jyothy laboratories

Jyothy Laboratories – BUY

Shining Bright

Financial summary (Rs m)Y/e 31 Mar, Consolidated FY12A FY13A FY14ii FY15ii FY16iiRevenues (Rs m) 9,127 11,042 13,261 15,803 18,905Ebitda margins (%) 9.3 11.7 14.2 14.5 14.9Pre exceptional PAT (Rs m) 446 626 1,265 2,130 2,431Reported PAT (Rs m) 446 197 1,265 2,130 2,431Pre exceptional EPS (Rs) 2.8 3.8 7.0 11.8 13.4Growth (%) (34.5) 36.3 85.3 68.4 14.1IIFL vs consensus (%) 8.2 14.4 0.0PER (x) 74.8 54.9 29.6 17.6 15.4ROE (%) 7.2 10.0 16.2 23.0 26.1Net debt/equity (x) 0.8 0.9 0.3 0.3 0.2EV/Ebitda (x) 45.4 31.0 21.4 17.5 14.0Price/book (x) 5.5 5.4 4.1 4.0 4.0Source: Company, IIFL Research. Priced as on 14 January 2014

Percy Panthaki | percy.panthaki@iiflcap.com91 22 4646 4662

Avi Mehta | avi.mehta@iiflcap.com91 22 4646 4650

Vishal Gutka 91 22 4007 7138

CMP Rs207

12 mth TP (Rs) 250 (21%)

Market cap (US$m) 609

Enterprise value(US$m) 653

Bloomberg JYL IN

Sector FMCG

Shareholding pattern (%)Promoter 66.7FII 14.7DII 9.0Others 9.6

52Wk High/Low (Rs) 221/139Shares o/s (m) 181Daily volume (US$ m) 0.5Dividend yield FY14ii (%) 2.2Free float (%) 33.3

Price performance (%)

1M 3M 1YAbsolute (Rs) 11.6 18.2 31.3Absolute (US$) 12.7 18.3 18.0Rel. to Sensex 10.1 16.2 25.6

Cagr (%) 3 yrs 5 yrsEPS (9.6) 4.0

Stock performance

050100150200250

1,0001,5002,0002,5003,000

12Jul1

2Sep12

13Jul1

3Sep13

Volume (LHS)Price (RHS)

(Rs)Shares (000')

Company update

Initiating coverage

15 January 2014 Institutional Equities

JLL is one of the few FMCG companies in India that is in strongramp-up mode. Transformation from a single-brand, promoter-driven, regional company to a multi-brand, professionallymanaged company with pan-India presence would drive 22%Cagr Ebitda growth FY14-16, one of the fastest in the industry.JLL is likely to grow via higher investments in brands and certaincost saving measures. Traction is already visible with H1FY14clocking 22% sales growth and 70% Ebitda growth. The JLLstock is trading at EV /Ebitda multiple of 18x, at ~10% discountto the sector average. We initiate with a BUY and price target ofRs.250.

A company in metamorphosis: JLL is no longer synonymous withjust Ujala; it’s not even the largest brand anymore. A product portfolioof seven brands led by a professional management under the leadershipof industry veteran Mr. Raghunandan is seeing a marked increase inbrand investment to increase geographic footprint outside its traditionalstronghold of South India. Several measures for improvement havebeen taken and signs of success are visible in recent quarterly results.

Stellar growth expected: With ad spends going up from 7-8% to 10-11% of sales and brand extensions planned in the next few quarters, webelieve sales Cagr of c20% is possible over the next 2-3 years. Weexpect the personal care segment (Margo, Fa) to grow at c40%,followed by dishwashing (Exo, Pril) at c30%. Operating leverage andrationalising manufacturing facilities are likely to expand Ebitda marginby 65bps FY14-16, driving 22% Ebitda Cagr.

Initiate with BUY, price target Rs.250: JLL’s sales and operatingprofit will likely grow faster than most FMCG companies. However, thestock trades at 18x EV/Ebitda, at ~10% discount to the sector. Webelieve current multiples would sustain, if not expand and we value JLLat 18x Dec 2015 EV/Ebitda multiple. (We use EV/Ebitda instead of EPSdue to several non-comparable items in interest and taxation).Continued sales traction is likely to be the trigger for the stock.

percy.panthaki@iif lcap.com

Institutional Equities

Management

Competitors: GCPL, HUL

PE chart EV/Ebitda Assumptions Y/e 31 Mar, Consolidated FY12A FY13A FY14ii FY15ii FY16iiAd spend (% of sales) 7.6 8.7 10.5 11.0 11.0Gross margin (%) 44.9 47.1 49.4 49.6 49.7

Employee cost (% of sales) 12.5 11.8 10.3 10.1 10.1

Tax rate 34.1 NM 0.0 0.0 8.5

Source: Company data, IIFL Research

Name Designation

M P Ramachandran Founder, Chairman & MD

S Raghunandan CEO

Ullas Kamat Joint MD

Jun 08 Jun 09 Jun 10 Jun 11 Jun 12 Jun 13

PE (x) Avg 1sd 1sd

FY10 FY11 FY12 FY13 FY14 FY15 FY16

Ad spend (% of sales)

Ujala19%

Maxo16%

Exo20%

Pril7%

Henko12%

Margo8%

Others17%

Revenue mix FY13

Background: Jyothy Laboratories Ltd was founded by Mr. M P Ramachandran in 1983. Over years, Jyothy Laboratories has turned from a promoter driven, south centric, single product company into a professionally managed, all-India, multi product one. Jyothy flagship product “Ujala” has 71% market shares in fabric whitener market. It also operates in household insecticides segment (Maxo brand) and dishwashingsegment (Exo brand). The company acquired Henkel India Ltd in 2011 and thereby added brands such as Henko (Premium detergent), Pril (Liquid dishwashing), Margo (Soap) and FA (deodorant) into its fold. Jyothy also runs laundry chain through its subsidiary Jyothy Fabricare Services Ltd.

Company snapshot

Why we are positive on Jyothy Laboratories

Jyothy Laboratories (JLL) is transforming from a promoter-driven, south-centric, single-product company into a professionally managed, all-India, multi-product company.

We are positive on JLL due to five main factors: 1. Strengthened management team 2. Diversification of product portfolio 3. Increased investment in brands 4. Increasing geographic salience 5. Impact of measures on performance is visible, and likely to

continue6. Reasonable valuation.

1. Strengthened management team Prior to 23 May, 2012, JLL was predominantly a promoter-managed company. Mr Ramachandran, supported by Mr Ullas Kamath, was the main driver of the company. While both did a commendable job in bringing up JLL up from scratch to a company with turnover of Rs6.2bn (in FY11), broad-basing the management was required to take JLL through the next few years of expansion.

