Book blues

IPO REVIEW

Investors can avoid the Blue Bird issue given its commodity business and the long gestation period for its expansion project.

Stationery manufacturer Blue Bird (India) is issuing 87.75 lakh shares in the range of Rs 90 to Rs 105 to mop up around Rs 79"�92 crore from the capital markets.

But a commoditised business, long gestation period of the proposed expansion projects and a lack of growth visibility till FY09 have not evoked much interest from the analyst community.

Around half of the proceeds will be used to set up a plant in south India at a cost of Rs 45.41 core and expand the existing plant at Pune. The balance will be used for paying off long-term debt, augmentation of working capital and purchasing of existing office premises from the promoter, which is currently being operated on a rental basis.

The plant in south India is expected to commence operations in Q4 FY08. The expanded facility at Pune will start contributing to revenues from Q2 FY08.

Blue Bird is into paper-based notebook products, commercial printing and publication and commands 48 per cent of the domestic notebook and stationery market as per AC Nielsen ORG MARG.

The company makes exercise books, stationery products like files, perforated pads and registers and executes commercial printing of products like calendars, diaries and leaflets.

But predominantly, the company's revenue comes from notebooks. In FY06, notebooks brought in around 88 per cent of the company's revenues. Income from publications and commercial printing was just 6 per cent and 4 per cent respectively.

However, the company is trying to push sales in the stationery and publishing categories by introducing newer product lines.

Besides reducing the dependence on notebooks, this will also improve margins. Blue Bird expects to increase the share of printing in revenues to 8 per cent and that of publications to 11 per cent by 2012.

At present, the company has a production capacity of 51,800 metric tonne per annum (mtpa) of notebooks and 12,500 mtpa for printing and publishing at Pune where it manufactures around 131 tonne of notebooks a day. Its capacity utilisation for manufacturing and binding of notebooks stood at 74.3 per cent in FY06.

After the proposed expansion, the company's total notebook capacity would increase to 88,000 mtpa and printing and publication capacity would be 22,500 mtpa.

Blue Bird sells its products mainly in Maharashtra and western India. The company wishes to set up production facilities in southern India. By going to south India, the company will be able to reduce its transportation cost as paper for finished products is sourced from south India.

The main demand drivers for the notebooks industry are increasing rates of literacy, growth of consumerism, increasing urbanisation and increasing government outlay for the education sector.

As per an AC Nielsen ORG MARG study, the domestic stationery and notebook market was pegged at around Rs 8,000 crore in FY06, of which Rs 5,100 crore is attributable to the sale of notebook and exercise books.

This market is expected to increase to Rs 8,208 crore by 2011. But around 80 per cent of this market is dominated by unorganised players.

Blue Bird's sales have grown at a CAGR of 66 per cent from FY02 to FY06. Both, operating and net profit margin have improved over the period. 
 

FINANCIALS
(Rs crore)	FY06	FY05	FY04	FY03
Net sales	400.92	330.79	162.84	89.02
Y-o-Y growth (%)	21.20	103.14	82.93	70.60
Operating profit	52.17	33.98	13.25	6.86
Y-o-Y growth (%)	53.53	156.45	93.15	223.58
OPM (%)	13.01	10.27	8.14	7.71
Net Profit	25.12	15.99	5.31	2.40
Y-o-Y growth (%)	57.10	201.13	121.25	380.00
NPM (%)	6.27	4.83	3.26	2.70

For H1 FY07, the company's sales are 18.35 per cent higher than H1 FY06 to Rs 23.71 crore. Its net profit is up 19.65 per cent y-o-y to Rs 15.10 crore for HI FY07. On a post-issue diluted basis, the stock would trade in the range of 10.4 and 12.2 times its annualised H1 FY07 earnings.

In the organised segment, Blue Bird's competitors include established companies like ITC and Navneet Publications. "But Navneet is more of a content and publication house and thus can fetch better valuations," says an analyst from Anand Rathi. Blue Bird has a very small presence in this segment.

"Blue Bird is a commodity company and seems overvalued as compared to other commodity companies," he adds.

Issue Opened: November 16
Issue Closes: November 22