Avon Corporation Ltd

BSE Code: 532995

CMP: 5.70

Book Value: Rs.12.70

Price/Book: 0.45

EPS: Rs.2.12

P/E: 2.69

Industry P/E: 161.85

Dividend yield: 5.26%

52-Week High/Low: Rs.11.45/Rs.5.5

Market Cap: Rs.36.81 Cr

Introduction: Avon Corporation Ltd an ISO 9001:2008 Certified company, is a manufacturer of weighing scales under the “Avon” Brand such as - Mechanical Scale, Stylish Digital Glass Scales, Wooden Scales, Wireless Digital Glass Scaled, Digital Super Slim Scales, Digital Body Fat Scales, Digital BMI Scales, Digital Body Analysis Scales, Ultra Slim Body Fat Scales, Digital Kitchen Scales, Digital Baby Scales, High Resolution Platform Scales, Ultra Low Profile Platform Scales, Weighbridges and Auto-Vibrator Feeder System with SQC. These are manufactured in its plant located at Baddi, Himachal Pradesh. The company also develops software like Body Composition Analyzer, Analytical balance, Precision balance, Moisture Balance and Pipette Calibration.

It is also handling high end products for Body composition Analyzers & Blood pressure monitors and also deals in Laboratory balances (Analytical, Precision, and Moisture Balance), Industrial balances, Test Weights and DKD Calibration. First-generation entrepreneur, Pankaj Saraiya, established Avon Enterprises in the year of 1995. Company was listed with Bombay Stock Exchange on 3rd July, 2008.

For growth and advancement of technology and to manufacture varieties of products, Avon Corporation Ltd, has joined hands with Kern & Sohn GmbH, Germany. Currently Avon is authorized distributors of Kern & Sohn GmbH, and Jawon Medical, Korea.

Shareholding Pattern: The promoters holding in the company has increased from 11.67% in Q4FY10 to 13.68% in Q1FY11 and also when compared on Q-o-Q basis. General public holds 41.78% of the shares of the company, while shares held by custodians and against which Depository Receipts have been issued is 44.54%. The corporates hold 10.20% (increase from 9.74% considering sequentially) of the shares of the company. FIIs hold 7.55% of the shares of the company. The reputed brokerage house, Angel Broking Ltd has increased their stake to 1.49% in Q1FY11 as compared to 1.14% in Q4FY10.

Financials: For FY10, the company came out with good set of numbers. The total income of the company for FY10 came out to be Rs.117.04 Cr as against Rs.78.08 Cr in the same period previous year. The net profit of the company for FY10, came out to be Rs.11.90 Cr as against Rs.7 Cr in the same period previous year—a jump of nearly 70% over FY09. The reserves of the company increased to Rs.19.08 Cr in FY10, as against Rs.2.18 Cr in the same period previous year. However, both the OPM and NPM remained flat when considered on Q-o-Q basis.

For Q1FY11, the total income of the company remained almost flat at Rs.23.44 Cr as against Rs.26.03 Cr in the same period previous year. The PBDT of the company increased to Rs.5.4 Cr as against Rs.4.02 Cr in the same period previous year. The PBT of the company for Q1FY11 jumped to Rs.5.23 Cr as against Rs.3.86 Cr in the same period previous year. Moreover, the OPM increased to 27.10% in Q1FY11, as against 17.79% in the same period previous year. The NPM also increased to 23.77% in Q1FY11 as against 13.09% in Q1FY10. This indicates improvement in the fundamentals of the company on Q-o-Q basis.