Towards this goal, Mr Raghunandan was hired as CEO and whole-time director. He in turn, appointed several senior and middle-level managers to support him.

Profile of Mr Raghunandan Mr. Raghunandan is a chemical engineer from Birla Institute of Technology and Science (Pilani) and a postgraduate in management from IIM-Kolkata. Raghunandan joined Jyothy Labs from Reckitt Benckiser (India) Ltd and has nearly 22 years of experience in sales, marketing, and strategic and tactical planning.

Prior to this, he has held senior positions with companies such as Paras Pharmaceuticals (managing director), Dabur India (executive

vice-president, sales), Dabur International (CEO), and Hindustan Unilever (regional sales manager).

Figure 1: Profile of Raghunandan, CEOYear Company Designation1992 2001 HUL Regional sales manager2003 2006 Dabur Executive VP salesApril 2006 May,2008 Dabur International CEOJune,2008 August,2011 Paras Pharmaceuticals MDAug, 2011 Dec,2011 Reckitt Benckiser Global category marketing directorJan,2012 Reckitt Benckiser India MDMay 2012 until date Jyothy labs CEOSource: Company, IIFL Research

Mr. Raghunandan is a veteran at transforming and professionalising family-run businesses. Under his leadership, Dabur International and Paras’ domestic businesses have grown well. After spending 10 years initially at Hindustan Unilever, Mr. Raghunandan moved to Dabur where he played a key role in transforming the family-run business into a professional organisation. He was also CEO of Dabur’s International Business, which flourished under his leadership.

Figure 2: Dabur’s international business flourished under Mr.Raghunandan

Source: Company, IIFL Research

0%5%10%15%20%25%30%35%40%45%

FY06 FY07 FY08 FY09

Sales (Rs mn) % YoY growth

He has been instrumental in doubling turnover at Paras Pharmaceuticals (from Rs2 bn to Rs4 bn) in three years and is credited with creating a professional structure in a predominantly promoter-driven setup.

Moreover, Mr. Raghunandan has been purchasing shares of JLL on his own account over the last several months. According to the FY13 balance sheet, the company has not loaned any money to Mr. Raghunandan, which implies he is using his own capital to purchase shares from the open market. We believe this demonstrates his belief in the performance of the company. Mr. Raghunandan has bought JLL’s shares worth Rs14.4m since Feb 2013 and the total current value of his holding in JLL is Rs.40m

Figure 3: Details of shares purchased by Mr. RaghunandanDate Shares bought Rate Amount (Rs mn)NA* 84,136 NA* NA*11/02/2013 12/02/2013 9,813 144.5 1.413/02/2013 14/02/2013 3,850 142.1 0.515/02/2013 6,337 143.5 0.913/08/2013 21,276 NA** NA**14/08/2013 16/08/2013 13,000 170.1 2.223/09/2013 14,546 164.2 2.424/09/2013 9,681 170.1 1.625/09/2013 6,180 166.2 1.025/09/2013 12,269 167.5 2.126/09/2013 7,200 142.5 1.024/09/2013 7,100 169.4 1.2Source: Company, IIFL Research, * Mr Raghunandan has 84,136 shares for which details with regardto price and time of purchase are not available, **He also held shares of Henkel India, for which hewas allotted 21,276 shares of JLL on account of Henkel India merger with Jyothy labs

Senior-level and middle-level management Mr. Raghunandan recruited 15 highly experienced and qualified professionals for various functions such as marketing, sales, purchase and supply chain, packaging, manufacturing, and R&D from large MNC and FMCG companies. The table in figure 4 below shows the designations of people appointed and their experience details.

Figure 4: Details of professionals hiredDesignation Age Brief Background

VP Manufacturing & R&D 41 19 years of experience in HULHead – Packagingdevelopment 48 25 years of experience in HUL, Marico, Cavin care, Sara

Lee, Paras & HavellHead – Purchase & Supplychain 42 19 years of experience in S.C.Johnson, Clariant,

Marketing ManagerPersonal care 41 20 years of experience in Mudra and Paras

ZSM – South (AP, TN &Karnataka) 41 19 years of experience in FMCG industry

ZSM –North I 43 18 years of experience in ColgateZSM – West 41 19 years of experience in HUL and PidiliteHead – Key Accounts 41 14 years of experience in Paras and Lorea’lHead HRD – Mfg operation 49 27 years of experience in ITC, Novartis and Raymond’sZSM North II 39 15 years of experience in Philips and RBIZSM – East I 40 18 years of experience in Dabur, Cadbury and AircelMarketing Manager Fabricwash 31 7 years of experience in Paras, RBI, HDFC Bank,

Marketing Manager Dishwash 35 12 years of experience in Tata Global, Mahindra &

MahindraHead R & D – Personal care 43 19 years of experience in Marico, Paras, EmbayVice President sales andmarketing NA 22 years of experience with HUL in Hair Care, Fabric Care

and Personal CareSource: Company, IIFL Research

2. Diversification of product portfolio

JLL started out as a single-product company manufacturing and selling Ujala Fabric Whitener. For a long time, investors predominantly thought of it as “Ujala company”. Therefore, the concern for JLL was to fuel growth in a category that was not fast-growing and in which it had a dominant market share.

Figure 5: Dependence on Ujala has been gradually declining

However, JLL started gradually building brands such as Exo (dish wash) and Maxo (household insecticides). Following the Henkel acquisition in May 2011, it added other brands such as Henko, Pril, Margo and Fa to its portfolio. Today, JLL has a diversified portfolio across segments such as detergents, fabric whitening, dishwashing and personal products, which provide ample room to grow across a much larger pie in the FMCG universe. As a result, Exo (dish washing bar) emerged as JLL’s largest brand and Ujala is no longer the company’s largest brand.

Figure 6: Diversified product portfolio

Diversified product portfolio also de-risks the business model, and reduces JLL’s vulnerability to competition or demand collapse in a particular segment and therefore results in lower expected volatility of earnings.

3. Increased investment in brands

JLL is focussing on increasing the strength of its brands. This is visible in higher A&P spends for the company from a historic level of 8-9% to 10-11% in the future

FY09 FY10 FY11 FY12 FY13 FY14ii FY15ii FY16ii

Ujala share In consol sales

0%10%20%30%40%50%60%70%80%90%

Others Margo FA Henko Pril Exo Maxo Ujala

Figure 7: JLL would be increasing ad spend to strengthen brand equity of its bouquet ofbrands

4. Increasing geographic salience

Owing to merger with Henkel and efforts in growing the organic portfolio, JLL is no longer just a south-centric company.

Figure 8: JLL a South centric company prior to merger; more diversified post merger

The contribution of the southern region has come down to 45% in 2QFY14 and we estimate it to reduce further 40% over the next three years.

Moreover, in recent times, growth in non-southern regions has been faster than growth in the southern region.

