3M India
Catering to multiple industries
The company has a wide product portfolio, which is positioned to tap lucrative niches in several high-growth sectors
| Buy | 3M India |
| BSE Code | 523395 |
| NSE Code | 3MINDIA |
| Bloomberg | BL3M@IN |
| Reuter | BRLM.BO |
| 52-week High/Low | Rs 2500 / 1444 |
| Current Price | Rs 1702 (as on 19th March 2008) |
Innovation-driven product company 3M India (formerly Birla 3M) is a 76% subsidiary of Minnesota Mining and Manufacturing Company (3M), US.
Globally, 3M has about 55,000 products, while in India it offers over 2,000 products, divided into five broad groups. The company caters to five key business segments - industrial markets, automotive/specialt
Impressive results
For the fourth quarter ended December 2007, 3M India registered sales growth of 20% to Rs 156.63 crore. OPM improved by 160 basis points from 14.9% to 16.5%. This took OP up by 33% to Rs 25.86 crore.
PBT grew 38% to Rs 27.42 crore and PAT was up 38% to Rs 16.88 crore.
For the year ended December 2007, its sales grew 21% to Rs 610.56 crore and PAT was up 34% to Rs 67.68 crore.
Business segments are serving fast growing industries
3M’s product roster within each of its business segments is large.
Industrial Markets
For December 2007 quarter, this division registered 15% rise in its revenues to Rs 29.22 crore and accounted for 19% of the company’s sales. However, PBIT from this division fell 15% to Rs 4.11 crore accounting for 16% of total.
For the FY, this division registered 20% rise in its revenues to Rs 113.14 crore and accounted for 19% of the company’s sales. PBIT from this division improved 7% to Rs 19.27 crore accounting for 19% of total.
Industrial Markets segment represents some of its original businesses, such as tape, coated and non-woven abrasives, and specialty adhesives. As industrial brands are continuously transformed through technological innovation, this business segment also aptly represents 3M innovations at work. This segment market now offers the broadest line of products for markets in automotive, aerospace and automotive after-markets. Product applications range from grinding, surface conditioning and super abrasives to packaging systems.
Automative & Speciality Materials Markets
This segment provides a range of design and engineered solutions to Automotive OEM's and a very wide range of automotive repair and car grooming solutions to the Automotive Aftermarkets. 3M is acknowledged as a innovative supplier of solutions for the Automotive Industry and is a market leader in the non-paint consumables segment in the Auto-Afermarkets space. 3M is a pioneer in the car care business and is forging partnerships at a majority of car dealerships by way of Auto OEM approvals. This segment also serves the oil and gas pipeline, automotive ancillary industries, paints and water infrastructure.
For December 2007 quarter, this division registered 29% rise in its revenues to Rs 56.73 crore and accounted for 36% of the company’s sales. PBIT from this division rose 153% to Rs 10.17 crore accounting for 38% of total.
For the FY, this division registered 15% rise in its revenues to Rs 216.46 crore and accounted for 35% of the company’s sales. PBIT from this division rose 51% to Rs 34.72 crore accounting for 35% of total.
For this segment, the company has gained approvals for several new applications with Indian and Global automotive companies. The company has also in place blue print of 5 year strategic plan in place for accelerating growth significantly.
There are a number of new oil and gas pipeline projects that have been announced. The products from Corrosion Protection portfolio supports the pipeline manufacturing industry, with the introduction of dual layer coating that will provide significant benefits to its customer, both in cost and productivity. Similarly, the introduction of 3M microspheres in oil wells has given improved light weight cement applications.
In automotives, the company supplies a range of design and engineering products (vehicle graphics and badging, protective films and refinishing products) to automobile manufacturers. The company has also forged relationships with car dealerships in India to tap into the lucrative car detailing services market.
Heatlth Care Markets
Health Care Markets segment holds leading position in a broad array of market segments in medical, surgical and dental products and also provides technologies for other health care manufacturers.
For December 2007 quarter, this division registered a 3% rise in its revenues to Rs 20.22 crore and accounted for 13% of the company’s sales. PBIT from this division rose 34% to Rs 1.15 crore accounting for 4% of total.
For the FY, this division registered 14% rise in its revenues to Rs 81.01 crore and accounted for 13% of the company’s sales. PBIT from this division fell 30% to Rs 2.97 crore accounting for 3% of total.
Continued engagement with key customers in the medical business through six sigma projects has improved relationships and business.
