Jyothy Labs Ltd Stock Analysis

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.