Figure 9: JLL’s growth in non southern regions was 36% in H1FY14 and contribution ofthe southern region reduced by 600 bps

JLL’s increasing geographic footprint is beneficial, as it increases the size of the opportunity for the company. Moreover, the Henkel acquisition should be synergistic since: • Henkel’s strength is urban regions (70% of sales) as against that

of JLL in the rural areas from which it derives 65% of revenue. • Moreover, Henkel has been strong in eastern and southern India.

We expect JLL to benefit specifically in the east since JLL is already a strong player in South India.

This means that Henkel’s brands can use JLL’s distribution and vice versa to expand geographic footprint.

Consol A & P (LHS) Consol A & P growth (RHS)(% of sales)

East,13%

North,22%

South,52% West,

Geographic sales mix FY12 onstandalone basis

East,19%

North,22%

South,47%

West,13%

Geographic sales mix FY12 forcombined entity

35 40 45 50

(Contribution of south (%)

25 30 35 40 45

1QFY14

2QFY14

1HFY14

Growth rate of non south (%)

Case study - GCPLWe have seen similar top-line synergies in case of GCPL when it acquired and merged with GHPL (earlier, a JV with Sara Lee for household insecticides). GCPL was geographically strong in north India whereas GHPL was geographically strong in south India. Using the distribution network of both, GCPL was able to increase sales for all its products.

Particularly, the soaps division benefited by sales growth of 25-30% in FY12-13 vs. a historical trend of 15-20%. Similarly, overall sales growth increased by 200-300 bps due to synergy benefits vs. the historical trends.

Figure 10: Due to synergy benefits of merger with GHPL, GCPL’s sales growth in the pastfew years was higher than the historical trend.

FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13Soaps sales growth 13% 19% 19% 18% 22% 19% 18% 29% 24%Total domestic sales growth 15% 17% 15% 17% 22% 55% 47% 19% 20%Source: Company, IIFL ResearchNote: total domestic sales growth for FY10 and FY11 boosted due to inorganic growth

In the words of Adi Godrej, Chairman GCPL,

“A lot of our great success on sales increase is due to the synergistic benefits being received from the merging of the two businesses and that has helped us in all our categories, especially in Household Insecticides and the Soap business..... As we are merging the two operations, we are generating synergistic benefits of one from the other. So for example, our Household Insecticides business is extremely strong in southern India. GCPL is very strong in northern India. And as we merge the two distribution channels, one takes advantage of the strength in the other geography. GCPL is very strong in rural India. Household insecticides category and erstwhile GHPL are not therefore very strong in rural area. Now, we are synergizing the rural benefits of GCPL. We are very strong in the Chemist sector in Godrej Household Insecticides business, because the nature of that. We are synergizing our GCPL distribution with

that. So overall, both the categories are benefiting from this combined distribution synergies.” – 2QFY12 results conference call transcript.

5. Measures taken by JLL and their impact

In the last two years, under the leadership of Mr. Raghunandan, JLL has taken several measures to boost sales and profitability. We provide a brief description of such measures below. A detailed analysis of these measures is given in Annexure 1. These measures have had a visible impact on top-line and bottom-line delivery of the company. We would like to highlight that that there is concrete evidence of improvement and this is not just a prospect.

1. Reducing dealer margins: Margins for some of JLL’s products were above industry norm. These have now been brought in line with industry norms, saving 4-5% of sales. While a part of this has contributed to margin expansion, the rest has been re-invested in higher ad spend

2. Removing one layer of distribution: JLL removed the consignment sales agents and replaced them with clearing and forwarding agent (CFAs). This resulted in better control over inventory and improvement in service levels to general trade. Moreover, the number of distributors has been reduced from 7000 to 1500. So the company has fewer but larger distributors, which engenders efficiencies of scale.

3. Increased A&P spends: Market share of most of JLL’s products (except Ujala) is low. Therefore, the priority is to increase the strength of its brands. The company has stepped up A&P spends from 7-8% of sales to 10-12% of sales. Furthermore, it has streamlined the marketing and advertisement function within the organisation

4. Reduction in staff cost: Staff cost, which was earlier 12-13% of sales, has now come down to 9-10% of sales. Following the merger with Henkel, the company reduced headcount due to redundancies in roles. Further, it moved sales roles to the distributors to some extent. JLL can afford to do this because

currently distribution push is not its focus area, it is creating demand pull

5. Re-launch of Ujala: After several years, Ujala has been re-launched with new packaging and this has had a positive effect, driving c40% sales growth in H1FY14. This high growth in a high-gross-margin product such as Ujala gives JLL the funds to invest in and scale other smaller brands.

6. Reducing working capital: JLL reduced inventory days YoY from 55 to 47 in Sept 2013. It plans to reduce inventory days further to 40 by the end of the year. Furthermore, most sales, barring institutional/CSD sales, are now in cash, which reduces debtor days from 37 days in FY12 to 27 days in FY13

7. Reducing manufacturing facilities: JLL is reducing the number of manufacturing facilities and improving capacity utilisation. This is resulting in operating leverage and improvement in margins.

8. Increasing gross margin / reducing cost: JLL has initiated a number of cost saving measures to improve margins.

The impact of these measures is visible in the results of the past few quarters. Sales in the past seven quarters have grown at an average of 31% (vs. sector average of 15%) and Ebitda has grown at an average 85% (vs. sector average of 19%).

Figure 11:JLL sees strong sales and Ebitda growth over the past seven quarters

In the future too, we expect sales and profit growth to be robust. We expect FY13-16 sales Cagr at 20% and Ebitda Cagr at 29%.

The sector is expected to post sales Cagr of 14% and Ebitda Cagr of 17% over the same period.

Figure 12:JLL’s sales and Ebitda growth

4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14

Sales growth (LHS) EBITDA growth (RHS)

Sales growth EBITDA growthJyothy labs

6. Attractive Valuation

Figure 13: Jyothy trading at a discount vs. Sector despite having multiple levers forgrowthCompany EV/EBITDA

(x)Tax rate

FY15Sales CAGR (FY14

16ii)EBITDA CAGR (FY14

16ii)ITC 16.8 31% 15% 17%HUL 21.9 28% 13% 15%Nestle 22.3 32% 14% 15%GCPL 19.4 24% 19% 25%Dabur 22.3 21% 16% 16%Colgate 22.0 28% 16% 19%GSK consumer 22.4 33% 16% 19%Marico 16.2 26% 16% 18%Emami 19.9 20% 17% 18%Britannia 15.8 31% 15% 14%Sectoraverage 19.9 27% 16% 18%

Jyothy 18.2 0% 19% 22%Source: Company, IIFL Research

JLL’s shares are currently trading at EV/Ebitda of 18.2x vs. the sector average of 19.9x. This is despite the fact that JLL’s expected performance is superior in terms of sales and Ebitda growth vs. the sector average.

