Balmer Lawrie is a trans-national diversified conglomerate with presence in both manufacturing and service sectors. The company is a market leader in steel barrels, industrial greases and specialty lubricants, corporate travel and logistics services. It also has significant presence in most other businesses, like performance chemicals, logistics infrastructure and others. In its long history of 146 years, the company has been successfully responding to the demands of an ever-changing environment, leveraging every change as an opportunity to innovate.
Strength
Travel and tourism accounts for close to half of the company's revenues, being the travel agent to the government establishments. The company is one of the largest travel agencies in India affiliated to IATA with organisations like Indian Railways, ONGC, IOC, SAIL, BHEL, and ISRO. However, the exposure and dependence to a single large client has its perils, which was last seen when the Government went into an austerity drive in FY09, restricting executive travel by employees.
The Logistics Infrastructure vertical accounts for 17 per cent of the company's top line and brings 55 per cent of Balmer Lawrie's total Ebit. The company operates container freight services (CFS) at Navi Mumbai, Chennai and Kolkata and warehousing and distribution services.
Being a diversified company has its advantages, Balmer Lawrie does not need heavy capex investment. Take Balmer Lawrie's gross block for instance. The company has doubled its fixed investments only in the last 10 years for sales to go up by more than 3.6 times. Diversification has also helped the company post a positive cash flow from operations in each of the last ten years and the debt-equity ratio stands at a manageable 0.21x.
The performance of chemicals SBU which is into manufacturing and marketing syntans and synthetic fat liquor in the leather industry has been growing and can contribute to revenues in future.
The sum total of Balmer Lawrie's operations come together to form a company with returns on capital in excess of 25 per cent in the past five years. Not many companies can boast of such high returns operating such diverse businesses. Moreover, the company has reported an earnings growth of 11 per cent in the past five years, which were also one of the most difficult years for corporate India.
Concern
Of concern is the future of travel agencies. The proliferation of online booking of tickets is slowly but surely creeping up. Alongside that, various Government agencies too are looking at cutting costs.
The industrial packaging is the company's second largest vertical, however, this industry is characterised by low entry barriers and surplus capacities. Likewise, the tea business is also posing challenges as the company does not have its own tea gardens. The Tea SBU has been incurring losses and is hardly in a position to generate positively in the near future.
The logistics infrastructure vertical is also under threat because it is highly sensitive to economic activity, which is passing through a tough patch. In the period between FY07-11, when the world was reeling from financial recession and businesses suffered across the board, logistics grew by a meagre 3 per cent. The growth in the CFS space has also been stagnant in recent years.
Valuations
Balmer Lawrie is trading at five times its earnings as compared to its ten-year median of 7.5x. Given the diversified nature of the company, Balmer Lawrie can be considered as an investment. However, do not expect phenomenal growth fast. This is a slow and steady cluster of businesses that shall continue to grow steadily. For patient investors only.
This article was originally published on February 10, 2014.
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