Jyothy Laboratories Limited

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Please find below mentioned short term fundamental stock for delivery purpose.

 

Company	CMP	Target	BSE Code	NSE Code
Jyothy Laboratories Ltd.	147	160	532926	JYOTHYLAB

 

Jyothy Laboratories Limited was incorporated in the year 1983 with a single product. The company now emerged as one of the leading FMCG companies in the country with products in fabric care, dishwash, household insecticide, personal care, and laundry services. The Company has created various power brands in different market segments - Ujala, Exo, Maxo, Henko, Margo, Pril. The success of the Company is based on a strong focus on R&D, understanding the consumer, and delivering high-quality products at a reasonable price. It's 10 days average volume is higher by >100% to its 30 days average volume. The stock is held by all leading mutual fund AMC. Franklin, Mirae Asset, and Nippon India hold 5.2%, 3.3%, and 2.2% respectively amongst non-promoter shareholders.

Investment rationale
 

Diversified product offerings robust brand backing: The Company’s product offerings are divided into five categories viz Fabric care, Dishwashing bar, Household Insecticide, Personal care, Detergent, and Toilet & Floor cleaner. Each of these categories is backed by well-recognized brands. In detergent, it has brands like Ujala FW bars, Henko, Ujala Crisp & Shine etc. In Dishwashing bar it has brands like EXO and Pril. Household insecticide brand Maxo is a mosquito repellent. In personal care, Neem and Margo are well-recognized brands while it has added handwash and sanitizer as new products. Fabric and Dishwashing comprise nearly 70% of total sales. The company has entered into laundry services with brand FabricSpa which is a small but high margin business. The company is no.1 in fabric whitener since its launch while it is no.2 in Dishwash bar and mosquito repellent categories. It is also no.2 in mosquito repellent coil in India.    

 

Pan India presence, research-driven offerings: R&D is one of the greatest strengths of the Company enabling it to achieve product differentiation and hence offer better value to the customer. The Company has two advanced in-house R&D facilities. Some of the recent R&D initiatives of the Company include - developing a Maxo Genius machine which runs at full power mode when switched on and automatically transitions to normal mode when mosquito infestation is under control; T-shine, India's first organic toilet cleaner which offers great shine without leaving stains on the toilet surface and does not have harmful toxins. The company has pan India presence with its product availability across 2.8 million outlets of which it has a direct reach to over 0.86 million outlets. The company has 27 manufacturing plants located at 23 places. It has 2000+ sales team members and 6100 stockiest/sub stockiest.  

 

Business sentiments are improving amidst ongoing unlock phase: The Company is witnessing slow but definite progress in the improvement of business activities. It’s all vertical except, fabric care has witnessed substantial improvement in sales. While home insecticide jumped 116% YoY, dish wash and other categories grew 16.6% and 9% respectively. Neighborhood Kirana shops are widely preferred under the current lockdown. Rural demand has been positive on the back of good monsoons and government support while intermittent lockdowns in several Urban centers continue to face last-mile delivery issues.

 

Attractive Industrial outlook: FMCG industry is likely to touch approximately US$ 104 billion by 2020. As per a BCG report, incomes are likely to rise by 70% by 2025; more than 33% of the population is likely to reside in urban areas. The key drivers would be rural, premiumization, rising penetration, rising middle class, and disposable income, E-commerce. The company operates in a segment that occupies 50% of the domestic FMCG market and therefore huge prospects of growth lie ahead.

 

Strong financials, reasonable valuation: The Company has a debt-free balance sheet on a net basis. It generates a healthy EBITDA margin of +17% and returns ratios of +16%. During Q1FY21, the company has registered a 3% YoY growth in net profit while net sales were 24% higher on a YoY basis. At the current price, the stock is trading at 28x of its TTM June 2020 consolidated earnings which is fairly valued when compared with other peers.
 

Duration of recommendation: Short to Medium term.