Traffic & Safety Markets
This segment offers products that enhance worker, public and vehicle safety. Major product lines include advanced reflective materials for traffic and personal safety; graphic films, hardware, software, inks and toners for large format identity and advertising graphics; respirators & hearing protection products for worker safety, library security systems & computer filter screens for eye protection.
For December 2007 quarter, this division registered 53% rise in its revenues to Rs 30.18 crore and accounted for 19% of the company’s sales. PBIT from this division rose 57% to Rs 7.53 crore accounting for 28% of total.
For the FY, this division registered 47% rise in its revenues to Rs 122.20 crore and accounted for 20% of the company’s sales. PBIT from this division rose 79% to Rs 33.76 crore accounting for 34% of total.
Expansion of the road network at the national and state levels is resulting in increased demand for the company's reflective sheeting products for traffic signage.
The company's reflective sheeting is being used in the prestigious Mumbai Metropolitan Regional Development Authority (MMRDA) road projects. City Development Authorities in Jaipur, Lucknow, Ahmedabad, Noida & Mysore are also using the company's reflective sheeting. The products are also used by many other States around the country.
The company's Commercial Graphics division continues to be a preferred supplier of commercial fascia signage material (vinyl and flexible substrate) to several large national Corporate.
The company's Occupational Health & Environment Safety Division is a leader and is the preferred supplier of respiratory and hearing protection products to Indian industry.
Consumer & Office Constructions
This segment offers an array of products that help keep homes cleaner, offices organized and buildings maintained. This business segment features some of the world's best-known brands, from Scotch(R) to Scotch-Brite(
For December 2007 quarter, this division registered 10% rise in its revenues to Rs 20.17 crore and accounted for 13% of the company’s sales. PBIT from this division fell 6% to Rs 3.46 crore accounting for 13% of total.
For the FY, this division registered 18% rise in its revenues to Rs 73.76 crore and accounted for 1% of the company’s sales. PBIT from this division rose 1% to Rs 9.30 crore accounting for 9% of total.
High import content-benefits of rupee appreciation
3M India mainly imports, converts and distributes the parent’s products in India which 3M has technological advantage worldwide. As a result, import accounts for about 40% of company’s sales. As the company’s operations are import-intensive; an appreciating rupee can, thus, expand profit margins. Though the rupee has depreciated against the dollar in the past one month, it has risen significantly against the dollar on y/y basis. In March 2007, the rupee was around Rs 43 against the dollar, currently it stands at Rs 40.7 against the dollar.
Eyes new segments; expands existing facilities
3M India is expanding its Indian operations. The company is looking to enter new product categories and is also expanding its existing manufacturing facilities.
The company is setting up a new unit in Pune to manufacture various kinds of tapes catering to the labelling and packaging industry. It is also ramping up the capacity of its existing units that make products for corrosion protection (Ahmedabad), automobile (Pune), telecom and electrical industries (Bangalore).
The Pune unit is expected to use new technology, possibly not seen in India before.
The company is also exploring new industrial segments and has commenced studies on the construction, automotive, water and electricity related industries. 3M India also plans to look at the consumer products industry. It also finds the professional and office stationery market interesting. The management plans to continue bringing new products under the Scotch-Brite brand.
Exploring tie-ups with strong marketing network
Distributing products in India has been difficult for the company. It covers the entire US market by tying up with 6-7 large retailers such as Wal-Mart and K-Mart. However, in India it needs to do that with about 2 lakh stores because the hypermarket penetration does not cover the whole market. Hence, 3M India is exploring tie-ups with Indian companies with a strong marketing network.
The company is also open to helping such companies develop their ideas into products. The company also plans to tie up with Indian universities for research cooperation on technology, markets and consumer behaviour.
Impressive 3-year CAGR
With several of the user segments benefiting from the upturn in the domestic economy as well as the capex cycle, 3M India’s sales have doubled in three years, registering a compounded annual growth of 31%. Net profits over the same period have grown at an annualised 28%.
Strong parent
The parent 3M is a diversified technology company with leading positions in health care, safety, electronics, telecommunications, industrial, consumer and office, and other markets.
In FY 2007 3M reported 7% growth in sales to $24.5 billion (around Rs 98000 crore), an all-time record for the company. Sales were up 11% adjusted for recently divested businesses.
Net income for 2007 was $4.1 billion (around Rs 16400 crore).
The parent has its operations in more than 60 countries and its products are sold in nearly 200 countries. In R&D, the company employees about 8,000 people worldwide.
