Detailed Stock Analysis of Jyothy Labs Ltd – What should Investors do?

Introduction

In this article, we are going to do Jyothy Labs Ltd stock analysis in detail. Here, we will discuss company’s key business verticals, revenue mix, shareholding pattern and valuation.

Jyothy Labs Ltd – Stock Analysis

Company Overview

• Jyothy Labs Ltd (JLL) (formerly known as Jyothy Laboratories Ltd) is a Mumbai-based fast-moving consumer goods company founded in 1983.
• The company is principally engaged in manufacturing and marketing of fabric care, dish washing, personal care and household insecticides products.
• Thus, Jyothy Labs Ltd is one of the fastest growing FMCG companies in the country began its journey in the world of fabric’s health, hygiene and beauty care with the launch of Fabric Spa.
• The company has 4 business verticals with the key brands :
  1. Fabric Care :
     • Brands : Ujala, Henko, Mr.White, More Light, New Super Check
     • Ujala Supreme, the product from which the company got its genesis is still the core product of the company.
     • The company holds about 80% of the market share in the segment through it, while the closest competitor holds a market share of less than 5%.
     • The brand is an undisputed market leader and commands a strong market share.
  2. Dish washing :
     • Brands : Pril, Exo
     • Exo and Pril are the India’s two leading dish wash brands.
  3. Personal Care :
     • Brands : Margo, Fa Deodorants, Neem Active Toothpaste
     • With an evolution in personal care products, JLL has been at the forefront in the category. The personal care portfolio comprises of brand Margo, Fa, Neem Active etc.
  4. Home Care :
     • Brands : Maxo, Exo Floor shine, Maya Agarbathis
     • Company’s foray into home care products marked new category benchmarks in catering to the unmet needs of the households. The range include household insecticide, surface cleaner and air care products.

Jyothy Labs Ltd – Revenue Mix Q2 FY20

• From the above pie-chart, we can see that Fabric care’s revenue contribution (Main Wash + Post Wash) is almost 40%. Thus, fabric care business is the major contributor of revenue.
• The % share of other business verticals are as follows :
  • Dish washing = 33%
  • Personal Care = 12%
  • Household Care = 10%
  • Other categories = 5%

Category-wise Sales Growth (%)

• Amidst the lower consumption and subdued demand in the last few quarters, the fabric care category has given doubt digit growth (13.1%) in Q2 FY20 and 9.1% in H1 FY20.
• Other verticals – Dish wash and Personal Care given 8.6% and 6.9% growth respectively in Q2 FY20.
• On the other hand, Household insecticides category shown negative growth in Q2 FY20 (-1.3%) as well as H1 FY20 (-9.2%).

Key Financials

• Market Capitalization = Rs.6,044 Cr, small cap company
• Return on Capital Employed (ROCE) = 16.91%
• Return on Equity (ROE) = 16.60%
• Debt to Equity Ratio (D/E) = 0.21, the company is virtually debt-free.
• Interest Coverage Ratio = 8.39, on account of steady cash flow generation, the company is having good interest coverage ratio.
• Sales Growth :
  • TTM Growth = 12%
  • 3 years CAGR Growth = 40%
  • 5 years CAGR Growth = 20%
• Profit Growth :
  • TTM Growth = 3%
  • 3 years CAGR Growth = 4%
  • 5 years CAGR Growth = 6.5%
• The revenue, operating profit and net profit numbers for the last 12 months basis (TTM) have given a steady and a consistent growth over the years FY19 as well as FY18.
  • Revenue = Rs.1,861 Cr
  • Operating Profit = Rs.298 Cr
  • Operating Profit Margin = 16%
  • Profit Before Tax = Rs.246 Cr
  • Net Profit = Rs.217 Cr

Jyothy Labs Ltd – Shareholding Pattern

• The shareholding pattern of the company as on September 2019 is shown in the above table.
• Promoters’ holding as on Sept-19 was 67.11%. Out of this 67.11% stake, almost 25% shares were pledged by promoters, which is not a good sign.
  • However, promoters recently (November 1st, 2019), have sold 4% stake for Rs.260 Cr to be used to reduce the debt against the pledged shares.
  • So, now the promoters’ holding come down to 63% from 67.11%. As a result, the earlier 25% promoter pledge number will come down to 6%.
  • This shows that promoters are focusing to become debt-free and thus reduced their stake against pledged shares. The company expects to be debt-free by March 2021, said Ullas Kamath, Jt. MD, Jyothy Labs Ltd.
• In September quarter, DIIs holding increased by almost 2.40% to 11.51%. While, FIIs and public holdings are 16.05% and 5.33% respectively.

