Company Name – Jyothy Laboratories Limited (Jyothy) Current Share Price – INR 207 (February 13, 2023) Market Cap – INR 7,587 cr |
1. What is interesting about the stock?
“Aaya naya Ujala, char boondon wala” – the iconic ad from the 90s that filled our TV halls created a new category in the FMCG space. Now the upstart company behind that product has become a large company with a wide portfolio of FMCG products.
Jyothy Laboratories Limited, incorporated in 1983, is a pan-India play FMCG Company. The Company’s business divisions are fabric care, personal care, air care, household insecticide, utensil cleaners, toilet cleaners, and laundry services. The Company's products are available through about 2.8 million outlets in India with a direct reach of 0.85 million outlets. It has a sales team of 2,000+ members and 6,100+ stockists/sub-stockists. It has 27 manufacturing facilities which are spread across 23 locations across India. Furthermore, six manufacturing plants of the Company situated at Roorkee, Wayand, Jammu, Pithampur, Puducherry and Baddi are ISO 9001-2015 certified.
Sector outlook
The detergent market in India is divided into three segments – premium, mid-range, and popular. The premium segment comprises Ariel and Surf; the mid-range segment comprises Ujala, Tide, Henko, and Rin; and the popular segment comprises Mr. White, Wheel, Nirma, and Ghari. The market share of the detergents in the premium segment is 15%, and that of the mid-range and popular are 40% and 45% respectively.
These detergent brands are considered organized players in the industry and comprise 60% of the total market. The remaining 40% of the market is saturated with regional and small unorganized players. Reports show that India’s per capita consumption of detergent stands at 2.7kg – the lowest in the world. The detergent industry is worth INR 13,000 crores and industry players are constantly improving their products to suit the changing needs of consumers. A few years back, liquid detergents were almost unheard of; however, today, more and more companies are producing liquid detergents alongside powder detergents and laundry bar soaps. India’s liquid Detergent Market is expected to post a robust CAGR, owing to the rising popularity of eco-friendly liquid detergents as synthetic detergents tend to pollute water as well as the environment.
Business segments
Jyothy was primarily known for its fabric whitener brand – ‘Ujala’ till 2000, post which the company aggressively diversified itself in dishwashing and household insecticides segments. In 2011, the acquisition of Henkel India Ltd (HIL’s) brands gave it a wider set of products and the critical size for the portfolio.
Company has four key segments, namely- 1) Fabric care (~37% of FY22 revenue), 2) Dish wash care (~38%), 3) Household insecticides (~10%), and Personal care (~11%). Jyothy has six power brands – Ujala, Henko, Exo, Pril, Margo, and Maxo.
Diversified portfolio with presence in mainstay categories
Dish wash care - lower penetration provides long growth runway: Jyothy has been gaining market share both in bars and liquids over the last few years and Company expect market share gains to continue, on account of the strong positioning of both the key brands- Exo and Pril
Fabric care - tailwind from premiumization in detergents: Strong premiumization trend in detergents will help the Henko portfolio (because of the presence in the premium category). Henko StainCare has a differentiated product positioning in semi-premium detergents which is critical for profitability in the highly competitive segment
Personal Care – strong play on Naturals proposition: Strong growth will continue, on account of the structural trend of Naturals product demand and higher distribution/ geographical expansion
Household insecticides – a category revival remains key: While Jyothy has stepped up on new product launches including a natural Agarbathi and has gained market share in liquid vaporizers (after the launch of the Maxo Genius machine), a category revival remains key
2. Key Historical Financials
Company revenue and profit have been growing 5% and -5% on a CAGR basis respectively the last 5 years. Jyothy has grown 12% in FY21 and 15% in FY22 on a YoY basis – with growing 14% in Q3FY23
EBITDA margin was 15-17% in FY20 and FY21 but has come down to 11-12% from FY22 due to higher raw material prices (like crude derivatives)
Working capital days decreased from 65 in FY20 to 41 in FY22 leading to a healthy CFO/EBITDA ratio
ROCE and ROE fell in FY22 due to lower margins
3. What is my view on company valuation?
The Company is trading at a P/E of ~36x as against the median P/E of 31x. The sectoral median is also ~36x currently, so the Company is valued fairly within its segment. It would be advisable to wait for the price to correct to its median P/E levels at least before entering the stock.
4. What are the risks to the investment analysis?
Risks to the analysis are:
Intense competition from other FMCG players in the different segments of the detergent industry can affect the fortunes of the Company adversely
Any economic slowdown directly affects the FMCG demand of the economy as people spend less money on discretionary items
Volatile crude prices have a direct impact on the products falling under the detergent and dishwashing category as 50% of raw material cost is linked to crude and crude derivatives
Company has made significant investments in building infrastructure and developing its technological expertise, failing to scale up the business can affect Company’s future growth
About the Author
I have over 18 years of experience in private equity and public markets. I am an engineer by background and MBA from a premier institute in India.
Disclosure
I have no stock, option, or similar derivative position in any of the companies mentioned in the last 30 days, and shall not initiate any such positions within the next 5 days. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from SocInvest). I have no business relationship with any company whose stock is mentioned in this article.
I am not a SEBI registered advisor. This article is purely for educational purposes and is not to be construed as investment advice. Please consult your financial advisor before acting on it.
I have used publicly available information while writing this article.
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