3M India Stock Analysis: A Company with ‘Scotch-Brite’ Future?

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Introduction

The American 3M company based in Maplewood, Minnesota, was established almost 118 years ago in 1902. It was formerly known as Minnesota Mining and Manufacturing Company until its 100th anniversary in 2002.

It was started primarily as a mining company, but today, it is a multinational and multi-industry company.

3M India Ltd was incorporated in 1987 as Birla 3M Ltd. before going public in 1989.

The company expanded gradually in different industries in the country while opening centers in major cities in India. At the 100th anniversary, the Indian counterpart became 3M India Ltd. 3M Company USA owns a 75% equity stake in the company.

It is a diversified technology and science company with a global presence.

Currently, 3M has operations in businesses such as Industrial and Transportation, Health Care, Display and Graphics, Consumer and Office, Electro and Communications and Safety, Security, and Protection Services.

The Company is heavily inclined towards technology.

Most of its products are market-dominating, facing competition from other major players in that sector. 3M India has corporate offices and R&D centres in Bengaluru and manufacturing facilities in Ahmedabad, Pune, and Bengaluru.

The company’s involvement in major-related segments allows it to bring innovative products and services to the market.

It sells its products through a reliable distribution channel, including many wholesalers, retailers, distributors, and dealers in different market segments.

Core Competency

The core competency of 3M lies in applying coatings to backings and abrasive technology.

Its strengths lie in technologies such as adhesives, materials science, light management, micro-replication, and non-woven materials.

It manufactures its products efficiently and consistently. 3M has robust research facilities and a considerable R & D budget to get innovative and commercially successful products such as Scotch-Brite, Scotch Tape, and Post-it Notes.

3M’s involvement in various related industries gives it an advantage in staying ahead of the market pack.

Genesis and Journey

In 1987 Birlas and 3M became partners and thus began the company’s journey as Birla 3M Ltd. The company turned into a public limited company in 1989.

In 1990, it inaugurated a Customer Tech Centre in Bengaluru. In 1994, the company started the Customer Sales Centre at Chennai, Kolkata, and Bangalore.

1996 saw the beginning of the Graphics Production Centre and setting up of warehouses in Mumbai.

In 2000 the company acquired Autospring India, which developed and produced graphics for two-wheelers. In 2006 it acquired Mahindra Engineering & Chemical Products Limited and in 2007 it acquired Macroworx Media Pvt Ltd.

It filed 13 patents & launched 23 new product innovations for the Indian market in 2010.

The company ranked 4th in the Indian Council of Market Research (ICMR) list of “Most Innovative Brands” in India. 3M has been at the forefront of innovation and has emerged as one of the market leaders in multiple industries.

Vision, Mission and Core Values of the Organization

Vision:

“3M technology advancing every company. 3M products enhancing every home. 3M innovation improving every life.”

The vision of the company is driven towards future development. It has deep roots in innovating problem solving and exploring areas that bring an economic, environmental, and social impact.

Mission:

“3M is committed to actively contributing to sustainable development through environmental protection, social responsibility, and economic progress.”

The company strives to use resources judicially and inclines towards the use of renewable resources. It also tries to fulfill its social cause by innovating to bring health care solutions.

Core Values:

“Collaboration, innovation, perseverance, passion for change, integrity, and honesty.”

The company’s foundation is built on innovation and collaboration. The internal culture is based on these principles that help the world as well as the employees. The company innovates to bring trustworthy and reliable products to the market.

Business Areas and Management

The company operates in various sectors like Automotive, Commercial Solutions, Communications, Consumer, Design & Construction, Electronics, Energy, Health Care, Manufacturing, Mining, Oil & Gas, Safety, and Transportation.

The management of company comprises of:

Name Designation
Amit Laroya Non-Executive Director
B V Shankaranarayana Rao Whole Time Director
Bharat D Shah Chairman (NonExe.Ind.Director)
Biren Gabhawala Ind. Non-Executive Director
Jong-Ho Lee Non-Executive Director
Mamta Janak Gore Chief Financial Officer
Radhika Rajan Ind. Non-Executive Director
Ramesh Ramadurai CEO
Ramesh Ramadurai Managing Director
Sadhana Kaul Non-Executive Director
V Srinivasan Co. Secretary & Compl. Officer
V Srinivasan Secretary

Brands and Unique Selling Propositions

Product Category 3M Brands
Automotive Bondo®, Dual Lock™, Scotch-Brite™, Scotchgard™, etc.
Commercial Solutions Liqui-Cel™, Scotch™, etc.
Consumer FUTURO™, Post-it®, Nexcare™, etc.
Design & Construction AQUA-PURE™, PELTOR™, Speedglas™, etc.
Electronics Novec™, 3M™ Trizact™, VHB™, etc.
Energy Scotchlok™, Scotchkote™, Cubitron™ II, etc.
Health Care Littmann® Stethoscopes, Curos™, Emphaze™, etc.
Manufacturing PPS™, Scotchlite™, etc.
Mining, Oil & Gas Scotchkote™, Scotchlite™, etc.
Safety DBI-SALA®, Diamond Grade™, Liqui-Cel™
Transportation Thinsulate™, E-A-R™, etc.

