Buy Balmer Lawrie: Nirmal Bang

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Buy Balmer Lawrie: Nirmal Bang

Nirmal Bang is bullish on Balmer Lawrie Investment and has recommended buy rating on the stock in its May 30, 2011 research report.

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Nirmal Bang is bullish on Balmer Lawrie Investment and has recommended buy rating on the stock in its May 30, 2011 research report.

"Balmer Lawrie Investments Limited (BLIL) was incorporated in the year 2001 with the sole purpose of disinvestment of it's subsidiary company, Balmer Lawrie & Company(BLC) in which the company holds 61.8% stake. As per the regulator, BLIL is not allowed to transact any other business except holding equity stake in BLC. At the time of incorporation, BLIL has got an exemption from the RBI under the provision that company will not transact any other business apart from acquiring shares of BLC and subsequently disinvesting them. Additionally, the regulator has also stipulated that BLIL will wind up its business on completion of disinvestment of shares of BLC. As a result, in-line with the directions issued by the regulator, BLIL continues to be the holding company for BLC and conducts no other business activity."

"The prime source of income for the company is the dividend that it receives from it's subsidiary. BLIL, in turn, distributes the dividend that it receives in year 1 from BLC to it's shareholders in year 2. The company has maintained an average pay-out ratio of 77.3% over the last five years with the latest pay-out ratio at 79.9%. Out of the proceeds received from the subsidiary in the form of dividends in FY'09, the company paid a dividend of Rs.7.60 per share during FY'10. The company has witnessed an increase of 15% y-o-y in its dividend receipts from the subsidiary in FY'10. Hence, for FY'11 we expect the company to pass on the increase in the same proportion to its shareholders. Extrapolating the same, the dividend per share figure for FY'11E and FY'12E comes to Rs.8.75 per share. Similarly, with the announcement of dividend of Rs.26 per shaer by the subsidiary company, we expect the dividend for FY'12E to be Rs.9.88 per share."

"The Board of BLIL is meeting today to consider the financial results for FY'11E as well announce the dividend. We expect BLIL to distribute a dividend of Rs.8.75 per share, translating into a dividend yield of ~5.6%. Additionally, considering the fact that the stock (trading at 35%+ discount to it's holding value) should move in-line with the subsidiary company, BLC, there is a significant scope for capital appreciation as well. Investors putting their money in safe instruments like Bank FDs should divert a portion of the same and invest in the stock of BLIL. The tax-free dividend yield from this investment should be Rs.18.63, translating into a return of ~12%. Though post-dividend, the share price corrects but the past trend shows that over a period of time it catches up with its pre-dividend levels. We firmly believe that it is a "rock solid" investment which is a "MUST HAVE" in the portfolio," says Nirmal Bang research report.

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To read the full report click on the attachment