Camlin Limited.

The Group's principal activities are developing, manufacturing

and distribution of consumer products, pharmaceutical formulations, bulk drugs
and fine chemicals. Consumer products include art materials and stationery like
artist colours, writing instruments, wooden pencils, ink, Mathematical &
Engineering Instruments boxes, high polymer leads and other stationery products.
The Group's plants are located in Maharashtra and Jammu & Kashmir.

Mumbai Feb. 5 Mumbai-based stationery major Camlin is eyeing the Russian

market and is mulling the possibility of entering into a marketing alliance.
Currently, the company has an alliance with Russian stationery majors as an OEM
supplier for a range of hobby-based products.

Speaking to Business Line, Mr Dilip Dandekar, Managing Director, said:

"Russia is emerging as a potential market for us, especially for a
category such as hobby colours. We are looking at doing some
business development in the future in this market."

Camlin may also bring in some of the Russian stationery brands to India.
At the same time, Camlin is making efforts to build its brand in the US market.
Camlin floated a subsidiary in North America and has introduced a new brand
called Camellia for school products.

"We have entered the US market through catalogue sales for the Camellia brand
since it is a competitive market for stationery. The purpose is to build the brand
step by step and establish its identity slowly before taking it to the retail shelves."

Camlin also supplies products to the UK market through a 100 per cent
export-oriented unit as part of its joint venture with Col Art Holdings.
There is also a marketing alliance with Col Art whereby Camlin has
brought in brands such as Winsor and Newton to India.
Manufacturing plans
It is now hoping to manufacture these brands in the country once
curbs on manufacturing are removed in the small-scale sector.
Meanwhile, Camlin has been relying on China as a sourcing hub for its
range of products.
Looking for alternatives
"We are looking for alternatives since we do not want to get dependent
on China."
Post-restructuring, Camlin has managed to reduce its losses (it has
demerged the fine chemicals business).
This year, the company expects to clock turnover of Rs 180 crore and
grow at a rate of 20 per cent in the stationery business.
Incorporated in 1931, Camlin started operations with Horse ink powders and
tablets, followed shortly by Camel ink.

The company now manufactures art and stationery material and sells
products like colours, fountain pens, pencils, adhesives and inks. It is also a
market leader in colours¶ space with presence across segments like writing
instruments and scholastic.

After sale of land at Andheri (Mumbai), Camlin now has land in Jammu and
Tarapore, where its manufacturing facilities are located.

All the product lines in which the company operates have strong
competition. For instance, in scholastic, the company faces stiff competition
from not only unorganised sector but also from players in organised sector
(Kores, Faber Castle etc).

Cheaper Chinese goods also pose a threat to the company¶s market share.
This could all lead to reduction in the market share of the company.
For past two years the company has had negative cash at operating level,
primarily driven by the increase in working capital requirement.

In FY2008, the company also made large payments to creditors, which led to
increase in the working capital requirement. We expect cash flows to turn
positive in FY2009.
Outlook and valuation
The company can leverage its strong brands namely Camel and Camlin and
wide distribution network across the country.

The company is in the process of expanding its product portfolio by

introducing a slew of new products in scholastic and office stationery
segments. Besides, the full benefit of the new facility at Jammu is likely to
accrue from FY2010.

On real estate front, the company has sold its land in Andheri, Mumbai in
early 2007. Camlin also has facilities at Tarapore and Jammu, however it has
no intention to develop or sell the same.
Our quick estimates indicate that the sales are likely to grow at a
compounded annual growth rate (CAGR) of 24.6% over FY2008-10E, led by
new plant at Jammu.

The change in manufacturing and trading mix will help Camlin improve
profitability, hence net profits are likely to grow at a CAGR of 41% over FY2008-
10E.

At the current market price of Rs10.9, the stock is discounting our earnings
estimates for FY2009 and FY2010 by 8.9x and 5.9x respectively (assuming
significant benefits from the new plant at Jammu).

The valuations are in line with market conditions and not exactly cheap
given the fact that it has very thin margins of 1-2.5% on net level.
Moreover, the net operating cash flows (after working capital adjustments)
have remained negative in the past few years.
The Mumbai-based stationery major Camlin has incurred a 20 per cent loss in its business after
the impositionof value-added tax (VAT). Further, cheap imports from China and Korea is
compounding its woes.
³Pre-VAT, mostofour products were duty-free, but post-VAT, wehad to pay 12.5 per cent tax
on them. Though the government reduced VAT on stationery ink(not f or industrial use) to 4 per
cent, it was not enough. So,overall VAT h as impactedour finances adversely,´ said Kishor
Mokashi, executive assistant to the CMD.

Mokashi said theother reason for the company¶s consistent losses was cheap
consumer
stationery imports from China and Korea. ³As a result,our core sector stationery
business was
losingout,´he said.