equity | india | fmcg jyothy laboratories ltd.breport.myiris.com/geplcap1/jyolabor_20110927.pdf ·...

Equity | India | FMCG

Jyothy Laboratories Ltd.

A Long Term Play… September 27, 2011

ACCUMULATE

Analyst Chanchal Biyani

+91-22- 6618 2415 [email protected] GEPL Capital Research 1

Initiating Coverage

CMP (`) Target (`)

165 181

Potential Upside Absolute Rating

10% ACCUMULATE

Market Data

BSE Group A

BSE Code 532926

NSE Code JYOTHYLAB

Bloomberg Code JYL IN

Stock Details Market Cap (`bn) 13.28

Free Float (%) 40%

52wk Hi/Lo 322 / 164

Avg. Daily Volume (NSE) 99,209

Face Value (`) 1.00

Dividend (`per share) 5.00

Shares Outstanding (mn) 80.63

Shareholding Pattern Promoters FIIs DII Others

63.75 15.37 13.42 7.46

Financial Snapshot (`mn)

Y/E Mar FY10 FY11 FY12E FY13E

Net Sales 5,981 6,276 11,306 13,768

EBITDA 918 805 1,100 1,592

PAT 743 688 482 731

EPS 10.2 8.5 6.0 9.1

ROE (%) 20.2 12.9 6.5 10.5

ROCE (%) 19.5 11.8 7.6 8.5

P/E 16.1 19.3 27.6 18.2

EV/EBITDA 13.9 16.2 10.8 7.8 Share Price Performance

50

60

70

80

90

100

110

120

Sep-

10

Oct

-10

Nov

-10

Dec-

10

Jan-

11

Feb-

11

Mar

-11

Apr-

11

May

-11

Jun-

11

Jul-

11

Aug-

11

Sep-

11

Jyothy Lab BSE SENSEX

Rel. Perf. 1Mth 3 Mths 6Mths 1Yr

Jyothy Labs (5.5) (20.0) (20.4) (42.2)

SENSEX (2.0)% (8.8)% (11.2)% (18.6)%

Source: Company data, GEPL Capital Research

Summary

Jyothy Laboratories Ltd (JLL) has moved to the next orbit post acquisition of Henkel India which has positioned JLL as a multi-brand company, operating in multiple categories like fabric care, laundry, dish wash, mosquito repellants and personal care. Further acquisition has widened its distribution reach in urban modern retail and canteen sales. The synergies between both the companies are likely to benefit JLL, creating value for JLL. However, high interest cost, integration and restructuring in distribution channel has impacted short term performance of JLL. Return of growth momentum in core business and improvement in performance of Henkel India are the key catalyst for the stock.

We initiate coverage with a ‘ACCUMULATE’ rating with a target price of `181 implying a 10% upside from current level.

Investment Rationale

JLL to benefit from likely multi-level synergies with Henkel India in long-term Henkel India acquisition likely to position JLL as a multi-brand FMCG Company (10 brands now v/s 3 pre-acquisition) while leaving a significant opportunity to exploit synergies to increase revenues and margins. JLL, in our view, will be able to achieve these synergies through 1) operational cost synergies and 2) broadening its distribution reach in modern retail, canteen sales along with its current strong rural distribution. Apart from these, the other key benefits to JLL, in our view includes : 1) reduce its dependence on the Ujala brand, 2) entry into personal care category with Fa, Margo and Neem brands (v/s currently in homecare, laundry and dishwashing categories) and 3) tax benefits from accumulated losses of Henkel India. We expect company’s consolidated revenues to touch `16bn in FY14 as against JLL’s `6bn revenues in FY11.

However, Henkel India’s acquisition to weigh heavy on near term performance

Though the acquisition is expected to be EPS accretive over the long term, the near term profitability will be impacted by higher interest burden and non-commensurate increase in the revenue. Henkel India acquisition has resulted in an increased debt burden of `6bn as against pre acquisition zero debt status of JLL. Our FY12 EPS of `5.9 include negative contribution of `3.4 per share on account of Henkel India.

Expect steady state growth in core business; laundry business still in expansion mode We expect JLL’s core business to grow at a normal pace and model 11% revenue CAGR through FY14 driven by (1) Ujala – revival of growth in Ujala Supreme and contribution from detergent portfolio; (2) Maxo - growth driven by liquid vaporizer coupled with launch of outdoor variant and (3) Exo - extending footprint to national level. On the laundry business (JLL’s 75% subsidiary) we expect JLL to report 140% revenue CAGR (from `94mn in FY11 to `1,312mn in FY14) through FY14 driven by organic/inorganic means and favorable changes in business mix.

Valuation

While we remain cautious on the near term financial performance led by higher interest outflow and macro factors, we believe acquisition of Henkel India will be value accretive over the longer term. We are positive on the JLL’s long term growth potential. We value JLL on PE basis at `181 with target multiple of 20x on FY13 EPS of `9.1. We initiate coverage with a ‘ACCUMULATE’ rating with a target price of `181 implying a 10% upside from current level.

Key Risk to our Recommendation Apart from competitive environment, the key risk to our valuation thesis is the delay in integration with Henkel India.


Jyothy Laboratories Ltd. September 27, 2011

GEPL Capital Research| Initiating Coverage 2

Acquisition has increased the brand portfolio from 3 to 10 brands

Investment Rationale JLL to benefit from likely multi-level synergies with Henkel India

• Henkel India acquisition to position JLL as a multi-brand FMCG Company (10 brands now v/s 3 pre-acquisition) while leaving a significant opportunity to exploit synergies to increase revenues and margins.

