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Safal Niveshak StockTalk #6: Balmer Lawrie & Co. Ltd.

Welcome to the sixth issue of the Safal Niveshak StockTalk.

After covering Graphite India last time, this time I delve deeper into another small-cap company, Balmer Lawrie & Co. Ltd. (BLCL). Before we dive deeper into BLCL, here is a brief overview of the sections of this report.

  1. About BLCL
  2. Safal Niveshak’s 20-Point Checklist
  3. Intrinsic Value Assumptions
  4. Financial & Market Snapshot
  5. “Should I Buy BLCL?” Checklist

1. About BLCL

BLCL is a public sector company having operations in diverse sectors like lubricants, industrial packaging, logistics, and travel & tours. Travel & tours is the largest business segment of the company (36% of sales) followed by industrial packaging (29% of sales). Let us discuss these one by one.

Data Source: Ace Equity, Safal Niveshak Research

Travel & tours: In this business, BLCL is the oldest IATA accredited travel agency in India and provides services to all major central government ministries, PSUs, semi-government, autonomous bodies and corporates. This business, while being low on profitability (profit margin of around 3% over the past 10 years), has earned extremely good return on capital employed over the past 10 years (average of 38%).

Industrial packaging: In this business, BLCL is India’s biggest manufacturer of MS drums (mild steel drums) that are used in packaging of lubricating oils & greases, additives, transformer oil, chemicals & agro-chemicals, food & fruit products, and bitumen. The average profit margin for the business over the past 10 years has been around 8%, while the average return on capital employed has been a decent 18%.

Logistics: The business specializes in operating container freight stations (CFSs) and Warehousing & Distribution. Currently, the 3 CFSs of BLCL are located at Nava Sheva (Navi Mumbai), Chennai, and Kolkata. Incidentally, these three ports account for nearly 80% of the total container traffic in India. Warehousing & Distribution too has been a traditional activity of the company. The company operates warehousing facilities at Kolkata and Coimbatore. The average profit margin for the business over the past 10 years has been about 22%, while the average return on capital employed has been a massive 344%.

Greases & Lubricants: BLCL is India’s largest and Asia’s 10th largest grease producer. The company has 5 manufacturing facilities located at Kolkata, Taloja, Silvassa, Chennai, and Mumbai. The pan-India presence of the company enables it to cater to a wide range of sectors like cement, defense, steel, engineering, railways, ship-building, mining, and automobile manufacturing. The average profit margin for this business over the past 10 years has been around 8%, while the average return on capital employed has been a good 21%.

Apart from these key businesses, the company also has small presence in industries like leather chemicals, tea blending & packaging, oilfield services, and engineering projects. These businesses together form around 8% of BLCL’s consolidated sales.

2. Safal Niveshak’s 20-Point Checklist

Keeping in mind the simplicity aspect that is otherwise missing in other company analysis reports you would come across, I’ve analyzed BLCL by answering 20 important questions that span its:

  1. Business performance,
  2. Financial performance,
  3. Management quality, and
  4. Competition.

Here is the complete 20-point checklist with my explanations.

Before we move ahead, here are the symbols that I’ve placed against each checklist point and that will tell you at a glance whether I have a positive or negative view on that particular point.

   Indicates my positive view

   Indicates my negative view

Let’s get started.

A. Business

1. Can I, in simple words, explain what the company does?
Yes. BLCL is a public sector company having operations in diverse sectors like lubricants, industrial packaging, logistics, and travel & tours, and years of experience in each of these.

2. Does the business have high uncertainty?
BLCL’s diverse nature makes it less prone to future uncertainty. So in a year when one particular segment performs poorly, other segments do well to even out the negative impact. Also, the products and services that BLCL offers are not cyclical in nature, so the company operates in a relatively less uncertain business environment as compared to other single-product or single-service focused companies.

3. Has the business got an enormous moat?
BLCL’s long history of leadership position in most of its industries of operation provides it with a good (though not enormous) competitive advantage over competitors. However, the travel and tourism business, which is the main contributor to sales, earns a low profit margin. This is largely due to high and rising competition from private sector players. However, its other segments provide it some cushion by earning relatively higher margins.

4. Does the business generate strong free cash flow?
Yes. Despite some volatility, BLCL has consistently seen positive free cash flows over the past 10 years. A combination of decent operating margin, and a high return on capital employed has led to a positive free cash flow performance in the past.

