Subscribe to Blue Bird IPO with medium term view: Keynote

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Blue Bird (India), 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 Keynote Capitals report on Blue Bird IPO: 

Recommendation - Subscribe with a medium term view

• Blue Bird India, BBIL is a leading player in the domestic note book and stationary market with a track record of around 30 years.
• The size of the notebooks and stationery market is estimated at Rs 8000 crore (AC Nielsen ORG MARG report). Of this fragmented market, around 80% is held by the unorganised sector. Also large players account for 15% of the 20% share of the organised sector.
• Its "Blue Bird" brand of notebooks and stationary products has a share of 48% of this 15% share held by large players.
• Capacity expansion project to lead to improved quality, economies of scale and better margins.
• The capex will be backed by addition of 100 regional sales offices in various parts of the country. This will also help it reduce its over dependence on the Maharashtra market, which accounted for 97% of sales in FY06.
• BBIL may well be in a position to take some share of high quality imported stationery products market, as demand for high quality branded products is increasing.
• Success of the company's business model will hinge on its ability to improve its brand equity, in the absence of which, scope for margin improvement would be limited. We believe given the valuation of 11.2x FY07E and 8.7x FY08E, investors may consider this IPO with a medium term view. 

Investment Concerns

• Intense competition from unorganised sector. Also, as the industry gets more organised, competition from other organised sector players is likely to intensify.
• Prone to fluctuations in the prices of paper, which is the single biggest component of cost of manufacture.
• Geographical concentration - 97% of sales are from Maharashtra and western India.
• Higher number of credit days offered both to customers as well as suppliers, which may create cash crunch problems.
• Blue Bird logo is not trademark protected.