Tax rate: JLL is currently a zero tax-paying company due to accumulated losses of Henkel. However, two or three years later (part of FY16 onwards), it is likely to be a nearly full tax paying company. We believe that the market is aware of this and the increase in tax rate is unlikely to result in a dip in stock price. Our belief stems from the fact that in the first place, JLL does not enjoy any benefit in terms of increased multiple owing to lower tax rate.

BUY, Target price Rs.250 We value JLL on EV/Ebitda basis. Although our preferred method of valuation for FMCG stocks is PE multiple, in case of JLL EPS is impacted by: 1. Zero tax for the next 2-3 years due to accumulated losses but

30-33% tax after that 2. Zero interest - Debentures, which will be redeemed at a premium

three years later, will be set off against the share premium account, i.e. it would debt that will not have any impact on the P&L.

Given this, we believe that it is preferable to value JLL on EV/Ebitda basis.

With FY14-16 Ebitda Cagr of 18%, the FMCG sector trades at EV/Ebitda of 19.9x JLL’s Ebitda growth of 22% over FY14-16 is higher that the sector average and justifies a higher multiple. However, we value JLL at ~10% discount to the sector average on a target EV/Ebitda of 18x to account for the absence of national footprint and leadership position in most brands. We believe that with time these factors will recede and that the multiple has the potential of re-rating and coming on par with the sector average in the medium term.

Many hold the view that since JLL’s ROE and ROIC are inferior vis-à-vis FMCG peers, it should get a discount on PE or EV/Ebitda multiples. We argue that return ratios such as ROEs should be seen in conjunction with valuation metric such as P/BV rather than profit multiples such as PE or EV/Ebitda. We note that while JLL’s ROE is lower than peers, its P/BV is also lower. Hence, we are quite comfortable with the valuation.

Figure 14: JLL compares favourably on ROE vs PB

We have seen a similar situation in the case of GCPL, where after the QIP at Rs.345 the stock remained range bound for 18 months. GCPL was undergoing the process of integrating acquisitions in India and other geographies, and there was uncertainty around issues such as management bandwidth, lack of comfort on acquisitions, high debt etc. Then Temasek took a 5% stake at Rs.410 in January,2012. Since then the stock has doubled although there has been no significant change in performance of the company.

We believe a JLL could go through the same experience. Currently, investors are vary of multiple changes in JLL and would like to wait and watch. However, after a few quarters of performance, investors are likely to get comfortable and that is when the multiples could expand.

Figure 15: GCPL took time to rerate despite steady performance

HULNestle

GCPLDaburGSK Consumer

Colgate

MaricoEmami

Britannia

Jyothy0

0 20 40 60 80 100 120ROE

Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 Jan 13 Jul 13

One year forward PE band chart

GCPLacquiredMegasari inApril

GCPL didQIP issue atRs.345

GCPL issued 5%stake to Temasekat Rs410

Financials

Sales growth

We forecast sales Cagr of 20% FY13-16ii.

Figure 16:Brand wise sales breakup (Rs.m)Brand FY13 FY14 FY15 FY16Ujala 1,900 2,565 2,873 3,189yoy growth 35% 12% 11%

Exo 2,000 2,600 3,380 4,225yoy growth 30% 30% 25%

Maxo 1,690 1,893 2,120 2,374yoy growth 12% 12% 12%

Pril 700 980 1,372 1,921yoy growth 40% 40% 40%

Henko 1,200 1,260 1,449 1,666yoy growth 5% 15% 15%

Margo 830 1,079 1,403 1,824yoy growth 30% 30% 30%

Fa 130 163 325 650yoy growth 25% 100% 100%

Others 1,724 1,724 1,724 1,724yoy growth 0% 0% 0%

Total standalone 10,174 12,263 14,645 17,573yoy growth 21% 19% 20%

• We estimate Ujala sales growth at c35% for FY14 as the brand is seeing strong growth following its re-launch. In FY15 and FY16, growth rate should normalise to 10-12%

• Exo, JLL’s largest brand, is growing fast, as it expands into new geographies. We expect 30% growth in FY14-15 and 25% in FY16.

• Maxo, the household insecticides brand of JLL, is likely to grow at a modest pace of c12% over FY13-FY16ii

• Pril (liquid dish wash) is in a fast-growing category. Combined with market share gains, we believe that it would grow at 40% Cagr over FY13-16

• Henko (mid-premium detergent) is a small player in a highly competitive space. On the one hand, growth rate should be high, given the low base. On the other hand, the intensely competitive nature of the category could hurt growth. We estimate 5% growth in FY14. The company plans some action for the brand in 4QFY14 we estimate growth to pick up to 15% in FY15 and FY16 on the back of this.

• Margo (premium soap) is a small brand that is strong in West Bengal. On the back of a strong advertisement campaign, we expect it to grow at 30% Cagr over FY13-16

• Fa (women’s deodorants) is a small brand in a fast-growing market. We expect 25% growth rate in FY14 and 100% in FY15 and FY16.

• Others constitute the non-focus portfolio comprising Mr White, Chek, Maya, and Jeeva etc. We expect no growth for this portfolio.

• We expect 15% sales growth in subsidiaries (Laundry and the Bangladesh subsidiary).

Figure 17:Contribution of Exo and Pril to increase substantially

Gross margins Gross margins are likely to expand in FY14 on the back of price increases and cost rationalisation measures. We expect consolidated gross margins to expand ~230bps in FY14 and then achieve nominal expansion of ~25bps and ~10bps in FY15 and FY16 respectively.

Figure 18:Gross margin to see 260 bps expansion over FY13 16ii

Overhead Costs

• As employee headcount has been rationalised, we forecast employee cost as a percentage of sales to reduce by 150bps in FY14 and remain at that level.

• As the company invests in its brands, we expect ad-spend-to-sales to increase from 8.7% in FY13 to 10.5% in FY14 and by 50bps more in FY15.

• Due to operating leverage and cost rationalisation measures, we expect other expenses to reduce by ~50bps in FY14 and 30bps each in FY15 and FY16.

Figure 19: JLL’s ad spends to increase in future and operating leverage will help tocurtail employee and overhead costs

Ebitda margins

We forecast Ebitda margin expansion on the back of strong sales growth and operating leverage. Our Ebitda margin forecasts are 14.2% for FY14, 14.5% for FY15 and 14.9% for FY16. Ebitda growth is estimated at 45.4%/21.3%/22.8% for FY14/15/16 respectively.

