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Monday, December 21, 2015

Control Print Target Achieved - ROI @ 109% in 12 Months

Dear Reader,

We are glad to inform you that our Hidden Gem stock of Nov'14 - Control Print Ltd (BSE Code: 522295) has achieved its target today giving absolute returns of 109% to our Hidden Gems members in period of 12 months. Our team suggested Buy on Control Print Ltd at price of  Rs. 243.90 on 30 Nov'14 with a target price of Rs. 510. As target is achieved, we suggest our members to continue to hold the stock as we believe company will continue to perform well in coming quarters like that of previous quarters.

​Company has declared its Sept'15 quarter results on 31st Oct'15, sales​ of the company have grown by 28.42% to 36.69 crores. With continuous control on operating expenses, the EBITDA margins of the company have expanded to 29.41% from 22.95% and the EBITDA has grown by 64.59% to 10.79 crores, the net profit of the company is up by 40.65% to 7.29 crores.

Control Print has recently declared issue of bonus share. Company has decided to issue bonus shares to existing share holders of the company in the ratio of 1:2 i.e. for every Two (2) Equity Shares held in the Company One (1) Equity Share shall be allotted.

The board of Directors of Control Print Ltd in its board meeting held on November 17, 2015, has considered and approved the following:

1. Issue of fully paid-up Equity Shares as “Bonus Shares” to the existing shareholders of the Company in the ratio of 1:2 i.e. for every Two (2) Equity Shares held in the Company One (1) Equity Share shall be allotted.

2. Draft Notice of Postal Ballot for seeking shareholder’s approval inter-alia to increase the Authorized Share Capital of the Company from Rs. 15 Crore comprising of 1,50,00,000 Equity Shares of Rs. 10/- each to Rs. 20 Crore comprising of 2,00,00,000 Equity Shares of Rs. 10/- each, consequent amendment to the Capital Clause of Memorandum of Association of the Company and also proposed issue of Bonus Equity Shares.

Issue of Bonus share is a good move by company which indicates that company is Investor friendly and also shows the confidence of management in future growth outlook of business. Company has not declared the record date, hence investors who have bought or buying this stock are eligible for bonus share. Share price will be adjusted post allotment of bonus share, that means if you are holding 10 shares as per current price of Rs. 510, post bonus share allotment, your share holding will increase to 15 shares and share price will be adjusted to Rs. 340.

Below is the summary of Control Print Ltd shared by our team under Hidden Gem stock recommendation - Nov'14

1. Company Background:

Control Print Limited (CPL) is an ISO 9001:2008 certified company based in Mumbai (Maharashtra), provides industrial grade coding and marking solutions to various industries such as pharmaceuticals, personal care, food and beverages, metal, agrochemical and extrusion products, such as pipes and wires. The company specializes in providing solutions for printing variable information such as batch numbers, manufacturing and expiry dates, maximum retail price, serial number, special markings, logos, company/brand name, and barcodes.

Control Print has now over 2 decades of experience in the Coding and Marking Industry and has partnered with leading global players technologically. The company had entered into a joint venture with Markem Corporation, U.S., to manufacture and market its products in India. Markem Corporation is a renowned coding and marking company having worldwide operations and is the undisputed world leader in Hot Ink Roll Technology for coding equipments. Along with Markem Corporation, Marconi Data Systems, USA, Bv Korthofah, the Netherlands and Ostling Metal Marking System GMBH, Germany are also among the global partners of CPL. During FY12, Company has acquired "Liberty Chemicals Private Limited" as its wholly owned subsidiary.

The company manufactures and trades the printing machines required for the above applications, provides consumables such as ink and spares and also provides annual maintenance contract (AMC) services for the same.

The company manufactures the printing machines under licences from various companies such as KBA-Metronic AG (Germany) for continuous inkjet (CIJ) printers under the alpha JET brand, and Sisma (Italy) for large character inkjet printer. The company has two manufacturing and assembling facilities, in Vasai (Maharashtra) and Nala garh (Himachal Pradesh). The company also trades laser printers, which it directly imports from Macsa ID, SA (Spain).

Company has also set up a laboratory-cum-demonstration unit at Marol, Andheri. Earlier, CPL had technical tie up with the world-leader Avery Dennison, US, a Fortune-500 company.

Company’s Product Range:
  • Videojet Range of Small Character Ink Jet Printers
  • Marsh Range of Large Character Ink Jet Printers
  • Kortho Hot Quickcoders
  • Conprint Range of Wet Ink Contact Coders
  • Ostling Range of Metal Marking Systems
These solutions work on-line at high speed and offer the most economical running cost.

Technology Partners:

1. KBA-Metronic Aktiengesellschaft is a medium-size technology company which specializes in the development, design, production, marketing and service of printing and coding systems. Metronic AG is also a leader in patented innovation.

