The Hindu Business Line : Manugraph India: Buy

Manugraph manufactures printing presses used in the newspaper industry and also makes products that are used for printing a variety of business/entertainment material such as brochures, pamphlets and booklets, to name a few. It is, however, the printing presses business that is the main driver of revenue and earnings growth.

The explosive growth in the newspaper business over the past couple of years has led to a substantial scaling up of revenues and earnings for Manugraph. As the English and vernacular language papers are in the process of expanding their footprint, the demand for the company's products are likely to remain robust.

A spurt in demand - as newspapers have ventured into new geographies - and price hikes have enabled the company to earn more in the first six months of FY 06 than what it managed last year. Even if the company reports flat earnings numbers for the next couple of quarters, per share earnings is likely to double to about Rs 20 in FY 06. Earnings growth, which has been rising at a scorching pace over the past three years, may settle to moderate double-digit levels from FY 07.

Even as we take a sanguine view of the business prospects, the tendency to deploy cash flows in equities and portfolio management schemes is a cause for concern. Such a strategy appears imprudent and exposes the cash flows to risks of erosion. The stock, which has risen five fold this year, has shed about 15 per cent since the stock split took effect last month. Any further dips linked to broad market trend will provide a good entry point to accumulate the stock. The stock trades at a price earnings multiple of less than 10 times.

Manugraph may not deliver spectacular returns of the magnitude witnessed over the past couple of years. Over a one-to-two year period, it is, however, likely to be a rewarding exposure even if returns shift to double-digit territory, which appears likely.

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