Data Source: Ace Equity, Safal Niveshak Research

5. What is the bargaining power of suppliers and buyers?
Most industries where BLCL operates faces moderate to high competition so the company does not have much bargaining power against both its suppliers (of raw materials) and buyers (of its products and services).

B. Financial Performance

6. Does the business have a consistent sales and profit growth history and is there room for future growth?
Yes. BLCL has grown its consolidated sales and net profits at an average annual rate of 12% and 22% over the past 9 years, which is a good pace of growth. As for the future, I see the company maintaining a good growth rate – largely led by rising demand for its logistics services.

Data Source: Ace Equity, Safal Niveshak Research

7. Are EBIDTA margins higher than 15%?
No, but I am not concerned much on this account. BLCL’s businesses are such that generate sub-8% margins. But despite this, what is more important is that the company has consistently earned higher return on capital as it businesses aren’t capital intensive.

Data Source: Ace Equity, Safal Niveshak Research

8. Is its operating cash flow higher than net profits?
Yes. BLCL’s operating cash flow has been consistently higher than its net profits for each of the past 10 years. I see this as a positive as it indicates a good management of the cash flow situation.

Data Source: Ace Equity, Safal Niveshak Research

9. Is the debt to equity below 0.5 times?
Yes. BLCL’s debt to equity ratio currently stands at just 0.3 times. While the average ratio over the past 10 years has been around 0.6 times, BLCL has done well to gradually pay off its debt to bring the ratio down to a very comfortable level as of now.

Data Source: Ace Equity, Safal Niveshak Research

10. Is the current ratio greater than 1.5?
Yes. BLCL’s average current ratio has been 1.6 times over the past 10 years, which is a comfortable number and shows an overall good working capital management.

As a general rule, a current ratio of 1.5 or greater suggests that a company can meet its short-term operating needs sufficiently. However, a higher current ratio can also suggest that a company is hoarding assets instead of using them to grow the business. While this is not the worst thing in the world to do, it is something that could affect long-term returns.

11. Does the company have a good dividend history?
Yes. In terms of dividend payout (amount of dividend paid as percentage of net profit), BLCL has averaged around 30% over the past 10 years. This is a comfortable level from a shareholder’s point of view. What is more, BLCL’s current dividend yield (dividend per share divided by current stock price) is around 4.7%, which is attractive.

What this implies is that if you buy the stock at the current price and BLCL continues to pay Rs 26 per share as dividend in the future (the amount it paid last year), you will earn a minimum return of 4.7% per year from the stock even if the stock price does not move, or even if it falls.

12. Is the Altman Z score > 3?
Yes. It’s at 7.7, which makes BLCL absolutely safe against any possible bankruptcy. Read more on the Altman Z-Score.

13. How capital intensive is the business?
BLCL’s average capital employed per year over the past 10 years has been around Rs 5.5 billion. Against this, in FY11, the company earned net sales of Rs 23 billion. This suggests that the capital turnover ratio has been around 4.3 times (23/5.5), thus indicating that the business is not capital intensive.

What other conclusion can we draw from this analysis? When capital turnover ratio is high, the company can afford to have a low margin, and still deliver an exceptional return on capital. In case of BLCL, we already know that Capital Turnover is around 4.3. So, even if the company operates at a 5% margin (its net margin currently is around 5.5%), it can continue to earn a return on capital of around 22%! Not bad at all.

14. Has it got a high and consistent return on capital and return on equity?
Yes. BLCL’s average return on equity has been around 21% over the past 10 years, which is a reasonably high number, and suggests the company’s good capital allocation skills.

Data Source: Ace Equity, Safal Niveshak Research

C. Management Quality

15. Is the management known for its capital allocation skill and integrity?
BLCL has a public sector management. However, despite the general belief that PSU companies are not profitable businesses, BLCL has been a great performer all these years. The management has guided the company well over the past few years, so the track record in terms of integrity seems fine. Even as far as the capital allocation part is concerned, we have seen how the company has continued to maintain a high return in equity (average of 21% over the past 10 years). So, overall, I’m comfortable with the company’s management and its capability to guide the company in the future.

