3M India Stock Analysis

 

by Rajat Sharma | April 27, 2016

Keeping with our view in finding less focused stocks, here is another interesting idea:

3M India Limited

Price – Rs. 13,552.00

3M India Limited (“3M India” or the “Company”) is the Indian listed subsidiary of 3M Company, USA. The Company is a diversified technology and science company with global presence in the following businesses: Industrial; Health Care; Consumer; Safety, Graphics, and Energy and is one of the leading manufacturers of products for many of the markets it serves. 3 M India has manufacturing facilities at Ahmedabad, Bengaluru, Pune and has a R&D Center in Bengaluru.

Shareholding Pattern (As on 31st March 2016)

Promoter (USA) 75 %
FIIs 9.61%
DIIs 2.87 %
Others 12.51 %

WHAT’S DRIVING THE STOCK

Strong Financial Position

3M India has shown consistent growth over the last 5 years (i.e. 2010-11 to 2014-15). Its net revenue from operations over this period grew at an impressive CAGR of 9.09%. For 9 months period ended FY 2016, income from operations increased by 13.80 % to Rs. 1,550.88 Cr. from Rs. 1,362.85 Cr. and PAT increased by 113.64 % to Rs. 142.52 Cr. from Rs. 66.71 Cr. 3M India has reserves in excess of Rs. 807.71 Cr and operates with negligible debt on its books. This strong financial position will enable the Company to grow significantly in coming years.

3m India financials

3M India profitability

3m India financials

3m India roe

Diversification – Makes It a Safe Bet

3M India managed its operations in five operating business segments:

  • Industrial
  • Health Care
  • Safety and Graphics
  • Consumer
  • Electronics and Energy

3M India segment revenue[1] INDUSTRIAL BUSINESS – Caters to industries, such as automotive original equipment manufacturer (OEM) and automotive aftermarket, electronics, paper and printing, packaging, food and beverage, and construction.

PRODUCTS – Tapes, abrasives, adhesives, advanced ceramics, sealants, specialty materials, and products that are used in the manufacture, repair and maintenance of automotive, marine, aircraft and specialty vehicles.

The Company is focusing to consolidate its leadership position in the Abrasives category across segments with the launch of patented abrasives. In addition, the Company is expanding its 3M Car Care Center to enhance visibility for the 3M brand. 3M India is also focusing to increase the online presence of the ‘Do It Yourself (brand name)’ car care products by 2017.

[2] HEALTHCARE BUSINESS – Caters to large multi-specialty hospitals, dental and orthodontic practitioners, and pharmaceutical companies. In FY 2015, the Company launched several new products to create significant impact in the market and to ensure its continued leadership this segment.

PRODUCTS – Medical and surgical supplies, medical devices, skin & wound care and infection prevention products & solutions, dental and orthodontic products and food safety products.

[3] SAFETY & GRAPHICS BUSINESS – Caters a broad range of markets that serve to increase the safety, security of people.

New Product Launches –Launched 3M Tubular Daylighting Guiding System which controls sunlight in buildings and factories.

3M Traffic Safety Division launched new products like Solar Raised Pavement Markers.

3M introduced radio frequency Identification Tags (RFID) and Automatic Number Plate Recognition (ANPR) based traffic monitoring system as part of the smart city / intelligent transportation systems offerings.

[4] CONSUMER BUSINESS – Caters to retail consumer, office, and the pharmacy channel. The products include office supply products, stationery products, home care products, and consumer health care products.

PRODUCTS – Scotch brand products, such as Scotch Magic Tape and Scotch Glue Stick; Post-it Products, such as Post-it Flags, Post-it Note Pads and Dispensers; home care products, including Scotch-Brite Scour Pads, Scotch-Brite Scrub Sponges, Scotch-Brite Microfiber Cloth products; for the pharmacy channel – Nexcare Adhesive Bandages; and Nexcare branded first aid product lines.

The Company continues to invest in the ‘Scotch-brite’ brand to build consumer pull on television & trade, especially in the utensil cleaning tools and wipes portfolio

[5] ENERGY BUSINESS – 3M India offers products that ensure effective protection against corrosion for a variety of installations and structures. In Renewable Energy, 3M India supports solar & wind energy initiatives through product solutions such as films, tapes, coatings, encapsulants and adhesives that help reduce the cost of energy generation.

The Company’s product 3M Scotchkote Fusion Bonded Epoxy Powders protect steel pipelines, associated fittings and structures used in the oil, gas, water and construction market.

Strong Technological Support from Parent Company

3M India has a very strong business linkage with its parent company, 3M Company (USA). Despite its own innovation centers, 3M India derives most of the product technologies from its parent, which are then modified as per the local requirements before introduction into the Indian market. 3M India has also entered into Intellectual Property and Support Service agreement with 3M Innovative Properties Company and 3M Company, which enables it to have access to the parent’s technologies and services in fields of laboratory, technical assistance, manufacturing and information technology. In addition, some of the products which are developed by 3M India are patented under the name 3M, for which 3M India receives contract research fees.

WHAT’S DRAGGING THE STOCK

Competitive Environment

The Company is operating in a highly competitive market which may exert pressure both on the top line as well as the bottom line. The Company’s products are subject to competition from products manufactured and sold by other technologically oriented companies both within India and outside India.

High P/E and No Dividend

THE COMPANY’S TRAILING 12-MONTH (TTM) EPS STOOD AT RS 163.47 PER SHARE AS PER QUARTER ENDED DECEMBER 2015. AT CURRENT CMP OF Rs. 13552.00, THE STOCK IS TRADING AT A PRICE-TO-EARNINGS (P/E) MULTIPLE OF 82.89. 

The Company has not declared any dividends during the last five financial years.

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3 Comments

  1. Ranjith

    Interesting. In the Interiors field 3M tapes is mostly used. however P/E of 82 is a bigger concern.

    In your research report if the following is added it would be nice.

    1. Last 5 years avg P/E ratio which company is enjoying (to understand how the market is giving allowance on P/E)
    2. P/E of the Industry in which the company is in, to check whether this is highly valued or not

    Reply
    • Rajat Sharma

      Thanks Ranjith …great feedback

      Reply
    • Captain A.Kumar

      This is in reply to your two years back comment on this website, which I have read it today. Yes, you are right. PE is high, but to sum up in just one word, who is going to sell 3M India’s shares? Low equity, High reserves, good growth for the company & earnings visibility,EPS of Rs 265, wonderful management, Excellent ROCE of 15, debt free. What else one want to invest? It has all. Low equity of Rs 11 crores, reserves of some Rs 1300 crores, 75% promoters holding, some 13% by mutual funds, FIIs & FIs. it will be galloping ahead of its fundamentals always. As long as there is growth in the company, price will inch up.

      Reply

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