STOCK IDEAS _ REPRO INDIA LTD>

Company name- Repro India Ltd

BSE code - 532687

NSE Code - REPRO

Mumbai based Repro India Ltd (Repro) is an integrated print solution provider in India. It is a reputed manufacturer and exporter of Books, publishing around 100 million books per year. Its publishing solutions include content management, configuration to content delivery and in fact entire supply chain for large domestic and international publishers. It is investing in client centric dedicated services. Repro partners with some of the largest international publishers as McGraw-Hill, Macmillan, Longman, Pearson, Evans, Oxford etc offering services across value chain. For expansion during next two years it had taken up an investment outlay of $ 50 million. This has helped in facilities upgrade at New Bombay unit and starting of SEZ in Surat. Besides investments are directed towards other components of value chain. Repro has reported a strong growth during FY08 and H1FY09. It now focuses its efforts on improving margins.

Business-

Repro has successfully transformed itself from a simple printing press to an end-to-end print solution provider. It offers services across value chain for publishing solutions to its clients. Its services start from design and content creation to pre print, print and post print services and extend up to interaction with end user. With increased acceptance of outsourced models Repro's solutions start right from understanding the clients need. Creating a product that is cost effective, value added and requires optimum time to market. Post which comes Manufacturing of product. This involves creativity and design, sourcing and procurement, printing and production, Media replication, Warehousing, Assembly and dispatch, market research and forecasting to Inventory control. Finally comes the Interaction with end user, order processing and reporting systems.

Through Content Process outsourcing Repro offers Content, Creativity & Designing. It provides Desktop publishing, Ideation, Content Creation, Designing, Illustration and copywriting. Comprehensive spectrum of these services address need for large volume of graphic electronic workflow.

Publishing Industry and Corporate World utilize Repro's Value Added Print solutions. Where Repro Undertakes Educational books and Children books for former and helps in Annual Reports and other corporate print solutions for the latter.

Digital printing is utilized for IT Industry and Print on Demand (POD). Repro provides services towards Educational Manuals and Technical manuals for IT Industry. It also provides services to other industry like Insurance etc through POD. In this desired number of copies can be provided in time frame of as less as 48 hours. It helps prepare Learning aids and adoption books for them.

Besides Repro is also in Contractual publishing i.e. magazine printing and other activities like replication of software CD's and stock management activities.

Repro has good domestic business and focuses its efforts on strengthening Exports that have high margins of 18-20 percent. During second quarter ended September Exports contributed 60 percent of business. Repro looks at 65:35 ratios for Exports and Domestic business as pointed by Mr. Mukesh Dhruve, Director, Repro.

Repro's Domestic businesses revenues are dominated by Corporate segment in the first half while Education segment dominates revenues in the second half. In Second quarter corporate segment contributed Rs 13.71 crores to domestic revenues while large education Business and contractual publishing contributed Rs 5.02 crores and Rs 1.15 crores respectively. Repro looks at 40 percent growth in corporate revenues. This is in backdrop of increasing large corporate customers from the likes of Infosys etc. Besides 30-40 percent growth is also expected in education and contractual business.

Repro with its strengths - Product quality, time of execution and service levels stands to gain continuously. It is not only manufacturing but also understanding of customers and their need that makes Repro stand out.

Input costs are dominated by paper, which contributes 55 percent to costs. While paper costs spiraled, it has successfully been able to pass the same to customers. It is however other smaller costs like that of ink and other consumable, which it has had to absorb.

Investment rationale-

Global commercial print industry is expected to grow to $400 billion by 2009.Indian printing Industry is estimated at $ 11 billion growing 14 percent CAGR for last 25 years. While it has large number of lower end players, only a few have moved up value chain and have huge opportunities. On Global front large US and European markets look for outsourcing. Low cost destinations like India are being looked at. Repro with technology and expertise stands to benefit from the same.

Looking at growth opportunities Repro has undertaken investment plan of $ 50 million. SEZ at Surat with an investment of Rs 30 crores has already started pilot operations and will reach 40 percent capacity by fourth quarter current fiscal. It has a capacity to print 80 to 100 million books annually. This facility that is dedicated for exports is expected to generate revenues to the tune of Rs 35 crores this year which will go up to Rs 80 crores in coming year. Full operational capability of this SEZ stands at Rs 120 crores. The SEZ would have income tax exemptions for first five years of operations. Funding for this has been done through internal accruals and foreign currency loans of $ 7 million.

Expansions at Vashi unit with an expenditure of Rs 10 crores are also to accrue benefits this year. Vashi plant has now attained capability of Rs 150 crores.

Repro has a handsome order book position of Rs 55 crores. Export orders comprise 60 percent of this. Of these 80 percent orders are from Africa and remaining 20 percent from Europe and US. Africa is a huge market for Repro as governments are distributing free books over there being funded by international agencies. Order cycle for repro is around three months.

Having achieved robust growth in both Topline and bottom line, stress now lies on expanding margins. Repro is working on improvement in margins. New SEZ is Export oriented and hence has income tax free status for first five years. Inputs for it will also be free from taxes, levies VAT and hence will contribute to margin growth. Vashi plant has some benefits for software Technology Park. Besides Repro is working on operational efficiencies and reducing outsourcing of its own works. Thus margins are supposed to increase. The effective tax rate, which stood at 21 percent, is expected to come down to 15-16 percent.

Repro has eyes on Global market and specially the US and European market. It is open for setting up capacities outside India that may be through inorganic routes.

Concerns-

Repro's export revenues are largely denominated in foreign currency and hence exchange rate fluctuations will have their own impacts. To counter this risk company follows proactive hedging policy using non-speculative foreign exchange forward and options contracts.

Debt is major source of financing and rise in interest rates have adverse effects. Second quarter saw interest costs double both sequentially and y-o-y.

Valuations-

Repro reported a robust 42 percent y-o-y growth in topline at Rs 63.53 crores during second quarter ending September 08. Net profits at Rs 4.26 crores also reported a y-o-y 10 percent growth. Net profit growth would have been 63 percent if provisioning for Rs2.09 crores as notional loss on account of foreign exchange had not been debited to profit & loss account.

Going forward Repro works towards a topline growth of 30 percent. With impetus achieved from export growth, domestic growth and capacity expansions, prospects for the same seem achievable. Efforts on improving operating margins will in turn help bottomline grow. Thus repro is a good medium to long-term prospect for investors with attractive valuations.

	Q2	Annual	Annual E
	FY09	FY08	FY09
Net sales	63.53	153.73	199.80
OP	8.71	27.11	41.95
PAT	4.26	15.56	27.97
Capital	10.48	10.48	10.48
EPS	4.07	14.84	26.69

 

Margin
OP	13.71	17.63	21
PAT	6.71	10.12	14
Price	72	Date	21/11/2008
PE	4.85	P/BV	0.78
Book Value	92.00	EV	114.86
EV/EBIDTA	4.24	Mcap	75.45
		(rs.crore)

 

Shareholding	30-Sep-08
Promoter	73.03
FII	0.09
Public	14.56
Others	12.32
Total	100