16. Has there been any substantial equity dilution in the past?
BLCL has never diluted its equity capital in the past.

17. Are management’s salaries too high?
No, given its PSU nature, BLCL’s top management compensation has been under reasonable levels in the past.

18. What has management done with the free cash in the past?
BLCL has reinvested a lot of free cash back into the business. A good part has also been doled out to shareholders as dividends.

D. Competition

19. Does the business face high competition?
Yes, most sectors where BLCL operates – travels & tours, industrial packaging, logistics – face moderate to high competition.

20. Has the management focused on market share or profitability in the past?
A combination of both, which is good.

3. Intrinsic Value Assumptions

Before I move into calculating the intrinsic or fair value range for BLCL, let me make one thing very clear.

Intrinsic value isn’t a definite figure but just a ‘calculated’ value. In fact, the calculation of intrinsic value of a business mostly throws up a highly subjective figure. And this figure changes as estimates of variable like future cash flows are revised (given that the future is unknown).

Anyways, what I have done here is rather than arrive at a single intrinsic value figure for BLCL, I have calculated the value using 5 different methods and then arrived at a ‘fair value range’ for the stock.

1. Net present value based on a 2-stage 10-year DCF
The discussion about the calculation of net present value using a discounted cash flow model (DCF) can be found in the 7th lesson of my free course on investing – Value Investing for Smart People.

I have done a 2-stage DCF analysis for arriving at the intrinsic value for BLCL.

But as a reference, here is the formula for calculating the NPV:

NPV = CFi / (1+k) + CF2 / (1+k)2 + … [TCF / (k – g)] / (1+k)n-1

PV = present value
CFi = cash flow in year i
k = discount rate
g = growth rate assumption in perpetuity beyond terminal year
TCF = the terminal year cash flow
n = the number of periods in the valuation model including the terminal year

I have calculated BLCL’s future cash flow for the next 10 years, assuming 2 different rates of growth in cash flows of 8% (years 1-5), and 5% (years 6-10).

As for the discount rate, I’ve assumed it at 15% assuming the average cost of capital for the company. My expected terminal growth rate for the company’s cash flows – expected growth in cash flow after 10 years and till eternity – is 2%.

Based on these numbers and after reducing the net debt (debt minus cash), the present or discounted value of future cash flows for BLCL is coming at Rs 1,143 per share, which is also the stock’s intrinsic value using this method.

2. Earnings Power Value (EPV)
After DCF, the second most reliable measure of a firm’s intrinsic value is the value of its current earnings. This method is known as ‘Earning Power Value’ or EPV. This value can be estimated with more certainty than future earnings or cash flows, and it is more relevant to today’s values than are earnings in the past.

The formula for EPV of a company is:

EPV = Adjusted Earnings x 1/R

Here, ‘R’ is the cost of capital.

BLCL posted an average adjusted EPS (earnings per share) of Rs 66.6 over the past five years. Now, if the company’s profits were to stagnate and remain at Rs 66.6 per share going forward, and applying the EPV formula here, I multiply Rs 66.6 with 1/15% (15% is the approx. cost of capital for the company).

This gives me a value of Rs 444 per share, which is BLCL’s intrinsic value as per the EPV calculation.

3. Pricing relative to 10 year average P/E ratio
True value investors, as Graham has prescribed, won’t pay a price based on the stock’s latest P/E or the company’s latest earnings. They will take a much longer term view…as long as 10 years.

Here, I have attempted to estimate the intrinsic value of BLCL using the company’s last 3 years average earnings, and last 10 years average P/E ratio. So the formula is:

Last 3 Years Average EPS x Last 10 Years Average P/E Ratio

BLCL’s average P/E ratio for the past 10 years has been around 9 times, while its last 3 years’ average EPS has been Rs 74 per share. Based on the formula, BLCL’s intrinsic value is coming to around Rs 672 per share.

4. Graham number
Graham number is the formula Ben Graham used to calculate the maximum price one should pay for a stock. As per this rule, the product of a stock’s price to earnings (P/E) and price to book value (P/BV) should not be more than 22.5 i.e., P/E of 15 multiplied by P/BV of 1.5.

But why did Graham specifically used a P/E of 15 and P/BV of 1.5? Why didn’t he use some other numbers?