The parent introduces over 500 new product every year. Globally, it has the largest number of product patents under its belt with more than 55,000 products in circulation. It has one of the largest product mix in the world with diverse applications that ranges from advanced industrial use to daily domestic use.
About 37 of 3M’s international companies have manufacturing operations ranging from small converting operations to full-scale manufacturing of multiple product lines and 32 international companies have laboratories to support its business plans. This laboratory work involves technical service, manufacturing support, product modification, product development and some technology development. All of its international companies provide technical support to the customers through local technical service engineers backed by subsidiary, regional and U.S. laboratories.
Chances of the parent buying out the balance stake
With its strong financial muscles, low valuation of the Indian outfit and an already held 80% equity stake, chances are bright that the parent would go for complete buy out of the Indian outfit sooner or later.
Its worth nothing, in this regard, that Yashovardhan Birla, who held 7.2% stake in the company, sold his 6.2% stake (6,98,037 shares) in the open market in June 2007.
Outlook and valuation
3M India has drawn out an action plan to improve sale through new product launches, renovation of existing products and focussed market spend by addressing this issues through six sigma. It is also concentrating an all round cost savings and productive gains, using right process and obtaining higher results.
The company's focus areas of automotive, telecom, healthcare and traffic are growing rapidly and offers significant growth prospects.
The emergence of India as a manufacturing hub for global automotive giants allows scope for 3M India to expand its Indian offerings by leveraging on its global client relationships. Meanwhile, the upgradation by Indian car buyers to mid-sized and luxury cars could translate into strong demand for 3M’s Automative & Speciality Materials Markets.
Prospects for the Industrials Markets Business (cleaning solutions, specialty adhesives, refinishing and abrasives) are equally strong on the back of accelerated investments in the domestic construction, auto and metal fabrication sectors.
The Traffic & Ddisplay Segment includes products such as reflective and safety material for roads, films and toners for hi-tech outdoor advertising and safety gear for workmen.
The company has wide breadth of product portfolio, which is positioned to tap lucrative niches in several high-growth sectors. Not only does 3M’s repertoire of brands offer good potential for scaling up earnings, the diverse client base also lends resilience against cyclical blips in one or more user sectors.
Moreover, with the parent already identifying the emerging markets as a thrust area, a slowdown in the offtake in the US due to a slowdown in the automotive or construction sectors, could spur a greater focus by the parent in markets such as India.
In FY 2008 (ending December) we expect the company to register sales and net profit of Rs 735.11 crore and Rs 84.31 crore respectively. On equity of Rs 11.27 crore and face value of Rs 10 per share, EPS works out to Rs 74.8. The share price trades at Rs 1702. P/E works out to 22.8. This is at the lower end of the historical valuation band of 23-46 times
| | 0512 (12) | 0612 (12) | 0712 (12) | 0812 (12P) |
| Sales | 379.88 | 505.75 | 610.56 | 735.11 |
| OPM (%) | 16.9 | 15.8 | 17.1 | 17.3 |
