Ricoh India has received a voluntary delisting proposal from Ricoh Asia Pacific Pte Ltd. its promoter company. We believe the delisting price which will be determined through Reverse Book Building process will be considerably higher compared to the CMP on account of improved performance of company in lieu of launch of wide array of products and aggressive marketing strategies. We feel the price determined through reverse book building process should be around Rs.89 which is 12 times FY14 EPS. The delisting process should take 6-8 months and our target price of Rs. 89 per share can generate 22% return from CMP of Rs. 73 in this period.
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Investment Rationale
Strong Parentage
Ricoh India Limited is owned by Ricoh company Limited Japan with 73.6% holding in the company. Ricoh Company Japan is a global leader in sophisticated office solutions. The company deals in wide array of products includes copiers, multifunctional and other printers, facsimiles, duplicators and related consumables and services, as well as digital cameras and advanced electronic devices. Ricoh Japan is number one in the global A3 MFP (Multi Function Printers) and operates in around 180 countries. Ricoh Japan has global sales of $24.14 bn and market capitalization of $6.05bn.
The strong parentage of Ricoh Japan is an assurance for the launch of innovative products and with new found focus in Indian operation will drive the top-line growth going forward.
Renewed focus of Ricoh Japan in India
Ricoh Japan is operating since 1993 in India but had remained low profile till recent past. In last year Ricoh has become more aggressive with new product launches, expansion of distribution network and brand building. The impact of same is also visible in FY12 and Q1FY13 financial performance where the revenue has grown by 45% and 56% respectively.
Ricoh Japan has renewed its focus on Indian market and this delisting process could be part of the overall strategy.
Strengthening Product Line
The Ricoh Japan provides an array of image processing equipment and other product and services in keeping with customer centric focus on creating value. To strengthen its product line in India, the company is planning to launch innovative products of its parent company into Indian market. The company is planning to be a major player in the areas of Managed Document Solutions, IT Services, Transaction Printing, Production Printing and Laser Printers.
Ricoh Japan has chalked out an aggressive expansion plans through IT dealer/reseller channel into the fast emerging laser printer market in India. For a start, the company has entered into the affordable printer segment which is dominated by HP and Canon. The company has launched three laser printers and A4 MFP in the low-end entry level market. This will increase the revenue growth going forward and will also help Ricoh in gaining market share.
The company has also announced its foray into new areas namely unified communications, where it would offer video conferencing facilities and projectors. Ricoh has also entered the IT services market offering Managed Document Services (MDS), which is a combination of Managed Print Services and Document Management Solutions. The company plans to rev up this offering and capture a sizeable market share through a host of aggressive marketing campaigns. This gives us confidence in the company’s marketing strategies where it would be able to garner sizeable portion of market share and increase its top-line going forward. For this, the company has acquired Momentum Infocare, a Noida based company in H2FY12 to get into IT related products.
Increasing Distribution Network
Ricoh India operates through a wide network of 16 branches, 5 area offices and 500 dealers of which 300 dealers focus on the MFP product line and have well-trained sales and after sales service force. The company plans to add 500 dealers taking the total to 1000 to enhance its reach among various industry verticals in the country.
According to industry estimates, the total market size of laser printers in India (2011) is pegged at 13.4 lakh units and is growing at the rate of more than 12% annually. With Ricoh's wide range of product lines and established channel support packages, we are confident that the company will be able to rapidly expand their business opportunities and increase their customer base going forward.
Delisting of Ricoh India
Ricoh India has received a delisting proposal from Ricoh Asia Pacific Pte Ltd to acquire the public shareholding of 26.4% or 10497791 shares.
The Floor price is Rs. 53.79 per share. The process of acquisition of share is through Reverse Book building. Acording to us delisting process should take 6-8 months as the company will require:
1) Shareholder Approval
2) FIPB Approval
3) SEBI Approval
At current market price Ricoh Asia Pacific has to spend Rs.76cr or $14mn to delist the share.
We believe the delisting price which will be determined through Reverse Book building process will be considerably higher compared to the CMP on account of improved performance of company in lieu of launch of wide array of products and aggressive marketing strategies.
Analysis:
The Company reported negative profit in Q1FY13 in spite of the sales grown by 55.9% YoY as the company has given VRS (Voluntary Retirement Scheme) of Rs. 10.3 crores which is included in Employee expenses as against nil expenses in Q1FY12.
Due to currency fluctuation, Other Expenses include a loss of Rs. 7.5 crores as compared to exchange fluctuation loss of Rs. 0.29 crores in Q1FY12.
The EBITDA was also marred due to the significant depreciation of rupee which increased the cost of material imported but the company was not able to increase the price of product in local market.
Q1 is seasonally weak quarter.
Valuation & Recommendation
Ricoh Japan is a global leader in sophisticated office solutions with revenue of $24.14 bn and market cap of $6.05 bn. The Ricoh Japan has increased its focus in Indian operation and had chalked out aggressive plans to triple its revenue to Rs. 1000 crores by FY13, from FY11 level; which is quite aggressive in our view. We have projected a growth of 50% YoY to Rs. 647 crores in FY13E and Rs. 971 crores in FY14E. Being a strong player globally, gives us immense confidence on the company’s strategies to compete with already established players like HP and Canon in Indian market. The company has launched various models in affordable printer segment where the company was lagging behind its competitors. The company is also launching products in the new areas and is also increasing its channel partners from current 500 to 1000 by the end of FY13 which will help in expanding their business opportunities and customer base.
We believe the delisting price which will be determined through Reverse Book Building process will be considerably higher compared to the CMP on account of improved performance of company in lieu of launch of wide array of products and aggressive marketing strategies. We feel the price determined through reverse book building process should be around Rs. 89 which is 12 times FY14E EPS. The delisting process should take 6-8 months and our target price of Rs. 89 per share can generate 22% return from CMP of Rs. 73 in this period.
Risks & Concerns
Withdrawal of delisting offer by Ricoh Asia Pacific Pte Ltd.
Failure of launch of new products: Any failure in new product launches will lead to lower profitability and our estimates.
Currency Fluctuation: As the company does not have its manufacturing facility in India and is wholly dependent on the imports of products, any adverse fluctuation will dampen our projection.
Aggressive investment by competitors: Any increase in competition activity will increase the cost for the company and will erode margins going forward.
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