Well, he thought that nobody should be willing to pay more than the AAA bond yield at that time. AAA bond yield at that time was 7.5%. Therefore, AAA P/E was arrived at 1/7.5 or 13.3, which was rounded up to 15. Similarly he thought that nobody should pay more than 1.5 P/BV for a stock.

Graham insisted that the product of the two shouldn’t be more than 22.5. In other words,

(P/E of 15) x (P/BV of 1.5) = 22.5

Put another way:

(P/E) x (P/BV) = 22.5

Price(sqr)/(EPS x BVPS) = 22.5

Price(sqr) = 22.5 x EPS x BVPS

Take the square root of both sides, and you get the equation for the Graham Number.

Fair Value Price = Square Root of (22.5 x EPS x BVPS)

Applying this formula, BLCL’s intrinsic value comes to around Rs 830 per share.

5. Dividend discount model
As we have discussed in the DCF method above, the value of a stock is worth all of the future cash flows expected to be generated by the firm, discounted by an appropriate risk-adjusted rate or discount rate. Now, as per the Dividend Discount Model or DDM, dividends are the cash flows that are returned to the shareholders.

Hence, to value a company using the DDM, you calculate the value of dividend payments that you think a stock will throw-off in the years ahead. Here is what the formula is:

Intrinsic value = Dividend per share/Discount rate

The modified formula for valuing a company with a constantly growing dividend is…

Intrinsic value = Dividend per share/(Discount rate – Dividend Growth Rate)

Given that BLCL has consistently paid higher dividends over the years, we use this ‘dividend growth’ formula for calculating the stock’s intrinsic value.

Assuming a discount rate of 15%, dividend growth rate of 10%, and the latest dividend of Rs 26 per share, and inputting these numbers in the above DDM formula, I get to an intrinsic value of Rs 520 per share.

Fair Value Range
I have calculated 5 different intrinsic values for BLCL using 5 different methods. So much for the ‘target prices’ you hear on business channels every day as if these were the holiest numbers!

As you can see from the above calculations, the ‘target price’ isn’t such a holy number and can differ based on the method used to calculate it.

Anyways, based on the above calculated intrinsic values for BLCL, I can arrive at a ‘fair value range’ for the stock. Here is how I calculate it:

High End of the Fair Value Range = [Average of above five intrinsic values] Low End = [(Average of above five intrinsic values) – (0.5) x (Std Dev)]

Based on this, the fair value range for BLCL’s stock is Rs 580 to Rs 720. Assuming a margin of safety of around 25% to the higher end of this range, I would be comfortable buying BLCL’s stock at any price less than Rs 540. Not to forget that BLCL has around Rs 70 per share of cash on its books, which adds to the stock’s margin of safety.

Given that BLCL’s current price is just around this level, if I have surplus cash to invest, I will be happy to buy the stock at the current levels.

Warren Buffett once said, “Why is it that when departmental stores announce sale, people flock to the stores, but they do not put a dime when equities are on sale? Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now.”

So, as a sensible, long term investor, your aim must be to purchase a slice of easily understandable business with consistent & predictable earning flow. Overall, I believe BLCL fits into that category very well.

If one is thinking of making a quick buck, this isn’t the right company. But if one has patience, the stock has the ability to give good returns over the long term.

But wait! Have you heard of BLIL?
That’s Balmer Lawrie Investments Ltd., whose sole business is to hold a 61.8% stake (10,064,700 shares) in BLCL. BLIL was born when the Government of India, in view of its planned deregulation of the oil sector, decided to disinvest 33.6% of its total equity holding of 59.6% in IBP to a strategic partner with management control. In consequence to such disinvestment, the shareholding of IBP in its erstwhile subsidiary, BLCL was decided to be de-merged in favour of BLIL, which was incorporated in September 2001. The Government holds 59.7% stake in BLIL.

At BLCL’s current price of Rs 555, the value of BLIL’s stake in the company stands at Rs 5,586 million. Given that BLIL has 22.2 million shares outstanding, the per share value of BLIL’s stake in BLCL stands at around Rs 250. BLIL’s stock is currently trading at just around Rs 150, which is at a large 40% discount to BLIL’s stock price.

BLIL has another Rs 20 per share of cash on its books. Plus it pays a generous dividend every year. In fact, its current dividend yield (dividend per share divided by stock price) stand at a high 5.7%.

