Repro India

Capitalising on the global trend of outsourcing printing of education books

Repro India is one of India’s integrated end-to-end content and printing solutions company present across the value chain ranging from creative designing; pre-press, printing and post-press services; assembling; warehousing; dispatching; database management; sourcing and procurement; localisation; and web-based services.

Main clients include publishing houses such as Alligator Books, Heinneman Educational Books (Nigeria) Plc, Modern Publishing Inc, Orient Longman, and Oxford University Press. Software companies like Microsoft Inc and hardware company Lenovo India are its customer. Indian clientele includes Tata Steel, Nokia India, NIIT, Wipro and Satyam Computer Services. Repro India is the only authorised Microsoft replicator in India.

Repro India is completely focused on one-stop solution including providing content to book publishers, both overseas and in India, of scientific, technical and medical books; trade books; digital books; magazines, and children’s books as well as to brochures, pamphlets, companies’ annual reports and investor communications, and educational manuals of IT companies. Apart from that, it caters to on-demand business.

Globally, the printing industry is as large as US$ 500 billion, growing at a steady pace of 2%. Of this, education publishing business comprises around 10%, i.e., US $50 billion. The long-term plan of Repro India is to try to grab a 2% market share of the segment, which comes to around US$ 1 billion. India has the advantage of low-cost paper. Paper prices in India are lower than international prices as the Indian paper industry uses baggasse and pulp to manufacture paper as against global players’ reliance on wood. This is apart from the cheap and talented labour in India. What was lacking was a complete value chain, which Repro India has built over the years. Although China has the same advantage as India, it is far behind in terms of assuring quality and timely completion of high-end jobs. Also, piracy is a big issue in China.

In the long run, Repro India has plans of building a print city at a suitable location. However, considering the nature of the business, the company would invariably require funds to invest in its business. It is looking for investors for private placement/sale of stake at an appropriate time.

Printing is a capital-intensive industry. Globally, the industry operates at an asset-turnover ratio of 1:0.75, i.e., for every Rs 100 crore invested, one can generate a turnover of Rs 75 crore at around 2%-3% margin. This is one of the reasons why global printing players are outsourcing to India and are not expanding any capacities. In India, the unorganised sector operates at a 1:1 ratio (i.e., asset-turnover ratio of 1:1). As against this, Repro India is operating at an asset-turnover ratio of 1:1.4 currently, which is derived from long experience, in-house technologies and a built-up of complete value chain. In the long run, Repro India aims to maintain an asset-turnover ratio of around 1:1.25.

Of the total sales of Rs 155 crore in the year ending March 2008 (FY 2008), nearly 50% was from exports. Within the global market, Africa forms a major market. Nearly 75% of the export sales are from the African market, and the rest from the US and UK. Going forward, export sale as a percentage to total sales will increase as more markets and new clients are captured.

Repro India has already invested around Rs 20 crore for expansion of its existing location to gear up capacities. The effect of the expansion will be seen in the turnover of FY 2009. Further, the company is going for greenfield expansion by setting up an special economic zone (SEZ) in Surat. The plant will be operational from Q3 of FY 2009. Around Rs 32 crore will be invested in this plant that can print around 80 million books per annum. Overall, Repro India expects Rs 80 crore additional turnover on the complete operation of the Surat plant. Export income is exempt from tax for the first five years of operation. The company will meet the capex plans through combination of internal accruals and debts.

Net sales grew 26% to Rs 49.26 crore in the quarter ended June 2008. Operating profit margin improved 230 basis points mainly due to operating leverage and ability to demand better pricing for printing annual reports. Profit after tax was up by 70% to Rs 5.15 crore. We expect Repro India to register EPS of Rs 20 in FY 2009. At the current market price of Rs 119, the scrip discounts its FY 2009 earning six times.