Valuation

• The current Price to Earnings ratio (27.52) is much lower than its historical average PE ratios.
  • 3 years average PE = 46.37
  • 5 years average PE = 47.14
  • 10 years average PE = 52.90
• Thus we can say that the stock is currently trading at discounted valuation as compared to its historical premium valuation. It is mainly because of promoters pledging. 25% stake was pledged by promoters as we have discussed above.
• Pledging is not a good sign and thus Institutional investors have given negative response to the pledging by promoters. As a results, the stocks had lost its historical premium valuation due to continuous fall in PE ratio over last 2 years.

Summary

• Key growth drivers of Jyothy Labs Ltd for the coming quarters are :
  • Continued focus on leveraging rural growth opportunities through on-ground initiatives
  • Ongoing investments behind their brands
  • Improvement of manufacturing and supply efficiencies
• In spite of weak consumer sentiments and subdued demand, the company has maintained steady growth in the revenue as well as operating profit margin.
• Jyothy Labs is basically present in highly penetrated and competitive categories. However, company’s cost-saving initiatives, innovation, strong brands, an integrated distribution network and new launches will drive its volume growth on the progressing path.
• The company is a virtually zero-debt company, dividend paying, has good margins and a high ROE. It has a strong grip into its product categories and this has been possible mainly due to a distribution network.

Comparative Analysis of Tariff Hike Impact on Telecom Players – Airtel vs Vodafone Idea vs Reliance Jio

Introduction

In this article, we will do a comparative analysis of tariff hike impact on Telecom players – Airtel vs Vodafone Idea vs Reliance Jio. Telecom Sector is going through a rough phase and has a huge debt. How will these tariff hikes help Indian telecom sector to revive?

Tariff Hike Impact on Telecom Companies – Airtel vs Vodafone vs Reliance Jio

Why Tariff Hike?

• Vodafone Idea and Airtel have shown huge losses in September quarter. These Telecom players are also facing a January-end deadline to pay up Rs.53,000 Cr and Rs.35,000 Cr in AGR dues as per Supreme Court.
• Reliance Jio is having a huge debt burden. So Reliance Jio is also taking the necessary steps to move towards its target to become a debt-free company.
• According to the reports by Jio, there is a need for the steps “to help sustain” the telecom industry, which is burdened with over Rs.7 Lakh Cr of debt and the world’s lowest average revenue per user (ARPU)
• In short, all the telecom companies decided to raise the prices of their plans. How will these tariff hikes help Indian telecom sector to revive?
• Let’s see the tariff hike impact on each Telecom player and do a comparative analysis of the same.

Tariff Hike Impact on Telecom Companies – How Will it Help them?

• Here, we have done a comparative analysis of effects of tariff hike on Telecom players. How the tariff hike will help to boost the Revenue of the telecom companies, Earnings before Interest Taxes Depreciation and Amortization (EBITDA) is explained in the above table.
• The Rise in EBITDA of Telecom players will be :
• Airtel = Rs.7,400 Cr
• Vodafone Idea = Rs.13,500 Cr
• Reliance Jio = Rs.8,500 Cr
• Vodafone Idea and Airtel had been making losses and had been saying that rates were unsustainable. The higher-than-expected tariff increases would lead to significant revenue gains.
• Tariff rise would also help attract investments in Airtel and Vodafone Idea, which are looking to raise funds to pay over Rs.35,000 Cr and over Rs.53,000 Cr, respectively, in adjusted gross revenue (AGR)-based dues by January, as per a Supreme Court ruling.
• Thus, these rise in EBITDA will help Vodafone Idea and Airtel to raise funds going forward required to pay AGR dues.

