dic india ltd[1] - business standard · 2010-05-27 · research mint money with fairwealth….....

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RESEARCH :: COMPANY :: DIC INDIA LTD. (SMALL CAP)

26th May’ 2010

60.

Stock Info (TTM Basis) Sector Printing Ink Market cap Rs. 254.28 cr Face value Rs. 10 Book value Rs. 216.06 EPS Rs.32.01 Sales Growth 0.98% 52 week H/L 322/136 Avg. Daily Vol (2wk) 8387 Chairman Dr. P K Dutt Listed At BSE/NSE Equity capital Rs. 9.18 cr FII’s/MF’s 0.78/0

DIC India, formerly known as Coates of India, is a part of the DIC Group of Japan. The company manufactures printing inks which are basically used as intermediates by the publication and packaging industries. Its manufacturing facilities are located at Kolkata, Delhi, Mumbai, Chennai, Noida and Ahmedabad. The company has two wholly owned subsidiaries namely Rohit Industries and DIC Coatings India.

Company provides inks for all types of printing processes and methods. Its offset and liquid inks are made for use in new-generation high speed printing machines. The company also produces a wide range of UV lacquers brand-named 'Viocure' to enhance the print quality.

Currently the company is offering black, offset, liquid, screen & print finish inks, synthetic resins, press room chemicals, and rubber blankets. Key Highlights

The Valspar (Singapore) Corporation Pte. Limited is acquiring DIC Coatings India Ltd (wholly owned subsidiary of DIC India Ltd.) at a cost of Rs.40.06 cr. Divestment of the Can Coatings non-core business of the company would improve the fundamentals of the business.

During the CY09, company has incurred a capital expenditure of Rs.9.49 crore primarily for acquiring plant & machinery. The company has consistently doing R&D Expenditure from the past few years with the motive to develop environment friendly products with high performance for niche segment.

Future Outlook At Current market price of Rs277, the stock is available at P/E of 9.2x of its FY10E earnings, and 8.4x of its FY11E earnings. We recommend BUY with target price of Rs340, given that company’s future shows potential.

Particulars (In Rs Crore) CY09 CY10*E CY11*E Total Revenue 468.19 515.01 566.51

Expenditure 424.18 463.51 510.99

PBIDT 44.01 51.50 55.52

Interest 3.82 3.02 2.87

Depreciation 8.23 7.27 7.47

PBT 31.96 41.21 45.18

Tax 9.66 13.60 14.90

PAT 22.3 27.61 30.27

EPS 23.61 30.08 32.97 Source: Company Reports, Fairwealth Research Estimate *Estimated

CONTENTS

Key Highlights & Future Outlook…………………..Page1 Company Profile………..Page2 Financials of the Company……………...…Page4

Long Term Buy CMP Rs 277 Target price Rs 340 Projected PE 10-12 Investment period 6-9 months

Why to Invest in DIC India Ltd ……………….………… Page7

Fairwealth Research Desk http://fairwealth.in/Research.aspx Email:[email protected] Direct Line: 0124-3024874/840

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Debt/Equity Ratio

QUARTERLY ANALYSIS

Mar’10 Mar'09 Var % Y-O-Y Dec'09 Var % Q-O-Q

Net Sales 124.33 105.33 18.04 121.89 2.00

Add: Other Income 5.82 0.86 576.74 4.54 28.19

Total Income 130.15 106.19 22.56 126.43 2.94

Less: Expenditure 115.29 98.48 17.07 112.81 2.20

PBIDT 14.86 7.71 92.74 13.62 9.10

Less: Interest 0.74 1.67 -55.69 0.94 -21.28

PBDT 14.12 6.04 133.77 12.68 11.36

Less: Depreciation 2.03 2 1.50 2.09 -2.87

PBT 12.09 4.04 199.26 10.59 14.16

Less: Tax 2.47 1.52 62.50 2.9 -14.83

PAT 9.62 2.52 281.75 7.69 25.10

EPS 10.48 2.75 281.09 8.37 25.21

CEPS 12.69 4.92 157.7 10.65 19.12

OPM% 11.9 7.3 - 11.1 -

NPM% 7.7 2.3 - 6.3 -

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The company has lowered its debt-equity ratio which is favorable as there will be lower interest cost. It is expected that they are keen to reduce the debt in future from the proceeds they will get from the sale of their subsidiary (DIC Coatings India Pvt Ltd.)

In CY09, its EPS had increased by Rs.3 due to decrease in interest expenditure. Debt-Equity ratio in the CY09 stood at 0.24.




