CMP:161   RECOMMENDATION : BUY AT DECLINES

BACKGROUND:

Jyothy Laboratories Ltd. (JLL) is an FMCG company. Over the years the company has evolved from a single product proprietary firm into a multi  brand company involved in the manufacturing and marketing of products in fabric care, mosquito repellant, surface cleaning, personal care and incense sticks.

The company has 21 manufacturing facilities in 14 locations across India, some of which are tax efficient units. It has 3000 distributors, 1500 field staff and direct reach of over a million retail outlets.

The company's key brands are Ujala, Maxo, Exo, Jeeva, and Maya. The product line for Ujala (a 24 year old brand, used prior to incorporation of the Company) consists of fabric whitener, fabric stiffener and washing powder. The Maxo product line consists of mosquito repellent coils, liquid vaporizers and aerosol sprays. The Exo's product line includes dishwash bars and dish wash liquid with an anti-bacterial agent, dish wash powder, and dish scrubbers. The company also manufactures personal care products under the Jeeva brand and market air freshening incense sticks or agarbatti under Maya brand.

The Company has recently forayed into service sector in organized laundry to provide “World class laundry at affordable price at your doorstep” through its subsidiary ‘Jyothy Fabricare Services Limited’.

ANALYST’S NOTES

Jyothy Laboratories Ltd. (JLL) has reported a 24.97 % increase in its net profit at Rs. 168.4 million for the third quarter ended December 31st, 2009. Net sales grew 13.55 % to Rs. 1354 million. The EBIDTA margin for the quarter stood at 16.18 % as against 15.65 % reported in the corresponding quarter last fiscal. EPS for the quarter stood at Rs 2.32 against Rs 1.86 in the last comparable quarter.

Jyothy Fabricare Services Ltd (JFSL), a subsidiary of Jyothy Laboratories Ltd (JLL), launched their premium version of laundry care, 'Fabrispa' on 9th Nov, 2009, and has received a positive response. Currently, JFSL has opened up 2 Fabrispa stores within the city. This is complemented with the 30 outlets of Snoways chain (economy segment) acquired earlier and then expanded. On the institutional front, the company has registered all the major airlines coming to Bangalore. The total no. of institutional clients now is 55. All three segments taken together, JFSL is currently washing a little over 20,000 garments a day, roughly at half their capacity of 40,000.

The Soaps & Detergents business, which includes fabric whitener & detergent, surface cleaning products and soaps, witnessed revenue growth of 13.71 % to Rs 824.5 million while the Home Care segment including mosquito coils, dishwash scrubber and incense sticks saw increase in revenues by 18.72 % to Rs 553.7 million as against Rs 466.4 million during the same period last year.

While the flagship brand, Ujala fabric whitener has seen its market share climb from 68.5 per cent to 73.5 per cent between 2006 and 2009, Maxo mosquito repellant has seen shares rise from 19 to 22.8 per cent.

Marketing of Dish shine brand Exo is expected to be on track and the product will be made available in all important cities in India by March, 2010.

CONCLUDING NOTES

On the pricing front, the stock is trading at a PE of 15 based on FY2010 estimated earnings while most of the peers are trading in the range of 23-25.

Given its strong brand equity and distribution network, its growth prospects appear promising. Moreover, given the market uncertainty, FMCG segment is preferred as it is considered to be a defensive bet.

Discerning investors can consider accumulating at declines.