Ujala Exo Maxo Pril Henko Margo Fa Others

FY13 (LHS) FY16 (LHS) change (RHS)(Contribution to sales)

Gross margin (%)

10.010.511.011.512.012.513.013.514.0

Employee cost (% of sales) (LHS) Ad exp (% of sales) (RHS)Other exp (% of sales) (LHS)

Figure 20: EBITDA margins to expand as synergies with Henkel acquisition come intoplay

JLL is likely to be a zero tax company until part of FY16. • Accumulated losses from the Henkel acquisition would be set off

against current profit, rendering taxable profit as zero. Therefore there would be no charge in the P&L account.

• However, tax would be payable as per MAT (20% of book profits before setting off losses) and this would reflect in “loans and advances” in the balance sheet and “change in working capital” in our cash flow projections

• As per management guidance, these losses would provide protection from taxation charge in P&L until FY16 (or part of FY16, depending on how the company’s profit performs).

Interest and net debt

• JLL has recently issued NCDs of Rs4bn with zero coupon and interest payable on redemption. Effective interest rate works out

to 11%. This will replace existing debt, which is at 100 bps higher rate.

• Promoters have brought in Rs2.6bn as 15m equity shares (on a base of 166m) issued via preferential allotment. These proceeds will be used to pay off debt and reduce it meaningfully

• Therefore, interest cost in the P&L is likely to be zero starting FY15. For FY14, we estimate Rs462mn interest cost

Figure 21: Net debt to reduce as equity infusion by promoters and internal accrualscome into play

Working capital

JLL has an average net working capital of 13% of sales. The company has improved its working capital over the years and we expect further improvement going ahead.

(30.0)(20.0)(10.0)0.010.020.030.040.050.060.0

0.02.04.06.08.0

10.012.014.016.018.0

EBITDA margin (LHS) EBITDA growth (RHS) (%)

(2500)(1500)(500)500

15002500350045005500

Net Debt (Rs mn) Net debt : equity

Figure 22:Working capital intensity to reduce.

Dividend

Barring any further acquisitions, JLL would be able to generate sufficient cash to maintain payout ratio at around 65%. This could translate into a substantial increase in dividend per share from Rs2.5 in FY13 to Rs9 in FY16.

Figure 23: Dividend payout may increase to 65% in FY14 –FY16ii

Return Ratios JLL’s return ratios have been depressed due to the acquisition of Henkel. We expect these return ratios to increase in future due to robust profit growth.

Figure 24: Return ratios to see a dramatic improvement

Debtors (% of sales) Creditors (% of sales)Inventory (% of sales) Working capital (% of sales)

DPS (LHS) Dividend payout ratio (RHS)(Rs)

ROE (LHS) ROIC (RHS)

Annexure 1 - Detailed brand analysis

Figure 25: Brand summaryBrands Segment Market size

(Rs bn)Market growth

rateMarketshare

Cagr sales growth(FY13 16)

Key competitors Plan for growth

Ujala Fabric whitener 2.5 3 10 12% 71% 19% HUL (Rin), Reckitt (Robin blue) Geographic penetrationMarketing spends

Maxo HouseholdInsecticides 36 10 12% 5 7% 12% GCPL (Good Knight), SC Johnson

(All Out), Reckitt (MorteinFocus on LiquidsInnovation led growth

Exo Dishwashing 20 12 15% 11% 28% HUL (Vim), Reckitt (Dettol) Marketing spendsDistribution expansion

Henko PremiumDetergent 25 8 12% 5% 12% HUL (Surf) , P & G (Tide) Marketing spends

Innovative proposition

Pril LiquidDishwashing 4 5 25 30% 16% 40% HUL (Vim), Reckitt (Dettol) Geographic penetration

Marketing spends

Margo Soap 120 8 10% 1% 30% Cholayil (Medimix), HUL (Hamam) Brand extension into face wash andglycerin soaps

FA WomensDeodorant 6 25 30% NA 71%

TTK Healthcare (Eva), Cavinkare(Spinz), HUL (Dove, Rexona),Beiersdorf (Nivea)

New ad campaignDistribution expansion

Prior to the acquisition of Henkel, JLL had three main brands viz. Ujala fabric whitener, Exo dishwash bar, and Maxo household insecticide, apart from some small brands. The acquisition of Henko gave it four more brands i.e. Pril (dish wash liquid), Henko (detergent), Fa (women’s deodorants), and Margo (premium soap).

The sales break-out for FY13 is as per Figure 26.

Figure 26: JLL — Diversified sales mix

Ujala, 19%

Maxo, 17%

Exo, 20%Pril, 7%

Henko, 12%

Margo, 8%

Others, 17%FY13

Market shares

Since most of JLL’s brands (except Ujala) are strong in specific regions, national market shares are not high. Following the JLL-Henkel merger, we see upside to these market shares as synergies of distribution play out and the brands move out of their core geographies into newer ones.

Figure 27: JLL’s market share across categories

Source: Company, IIFL Research, * For Maxo, we have considered only coils market share ; ** ForPril – market share is as on 30th Sept,2013 ; *** Henko – we have considered market share inpremium detergent segment only

We discuss each of the seven power brands in detail below

UjalaMarket context and Ujala’s place within it • Ujala is by far the market leader with 71% value market share in the Rs2.5-3bn fabric whitener market.

o Traditionally, this category has grown at 5-7%; however, the management expects growth could increase to 10-12% due to recent packaging changes

undertaken which has thwarted the growth of counterfeit products.

• In the southern states, Ujala has 85% market share whereas in West Bengal, its market share is as high as 92%.

• 35% of Ujala’s sales come from south India. In Gujarat, the company has a relatively lower market share since Gujarat is a hub for dyes and chemicals

• Ujala has been the flagship brand of the company and has enabled the company to diversify its product portfolio due to its healthy profitability. JLL has consolidated the presence of fabric whitener through acquisitions. It acquired the Ruby liquid blue brand from Bangalore Detergents and Plastic Company in April 2007 and More Light (third largest liquid whitener brand) from Modern Chemical India in May 2007

• Rin (HUL) has launched its fabric whitener in July 2012. However, despite heavy spends on marketing, it has not been able to garner any meaningful share in this segment, due to the strong presence of Ujala.

Performance • In the past few years, Ujala’s sales have been lacklustre. The

brand was suffering from fatigue and industry growth rate was slow.

• In July, 2013 Ujala was re-launched with new packaging and this boosted sales. H1 sales growth has been robust at c40%+.

Plans for growth • Marketing spends and geographic penetration would propel

industry growth and Ujala would be the biggest beneficiary of this.

• Although value market share is 71%, volume market share is 55% only and we believe there is upside in terms of market share gains as well.

Ujala Maxo * Exo Pril ** Henko *** Margo

Market share (%)

Forecast• We forecast high growth rate of 35% for FY14 due to the

successful re-launch. We forecast 10-12% growth in FY15 and FY16.