Tariff Hike Impact on Consumers

• Minimum recharge became more expensive, now at Rs.49 against Rs.35 earlier (for unlimited call + 100 MB data)
  • This 30-45% tariff hike would be the biggest in India’s telecom industry, with pricing of voice services back for most plans. A prolonged price war since 2016, after the entry of Reliance Jio in Telecom Sector, damaged industry finances and heavily hurt revenues.
  • Vodafone Idea and Airtel, both increased rates only for prepaid subscribers, who account for over 90% of their user base.
  • Airtel tariff increases range from 50 paise a day to Rs.2.85 per day. Airtel is going to continue to make large investments in emerging technologies and digital platforms.
  • While, Reliance Jio is going to provide up to 300% more benefits than its competitors with the additional tariff on its users. Mr.Mukesh Ambani said, “While remaining committed to the ultimate interest of the consumer, Jio will take all necessary steps to help sustain the Indian telecommunications industry. Also, Jio will continue to work with the government on consultation for revision of telecom tariffs.”
• As per the Fair Usage Policy (FUP), additional 6 paise per minute charge after a limit, for calls made to rival’s networks.

Details of Ujjivan Small Finance Bank IPO

Introduction

Ujjivan Small Finance Bank is raising Rs.750 Cr through a fresh IPO issue (Initial Public Offer) from December 2, with a price band Rs.36-37 per share. The bank issued IPO to comply with RBI’s licensing regulations and raise growth capital. In this article, we will do a detailed analysis of key financials, objectives and details of IPO, and the valuation of the Ujjivan Small Finance Bank.

Ujjivan Small Finance Bank IPO Analysis

Company Overview

• Ujjivan Small Finance Bank Ltd (USFB) is a mass market focused bank in India, catering to financially unserved and underserved segments.
• Promoter, Ujjivan Financial Services Limited (UFSL), commenced the operations as an NBFC in 2005, is the holding company of the bank.
• On 7, October, 2015, UFSL received RBI In-Principle Approval to set up a Small Finance Bank (SFB). Thus, after it UFSL incorporated Ujjivan Small Finance Bank Limited as a wholly-owned subsidiary.
• USFB has a diversified portfolio with branches spread across 24 states and union and a customer base of 4.9 million as of September 30, 2019.

Key Financials of Ujjivan Small Finance Bank

• Net Interest Margin (NIM) : Bank has NIM 10.8% for Q2 FY20. NIM numbers are comparatively very high as compared with other banks.
• Loan Book : A strong growth in bank’s loan book is seen QoQ as well as YoY. Gross Advances stands at Rs.12,864 Cr for Q2 FY20.
• Asset Quality : As Gross NPA is 0.9% and Net NPA is 0.3%, we can see that asset quality of the bank is very good, on account of the strong growth in micro-banking advances growth.
• Capital Adequacy Ratio (CAR) : For Q2 FY20, CAR of bank is 18.8% and will improve to around 22% post IPO.

Ujjivan Small Finance Bank IPO – Objectives & Details

Objectives of IPO

• As part of the licensing conditions, the bank has to list within three years even when the holding company is listed. So, the bank planned IPO now for complying RBI’s licensing conditions.
• The bank was planning to raise around Rs.1,000 Cr in total for fulfilling the above objective. Out of Total Rs.1,000 Cr :
  • Rs.250 Cr was raised through Pre-IPO placement route this month and
  • Rs.750 Cr is planned to raised through a fresh issue, IPO

Details of IPO

• The IPO details of Ujjivan Small Finance Bank are given in the above table.
• In the Pre-IPO Placement, banks has already issued 71,428,570 Equity Shares, Aggregating to Rs.250 Cr
• While in the fresh IPO issue, bank is going to issue 208,333,333 Equity shares, aggregating Rs.750 Cr

Valuation of Ujjivan Small Finance Bank

Valuation Comparison with Listed Industry Peers

• While doing the valuation comparison of the Ujjivan Small Finance bank with its industry peers, the PE ratios of all the peer banks are enlisted in the above chart.
• USFB has averaged out the PE ratios of its industry peers, which came to be 29.64. Thus USFB set its PE ratio at 30 (at the floor price). And the issue price is also set in the range Rs.36-37 per share.
• Thus, we can see that the bank is trying to list at its fair valuation by executing the valuation comparison with its industry peer banks.

Valuation of Bank

• After IPO, the promoter’s holding is going to decrease to 85% as mentioned by Joel Rebello, Ujjivan bank’s CEO.
• Thus, total 15% divestment is there through IPO route, which corresponds to Rs.1,000 Cr.
• Thus, the Total valuation of the bank is calculated with the above scenario. It come at around Rs.6,667 Cr.

What Changes Made in Sensex Reconstitution / Re-balancing?

