M&A Critique
Kokuyo Camlin Joint Venture Deal Iimpact

Kokuyo Camlin Has Broad Shoulders But a Narrow Hip!

In May 2011, Kokuyo S&T Co. Ltd. a consolidated subsidiary of Kokuyo Co. Ltd. (“Kokuyo”) entered into an agreement with the promoters of Camlin Limited to purchase majority of Camlin shares (50.3% stake for over Rs. 366 crore in three tranches) after which the Indian firm was converted into a joint venture. The name and logo of the company were changed to Kokuyo Camlin Limited in October 2011.

Kokuyo Camlin – JV as envisaged

  • Kokuyo Camlin wanted to primarily push the Camel brand in colours, Camlin in writing instruments and Campus in notebooks.
  • The expertise, reach and brand equity of Camlin will be supplemented with Kokuyo’s innovative new office stationery products, world class R&D and a strong presence in Asian geographies.
  • Enter into new categories including paper products, such as Notebooks and other high value-added products, by bringing respective strengths from both the companies.
  • The new entity will jointly explore selling Camlin’s existing and new products through KOKUYO channels especially in Asia.
  • To convert it into a manufacturing hub for expanding exports to the Middle East and Africa as the cost of production of stationery products is lower in India in comparison to China and Vietnam
  • To reach 1000 crore top line with healthy operating margins, thus ensuring a strong leadership possibility in the Indian stationery market.
  • Kokuyo had a right to nominate 4 directors on the board.

Camlin Limited

Starting its operations in 1931 Camlin started manufacturing Horse Brand ink powders and tables followed by Camel ink which eventually led to the creation of its flagship brand Camlin in 1946. Over the years Camlin has expanded into art materials, scholastic materials, hobby materials, office stationery products and corporate gifts. Camlin today is one of the most trusted and renowned brands in India with over 2100 products and a reach extending to over 5.5 crore households. Through the Joint Venture, Camlin gets a distribution network across Asia for exports along with innovative Kokuyo products and Japanese expertise (Kaizen).

Kokuyo Group

Kokuyo is a 17,600 crore Japanese business house group spread all over Asia and Europe and offices in China, Hong Kong, Thailand, Singapore, Malaysia, and Vietnam. Their main product lines include Office Stationery notebooks, office supplies, and office furniture. In 2015, Kokuyo Furniture Co. Ltd. and Kokuyo S & T Co. Ltd. merged with Kokuyo Co. Ltd. Their net sales for FY 2015 are 30,428 crores out of which 32% came from Stationary products. Through the joint venture, Kokuyo hoped to get strong management foundation, sales and distribution network covering pan India, brand strength, HR, and well-developed systems.

Operating highlights

Increase in top line has not translated to higher earnings and has failed to create any value in shareholders’ wealth. If things do not turn around, Kokuyo will be looking for hurting exit
  • In 2014, Camlin Kokuyo divested its entire stake in Alpha kids Learning and Activity Centre Limited.
  • New products were launched to expand its consumers base –premium segment Geo Boxes like Camlin Galaxy & Camlin Ikon, economy segment Geo Box like Camlin Champ, fast writing mechanical pencil – Camlin Speedy and world class Kokuyo products such as files, folders, and scissors. The mechanical pencil campaign witnessed a great response with an unprecedented 56% growth in its revenue.
  • Kokuyo revamped Campus notebooks.
  • New state of the art manufacturing plant at Patalganga Industrial Areas of MIDC was to be made operational in June 2016.
  • On the marketing front, the brand positioning was changed to “Let’s have some fun”, Kokuyo Camlin website was revamped, a Facebook page was created, Camlin Experiential App was launched which won the ABBY award.
  • The digital media helped in expanding the reach of Camel Art Contest from the earlier level of 5 million to 7.5 million in 2014 and various social initiatives were also undertaken.

Financial Highlights

All figures in INR. Crores

2016 2015 2014 2013 2012 2011
Revenue 614.19 543.88 470.35 435.92 383.9 359.11
Exports * 13.09 9.61 8.78 9.11 10.26
Net Profit 5.26 5.03 -7.78 -13.44 1.34 8.57
EPS 0.52 0.5 -0.89 -1.95 0.19 1.41
Margins 0.8% 0.9% -1.6% -3.1% 0.3% 2.4%

*Data Not Available

  • The domestic promoters i.e. the Dandekar group were to continue to hold 13.34% (pre right issue) in Camlin. However as on 31.3.2016, stake was just 1.24%.
  • Revenue has CAGR of 9%. It has crossed only Rs 600 crores turnover in FY 2016 as against company’s target of 1000 crores.
  • Exports have CAGR of just 5%.
  • Net profit for FY16 is down by about 40% as compared to FY 2011 in spite of top line growth of CAGR 9%
  • Net profit margins have declined from 2.4% to 0.8%

Shareholders Gain/Loss

All figures in INR. Crores

SN Particulars Amount
A Market Cap as on 26th May 2011 897.14
B Market Cap as on 24th June 2016 707.14
C CAGR% (2011-16) -5%
D Offer price during Kokuyo acquisition 110 (39% premium*)
E Notional loss for shareholders** 55%

*above market price as on 24th May 2011
**who did not participate in open offer (excluding national interest loss)

Peer Comparison

SN Particulars Kokuyo Camlin Ltd. Navneet Education Ltd. (Stationary segment)
1 Return on Equity
2016 3% 15%*
2015 2% 15%
2014 -4% 14%
2 Sales (CAGR) 9% 10%
3 PBT (CAGR) -8% 2%
4 Export (CAGR) 5% 26%

–  CAGR is for 2011-2016 for all except exports (2011-2015)
– RoE of Stationary segment of Navneet is calculated considering Net assets of segment for calculating equity
*Assumed RoE for 2015 as net assets for stationary segment as on 31.3.2016 not available


Kokuyo Camlin may be next in the league of Daichii, the Japanese pharmaceuticals company pulling out of India at a huge loss
Since the formation of the strategic alliance /acquisition in 2011, the company has undertaken various operational steps for achieving a new set of objectives. Though revenue has been increasing gradually, it has not translated to higher earnings and has failed to create any value for shareholders. The company has shown below par performance in comparison to its peer. In the Annual report for 2012-13, Directors report says that “The benefit of the multi-cultural integration following the acquisition was yet to translate into operational improvements”. Even results for FY 2016 do not seem to leverage the opportunities of the Joint Venture structure.

The Composition of board of directors shows joint management but original promoters are selling their stake continuously and are now left with only 1.24%. Hence, Kokuyo alone has a financial interest in the company. It seems that Dandekar group is now concentrating on its other listed entity- Camlin Fine Sciences Ltd.

To have profitable growth in the stationary sector where there are a lot of unorganised domestic players, continuous innovation is needed to provide multi-quality products required by the consumers at different price points. The company has been unable to pass on the increase in input cost to the customers in this highly price-sensitive market.

At the existing margins and cost of equity assumed at 15%, the company needs to grow by 100% in term of the top line to generate returns for its shareholders. This is likely to take a long time and hence all efforts should be to improve margins and maybe by a change in product mix or otherwise. At Rs 110, Kokuyo seems to have overvalued the company. It failed to foresee the quandary the company is in. If things do not turn around, it may be next in the league of Daichii, the Japanese pharmaceuticals company pulling out of India at a huge loss.

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Sahil Jain