Figure 28: Ujala’s performance over FY09 16iiFY09 FY10 FY11 FY12 FY13 FY14ii FY15ii FY16ii

Ujala sales (Rs mn) 1,748 1,833 1,928 1,912 1,900 2,565 2,873 3,189% YoY growth 5% 5% 1% 1% 35% 12% 11%Source: Company, IIFL Research

MaxoMarket context and Maxo’s place within it • Household insecticide market size in India is cRs.36bn, growing at c10-12% per year.

o Coils account for 46% of the market, liquid vaporisers constitute 31%, 10% comprise aerosols, and others form 13%.

o Godrej Consumer is the largest player in the market with c50%

market share followed by SC Johnson and Reckitt with 15-20% each.

• Maxo has value market share 17% and 5% in the coils and liquid offerings respectively

• JLL forayed into the household insecticide space with the launch of “Maxo” brand in 2000. Initially, it was launched in the West Bengal market.

• Maxo was originally launched in coil form. As company was strong in rural areas, it ventured into coil format since electricity connectivity was a major issue in rural India.

• Further in 2002, the company acquired Sri Sai Homecare Pvt Ltd, which has a mosquito coil production facility in Hyderabad, which further boosted the Maxo brand.

• Over time, the company has rolled out product extensions in the form of liquid (vaporiser) and aerosol (spray) offerings.

Figure 29: JLL’s earlier sales mix

Figure 30: JLL’s current sales mix vs.industry

Coils, 90%

Liquids, 10%

Jyothy sales mix

Coils, 75%

Liquid,25%

Current sales mix

Coils60%

Liquid40%

Industry structure

• JLL is the market leader in Bihar and UP markets as far as the coils portfolio is concerned whereas it is second-largest player in West Bengal.

• Current seasonality in home insecticides (HI) sales should reduce in future as the company focuses more on liquids vs. coils. Liquid is less seasonal in nature since it becomes a matter of habit of switching on the vaporiser before going to sleep.

Performance • Performance of Maxo has been mixed over the past few years led

by intense competition from GCPL. However, the company is witnessing mid-teen growth in HI in H1FY14.

Plan for growth • JLL will focus more on liquids rather than coils, resulting in better

sales realisation and reduction in seasonality • Innovative offerings, which would result in market share gains,

are being planned. Forecasts • We expect 12% Cagr over FY13-16, assuming that Maxo would

not be able to grow faster than the industry due to heavy competition from GCPL. Better-than-industry growth presents an upside to our estimates.

Figure 31:Maxo performance over FY09 16iiFY09 FY10 FY11 FY12 FY13 FY14ii FY15ii FY16ii

Maxo sales (Rs mn) 1,380 1,786 1,469 1,477 1,690 1,893 2,120 2,374% YoY growth 29% 18% 1% 14% 12% 12% 12%Source: Company, IIFL Research

ExoMarket context and Margo’s place within it • Exo has 11% value market share in dish washing segment (market size Rs.20b) and over 95% of Exo’s sales come from the bar format. Exo clocked sales of Rs2bn in FY13. The category is

growing at 12-15%. Exo was available only in South India until early last year and it derives 75% of revenue from South India. The company made a national rollout of Exo brand in October 2012 The management stated that the national rollout has helped the Exo brand to grow upward of 25%

• Exo has been indigenously developed by JLL’s R&D team. Exo was first launched in the bar form in 2000 in Kerala and was launched later across Karnataka, Tamil Nadu, and Andhra Pradesh. JLL launched the liquid variant of Exo in 2005. The company extended brand offering to a dish scrubber (Exo Safai) as well.

Performance• Exo has more than tripled its sales in the past four years. • JLL has been able to gain market share from established players.

When Exo was initially launched in Kerala, HUL (VIM) had 95% market share in Kerala’s dishwashing market. Over 13 years, JLL has been able to dislodge the market leader and garner 60% market share in Kerala’s dishwashing market.

• Exo is priced at a slight premium to Vim (market leader on pan India basis). However, it is still growing at a healthy pace since its USP of being anti–bacterial has ensured steady growth.

Plans for growth • Distribution expansion into non-south states, combined with

national advertising on its platform of anti-bacterial dishwash bar, would drive growth.

Forecasts • We believe that Exo can grow sales at 30% in FY14 and FY15 and

25% in FY16 by increasing geographic distribution.

Figure 32: Exo’s performance over FY09 FY16iiFY09 FY10 FY11 FY12 FY13 FY14ii FY15ii FY16ii

Exo sales (Rs mn) 624 944 1,140 1,633 2,000 2,600 3,380 4,225% YoY growth 51% 21% 43% 22% 30% 30% 25%Source: Company, IIFL Research

HenkoMarket context and Henko’s place within it • Henko is the third-largest player in Rs25bn premium detergent market and has 5% market share. Henko clocked sales of Rs1.2bn in FY13. • The segment is likely to grow faster than the overall detergents portfolio over the long term as consumers uptrade from mass market to premium brands.

Performance • Sales have been erratic in the past two years due to one-off

issues. In FY12, sales suffered because the company had to shut down its Karaikal plant due to labour unrest. In FY13, the company lost some sales due to distributor re-alignment and consolidation.

Plans for growth • Management highlighted that it would endeavour to come out

with a unique proposition to gain market share from dominant MNC players. A re-launch of Henko is planned in 4QFY14.

• The company is willing to invest in the Henko brand and would use TV as prime source of advertising. Management stated that it would prefer a nationwide big bang foray rather than gradually moving into new regions, as a more localized approach would be easier for competition to counter.

Forecasts We expect 5% growth in FY14 due to an intensely competitive market and no significant investment in the brand. Following the re-launch in Q4FY14, we forecast a 15% growth in FY15 and FY16 respectively.

Figure 33: Henko performance over FY12 FY16iiFY12 FY13 FY14ii FY15ii FY16ii

Henko sales (Rs mn) 1,093 1,200 1,260 1,449 1,666% YoY growth 10% 5% 15% 15%Source: Company, IIFL Research

PrilMarket context and Henko’s place within it • PRIL has ~16% market share in the liquid dishwashing segment, a Rs4-5bn market. • The dishwashing segment is currently tilted towards bars vis-à-vis liquids at a ratio of 90:10; however, there is a strong premiumisation trend resulting in a shift from bars to liquids due to which growth rate in the liquid dishwash category is quite strong. • Pril’s main competitor is VIM (HUL). Pril is priced at a premium to VIM.

Plans for growth • Pril is stronger in larger towns; the company plans to drive

growth by penetrating smaller towns. • The TV commercial for Pril is on air and company is likely to

create greater visibility around the brand to increase recall.

Forecasts • The combination of a fast-growing category and penetration into

smaller towns and new geographies is likely to result in 40% Cagr over FY13-16.