During the quarter ended Mar’10, DIC India Ltd. net sales grew by 18% (y-o-y basis) to Rs 124.33 cr from Rs 105.33 cr during the corresponding period last year. The operating profit of the company witnessed a growth of 92% to Rs14.86 cr as against Rs7.71 cr last year. The Operating profit margin of the company surged 460 bps to 11.9% against 7.3% during the same quarter last year. The bottom line of the company grew by 281% for the quarter ended on 31st March, 2010 to Rs 9.62 cr as against Rs 2.52 cr during the corresponding period last year. Appreciation in PAT is due to decline in interest cost of the company by 55% to Rs 0.74 cr against Rs 1.67 cr. However, on q-o-q basis company’s topline grew marginally by 2% but bottom line grew by 25% for the quarter ending Mar’10 from quarter ending Dec’09.

FINANCIALS OF THE COMPANY PAST FIVE YEARS PERFORMANCE

Particulars CY09 CY08 CY07 CY06 CY05 Net Sales 459.25 471.93 404.58 338.18 277.79 Stock Adjustments -1.45 12.04 -8.65 9.5 5.22 Other income 10.39 4.06 4.99 5.22 4.52 Total Income 468.19 488.03 400.92 352.9 287.53 Less: Expenditure 424.18 451.97 370.32 327.79 264.1 PBIDT 44.01 36.06 30.6 25.11 23.43 Less: Interest 3.82 5.72 7.12 5.04 3.75 PBDT 40.19 30.34 23.48 20.07 19.68 Less: Depreciation 8.23 7.2 6.77 5.54 4.97 PBT 31.96 23.14 16.71 14.53 14.71 Less: Tax 9.66 8.05 5.79 4.55 4.58 Net Profit 22.3 15.09 10.92 9.98 10.13 Less: Extraordinary items 0.02 0.85 0.69 0.88 0.59 Adj. Net Profit 22.28 14.24 10.23 9.1 9.54 Equity Share capital 9.18 9.18 6.89 6.89 6.89 EPS 23.61 15.84 15.07 14.46 14.8 Cash EPS 32.57 23.68 24.89 21.93 21.42 Operating Profit Margins 9.58 7.64 7.5 7.4 8.4 Net Profit margins 4.8 3 2.5 2.6 3.4

Book Value 216.06 196.45 170.39 157.45 147.04 Source: Capitaline Database

During the Calendar Year 2009 the Net sales of the company witnessed a decline of 2.68% to Rs 459.25 cr as against Rs 471.93 cr during the corresponding period last year. Correspondingly the PBIDT of the company worked out to be Rs 44 cr increased by 22% as against Rs 36 cr over last year, as the raw material cost as % of sales fell by 500 bps to 62.7% against 67.7%, resulting in the increment of operating profit margin by 194 bps to 9.58% over last year. However, Net profit after tax registered a growth of 56% to Rs 22.38 cr as against Rs 14.24 cr over the corresponding period last year, due to decreased interest cost. The interest cost of the company witnessed a decline of over 33% to Rs 3.82 cr as against Rs 5.72 cr. The effective tax rate for the CY09 stood out at 30.2% which is around 400 bps less than last year.




BALANCE SHEET

2009 2008 2007 2006 2005 Net Worth 198.34 180.34 117.4 108.48 101.31

Loans- Term 26 40.82 14.79 52.87 40.88

Loans - Working Capital 16.67 8.87 6.09 16.42 3.53

Deferred Tax Liability 7.01 6.93 6.32 5.9 5.35

Total 248.02 236.96 144.6 183.67 151.07

Net Block Including WIP 76.27 75.44 68.8 53.57 45.38

Investments 10.75 10.75 10.75 10.75 10.75

Net Working Capital 161 150.77 65.05 119.35 94.94

Deferred Revenue Expenses 0 0 0 0 0

Total 248.02 236.96 144.6 183.67 151.07

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Stock Performance

Beta = 0.82

The company’s stock has outperformed the small cap index in the past three months. In the time span of Jan’10 to Apr’10, DIC India stock price scaled up from Rs.189 to Rs.300, by giving return of around 59%, while small cap index has grown from 8232 to 9207, by giving return of around 12%.




DIVIDEND PAYOUT

Book value vs Equity

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The company’s net sales increased to Rs. 459.25 crore and the adjusted PAT increased to Rs. 22.28 crore in the CY2009. Its net profit margin improved because of reduction in interest cost. Company’s net sales are grown at a CAGR of 13.5 % in the past four years which is more than the industry’s growth rate.

DIC India has shown consistent performance till date, even during the time of recession it managed to perform well in the industry.

This is reflected by the increasing trend of its book value from the CY 2005. Its book value increased to Rs.216.06 in the CY 2009 from Rs.147.04 in the CY 2005.

Currently, it is trading at a book value of 1.28. The hidden value of the stock has potential and is expected that it will command premium in future.