The company was founded in 1972. It is a subsidiary of Euro 2.7 billion Koenig & Bauer AG (KBA), the world’s third largest print equipment manufacturer, and is located in Veitshöchheim in the Lower Franconia region of Germany.

The innovative product portfolio from KBA-Metronic AG offers customers around the world a choice of practical and highly flexible complete solutions. Excellent product quality and the excellent standard of our extensive services make KBA-Metronic AG a partner which industrial customers can depend on. The entire company has been certified to DIN EN ISO 9001:2000.

2. Macsa has an impressive history with more than 90 years of experience, and to know its history, one must go back to 1908 when the company Framun located in Manresa (Barcelona) set up the manufacture of rubber stamps. A few years later, this company started to distribute machinery and consumables for rubber stamp manufacturers all over Spain

Due to the growing demand for industrial coding and marking, a line which has always been part of Framun's range of products, in 1983 Macsa was created as a completely independent company to focus on finding solutions for the increasingly sophisticated and complex problems posed by laser industrial coding and marking customers.

The need to satisfy the end consumer, along with the international regulations and the latest technological advances in distribution and logistics, created the need for all products that are packaged, especially in the food sector, to contain an increasing amount of clearly written variable information

Thus Macsa, has for almost a century been a fore runner in innovation in laser technology. Currently with the most superior technology, Masca is the market leader in this market.

Manufacturing Facilities:

Control Print Limited has two modern manufacturing centers located at Vasai, on the outskirts of Mumbai, and Nalagarh, Himachal Pradesh. Aesthetically designed and fully equipped, these facilities are complete with all the necessary support tools, services and amenities required to ensure the highest quality of products and services consistently.

In addition to manufacturing capabilities each center has comprehensive service training facilities for external as well as internal customers.

Vasai – Spanning over 8000sq ft, the Vasai centre is a hub for assembly and manufacture of the entire Control Print product range. The entire range of Control Print inks is also manufactured at this facility.

Nalagarh – Company’s additional facility at Nalagarh commenced production in 2008. This new facility was a step towards fortifying company’s expansion plans enabling a large increase in overall manufacturing and assembly capacity for all foreseeable future requirements. Spanning over 20,000 sq ft this facility is capable of assembly and manufacture of not only our entire product range but also for manufacturing of components and entire sub-assemblies required for company’s products enabling further improvements in quality control and cost efficiencies. There is also an additional fluids facility capable of manufacturing the entire range of solvents and inkrolls.

GuwahatiControl Print currently has its modern production facilities located at Vasai and Nalagarh, while the manufacturing unit at Guwahati is expected to be commissioned soon.

The necessary statutory approvals for commencement of construction have been received early this year and the construction work for setting up manufacturing Unit at Guwahati, Assam is almost completed.  As per the management, the plant is expected to commence production by end of this year. The proposed unit shall be entitled to tax benefits under Income Tax Act.

2. Recent Developments: (as on 30 Nov'14)

i) Expansion of manufacturing capacity with new unit at Guwahati, Assam

Control Print currently has its modern production facilities located at Vasai and Nalagarh, while the manufacturing unit at Guwahati is expected to be commissioned in the Financial Year 2014-2015.

The necessary statutory approvals for commencement of construction have been received early this year and the construction work for setting up manufacturing Unit at Guwahati, Assam is almost completed.  As per the management, the plant is expected to commence production by end of this year. The proposed unit shall be entitled to tax benefits under Income Tax Act.

ii) Exploring Opportunities in Overseas Market

Company is setting up a Branch Office at Sri Lanka to explore the overseas market and opportunities and to expand business activities and operations. The Management has taken requisite steps for obtaining necessary approvals from appropriate authorities in Sri Lanka and has submitted the required documents to incorporate the Branch under their Laws. However, certain statutory approvals are awaited.

iii) SAP ERP and CRM implementation

As per the annual report, Company has taken another important initiative i.e. implementation of SAP – Enterprise Resource Planning (ERP) and Customer Relationship Management (CRM) software and the same was expected to go live during 2nd quarter of this financial year.

SAP and CRM implementation will facilitate company to streamline its business processes and operations and would be beneficial in long run in managing the business process effectively and efficiently. This will help company to improve its cash flows from operations.

