Incorporated in 1931, Camlin started operations with Horse ink powders and tablets, followed shortly by Camel ink.
The company now manufactures art and stationery material and sells products like colours, fountain pens, pencils, adhesives and inks. It is also a market leader in colours’ space with presence across segments like writing instruments and scholastic.
After sale of land at Andheri (Mumbai), Camlin now has land in Jammu and Tarapore, where its manufacturing facilities are located.
All the product lines in which the company operates have strong competition. For instance, in scholastic, the company faces stiff competition from not only unorganised sector but also from players in organised sector (Kores, Faber Castle etc).
Cheaper Chinese goods also pose a threat to the company’s market share. This could all lead to reduction in the market share of the company.
For past two years the company has had negative cash at operating level, primarily driven by the increase in working capital requirement.
In FY2008, the company also made large payments to creditors, which led to increase in the working capital requirement. We expect cash flows to turn positive in FY2009.
Outlook and valuation
The company can leverage its strong brands namely Camel and Camlin and wide distribution network across the country.
The company is in the process of expanding its product portfolio by introducing a slew of new products in scholastic and office stationery segments. Besides, the full benefit of the new facility at Jammu is likely to accrue from FY2010.
On real estate front, the company has sold its land in Andheri, Mumbai in early 2007. Camlin also has facilities at Tarapore and Jammu, however it has no intention to develop or sell the same.
Our quick estimates indicate that the sales are likely to grow at a compounded annual growth rate (CAGR) of 24.6% over FY2008-10E, led by new plant at Jammu.
The change in manufacturing and trading mix will help Camlin improve profitability, hence net profits are likely to grow at a CAGR of 41% over FY2008-10E.
At the current market price of Rs10.9, the stock is discounting our earnings estimates for FY2009 and FY2010 by 8.9x and 5.9x respectively (assuming significant benefits from the new plant at Jammu).
The valuations are in line with market conditions and not exactly cheap given the fact that it has very thin margins of 1-2.5% on net level.
Moreover, the net operating cash flows (after working capital adjustments) have remained negative in the past few years.