Given that BLIL’s performance depends entirely on BLCL’s performance, and also considering that the company pays regular and generous dividend, it is like a risk-free Fixed Deposit with a great potential of capital appreciation.

So, all in all, BLIL looks like an equally great investment opportunity at the current price as BLCL. I don’t see the discount at which BLIL trades as compared to BLCL (which, as we discussed above, is 40% currently) coming down in the future. This is given that holding companies always trade at a discount to the companies they hold.

However, unlike other holding companies in India (like Bajaj Holdings, UB Holdings, etc.), BLIL’s structure of ownership is crystal clear.

Overall, my view is that the business fundamentals of BLCL look enticing from a long term perspective. What is more, the stock is available at an attractive valuation even if you were to factor a 25% margin of safety on its intrinsic value (as we calculated above).

So the stock – either directly or through BLIL – looks like a great long-term investment opportunity. However if you invest with the expectation to cash out soon, you might be disappointed.

4. Financial & Market Snapshot

Data Source: Ace Equity, Safal Niveshak Research

Data Source: Ace Equity, Safal Niveshak Research

Data Source: Ace Equity, Safal Niveshak Research

5. “Should I Buy BLCL?” Checklist

Your feedback is important
So that was my take on BLCL as part of the Safal Niveshak StockTalk initiative. I’ve tried to be as comprehensive in my analysis, while trying to keep the report very simple. Let me know what you think of this report and the improvements therein.

Do you think I’ve missed mentioning something specific here? Can the Safal Niveshak 20-Point Checklist be modified or expanded any further? Do you find this report simple enough for your understanding?

Your answers would help me in making the Safal Niveshak StockTalk report, and the entire initiative, more beneficial for you.

Also, if you want to see your choice of stock covered here, just send me your request using the following form. If you can’t see the form below, click here.
[gravityform id=4 name=SafalNiveshak StockTalk title=false description=false]

Disclaimer: The author of this report, or any of his family members, does not own the stock(s) mentioned herein. The opinions in this report are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stock(s) mentioned or to solicit transactions or clients. The information in this report is believed to be accurate, but under no circumstances should a person act upon the information contained within. I do not recommend that anyone act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation.

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About the Author

Vishal Khandelwal is the founder of Safal Niveshak. He works with small investors to help them become smart and independent in their stock market investing decisions. He is a SEBI registered Research Analyst. Connect with Vishal on Twitter.


  1. RichFellow says:

    I hold the balmer lawrie & co. ha ha ha….
    Why margin of safety 25%?
    why not 10% or 30% or 45%?
    It’s because a silver jubilee figure and u like it Vishal?….LOL

    • Well RichFellow, the margin of safety (MoS) purely depends on my comfort level with the company after analyzing its business and intrinsic value. Higher the comfort, lesser the MoS. But I generally have it between 20% and 30%.

  2. Your analysis and lucidity are commendable. I implemented the buy, though for a small sum 🙂

  3. vishal

    thought balmer and lawrie is lubricant major but your analysis thought me to concentrate more …
    did LIC has holding in it….could you confirm..?
    anyway…bought ..
    thanks once again…

    • Thanks for your feedback, Sri!

      As per data from the BSE, public sector insurance companies together hold around 8% stake in BLCL (out of this, LIC’s stake is around 1.3%). LIC also holds a 1.3% stake in BLIL.

  4. vishal,

    if possible, can i have your view on siemens…
    there was a good cover story in business india recently…

    • Let me see when I can work on Siemens. But I know one thing for sure – the company’s foreign promoter has a history of unfair treatment for minority investors of the Indian subsidiary (Siemens Ltd.).

  5. Hi Vishal, That was good analysis and made me look-up this company and think about buying some too. I just have a quick question though. For a company such as this, what advantage is there in buying the holding company rather than the underlying business itself? I can think of only two thing, either that the discount is below the historical discount (taking advantage of an opportunity to increase gains) or you think for some reason that the discount will reduce in the future. Can you clarify on this, I am asking this because you have said that you have bought blil and not blcl. Thanks!

    • Hi Eswar, I don’t have a special preference for BLIL as compared to BLCL but for a slightly higher dividend yield for the former (5.5%, as compared to 4.7% for BLCL). I believe buying either of the companies at a good discount to intrinsic value (which these are trading at currently) makes equal sense.