3. Financial Performance: (as on 30 Nov'14)

Control Print standalone net profit rises 36.94% in the September 2014 quarter

Net profit of Control Print rose 36.94% to Rs 51.9 million in the quarter ended September 2014 as against Rs 37.9 million during the previous quarter ended September 2013. Sales rose 20.31% to Rs 285.7 million in the quarter ended September 2014 as against Rs 237.4 million during the previous quarter ended September 2013

Control Print net profit rises 39.15% in the June 2014 quarter

Net profit of Control Print rose 39.15% to Rs 49.4 million in the quarter ended June 2014 as against Rs 35.5 million during the previous quarter ended June 2013. Sales rose 34.59% to Rs 267.5 million in the quarter ended June 2014 as against Rs 198.6 million during the previous quarter ended June 2013

4. Key Concerns & Risks:

i) The Company is still dependent on imports for raw materials and finished goods and also has to make royalty payments and is therefore exposed to foreign exchange fluctuation risk. Depreciation of rupee against the dollar and euro can impact the profitability of the company.

ii) Since the last few years the promoters have been increasing stake in the Company by issuing convertible warrants to themselves. Recently, board of Directors of the Company have approved conversion of 4,00,000 (four lakh) Warrants (issued on January 27, 2014 at a price of Rs. 53.23 including premium of Rs. 43.23 per share) into equity shares of the company which resulted in increase of total paid of the capital of the company to Rs. 9,84,82,480/- divided into 98,48,248 equity shares of the face value of Rs. 10/- each. Though promoters are increasing stake in the company, issuing warrants and converting to equity shares dilutes the equity capital and finally EPS which is a concern for us. Being a debt free company, we believe promoters must increase stake via open market purchase route in interest of minority shareholders.

5. Saral Gyan Recommendation: (as on 30 Nov'14)

i) Overall coding and marking Industry growth is closely co-related to packaging industry growth and the manufacturing sector growth as a whole. The Indian Coding & Marking industry has reached a level of maturity and acceptance across applications and is dominated value-wise by 4 players with Control Print being amongst them. Being a manufacturer of majority of the Items required for Coding and Marking industry and having a leadership edge in technological terms, Control Print has an advantage over other players in the industry and can increase market share and installed base.

ii) Looking at financial performance of the company, we can observe that company’s EBITDA margins have improved from 5% to 22% in last 5 years (FY 09-10 to FY 13-14) with significant important in performance ratios like ROA, ROE and ROCE.
Moreover, company enjoys debt free status with surplus cash. With new manufacturing facility at Guwahati, we expect company will continue to deliver revenue and profitability growth above 20% going forward and maintain its high operating margins.

iii) With government focus to accelerate manufacturing Industry with recent initiatives like “Make in India” campaign, company like Control Print will be the direct beneficiary. As manufacturing becomes increasingly computerized, coded information can guide products through distribution channels and thereby reduce costs. Moreover, to comply with ISO & UL certification, the user companies must have an effective product identification system in place. This provides good business opportunity for coding companies like Control Print.

iv) Control Print enjoys strong brand and established market position in industrial printer segment. Association with various global leaders in all the respective Coding & Marking technologies gives technological edge to the company. During the last two years, Company have seen good growth in non-inkjet technology namely Thermal Coders Transfer Overprints, Thermal Ink Codes and Laser coders. Now, company is planning to improve its product portfolio and market presence in these segments with upgraded models.

v) In FY 2014, Control Print generated sales worth 2.27 crores from exports. Exports currently contribute only 2.4% to total sales of the company. However, considering the exports growth seen in past years and increase in manufacturing capacity with new plant at Guwahati, we expect significant increase in revenues from exports. 
Also, cost benefits of manufacturing in India and technical collaboration with leading global players can help company to capitalize on export opportunities going forward.

vi) Control Print has paid uninterrupted dividend from 2002 to 2008. However, later in 2009 there was decline in profits because of higher operating expenses incurred by the company due to new manufacturing plant and slower rise in demand. Hence, dividend was not paid by the company for 3 years (from FY09 to FY11). As profitability and cash flows improved later, company has resumed paying dividend since last 3 years and dividend payout is in the range of 15% to 20%. Dividend yield at current market price is 1.03%.

vii) As per our estimates, Control Print can deliver bottom line of 207.4 million for full financial year 2014 – 15, annualized EPS of Rs. 21.5 with forward P/E ratio of 11.3X and superior EBITDA margins (~21%) for FY 2014-15, which makes stock an attractive bet at current market price with limited downside risk and good upside potential for medium to long term investors.

viii) On equity of Rs. 98.48 million, the estimated annualized EPS for FY 14-15 works out to Rs. 21.5 and the Book Value per share is Rs. 98.4. At current market price of Rs. 243.90, stock price to book value is 2.48

Considering recent expansion, strong operating margins with debt free status and high growth opportunities in the business, Saral Gyan team recommends “Buy” on Control Print Ltd at price of Rs. 243.90 for target of Rs. 510 over a period of 12 to 24 months.

Buying Strategy:

  • 70% at current market price of 243.90
  • 30% at price range of 190-210 (in case of correction in stock price in near term)
Portfolio Allocation: 4% of your equity portfolio

To Read / Download Saral Gyan Hidden Gem - Nov'14 Research Report - Click Here

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