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Anup Menon

TRADING at around Rs 271, the stock of Birla 3M is a good investment option for a medium-to-high risk portfolio. It trades at a price-earnings multiple of around 22 times the latest earnings. The company's earnings performance for the year-ended December 2001 was impressive. The prospects for growth look stable.

The higher level of diversification of revenues reduces the operational risk profile of the company. However, liquidity in the stock is still a problem on account of low floating stock. Shareholders can consider accumulating at current prices and investors can consider taking fresh positions at current levels, keeping in mind an exit price of around Rs 400-420.

Earnings performance: The company's earnings performance for the year-ended December 2001 was fairly impressive. Sales revenues rose 11 per cent to Rs 229.78 crore compared to the corresponding previous period. In the same time-frame, operating margins improved marginally from 13.40 per cent to 14 per cent. Post-tax earnings rose 28 per cent to Rs 13.79 crore compared to the previous year. On an equity base of Rs 11.26 crore, the earnings per share for the company works out to Rs 12.25.

Facts: Birla 3M is the domestic wing of Minnesota Mining and Manufacturing Company, US. Its main business is trading in a significant portion of products being sourced from the company's international facilities. It has a diverse product range, including adhesive tapes, healthcare products, car paint and finished goods, among others

Prospects: The company's prospects in the near term appears stable. One of the main advantages is its diversified product range. This helps reduce volatility in cash flows if there is a downtrend in one sector. In terms of profitability, the traffic and safety product segment contributed the highest with close to 25 per cent share. It also had the highest profit margin and return on capital employed at 20 per cent and 36 per cent respectively. This segment seems to be a good growth driver for the company. Further, with limited competition, healthy growth over the next few quarters looks a strong possibility. The industrial equipments, consumer, office equipment and construction segments performed well. Margins and the return on capital employed were impressive. These segments are likely to be the growth drivers for the company over the next few quarters. Most of the products are consumer-oriented and, hence, are likely to be relatively demand inelastic. Therefore, marginal increases in costs can be passed on without a serious impact on demand.

The automotive segment did not make a serious impact on account of industry conditions. The recent improvement in industry fundamentals could change the scene over the next few quarters.

Overall, the company's prospects appear good and there could some improvement in the next few quarters. This could lead to a positive re-rating of the stock. Investors can consider entering the stock at current levels.

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