| OP | 64.28 | 80.07 | 104.53 | 127.47 |
| Other inc. | 3.18 | 4.64 | 8.32 | 10.85 |
| PBIDT | 67.46 | 84.71 | 112.85 | 138.32 |
| Interest | 0.15 | 0.28 | 0.33 | 0.39 |
| PBDT | 67.31 | 84.43 | 112.52 | 137.92 |
| Dep. | 6.73 | 6.46 | 5.89 | 6.18 |
| PBT | 60.58 | 77.97 | 106.63 | 131.74 |
| Tax | 22.16 | 27.55 | 38.95 | 47.43 |
| PAT | 38.42 | 50.42 | 67.68 | 84.31 |
| EPS* (Rs) | 34.1 | 44.7 | 60.1 | 74.8 |
| * On current equity of Rs 11.27 crore: | ||||
| 3M India: Results |
| | 0712 (3) | 0612 (3) | Var. (%) | 0712 (12) | 0612 (12) | Var. (%) |
| Sales | 156.63 | 131.04 | 20 | 610.56 | 505.75 | 21 |
| OPM (%) | 16.5 | 14.9 | | 17.1 | 15.8 | |
| OP | 25.86 | 19.48 | 33 | 104.53 | 80.07 | 31 |
| Other inc. | 2.92 | 1.54 | 90 | 8.32 | 4.64 | 79 |
| PBIDT | 28.78 | 21.02 | 37 | 112.85 | 84.71 | 33 |
| Interest | 0.13 | 0.10 | 30 | 0.33 | 0.28 | 18 |
| PBDT | 28.65 | 20.92 | 37 | 112.52 | 84.43 | 33 |
| Dep. | 1.23 | 1.03 | 19 | 5.89 | 6.46 | -9 |
| PBT | 27.42 | 19.89 | 38 | 106.63 | 77.97 | 37 |
| Tax | 8.81 | 6.37 | 38 | 39.62 | 29.34 | 35 |
| Deferred Tax | 1.73 | 0.37 | 368 | -0.67 | -1.79 | -63 |
| PAT | 16.88 | 13.15 | 28 | 67.68 | 50.42 | 34 |
| EPS* (Rs) | 59.9 | 46.7 | | 60.1 | 44.7 | |
| * On current equity of Rs 11.27 crore: | ||||||
| 3M India:: Segment results |
| Sales | 0712 (3) | 0612 (3) | Var. (%) | % to total | 0712 (12) | 0612 (12) | Var. (%) | % to total |
| Industrial Markets | 29.22 | 25.51 | 15 | 19 | 113.14 | 94.35 | 20 | 19 |
| Automative & Speciality Materials Markets | 56.73 | 43.90 | 29 | 36 | 216.46 | 188.59 | 15 | 35 |
| Heatlth Care Markets | 20.22 | 19.66 | 3 | 13 | 81.01 | 70.90 | 14 | 13 |
| Traffic & Safety Markets | 30.18 | 19.72 | 53 | 19 | 122.20 | 83.27 | 47 | 20 |
| Consumer & Office Constructions | 20.17 | 18.32 | 10 | 13 | 73.76 | 62.60 | 18 | 12 |
| Others | 0.11 | 3.92 | -97 | 0 | 3.98 | 6.04 | -34 | 1 |
| Total | 156.63 | 131.03 | 20 | 100 | 610.55 | 505.75 | 21 | 100 |
| less: Inter segment | 0.00 | 0.00 | | | 0.00 | 0.00 | | |
| Net sales | 156.63 | 131.03 | | | 610.55 | 505.75 | | |
| PBIT | | | | | | | | |
| Industrial Markets | 4.11 | 4.86 | -15 | 16 | 19.27 | 17.97 | 7 | 19 |
| Automative and speciality materials markets | 10.17 | 4.02 | 153 | 38 | 34.72 | 22.96 | 51 | 35 |
| Heatlth Care markets | 1.15 | 0.86 | 34 | 4 | 2.97 | 4.27 | -30 | 3 |
| Traffic & Safety Markets | 7.53 | 4.79 | 57 | 28 | 33.76 | 18.86 | 79 | 34 |
| Consumer & Office Constructions | 3.46 | 3.68 | -6 | 13 | 9.30 | 9.18 | 1 | 9 |
| Others | 0.04 | 0.23 | -83 | 0 | 0.45 | 0.38 | 18 | 0 |
| PBIT | 26.46 | 18.44 | 43 | 100 | 100.47 | 73.62 | 36 | 100 |
| less: Interest | 0.13 | 0.10 | | | 0.34 | 0.28 | | |
| Add: Other unallocable expenses | 1.09 | 1.54 | | | 6.49 | 4.64 | | |
| PBT | 27.42 | 19.88 | | | 106.62 | 77.98 | | |
| Capital Employed | | | | | | | | |
| Industrial Markets | 22.60 | 21.68 | 4 | 16 | 22.60 | 21.68 | 4 | 16 |
| Automative and speciality materials markets | 76.61 | 60.29 | 27 | 53 | 76.61 | 60.29 | 27 | 53 |
| Heatlth Care markets | 11.33 | 12.23 | -7 | 8 | 11.33 | 12.23 | -7 | 8 |
| Traffic & Safety Markets | 26.78 | 13.57 | 97 | 18 | 26.78 | 13.57 | 97 | 18 |
| Consumer & Office Constructions | 7.88 | 9.37 | -16 | 5 | 7.88 | 9.37 | -16 | 5 |
| Others | 0.00 | 0.00 | #DIV/0! | 0 | 0.00 | 0.00 | #DIV/0! | 0 |
| Total | 145.20 | 117.14 | 24 | 100 | 145.20 | 117.14 | 24 | 100 |
| Add: Other unallocable CE | 145.11 | 106.70 | | | 145.11 | 106.70 | | |
| Total CE | 290.31 | 223.84 | | | 290.31 | 223.84 | | |
| Figures Rs in crore | ||||||||
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