Expanding Packaging And Overseas Investments Will Strengthen Future Prospects

Key Takeaways

• Expansion in track and trace and packaging divisions is key for future domestic and international revenue growth.
  
• Strategic sales shift and focus on key accounts aim to enhance revenue quality and improve net margins.
  
• The shift to focusing on larger clients and expansion efforts could pressure margins and profitability, with risks from increased costs and market share loss.

Catalysts

Engages in the manufacture and sale of coding and marking machines and consumables in India and internationally.

• The company is focusing on expanding its track and trace and packaging divisions, which are expected to drive future revenue growth both domestically and internationally.
  
• Management is committed to optimizing procurement and production costs, which could lead to improved net margins and higher earnings in the future as efficiencies are realized.
  
• A strategic sales shift to focus on larger key accounts in the coding and marking segment is expected to enhance both revenue and the quality of revenue, potentially leading to higher net margins.
  
• The investment in overseas subsidiaries, particularly in Italy for V-Shapes packaging and the UAE for regional expansion, is anticipated to provide new streams of revenue and enhance earnings over time.
  
• The development of IP-led products like the V-Shapes, along with ongoing R&D, could strengthen the company's competitive edge, potentially resulting in increased revenue and improved operating margins.

Control Print Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Control Print's revenue will grow by 7.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 11.4% today to 20.0% in 3 years time.
• Analysts expect earnings to reach ₹1.0 billion (and earnings per share of ₹62.91) by about January 2028, up from ₹458.8 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 20.3x on those 2028 earnings, down from 24.1x today. This future PE is lower than the current PE for the IN Electronic industry at 51.5x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.05%, as per the Simply Wall St company report.

Control Print Future Earnings Per Share Growth

Risks

• The company's gross margins have contracted due to an increase in the cost of goods sold resulting from a change in product mix; this could negatively impact net margins if the situation persists.
  
• The overseas subsidiaries, particularly the one in Italy, are in a growth phase with significant costs and uncertain revenue timelines, presenting risks to consolidated earnings.
  
• The shift in sales strategy to focus on larger clients might leave the company vulnerable to losing market share in lower segments, potentially impacting overall revenue growth.
  
• The competitive landscape, with smaller competitors potentially encroaching on market share, could alter the oligopolistic nature of the market, thereby impacting revenue and profit margins.
  
• Increased employee and operating costs due to expansion efforts, if not matched with corresponding revenue growth, may pressure the company's net margins and profitability in the near term.

Valuation

• The analysts have a consensus price target of ₹920.0 for Control Print based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹5.0 billion, earnings will come to ₹1.0 billion, and it would be trading on a PE ratio of 20.3x, assuming you use a discount rate of 14.0%.
• Given the current share price of ₹690.8, the analyst's price target of ₹920.0 is 24.9% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.