      So, if you like the story, you can buy either of the stocks.

  6. Excellent analysis as usual Vishalji. Also, large cap as usual :-(. Even though the stock is at or below it’s intrinsic value, I prefer to invest in companies like these at a much higher MoS, at around 40%-45%.

    • Oops…at Rs 900 crore, I thought this was a small cap! Well, it’s also part of the BSE-Smallcap Index…so it indeed is a small-cap. 🙂

      It’s also great to know that you have set up an investment process for yourself (like not buying any stock for less than 40-45% margin of safety), which shows your discipline…and is a very important learning for other investors.

  7. Great report Vishal, especially the holding company part.

  8. Hi Vishal,
    Doesn’t BLIL has additional margin of safety with 40% discount to BLCL?
    More over higher dividend yield is icing on the cake.

    Is there a probability of BLIL divesting its stake in BLCL, which could potentially add to the upside.

    Is there any downside in BLIL v/s BLCL? What should be fair value range for BLIL


    • Dinesh, the 40% discount that BLIL trades at as compared to BLCL has always remained 40% since the former is a holding company (and such companies generally trade at such discounts to their held companies). So yes, if the discount reduces (which is a low probability) in the future, BLIL will be a more profitable investment. As for divestment, BLIL’s only reason for existence is its stake in BLCL. So it cannot divest this stake and still remain in business.

      I see any weakening in BLCL’s performance as the only downside for BLIL. As for the latter’s fair value, as I mentioned in the analysis above, its stake in BLCL is valued at Rs 250 per share at the current market price of BLCL (plus it has Rs 20 per share in cash). So that is also its intrinsic value.

  9. This is a really comprehensive analysis which can help in investment decision making if one plans to invest in BLCL.
    There is another consistent dividend payer named Clariant Chemicals. It would interesting to see an analysis for that company. And may be a comparison between good dividend paying companies. (and by good, I dont mean companies with high dividend yields). See if it is possible for you to come up with a list of comapnies which have consistently increased their dividends in last 10/15/20 years (Like USA’s Dividend Aristocrats – Link ––p-us—-)
    Thanks and looking forward to more such analysis and your thoughts on dividend investing.

  10. Thanks Vishal and others for your views. I had read this earlier, but today i did my own analysis and arrived at a fair price of Rs 192 for BLIL, while Rs 385 for BLCL (I did a quick analysis using the method Mr. Peter Lynch would use for such a stalwart…), and I’ve bought a small amount of BLIL at Rs 186.

    I know I’m late, but it is still a bargain…although BLCL is a little expensive now.

    Just one question, if we feel BLIL is cheap today, why doesn’t BLIL use it’s surplus cash and buys back its own shares and provides further value to its shareholders? Possibly that’ll be better for the BLIL shareholders than the interest income on its cash? Any comments on this thought? Had BLCL been at a lower price, then it’d make sense to further increase BLIL’s stake in BLCL and gain further dividend income…just some thoughts that I wanted to discuss…

    • Sunny, is your fair value of Rs 192 for BLIL after adjusting for margin of safety? Asking as you bought the stock very close to the fair value.

      As for your question on why isn’t BLIL using excess cash to buy back shares, the answer is:
      1. We are dealing with a PSU management that isn’t so proactive as to think of a buyback.
      2. The stock isn’t so attractive at he current price to lead to a buyback.

  11. Hi Vishal

    You mentioned that a holding company almost always trades at discount to the subsidary. Is there a reason for this, if so, can you pls explain?

    In my analysis, the current price of BLIL doesn’t leave any appreciable margin to the fair value, except to the 30% MoS I took for valuing BLCL…

    • Sunny, the reason a holding company trades at a discount is because of the extra layer between the “held” company’s assets and the holding company. Plus, most of the times the holding structures are complex to warrant a discount (though not in the case of BLIL and BLCL).