DIVIDEND PAYOUT

Year of Dividend PAT (Rs. Cr) % of Dividend Dividend Yield %

2009 22.3 40% 1.99 2008 15.09 35% 3.11 2007 10.92 35% 1.47 2006 9.98 35% 1.81 2005 10.13 35% 1.61

Company has been paying handsome dividend from many years. In CY09 also they have given dividend of 40% as against 35% in CY08.

ANALYSIS & REPORT

Why to invest in shares of DIC India Ltd.?

SECTOR:

The size of the Indian Market for Printing Inks Industry is estimated to be approximately Rs.1800-2000 crores (US Dollars 400 Million). It is expected to grow at between 12-15% annually in terms of volume. There are around 25-30 ink makers in the medium size category and an estimated 200 ink makers in the small scale segment. Capacity of ink manufactured in India is estimated to be around 110 million tonnes.

Main Segments SEGMENTS FEATURES Newspaper Inks Web Offset Inks

Sheet fed offset Cold set and Heat Set Inks

Flexographic & Gravure Inks Packaging & Publication inks

Can Coatings & Inks -

Screen Printing Inks Solvent & UV Based

Inkjet Inks Solvent & UV based

Marking & Coding Inks -

UV Coatings - Speciality Inks -

The ink demand in the Newspaper Industry grew rapidly over the past 3-4 years by nearly 20%. The Packaging Industry which is another main consumer of printing ink, has witnessed a growth of approximately 12.5% and the corrugated packing industry grew by over 8%. The flexible packaging growth is in excess of 15% with the expansion of the food and retail industry. Ink consumption in screen printing is showing steady growth trends as there is more demand from the retail segment for POPs, Signage, etc. In the industrial screen printing segment the growth comes from applications in the automotive segment for auto dials, decals for motorcycles and four wheelers, etc.




The Inkjet ink requirement in the country is expanding exponentially with the rapid increase in the population of Digital Printers both Solvent and UV based. Though the majority of inks for this industry are presently imported, there are a growing number of local inks manufacturers who have started offering products to replace imported ink.

Consumption of Printing Ink is directly proportional to the state of economy. Current per capital consumption of Inks in India is 80 gms per persons as against 300 to 400 grams in developed countries. Thus, there is a lot of scope for the companies to grow in the industry as to match up with the demand of developed countries.

COMPANY: Company's main factories at Kolkata and Noida are recipient of ISO 14001 certification by BVQI.

DICIL is redoubling its efforts to develop innovative, high-performance products that respond to market needs, in line

with its management vision, “Color and Comfort by Chemistry.”

Company is consistently doing R&D expenditure with focus to upgrade the product portfolio and to develop several environment friendly products with high performance to cater to some niche markets. The R & D Centre of the company is recognized by the Central Government, Ministry of Science and Technology.

Company has strict policies for the use of materials based on international codes of practice. It has taken voluntary

measures to ensure high safety, health and environment standards at its establishments. They cover aspects such as waste disposal, occupational health hazards minimization, internal safety audits, safety training and providing advice to customers and contractors on the safe handling, disposal and transportation of the company’s products.

FUNDAMENTALS: Company is consistently focusing on improving margins through better productivity, greater focus on logistics and

effective working capital management. They will facilitate the development of new and high performance products in the commercial printing sectors.

Company is selling its Can Coatings business which is operated by its subsidiary DIC Coatings India Ltd as it is not the core business of its parent company. This will lead the company to generate funds and to utilize in their core business. Thus, restructuring by the company will further improve their fundamentals.

Company’s customer base has significantly improved and market size increased. This is due to continuous technical assistance and access to technology know how from DIC Corporation, Japan, the world's largest ink manufacturing company.

Company has a basket of several internationally recognized products and has plans to exploit these as well as to

increase sales through new product launches and expanding market network.

Growth of printing ink industry is directly related to the GDP growth. It is expected that the company’s revenues would

increase as IIP for March month came out to be 13.5%, which is positive for the sector.




Disclaimer: This publication has been solely prepared for the information purpose and does not constitute a solicitation to any person to buy or sell a security. While the information contained therein has been obtained from sources believed reliable investors are advised to satisfy themselves before making any investments. Fairwealth Securities Pvt Ltd does not bear any responsibility for authentication of the information contained in the reports and consequently is not liable for any decision taken based on the same. Further Fairwealth Research report only provides information updates and analysis. All opinions for buying and selling are available to investors when they are registered clients Of Fairwealth Investment advisory services. As a matter of practice, Fairwealth refrains from publishing any individual names with its reports. As per SEBI requirements it is stated that, Fairwealth securities Pvt Ltd, and/or individuals thereof may have positions in securities referred herein and may make purchases or sale while this report is in circulation.

dic india ltd[1] - business standard · 2010-05-27 · research mint money with fairwealth….....

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