Introduction

As part of Sensex reconstitution exercise, Asia Index recently announced some changes in BSE Sensex. There are 3 new entries and 3 exits in BSE Sensex effective from December 23, 2019. Lets see which are those companies entering and leaving BSE Sensex?

Sensex Reconstitution| 3 Entries & 3 Exits

Announcement of Reconstitution Results of BSE Sensex

• Asia Index has announced the reconstitution results of major benchmark indices on 22nd November. The changes are effective at the open of Monday, December 23, 2019. According to the results, there are 3 companies entering and 3 companies are exiting in BSE Sensex.
• Asia Index Pvt. Ltd is a 50-50 partnership between :
  • S&P Dow Jones Indices LLC, the world’s largest provider of financial market indices and
  • BSE Ltd, Asia’s oldest stock exchange and home to the iconic SENSEX index – a leading indicator of Indian equity market performance.
• According to the results announced by Asia Index,
  • 3 Entries : Nestle India, Titan Company, Ultra Tech Cement
  • 3 Exits : Tata Motors (with Tata Motors DVR), Vedanta Ltd, Yes Bank

3 Entries

Nestle India

• Th stock has given the returns of around 41% over the 6 months period from 1st May to 31st October. Along with the consistent top-line as well as bottom-line growth, the PE ratio of Nestle was consistently rising. The stock has shown a continuous growth in its market cap in spite of having a premium valuation.
• Average disposable income of Indians is in an upward spiral. It offers an advantage to the companies like Nestle as more disposable income means more consumer spending which in turn means more revenue for sectors like FMCG and Consumer Durables.
• Thus, Nestle India is enjoying a premium valuation on account of its strong fundamentals and decent future prospects. Nestle has qualified for the inclusion in BSE Sensex on account of the required criteria like float adjusted and total market cap and being a part of BSE 100.

Titan Company

• It has grown around 17% with respect to the market cap from 1st May to 31st October. Being a consumer durable product company, the stock has shown a good sales numbers in Q4 FY19 as well as Q1 FY20
• Due to the cascading effect of the revenue on the operating profit and its margins %, net profits have also given steady growth in the same period.
• Thus the market cap of the Titan grew on a good top-line and bottom-line effect. On account of the premium valuation, the market cap has shown a steady rising trend. Thus, entered in BSE Sensex.

UltraTech Cement

• It may be surprising that how can UltraTech Cement has made an entry in the BSE Sensex in spite of giving negative performance since last 6-8 months. The stock has given -10% returns from 1st May to 31st October.
• However, free float market cap of the company is increased on account of a slight decrease in promoter’s holding by 0.5%. So, according to the float-adjusted market cap calculation, UltraTech Cement has entered into the BSE Sensex.

3 Exits

Tata Motors (with Tata Motors DVR)

• On account of a continuous slump going on in the Automobile Industry, Tata Motors stock is beaten down greatly over last 12 months.
• Because of the same reason the average market capitalization of Tata Motors has deteriorated adversely. The stock returns was -17.5% from last 6 months (1st May – 31st October). Recently the stock made a rebound slightly and on a recovery phase after Q2 FY20 results. However, the average market cap over the 6 months period was the key factor for exit call from BSE Sensex.
• The 6 month period (1st May – 31st October) is taken as a basis for evaluating the stocks for BSE Sensex re-balancing effective from 4th Monday of December.

Vedanta Ltd

• Over the period from 1st May to 31st October, Vedanta Ltd has given a negative performance of almost 21%.
• The stock has gone through a series of fall every time almost 4-5%.Thus, as a consolidated effect its market cap get impacted and the stock was not able to qualify the evaluating criteria required for BSE Sensex inclusion.
• In the last re-balancing of exercise held in June 2019, Vedanta Ltd was added to the BSE Sensex. But, in December-2019, it got the exit from the index.

Yes Bank

• Stock is almost 70% down over the 6 months period. Yes bank has underperformed on account of a number of reasons like huge NPA numbers in Q4 FY19 and Q1 FY20 results, thereby incurring big losses.
• Promoters stake sale by Mr.Rana Kapoor also imposed a negative impact on the bank.Thus, market cap has dropped continuously over the 6 months time.
• In the last re-balancing of exercise held in June 2019, along with Vedanta Ltd, Yes Bank was also added to the BSE Sensex. But, now, it got the exit from the index.