  12. Thanks Vishal

    I understand, I meant it was probably an attractive buy-back at Rs 140…

    In my analysis, I did the following:

    For BLCL, based on latest available annual report, FY2010-11:-
    1. Zero debt
    2. Investments worth Rs 5724 lacs
    3. Cash & bank deposits worth Rs 26500 lacs
    4. The above give a cushion of Rs. 197 per share. Even if we assume 50% realization, we can strike off Rs 100 from the share price to evaluate further
    5. Operating profit CAGR of 6% for last 5 years
    6. Latest EPS of Rs 85 / share
    7. For a PEG of 0.7, the maximum price per share, excluding cash value will then be 0.7*6*85 = Rs 357. Hence, with cash value, the fair price from a PEG bargain valuation point of view is Rs 457
    8. EPS growth CAGR is about 13% for last 5 years, and that gives a fair price including cash valuation, with 0.5 PEG (more conservative for EPS) of 0.5*13*85 = Rs 552 + 100 = Rs 652
    9. Both values give an average fair price of Rs 550 per share

    Note that this analysis is purely based on PEG, which is a metric Peter Lynch uses, and I’d end up doing a very similar analysis based on other techniques as yours, since I now have a bias. So, conservatively, I assume a valuation lower than yours by this analysis is safer.

    10. Last dividend per share was Rs 26, and there’s been a healthy growth of 15% growth in dividend. While it’s not possible to give a good IV based on dividend, these are bonus along with share
    Taking a margin of 30%, the right price to buy BLC share will be Rs 550 * 0.7 = Rs 385

    Let us now consider the holding company
    Balmer Lawrie Investments Ltd.
    This holding company holds about 65% shares of BLC, along with cash assets. Here’re some key metrics for BLIL
    1. Zero debt
    2. Total shares in issue of 22197269
    3. Holds 10064700 shares of the subsidiary BLC. This mean that each share of BLIL is equivalent of 0.4534 shares of BLCL (plus other assets…)
    4. In addition, has cash assets of Rs 405007556, which equates to Rs 18 / share
    5. BLIL distributed Rs 8.5 / share in dividend in FY2010-11.
    6. The per share fair value for BLIL considering only cash and BLC equivalent is then Rs 18 + 0.4534 * Rs 385 = Rs 192

    Note that this calculation already considers the margin of safety and ignores the value due to the dividend that BLIL pays out of its earnings from dividend from BLC and interest income. Currently, the dividend payout ratio for BLIL stands at about 70% of its PAT.


    This way, I arrive at Rs 190, but the margins of safety are:
    1. 30% in IV of BLCL
    2. Dividend income is bonus
    3. Earning power based increase in valuation of BLCL and hence its dividends and hence in return the dividends of BLIL is another bonus.

    Is this a highly flawed analysis? I mean, I try to consider only the most obvious evaluations of Intrinsic value and other things come as bonus.

    Pls let me know your opinion about this…

    • It isn’t flawed Sunny… in fact, it’s crisp and to the point.

      Just that I would like you to calculate the IV using a number of methods instead of just PEG. This is especially given that BLCL isn’t a “growth” company and thus will always look overvalued on a PEG basis.

      Thanks anyways for sharing your thoughts and analysis! Regards.

  13. Thanks Vishal

    Yes, I’m actually doing it using 4-5 methods now, and the value again comes close to Rs 375 for BLCL and then using my method, for BLIL it comes Rs 190, but yes, there’s no “explicit” MoS in BLIL IV.

    There’s one difference though, your analysis values BLIL based on “market value” of its holdings in BLCL, while I value BLIL based on ‘held value in BLCL”. Does this conservativeness give the required MoS in BLIL analysis. I’m a little skeptical of valuing BLIL based on market value of its holdings, since, in that way, even at Rs 185, BLIL is at about 37% discount to its holding considering Rs 620 as CMP for BLCL…and probably as you said, that discount remains constant, and hence, BLIL is always a good buy, at any price, since we always get 40% discount?

    What do you think?

    • Sunny, BLIL that will mostly trade at 40% discount to the value of its holding in BLCL will be a “good” buy only till the time BLCL remains a good buy, which I believe it isn’t anymore at the current price. 🙂

      Also, I never valued BLIL in the above report. I just calculated that the stock was then available at 40% discount to its holding in BLCL, which provided a good MoS because BLCL in itself was available at a good MoS.

  14. Ok, thanks Vishal, understood your point 🙂

  15. CA PANKAJ KAMANI says:



  16. Hi Vishal,

    As you know after bonus issue, stock price is changed. So IV of stock still remains same?

  17. Balmer Lawrie and Company hit 52 week low of 290 good opportunity to buy.

    Make times of pesimism your best friend.


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