May 9, 2008

Analysis - Balmer Lawrie

Balmer lawrie is a diversified company engaged in the following businesses

Industrial packaging
Greases and lubes
Tours and travel

Each business has its own economics which range from the good (logistics) to the terrible (tea).

A few key points
- The company has identified three areas for future expansion - logistics management, travel and tourism and industrial packaging. It is looking for a strategic alliance for its tea marketing operations, leather chemicals business and tourism. It may even be looking at exiting the tea business
- The company plans to invest 200-300 Crs in the good businesses such as Logisitics, travel and tourism etc
- Most of the businesses are cyclical except logistics. The logisitics business is the most profitable and accounts for more than 60% of the profits and total value while utlizing less than 30% of the total capital
- The company has several JV which contribute to around 10% of netprofits
- The capital allocation has improved for the company. The extra capital has been used to retire debt and generate cash
- The correct approach to valuing this company is to do a sum of parts. Each business must be valued separately as it has different economics. The indivual valuation should be summed up to arrive at the final value. I have done a rough back of the envelope analysis and uploaded here

Additional note : I have a position in the stock. This stock has now become a long term holding now. I bought this stock in 2004 time frame at around 160 / share and have added since then. The price has increased since then. However the intrinsic value of the company has grown faster and hence I feel the company is still substanially undervalued. However this stock may require quite a bit of patience and I don’t forsee a quick jump anytime soon (I wont mind if this prediction is wrong :) )

I am however not recommending this stock for anyone and would suggest you to make your own decision. As usual please read disclaimer at the bottom of the page


Jose said...

Don't you think an even cheaper way to invest in BL is to invest in Balmer Lawrie Investments? It might be the immediate beneficiary of a divestment in case the BJP and its allies or the UPA sans the Left comes to power after the next general elections?

Rohit Chauhan said...

Hi jose
i agree it is. however the discount gap keeps fluctuating and it could close if the divestment happens. however i am not sure if the divestment will ever happen


Nitin Jain said...

well holding companies of much bigger and popular houses like NW 18 and JSW 18 holdings are trading at 50-60% of thr intrinsic values in case of BL tht mite be even more !!

Rohit - any news on BL selling its tea assets in London for 100 crs or so !! tht might add more to book value and hence possible bonus cadidate as well !!

being PSU - divestment and diversification both will be slow process unless some PE or big indian house buys some stake in this counter and changes the fortunes !!

uresh said...

how did you come up with ROCE 29% on indu.packaging ?
ebit/capital employed

Rohit Chauhan said...

Hi nitin
i have not heard of any news of BL selling their tea business. i am not looking at divestment as a catalyst as i dont expect it any time soon. rather if the business continues to perform as well as it has been doing for the past few years, then the returns will be good (though not spectacular)

uresh - ROCE may a wrong term in the spreadsheet. the calculations are ebdit/capital employed. those calculation are to get a rough idea of how the business is doing


Nitin Jain said...

chk this link Rohit - this should add to the value in long terms and momentum in the short term if it happens - here is the abstract -

Tea deal talk lifts Balmer Lawrie

The recent market buzz has been that the diversified ‘mini ratna’ PSU Balmer Lawrie may soon finalise the sale of its London tea business for about Rs 100 crore and consider a 1:1 bonus to capitalise its bulging retained profits. Mr S.K. Mukherjee, MD, confirmed to Business Line that the sale of the London assets (warehouse and blending packaging unit on 24,000 sq ft area at Bradford) would be wrapped up soon. He, however, did not divulge the sale price. He also denied issue of bonus share for the present, but did not rule out the possibility in future. The company has a paid-up capital Rs 16.29 crore while reserves stood at Rs 254 crore as on March 31, 2007. The company has paid out dividend of Rs 13.50 per share of Rs 10 each for the year to March 2006-07. The company has disposed of its assets and surrendered its lease rights on land at Chembur in Mumbai for a profit of Rs 4.26 crore in the September quarter

Shankar Nath said...


Balmer Lawrie is a good stock .. I too have a holding here. Lots of FCF, negligible debt.

Only sales have stagnated .. but if we draw a parallel to Sears Candy ... even at a 2% growth rate, the business doesnt require too much of capital to operate. If uses existing machines, rakes in money which is not invested back into running the machines (and is handsomely given back to the shareholder .. current div yield of 3.5%)

Warm Regards

Rohit Chauhan said...

Hi nitin
thanks for the link. the development seems to be in the right direction. the company had stated its intention earlier to dispose off the weaker businesses and invest in the profitable ones.
they have been improving the performance for the last few years and it is a better company in 2008 than 2003. although the growth is not very high, the company is more efficient and profitable.


Rohit Chauhan said...

Hi shankar
the sales are growing at around 6-7% per annum. not high, but not too bad either.

profits have grown at 22% per annum for last 4-5 years. that is definitely good. the company has used the money to retire debt. In addition the management seems rational in managing capital. they are exiting the bad businesses and investing in the good ones.

It is decent business which is available at a very attractive valuation

current mcap around 625 crs
net cash on hand in 2008 likely to be around 60-70crs.
consolidated profits to be around 90-100 crs.

so the business is available at roughly 6 times earning.


Roman said...

I like how this company looks i think i will take a closer look at it and most likely buy it thanks for the tip

Rathin Shah said...

Hi Rohit,
where do u look for the companies, i.e. filters through which you can screen your mcap > 200 cr, modest sales growth of around 7-8% since last 4-5 years, RONW of greatr than 15%, is there any available info for this....
or do u go on reading each and every annual report available???? Please reply...thanks

Rohit Chauhan said...

Hi rathin
i use the filters provided by icici direct. quite often their numbers are not correct.
i use the output from the various filters and load the companies on a spreadsheet and run a filter based on a combination of factors

for : Mcap > 100, PE < 12, ROE > 15% etc

the companies which come up, i recheck their numbers in

once the company checks out, i start a detailed analysis - read AR, research etc


Rathin Shah said...

Hi Rohit,
thanks for the info. I have also found out another website "", which is also offers good screeners....

Thanks for the maruti analysis...i had bought the stock for around 950 bucks...(2 shares)....made a mistake...of not keeping margin of safety...Will learn from these mistakes...

sorry for troubling you with some stupid questions....But please be ready for another ones too...


Rohit Chauhan said...

hi rathin
thanks for the tip
i dont think maruti @ 950 is a mistake. quite possible that my own analysis is too conservative and your facts and analysis are more accurate.

i think your questions are good and feel free to post them. i will try to answer them the best i can