3M’s rapid and reliable innovation in multiple fields is the reason behind its fast organic growth across various sectors.

Strategic SWOT Analysis

Financial Strength and Weakness Analysis

Strength:

  • Company has low debt
  • Mutual Funds increased their shareholding last quarter
  • Strong Momentum: Price above short, medium and long term moving averages

Weakness:

  • A decline in YoY Net Profit
  • A decrease in QoQ Net Profit
  • Growing costs YoY for long term projects
  • Declining Net Cash Flow Opportunity:
  • Technical Scores higher than 50 (319.5% returns for Nifty 500 over 5.1 years)
  • Rising Delivery Percentage compared to the previous day Threats:
  • Companies with high market cap and lower public shareholding
  • Degrowth in Revenue, Profits and Operating Profit Margin in recent results
  • Stocks with a high price per earning

QoQ Data

The revenue pattern of the past few quarters are as follows:

Quarter

Revenue (In cr)
Dec-17 638.06
Mar-18 720.43
Jun-18 746
Sep-18 736.42
Dec-18 791.55
Mar-19 742.85
Jun-19 804.5
Sep-19 763.53
Dec-19 745.38
Mar-20 673.15
  • Last quarter, net profit declined by 16.4% quarter-on-quarter (QoQ), while net profit margins declined from 9.5% in 3QFY19 to 8.8% in 4QFY20.
  • Operating profit declined by 22.0% QoQ during the quarter. Operating profit margins also declined from 13.1% in 3QFY19 to 11.3% 4QFY20.
  • Operating income during the last quarter fell 9.7% on a QoQ basis. Expenses were also down by 7.8% QoQ during the same period.
  • Most companies in this weather have shown a downward trend in revenue due to the pandemic and lockdown. But as the situation improves, the revenue is expected to shoot back up.

YoY Data

Year Revenue (In cr)
Mar-18 2,754.62
Mar-19 3,053.65
Mar-20 3,032.45
  • Operating income during the quarter fell 9.4% on a year-on-year (YoY) basis. The expenses were down by 6.8% YoY during the same period.
  • Operating profit decreased by 25.7% YoY during the quarter. Thus, the operating profit margins also decreased from 13.8% in 4QFY19 to 11.3% in 4QFY20.
  • Depreciation charges increased by 47.5% and finance costs increased by 41.6% YoY, respectively.
  • Net profit for the quarter declined by 0.3% YoY. The net profit margins increased from 8.1% in 4QFY19 to 8.8% in 4QFY20.

Revenue has fallen in the last financial year due to the pandemic. But the fall is not significant. With a high momentum, the company can recover gradually before the end of this fiscal year if the situation subsides quickly.

Durability Valuation and Momentum

DVM allows investors to quickly cull out stocks that are weak investments and focus on more robust investments. Higher scores show a better quality of the shares.

Medium/Neutral Durability Score: 55/100

Scores between 35-55 are considered neutral or medium. Thus the company has medium financial durability. Companies with high durability scores have shown consistent growth over a while with good cash flow.

Bad Valuation Score: 45/100

Stocks with bad valuation scores are expensive stocks that have good broker coverage and already have their strengths priced in. They are popular but expensive.

Medium/Neutral Momentum: 51.1/100

Momentum Score identifies the bullish/bearish nature of the stock. Stocks with a high momentum score are seeing their share price rise and increase in volumes and sentiment.

Good- Bad – Good in DVM means that the company has a strong past and a promising future.

Share Price Performance and pattern

Over the last 30 days, 3M India share price has risen 14.5%. But over the last year, the share price has dropped 2.07%. The company has gained 35.3% from its 52 week low.

  • The Promoters holding has changed to 75% which shows the faith of the parent 3M company in the June 2020 quarter.
  • Foreign Institutional Investors (FII) decreased their holdings by 1.53% in the June 2020 quarter.
  • Mutual Funds holding changed to 4.88% as of June 2020 quarter.
  • All Institutional Investors have increased their holdings by 1.02% of holdings in the June 2020 quarter.

Conclusion

3M Company has shown a remarkable track record in the past decade.

It is a market leader in its sector. The market capitalization and higher than average price to earnings ratio are high, which means it has a reasonably high reputation among investors.

It has a promising future after the pandemic subsides.

This article has been written by Abinash Baral for Galactic Advisors.

Disclaimer: Note that this post should not be construed as investment advice from FinMedium or Galactic Advisors.

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Galactic Advisors
Galactic Advisors is a team of Chartered Accountants providing services related to tax and FEMA compliance, planning and advisory with specialization in cross-border and international taxation.  Contact Email: support@thegalacticadvisors.com | Contact Number: +91 7738525546
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