Figure 34: Pril performance over FY12 FY16iiFY12 FY13 FY14ii FY15ii FY16ii

Pril sales (Rs mn) 762 700 980 1,372 1,921% YoY growth 8% 40% 40% 40%Source: Company, IIFL Research

Other • This brand from Henkel stable is present in more than 22

countries. JLL is to pay 2% royalty on Pril sales to Henkel AG for technology support

MargoMarket context and Margo’s place within it • Margo is one of the largest-selling, neem-based soaps in WB and has a sizeable market share in the eastern and southern regions of India.

Margo has only 1% market share in the large Rs-120b soap market. Margo recorded sales of Rs830 mn in FY13.

• Margo’s USP is that it is a neem soap and therefore does not compete directly with the mass market soaps. It is priced at a premium at Rs.22 for 75 grams vs. pricing of Lux at Rs22 for 100 grams and of Medimix at Rs19 for 75 grams.

• The Margo brand is more than 90 years old (formerly owned by Calcutta Chemicals) and enjoy tremendous brand equity. It has authentic neem extracts (Neem is considered to be a natural anti-bacterial agent and is especially used in skin care products).

• Margo derives a significant portion of revenue from eastern and southern India and the company has plans to take this brand pan-India.

Performance • Sales growth has been flat in FY13; however, marketing

investments have been made and the impact of this is already showing positive signs in the first half of FY14.

Plans for growth • JLL endeavours to attract a new set of customers for its Margo

brand. This would be complemented with geographic expansion. • JLL may use the brand equity of Margo to launch brand

extensions into product categories such as face-wash and glycerin soaps.

Forecast• We expect Margo to record 30% sale Cagr sales over FY13-16ii.

Figure 35: Margo performance over FY12 FY16iiFY12 FY13 FY14ii FY15ii FY16ii

Margo sales (Rs mn) 837 830 1,079 1,403 1,824% YoY growth 1% 30% 30% 30%Source: Company, IIFL Research

FaMarket context and Fa’s place within it • Although a small brand, FA deodorant enjoys strong brand recall relative to its size in the heavily competitive Rs20bn deo market. • FA will restrict itself to the women’s market since the men’s market is quite crowded and growth rates are better in the women’s segment. Women’s deo market size is Rs6 bn and is growing at

over 20% per annum. • JLL has re-launched Fa woman’s deo and talc brands in smaller

pack sizes.

Performance • Fa sales declined in FY13, as marketing spends were not made

yet. Now with spends visible, brand is doing better.

Plans for growth • Fa is a very small brand but has a strong legacy in India.

Distribution expansion would be one of the key drivers of growth. • The new ad campaign and marketing investments would create

demand pull to complement distribution push. Forecast• We forecast 25% sales growth in FY14 and 100% in FY15 and

FY16, expecting the brand to touch Rs650m by FY16.

Figure 36: FA performance over FY12 FY16iiFY12 FY13 FY14ii FY15ii FY16ii

FA sales (Rs mn) 146 130 163 325 650% YoY growth 11% 25% 100% 100%Source: Company, IIFL Research

Other • Jyothy labs will have to pay 2% royalty on sales of FA brand

Annexure 2- Measures taken to improve sales/profitability

1. Reducing dealer margins Being mainly a single-product company, JLL used to give trade margins, which were higher than the norm. However, with a bigger product portfolio now, the new management decided to reduce these margins and bring them in line with peer group, improving the profitability of these brands.

Figure 37:Margin rationalizationStockist margin Retailers margin

Brand Old Revised Old RevisedExo 6 8% 6% 8 15% 8 10%Maxo 6 8% 6% 10% 10%Ujala 8% 6% 10 14% 10%Industry 4 5% 8 10%Source: Company, IIFL Research

2. Removing one layer of distribution and reducing distributors

Management’s stated shift to CFA from the Consignment Sales Agent model would be beneficial for the company. CFA is an agent of the company and not a principal. Hence, the goods would now move directly from the company to the distributor, instead of moving from the company to the consignment agent and from the consignment agent to the distributor.

Under Consignment Sales Agent model, the company used to give credit of 25-30 days to agents and it had to pay rentals of depots used for storing of goods. However, in case of the CFA model, goods can be lifted by agent only after money is credited to the company’s accounts and the responsibility of storing goods lies with the CFA agent.

• Shift to CFA model would ensure better control over inventory and improvement in service levels to general trade.

• In Urban areas, company has created seven zones to be headed by zonal managers and further channel has been classified into general trade, modern trade and CSD.

• For rural areas, it has appointed super–stockists to reach low-income consumers cost effectively.

Figure 38:Earlier distribution structure

Figure 39: Current distribution structure

Moreover, management moved from a large number of small distributors, to a smaller number of more financially capable distributors. The company reduced the number of distributors from 7,000 to 1,500 so that each distributor has a larger area under him/her and can operate at a lower margin by taking advantage of scale benefits.

3. Increasing A&P spend • In the pre–professionalization era, marketing of JLL’s brands was

handled by advertising agencies and there were was no concept of brand managers in the company.

• Earlier, the media mandate was divided such that the planning mandate was handled by one agency, whereas the media buying duties were handled by another agency. Now, the entire media

Manufacturer(Factory)

CSA (Ownership transferred)

Distributor (Ownership transferred)

Wholesaler Ownership

transferred)Retailer

Manufacturer(Factory)

C & F (ownership

not transferred)

Distributor (Ownership transferred)

Wholesaler Ownership

transferred)Retailer

planning and buying activities would be handled by a single agency. Management highlighted that consolidation with one agency partner will enable the company to maximize efficiencies and effectiveness of marketing investments."

• The company has executed new ad campaigns for the seven power brands and this is receiving good response. Further, the company has significantly increased its share of voice on Hindi media over the last one year. JLL earmarked 67% of ad expenditure for 2QFY14 towards non–southern markets

• JLL has hired 200 persons for its sales team.

Figure 40: JLL increasing investment in brands

4. Reduction in staff cost Management has taken a number of initiatives to reduce its manpower costs. • Some employees from Henkel India (MNC) who were not

comfortable with JLL’s (Indian company) work culture left the company voluntarily.

• After the merger of Henkel India with JLL, there were some redundancies in work profiles due to which there was reduction in headcount.

• The company has reduced its workforce by depending more on the distributor workforce (a distributor achieving turnover of more than Rs1 mn per month and has to provide two salesmen that would be on his/her payroll) with appropriate monitoring techniques. At this stage in the lifecycle of the company, JLL needs to priorities brand investments over distribution team investments, and prioritise expanding distribution coverage over improving quality of coverage.

• The company has changed the incentives system i.e., it has moved from incentives based on turnover to fixed payment, which has enabled it to save Rs100 mn more.

