The Hindu Business Line : Manugraph India: Buy

As the print media industry is on a robust growth path, a prime beneficiary has been Manugraph India (Rs 260), a manufacturer of printing presses with no notable domestic competitors and a sizeable presence in the export market. It is set to report another year of more than a 100-per cent-plus earnings growth in FY06. As the effect of price hikes made in 2005 and higher input costs with the upward trend in metals get reflected in earnings, growth rates are bound to be more moderate in the quarters ahead.

The stock does appear, however, attractively valued and over a 2-3 year period, there appears to be scope for attractive returns even though manifold gains of the kind witnessed over the past three years may be a thing of the past. Manugraph trades at 10 times its likely earnings for FY07. We have buy recommendations outstanding in the Rs 150 - 165 range. Despite the 60 per cent rise since our last buy call in November, we remain sanguine about the stock. Buy this small-cap stock with at least a two-year perspective.

As the English and vernacular language papers and magazines are in an investment mode, demand for its core product is likely to remain robust, though growth rate may become more modest. It now also makes products used for printing a wide range of business/entertainment material. With the explosion of activity in financial services, telecom, publishing and retail, leading to enhanced usage of brochures, pamphlets and booklets, we expect this segment to make a rising contribution to revenues.

We will keep a close eye on the manner in which the cash flows are deployed, as Manugraph has in the past exhibited a tendency to dabble in the markets. This, coupled with a sharp slowdown in investments in the print media, which appears unlikely now, in our view, are the principal risks to our recommendation.

S. Vaidya Nathan

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