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Friday, June 26, 2009

Manugraph India - Value Stock But Lacking Growth Momentum

The printing industry is booming but the leading printing machinery manufacturer, and the only such company to be listed, is not doing well. Manugraph India (MIL) is a supplier to all leading print media like Times of India, The Hindu, Indian Express etc.

Manugraph is a cheap stock but it must show some growth momentum before you buy the stock.

Media companies are expanding and the strong economic growth is creating more demand for printing. As a proxy to this growth, MIL should have been doing well and, being the only listed company in this space, its stock should have been in demand. But its fundamentals are surprisingly poor.

MIL’s sales grew by an average 11% over the past five quarters, but its operating profit growth has been poor. Operating profits have declined by an average 18% over the past five quarters even though its average OPM was 19%. Does the stock have a future? Being the only supplier of printing presses in India gives MIL an edge, but technologically it lags behind the better imported machinery (faster, lesser wastage) being favoured by large media groups. MIL has also been looking at inorganic growth through acquisitions. Last year, it bought Dauphin Graphics Machines Inc, a US-based company, to get a foothold in the US market and expand its global reach.

Market Cap 143.71
EPS (TTM) 11.80
P/E 4.00
P/C 3.18
* Book Value 80.27
Price/Book 0.59
Div(%) 200.00
Div Yield(%) 8.47
Market Lot 1.00
Face Value 2.00
Industry P/E 14.07

A slowdown in the US market has been hampering its growth there, but MIL’s management is optimistic about the future and believes that the benefits of the acquisition will accrue in FY08. Rising material cost has been eating into its margins and a rising wage bill (it recently negotiated and signed a new wage agreement effective April 2007) is reducing margins further. The stock is reasonably valued with its market-cap discounting its five-quarter average sales (annualised) by 1.02 times and its operating profit by 5.46 times. It is a value stock but you can buy only after it shows some growth momentum.

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