Control Print: Why the stock weakness merits attention
The company’s balance sheet is healthy and the core domestic business is in fine form.
Highlights
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- Stock price has been correcting and significant underperformance in recent past
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- Decent Q4 show in terms of growth and margin, higher taxes impact reported profit
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- Strategic shift in favour of large clients
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- Pick up in capacity utilisation in manufacturing to support consumables
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- Shift to organised sector and regulatory push positive for coding and marking industry
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- Street concerned about diversification into packaging
- Valuation turning reasonable for a company with a healthy Balance Sheet
The stock of Control Print (CMP: Rs 819, Market Cap: 1310 crore, Rating: Overweight) has underperformed significantly in the past three months — down 11 percent compared to a 2 percent rise in the Nifty. The Q4 results were decent in terms of growth and margin. However, higher taxes marred the show. The company has done a slew of overseas acquisitions, though the contribution from them is negligible so far. This coupled with unrelated diversification to the packaging segment dented sentiment. However, thanks to the correction, the stock is now valued much more reasonably. Is it a stock worth looking at, given that the balance sheet is very healthy?
Control Print manufactures industrial printers and consumables such as ink and spares, and also provides maintenance services. The “coding and marking” business is dominated by three MNC players — Videojet, Domino Printech, Markem-Imaje India. Control Print is the only local player.
Q4 FY24 – decent quarter
The revenue growth in Q4 was a healthy 16 percent YoY. For FY24, revenues grew 18 percent despite lower sales of printers by numbers. There has been a strategic shift, whereby the management has decided to focus on larger accounts where the use of printers is more. This strategy gives Control Print access to potentially bigger revenue without increasing the cost base.
Among segments, food, dairy, FCMG, and pipes continued to see good traction for printers and consumables for the company.
Stable margin
Control Print has been extremely consistent with its margin performance and continued to report healthy and stable margin.
Economic recovery aiding consumable sales
Control Print boasts of strong operating margins, mostly thanks to the sale of consumables which is over 60 percent of the revenue. The company has an installed base of over 18,500 printers providing a steady market for the sale of consumables.
The key user industries, such as pipes, foods, FMCG, dairy, cement, pharmaceutical etc., are exhibiting good growth and this spells good news for printer sales. As economic recovery gathers momentum and capacity utilisation improves across industries, it should steadily improve the product mix in favour of high margin consumables.
Macro factors supporting the industry growth
The pandemic has led to increased demand for proper packaging of products previously marketed as basic or essential items. As a result, these sectors’ growth is leading to a heightened need for coding and marking systems in India. As a thumb rule, the industry normally grows 1.5x of GDP. Hence, high single-digit growth is a given in the foreseeable future.
The growth of this industry has been aided by stringent government regulations on product labelling and increasing traceability requirements across industries. The Indian drug regulator has set a new rule that mandates the printing of bar codes or Quick Response (QR) codes on the labels of top 300 brand drugs. The company recently launched QRiousCodes, innovative QR code-based track-and-trace solutions.
New vistas or unrelated diversification?
Control Print, through its Dutch holding company, acquired 75 percent of Markprint B.V. to add technical capabilities as well as to gain foothold in the European market.
It recently acquired a majority stake in UK-based Codeology Group. Codeology manufactures large character inkjet printers, outer case print and apply label printers, and end-of-line automation systems. The plan is to bring Codeology products to India and expand control Print’s footprint in the UK.
The company has announced the acquisition of V-Shapes for Rs 30 crore. V Shapes is an innovative supplier of sustainable single-dose sachets and manufacturer of packaging machinery based in Bologna, Italy. The diversification into packaging has raised concerns.
So far, none of these initiatives have made any meaningful difference to the overall financials (less than 5 percent of top line) and would take about a year or two to start contributing.
While we would be closely monitoring the progress of the overseas acquisitions, we feel the core India business is in fine fettle and the stock correction prices in the negatives.
Investment risks:
Prolonged slowdown due to macro challenges or supply-chain issues could hinder prospects of the business. Excessive investments in overseas acquisitions can impact financials.
Bymoneycontrol