Triggers:

• The company very recently received bulk orders of Rs.14.5 Cr from two reputed companies, Wockhard Hospitals Ltd and BARC; while it received a total of order of another Rs.1.5 Cr from other smaller companies--so in total bulk orders of value Rs.16 Cr was received recently. The company has a good order book position as of now and expects an order book of Rs.135—140 Cr plus in FY11. The company is expected to get another bulk order from a reputed company/organization soon.
• The company has launched a new software in this quarter (Q2FY11) which will cater to the large organizations having 50--1000 desktop computers. This software is used for various internal monitoring purposes of corporates/large business organizations. The company launches products in every quarter and this quarter was no exception.
• Though the company is facing competition from the unorganized sector and cheap imports but due to its product quality, this is not a main issue. It is one of very few reputed companies listed in Bombay Stock Exchange, in this space. The company hopes to show an impressive performance in Q2FY10.
• The company is in the process of expanding its production capacity by setting up a new plant in Baddi, Himachal Pradesh. The company has an investment outlay of around Rs.125 Cr for the upcoming plant. It hopes that by setting up the new production facility it will have a cutting edge over its competitors in terms of pricing and quality. The company hopes to recoup the investment by generating higher and efficient production, thus allowing it to derive higher profits. Since Baddi is a tax free zone with no income tax or excise it will allow Avon Corporation Ltd to drastically reduce its production costs by such huge margin as 35%. Thus, lesser production cost will allow it to charge competitive prices with far superior quality. The company is doing well and hopes that 1^st phase of expansion would be completed by March, 2010, which is just a few months away.
• The company has its own land in Baddi where the 2^nd unit will be set up and hence it would save on the cost of purchase of the land.
• The company hopes to generate an EPS of around Rs.4 in FY11. Since the 1^st phase of expansion is expected to be completed by March, 2011, hence most of the benefits of expansion would be obtained in FY12 and FY13.
• The book value of the shares of the company is Rs.12.70 as against the CMP of Rs.5.70. Moreover, even if we consider a decent P/E of 10, and then giving some discounting, the share price should not trade below Rs.15. Avon Corporation Ltd earlier informed BSE that the Register of Members & Share Transfer Books of the Company will remain closed from October 08, 2010 to October 10, 2010 (both days inclusive) for the purpose of Payment of Dividend & Annual General Meeting (AGM) of the Company. Avon Corporation Ltd earlier informed that its Board of Directors at its meeting held on May 20, 2010, inter alia, has declared dividend of Re.0.30 i.e. 3% per equity share of Rs.10 each for the year ended March 31, 2010. The dividend yield at the CMP is also quite attractive.
• The company is expected to launch its new product range of Table Top Scales and Jewellery Scales very soon. It has esteemed list of clients like Wockhard Hospitals Ltd, Home Solution Retail (I) Ltd, Department of Atomic Energy Ltd (BARC), etc.
• The weighing and measurement industry in India is growing at a brisk pace and hence it is expected that the demand for weighing application in various industries, would shoot up in the days to come. The company has been emerging as one of the largest and the fastest aggrandizing Weighing Scale manufacturing and Selling Company. The company has their product presence all over India, from Metro Cities to Small Cities to Rural areas. The essence that makes it reach every corner of India is through strong and affirmed Brand Power and huge spread of dealers across the country.
• If we look at the BSE’s announcement section, then we would find that the promoters have been continuously increasing their stake in the company, during the last few months.

Conclusion and Chart Check: From the charts it has been found that the stock is in the oversold territory and a bounce could be expected very soon. The other chartical parameters are more or less in the buy mode.

Investors can invest in the scrip at the CMP of Rs.5.60-5.70, for a target of Rs.6.95 in the short to medium term; if it is able to break Rs.6.25 on the upside. In the long term the scrip could touch Rs.12-15, considering lot of positives in the company. Please keep a SL of Rs.5.48 if one is playing for the short term.

Disclaimer: Though due care has been taken while preparing this report but no responsibility will be assumed by the author for the consequences what so ever, resulting out of acting on these recommendations or after reading the report.

The calls made herein are for informational purposes and are not recommendations to any person to buy or sell any securities. The information is derived from sources that are deemed to be reliable but its accuracy and completeness are not guaranteed. The author does not accept any liability for the use of this column for buying and selling of securities. Readers of this column who buy or sell securities based on the information in this column are solely responsible for their actions. The author, his acquaintances, his company or his family members may or may not have positions in the Scrips mentioned in this column. Investors should take their own decisions while buying and selling the shares/securities.