Published on Fri, Nov 17, 2006 at 14:01 | Source : Moneycontrol.com
Updated at Fri, Nov 17, 2006 at 14:18
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Avoid Blue Bird IPO: India Infoline
Blue Bird (India) is open for subscription with a public issue of 87,75,000 equity shares of Rs 10 each for cash at a premium to be decided through the 100% book-building process. India Infoline says that investors can wait for some correction post listing and then take position in the company.
Blue Bird (India), BBIL a leading manufacturer of paper-based notebook and stationery products with the highest market share of 48% amongst large, organised players in India, is open for subscription with a public issue of 87,75,000 equity shares of Rs 10 each for cash at a premium to be decided through the 100% book-building process.
The price band for the issue has been fixed at Rs 90 to Rs 105. The issue closes on November 22, 2006.
The book running lead manager to the issue are DSP Merrill Lynch and Karvy Investor Services. Intime Spectrum Registry is the registrar.
The India Infoline report on Blue Bird IPO:
Purpose of issue
BBIL plans to set up new manufacturing facilities for manufacturing of student/exercise books in southern India and increase the capacity of its Pune plant. The company also plans to set up ~100 regional sales and marketing offices over the next five fiscal years. It also plans to repay its long-term debt of Rs 192 million. BBIL plan to finance the expansion plans through the proceeds of the issue (less the issue expenses). Shortfall, if any, will be funded through internal accruals."
Investment rationale
BBIL is a leading manufacturer of paper-based notebook and stationery products with 48% market share amongst the organized players.
The company also manufactures other stationary products like files, perforated pads, registers, filler papers and provides commercial printing services. From FY05, BBIL has started exporting to Ghana, Kenya and South Africa and plans to initiate exports to the developed countries including Europe and North America.
BBIL manufactures and distributes all its products across India from its Pune facility. The company is also present in southern India and is in the process of further expanding its presence to Andhra Pradesh, Karnataka, Kerala and Tamil Nadu. BBIL plans to develop facilities in southern India during FY07 and FY08 and enhance its presence in the sub-Saharan Africa with the increased marketing and penetration.
BBIL plans to set up new manufacturing facilities for manufacturing of student/exercise books in southern India and increase the capacity of its Pune plant. The company also plans to set up ~100 regional sales and marketing offices over the next five fiscal years. It also plans to repay its long-term debts of Rs 192 million.
Investment concerns
BBIL is highly dependent on its student/exercise books segment. Any disruption in this market, entry of new players or the growth of existing competitors (whether domestic or international) may adversely impact the company. The company is diversifying its business by introducing new product lines, both for stationery and commercial printing and publishing, which will reduce its dependence on the student/exercise books sales.
The student/exercise books and stationery segment contributes ~88% of the company's total revenues. As per the AC Nielsen ORG-MARG report, only 15% to 20% of the stationery industry in India is organized. The company faces severe competition from both the organized and unorganized segments of the notebook and stationery industry in India.
Paper is the key raw material for the company's business and forms a significant portion of its expenses. During FY06, paper cost as a percentage of total raw material cost (for inhouse production only) was at 73.5%. The company has no long-term supply contracts for the supply of paper and depends on the domestic suppliers. Any significant increase in the paper prices or shortage in the availability could adversely affect the results the company.
During FY06, ~ 97% of the company's total revenues were generated from sales in the western India (mainly Maharashtra). The company has so far been totally dependent on this region. The company needs to expand in other regions to reduce significant dependence on western market.
In the printing and stationery industry, Navneet Publications and Sundaram Multi Pap Ltd are the closest competitors of BBIL. However, we cannot strictly compare BBIL with Navneet, which is more of a content and publication company than just a notebook and stationery products manufacturer. We recommend investors to wait for some correction post listing and then take position in the company.