Figure 41: Declining employee costs for JLL

5. Re-launch of Ujala JLL has re-launched the flagship brand “Ujala” and has seen stellar sales growth in 1HFY14. Management highlighted that Ujala has seen a strong spurt in sales due to following reasons • Packaging changes: The Company has put a sleeve on bottle and

management stated that this kind of packaging is a bit difficult to replicate by unorganized players. This strategy has worked well

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q

FY10 FY11 FY12 FY13 FY14

Ad spend (% of sales)

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q

FY10 FY11 FY12 FY13 FY14

Employee costs (% of sales) on TTM basis

for the company and has pushed a number of counterfeit products out of the market.

• Low base effect in 1HFY13 • High brand recall for Ujala

Figure 42: New and old packaging of Ujala whitener

6. Reducing working capital The company is taking following initiatives to improve working capital management • Centralised sourcing of housekeeping, stationary, and courier

through e-sourcing. • The company now puts all its transport-related orders on Ariba

platform an e-auction platform for transporters, which enables it

to achieve the lowest cost of transportation. This initiative would save Rs5 mn per annum.

• Finished goods inventory reduced from 55 days to 47 days of revenue – (from Sept,2012 to Sept,2013)

• The company has partnered with IBM to improve efficiencies in Forecasting/Demand planning, initially targeting an inventory reduction of finished goods by further five days from Jan 2014.

7. Manufacturing facilities • JLL has shifted all outsourcing arrangements of Henkel India to

its own manufacturing facilities and plans to transfer other manufacturing of Henkel India to a single low-cost contract manufacturer / JLL’s tax free facilities

• As a part of manufacturing rationalisation Bhubaneshwar and Chennai factories have been closed down and production has been shifted to Uttaranchal and Pondicherry respectively

Highest importance being given to R&D • JLL has constructed a new Analytical and Micro lab in Mumbai

and plans to have tie-ups with external labs, universities and suppliers to develop technology for it innovation.

• The basic intention of setting up R&D lab is to improve the quality of the product and ensure that it is on par with or better than competitor’s products

8. Boosting gross margins (reducing cost) Management in gung-ho on improving gross margin of the products and has taken following measures to minimize costs and ensure optimum utilisation of resources: • Management is using a mix of spot and forward contracts to

protect itself against volatile and highly fluctuating raw materials. Currently, the company is using the E-Auction route for sourcing of secondary commodities and packaging items.

• The company has moved to cost-plus model from the conventional negotiation model for sourcing of packing materials. Management is planning to change packaging for many of its

brands so that it looks modern and appeals to a younger audience; for e.g. the reason for solid growth in Ujala seen in past two quarters has been due to packaging change. Management expects that the above initiatives would enable it to achieve 200bps margin improvement over time.

• Management has made a weighted average price increase of 5-6% in FY13 to ensure that products are priced according to their positioning and it has reduced promotional offers on the Henkel brands.

Financial summaryIncome statement summary (Rs m)Y/e 31 Mar, Consolidated FY12A FY13A FY14ii FY15ii FY16iiRevenues 9,127 11,042 13,261 15,803 18,905Ebitda 844 1,297 1,885 2,286 2,808Depreciation and amortisation (247) (224) (250) (254) (258)Ebit 598 1,072 1,635 2,032 2,549Non operating income 224 52 57 63 69Financial expense (238) (682) (462) 0 0PBT 584 442 1,230 2,095 2,619Exceptionals 0 (430) 0 0 0Reported PBT 584 12 1,230 2,095 2,619Tax expense (199) 149 0 0 (224)PAT 385 161 1,230 2,095 2,395Minorities, Associates etc. 62 35 35 35 35Attributable PAT 446 197 1,265 2,130 2,431

Ratio analysisY/e 31 Mar, Consolidated FY12A FY13A FY14ii FY15ii FY16iiPer share data (Rs)Pre exceptional EPS 2.8 3.8 7.0 11.8 13.4DPS 1.3 2.5 4.5 7.5 9.0BVPS 38.0 38.5 50.9 51.4 51.5Growth ratios (%)Revenues 47.3 21.0 20.1 19.2 19.6Ebitda 12.9 53.6 45.4 21.3 22.8EPS (34.5) 36.3 85.3 68.4 14.1Profitability ratios (%)Ebitda margin 9.3 11.7 14.2 14.5 14.9Ebit margin 6.6 9.7 12.3 12.9 13.5Tax rate 34.1 NM 0.0 0.0 8.5Net profit margin 4.2 1.5 9.3 13.3 12.7Return ratios (%)ROE 7.2 10.0 16.2 23.0 26.1ROCE 8.6 9.1 12.9 15.2 18.3Solvency ratios (x)Net debt equity 0.8 0.9 0.3 0.3 0.2Net debt to Ebitda 5.9 4.5 1.5 1.1 0.7Interest coverage 2.5 1.6 3.5 0.0 0.0Source: Company data, IIFL Research

Balance sheet summary (Rs m)Y/e 31 Mar, Consolidated FY12A FY13A FY14ii FY15ii FY16iiCash & cash equivalents 681 478 1,436 2,148 3,322Inventories 1,220 1,722 1,724 1,817 1,891Receivables 807 808 796 948 1,134Other current assets 1,022 1,353 1,843 2,344 2,089Creditors 729 726 928 1,106 1,323Other current liabilities 1,453 1,763 2,112 2,799 3,178Net current assets 1,549 1,870 2,759 3,353 3,934Fixed assets 3,355 3,190 3,278 3,361 3,436Intangibles 7,093 7,628 7,489 7,352 7,219Investments 15 15 16 18 20Other long term assets 0 0 0 0 0Total net assets 12,012 12,703 13,542 14,084 14,609Borrowings 5,660 6,259 4,269 4,721 5,222Other long term liabilities 228 58 58 58 58Shareholders equity 6,125 6,386 9,215 9,305 9,329Total liabilities 12,013 12,703 13,542 14,084 14,609

Cash flow summary (Rs m)Y/e 31 Mar, Consolidated FY12A FY13A FY14ii FY15ii FY16iiEbit 598 1,072 1,635 2,032 2,549Tax paid (202) (3) 0 0 (224)Depreciation and amortization 247 224 250 254 258Net working capital change 278 (525) 70 117 593Other operating items 0 0 0 0 0Operating cash flow before interest 921 769 1,955 2,404 3,177Financial expense (238) (682) (462) 0 0Non operating income 224 52 57 63 69Operating cash flow after interest 907 138 1,550 2,467 3,246Capital expenditure (8,102) (594) (200) (200) (200)Long term investments 607 0 (1) (2) (2)Others 124 (412) 35 35 35Free cash flow (6,464) (868) 1,384 2,300 3,080Equity raising (397) 550 2,627 0 0Borrowings 4,969 599 (2,100) 0 0Dividend (234) (486) (953) (1,588) (1,906)Net chg in cash and equivalents (2,126) (204) 959 712 1,174Source: Company data, IIFL Research

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