What is Karvy Stock Broking Fraud?

Introduction

In this article, we will see what precautions the retail investors should take after Karvy Stock Broking Fraud worth of Rs.2000 Cr and the details of fraud. On Friday, 22nd November 2019, SEBI (Security and Exchange Board of India) banned Karvy Stock Broking Ltd (KSBL) over client defaults worth Rs.2,000 Cr. SEBI banned Karvy from taking on new clients and executing trades for existing customers.

What Precautions Investors Should Take After Karvy Stock Broking Fraud?

What is Karvy Stock Broking Fraud?

Karvy Stock Broking is one of the largest brokers in India in terms of clients accounts. According to the data released by NSE, Karvy had around 2.5 Lakh clients as on October 31, 2019.

Investors complained to government as Karvy delays broking payouts

• Earlier this year, concerns are being raised about the financial problems at Karvy Stock Broking. Several investors had complained that payouts by the broking firm were being delayed.
• Investors across the country have complained to the Prime Minister’s Office (PMO), Finance Ministry and SEBI, seeking their payouts. 
• It was clearly suggesting that Karvy was facing a liquidity crunch and was unable to make payments to its clients.
• NSE had also received complaints from investors about irregularities by Karvy relating to their demat accounts.

What Karvy Did?

1. Karvy Stock Broking pulled out shares from its clients’ demat account which were inactive.
2. It transferred those shares to the demat account controlled by it (Karvy).
3. Then it pledged those shares with banks and raised funds.
4. Karvy then transferred these funds/money to its Real Estate arm, named Karvy Realty.
5. However, Karvy failed to return those shares to its clients from whose demat accounts it had pooled the shares at the beginning.

Details of Charges & Actions against Karvy Stock Broking

• Charges :
  • NSE reported that Karvy misused the Power of Attorney given by its clients. It sold client securities in the market via entities it controls and thus used the funds for its own purposes.
• Actions :
  • NSE has appointed a forensic audit of Karvy Stock Broking’s books to investigate the extent of misuse of clients’ demat account for its own purposes.
  • SEBI banned Karvy Stock Broking from taking on new clients and executing trades for existing customers.
  • Depositories – NSDL and CDSL are asked not to act upon instructions by Karvy on the basis of Power of Attorney (PoA).
  • Also, Depositories asked to monitor the movement of securities into and from depository participant accounts of Karvy’s clients.
  • Thus, SEBI had directed Exchanges and Depositories to initiate disciplinary actions against Karvy.

What Precautions the Retail Investors Should Take?

As a safety measure we suggest that if you have an account in Karvy Stock Broking and if you have not operated it over a long time, then you should visit that franchise of Karvy. You should check if everything is right there with regards to your account.

Lets see the key precautions the investors should take :

1. Check NSDL/CSDL statement every month

• The monthly statement of NSDL and CSDL contains the details of your orders and other transaction details regarding that particular month.
• NSDL and CSDL asked to send the monthly statement to the clients wherever client’s PAN number is registered such as demat account, mutual fund account etc. One can get all the details of the month in this monthly statement from NSDL or CSDL around 8th-10th day of every month.
• So, you should check and verify the details of the shares in your account every month. It is very important, so one should never ignore it.

2. Don’t let your account to become dormant

• Even if you are looking for the long term investment, still you should never let your account to become dormant.
• Keep your accounts active to get the statement regularly. Brokerages can target dormant accounts, if the clients are not paying attention to their accounts.

3. Opt for depository services at big PSU or private banks

• One can opt for depository services at PSU or private banks as a safety step since these banks are very well regulated.
• If you have idle funds lying in your Karvy brokerage account, you can transfer these to your own bank account.
• You can keep trading account anywhere you want, but try to open depository accounts at banks as a safeguard.

4. Understand the pros and cons of giving Power of Attorney to brokers

• You should thoroughly understand the pros and cons of giving Power of Attorney to brokers.
• Offering power of Attorney means you are offering the rights of transaction, share transfer to your broker. So you should be well versed with the consequences of it beforehand.
• In today’s busy schedule, on account of convenience basis, clients many a times offer Power of Attorney to brokers blindly. Here many important things can be missed out by the clients because of their ignorance.
• So, one should analyse the trade-off – convenience vs associated risk before offering the Power of Attorney to brokers.