sajanvm said...

Ninad

Some concerns:
1) ROE is not great - ranged from 11-15%
2) They seem to require large amount of working capital .
3) Growth needs significant capex. Since ROE is not that great, not sure if growth is value creating.

Would like to know your views.

Rgds
Sajan

Ninad Kunder said...

Hi Sajan

Good questions

1) You are right on the low ROE. Part of this is driven by the fact that the last 2 years has been high in terms of capex expansion. I would expect ROE to improves once the capex slows down. Also last year they got hit by exchange losses.

2) The working capital is bcos printing is a 90 days payment cycle. On the raw material side companies typically get better discounts on bulk & cash down payments.

3) Your third point is a good point. What you are stating is right that printing is a high capex, low ROE business. What I like about Repro is that they are moving up the value chain and working on a process outsourcing model where the value add is much higher and hence the resultant margins.

Also it is critical to equate the ROE levels to the P/E that u r paying for the stock. So Repro was 10-15 ROE stock available at a PE of 15-20 I wouldn't look at it. The stock is available at 6-7 PE which is within my comfort zone.

Also they have managed to build a nice niche in the international education market which is a natural hedge against economic cycles.

Cheers

Ninad

sajanvm said...

Hi Ninad

Thanks for the response.

Yes, hopefully the ROE shd improve if capex levels come off.

What would be your estimate/understanding of maintenance capex ? Am trying to see what is the free cash flow.

On your point on ROE vs PE - I am more comfortable saying that if ROE is say 15 (higher than risk free rate), then the business is probably worth more than book value. If ROE was consistently say over 25, then I would think that it shd trade at much more than book. This is just my way of a sanity check and not a way to arrive at a valuation.

Rgds
Sajan

Ninad Kunder said...

Hi Sajan

I like u r thumb rule for arriving at a sanity check with Book Value and ROE

On Repro the AGM is tommorrow. Will try to attend it. Will see what the management has lined up. Might plug in a update post after the AGM.

Cheers

Ninad

sajanvm said...

thks a ton Ninad. Do let me know if you hear anything interesting.
My email id is sajan.mathew@exilant.com