- 19th Dec 2016
- CMP Rs 1085
- Advice: SELL – It has achieved its price target and is Overvalued
We had published a report on Balmer Lawrie and Co (BLC) on 17th Oct, 2016. This is a follow up report where we have changed our recommendation due to significant recent events.
- We had recommended a BUY at a price of Rs 677 with a Mar 2019 price target of Rs 1,057. We had also predicted a bonus/ split because of the small equity base. This has come true. Details of this report are available on link – Balmer Lawrie – Is Traveling Fast Now
- The share price is now Rs 1,085 giving our investors a 60% return in a span of 2 months.
- The sharp rise is due to a bonus issue declared. The firm approved on Nov 10, bonus shares in the proportion of 3:1, giving 3 new Equity Bonus Shares for every 1 share held as on the record date. BLC fixed Dec 27, 2016 as the Record Date for Issue of Bonus The share will quote ex-bonus thereafter. The share is likely to fall by 75% ex bonus.
- The main reason the share has risen so sharply is that there is high interest from traders to purchase the share before bonus, which may later be sold ex bonus to book a loss on short term capital gains. This is also called Bonus Stripping. (to find out more about this, visit LINK. To do this yourself, please also consult your Chartered Accountant and Investment Adviser).
- There is no other significant event in the firm (it continues its steady progress).
- We expect selling in this share to intensify post bonus ie after 27th Dec.
- The current PE is 18.7 times, much above the 5 year historical average of 8 times and above the Oct 2014 peak of 14 times.
- Hence we recommend investors in Balmer Lawrie to SELL, as the valuations have shot up sharply and it has moved into overvalued territory.
Additional details: Here is the brief on the company and the price history.
Overview: Balmer Lawrie & Co is a diversified PSU firm into Travel and Tourism, logistics, Industrial packaging, greases, lubricants and Leather chemicals. In each of these areas it occupies good niches. The FY16 revenues were Rs 3,229 cr. and profits 179 cr. The Revenues, EBITDA and Profits of BLC are up by 7%, 6.8% and 7.3% CAGR over 7 years. The balance sheet is strong and RoCE is over 21%. Investors have got a return of 34% CAGR over 8 years.
Price History: Here is a chart of the recent 6 month share price performance.
We hope you make handsome gains on BLC.
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Punit Jain, Founder, JainMatrix Investments
JAINMATRIX KNOWLEDGE BASE
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This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. JM has no known financial interests in Balmer Lawrie & Co or any related firm. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from an independent expert/advisor. Punit Jain is a registered Research Analyst and compliant with SEBI (Research Analysts) Regulations, 2014. Any questions should be directed to the director of JainMatrix Investments at firstname.lastname@example.org.