Colourful growth

I had written about the potential of Kokuyo Camlin (KC) here in June ’12, just as Kokuyo of Japan has bought out a majority of the Indian promoters stake a year back, making it their majority-owned subsidiary. They have subsequently increased their stake to around 70% currently, while the Indian promoters (the Dandekar family) still hold a 5% stake. It was then trading @38. Kokuyo is a leading company in Japan with over 100 years of experience in stationery and furniture products, design and construction of office and store interiors, mail order business, lifestyle retail and distribution having an annual turnover US$ 3.2 Billion. At that time, Kokuyo had paid Rs.110/share for Camlin based on its brand strength and its distribution reach. However, post the deal, KC struggled for quite some time, getting to grips with their new owners. And they were not helped by the environment in general, and their industry scenario in particular which is still dominated by the unorganized sector. However, in the last year or so, things seem to have settled down for KC and the story is playing out to script. And Kokuyo seems to have broken even as far as their investment was concerned. It remains to be seen how Kokuyo plans to take it to the next level in order for their investment to be really profitable.

From the range of 30-40 and below at which it was languishing then, 3 years back, it has risen nearly 4-fold in this period, giving a compounded annual return of 40% in this 3-year period, a commendable feat indeed.

And promoter group holding has reached the maximum level of 75% now from 64% then, showing the confidence of the Japanese promoters in the company’s prospects. In fact after losses last year, it has come back in the green this year. With the Japanese promoters holding around 70% shares, it could also be a potential candidate for de-listing.

With India’s ever-increasing population and Modigovt’s stress on education for all school children, the demand scenario for KC’s products will continue to be good. The main risk is the undercutting by price-sensitive unorganized sector. But quality will continue to rule at least with the rowing middle-class.

However, even with all the good things likely to happen in the future, it is always prudent to take a part of the money off the table and retain the rest for the longer term to participate in the growth. So people who have entered at really low levels of sub-30s and 40s can surely book some profits and hold the rest for the longer term. And as always, it is always good to buy the share back if it falls significantly in line with the general market or after having run up a bit post some good news.