• Henkel and JLL, in our view, will be able to achieve these synergies through 1) operational cost synergies and 2) broadening its distribution reach in modern retail, canteen sales along with its current strong rural distribution.

• Apart from these, the other key benefits to JLL, in our view include: 1) reduce its dependence on the Ujala brand, 2) entry into personal care category with Fa brand (v/s currently in homecare, laundry and dishwashing categories) and 3) tax benefit on accumulated losses to keep tax rate at MAT.

JLL, now will be positioned as a multi-brand company

Post Henkel India acquisition, JLL’s brand portfolio has increased to ten brands from earlier three. The seven new brands from Henkel India are: 1) Henko, 2) Mr White, 3) Fa, 4) Pril, 5) Margo, 6) Neem and 7) Chek. The acquisition has not only increased its brand portfolio but also facilitated its entry in personal care category, which we believe will create multiple growth drivers for JLL over the long term.

We see multiple product synergies in the combined entity

• Henkel India’s brands like Henko, Mr. White and Chek will complement JLL’s present laundry portfolio to be present across all price points.

• Further Pril, the Henkel India’s dish wash brand would strengthen the dish wash category presence of JLL (Exo).

• Also, Henkel India has strong brands in personal care like Fa, Margo and Neem, which will facilitate JLL’s entry in personal care category.

JLL’s brand portfolio increased to 10 brands (Revenues, `mn)

-

2,000

4,000

6,000

8,000

10,000

12,000

Jyothy Labs Henkel India Consolidated

Neem

Chek

Fa

Mr.White

Pril

Margo

Henko

Maya & Jeeva

Exo

Maxo

Ujala





Expect cost reduction and margin improvement through synergies in RM procurement, manufacturing and distribution

“Balanced Distribution” to give impetus to growth of JLL’s core brands and recently acquired brands

Likely Synergies to increase margins FY12 onwards

We believe that the combined strength in terms of a) multiple brands and b) broader distribution channels with an opportunity to cross-sell will help JLL to not only increase revenues but also increase margins. We believe that Henkel India’s and JLL’s cost structure offers multiple opportunities to reduce costs in terms of raw material procurement, manufacturing, and product distribution. JLL is currently strong in rural distribution while Henkel India distribution is focused in urban areas largely through modern retail and canteen sales.

We expect EBITDA margins for the company to improve post FY12 from 9.7% in FY12E to 13.4% in FY14E.

Margins set to improve post FY12

6.0 6.3

11.3

13.8

16.315%

13%

7%

13%

12%

10%

10%

12%

5%

4%

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

FY10 FY11 FY12E FY13E FY14E

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Sales Rs Bn EBITDA Margin

PAT Margin Source: Company data, GEPL Capital Research

Balanced distribution network with strong urban and rural reach

JLL’s strong rural distribution and Henkel India’s urban distribution will complement each other in the combined entity. JLL has 3,500 distributors with strong rural reach while Henkel has 750 distributors mainly focused in urban areas. Further, 1,800 people field force of JLL and Henkel India’s 30 countrywide depots will make JLL’s distribution more balanced. Henkel India has a strong presence in canteen sales and strong distribution network in modern trade.

In our view, Henkel India’s Mr. White, Check, Neem and Margo can be distributed in rural markets, while JLL’s Maxo (aerosols), Exo, and Ujala Technobright can be supplied through modern retail in urban markets. Thus, balanced distribution network will help to push forward the revenue growth.




Balanced distribution network to reach 1.3 mn retail outlets

3,500 JLL distributors- rural focus

1,800 field force - JLL

750 HIL Distributors- urban focus

30 depots

- Henkel India

Distribution reach to 1.3mn

retail outlets

3,500 JLL distributors- rural focus

1,800 field force - JLL

750 HIL Distributors- urban focus

30 depots

- Henkel India

Distribution reach to 1.3mn

retail outlets


Other key benefits to JLL, in our view include:

1) Reduce its dependence on the Ujala brand JLL has been perceived mainly as Ujala Brand Company historically. Ujala brand has contributed more than 50% to JLL’s revenues which reduces to 30% in consolidated revenues. The diversified revenue stream reduces JLL’s exposure to Ujala brand, specifically Ujala Supreme.

Ujala brand revenue contribution reduced to 28% from 50% pre acquisition

Pre-acquisition (FY11) Post-acquisition (FY12E)

24%

19%

7%

50%

Fabric Care Mosquito Repellent

Dishwashing Personal Care

(100% from Ujala brand)

14%

19%

16%

52%

28.3%15.7%

2.1%

5.9%

Ujala HenkoMr. White Check





Acquisition helps JLL to enter into new categories

Benefits from accumulated losses to keep tax rate at MAT

However, near term performance impacted due to high interest burden and restructuring in distribution channel

2) Gain an entry into personal care category

JLL had small exposure to personal care category though it soap brand Jeeva, however Henkel India will facilitate the full fledged entry in the category with Fa (Deodorant brand), Neem (toothpaste brand) and Margo (soap brand).

Deodorant is one of the fastest growing categories in India currently growing at the rate of more than 60%. Though Fa brand has not witnessed exponential growth, right kind of ad spends and other marketing support likely to bring back growth momentum in the brand revenues. Fa and Neem being niche brands with herbal base, has its own position in their respective competitive categories.

3) Tax benefits on accumulated losses of Henkel India to keep tax rate at MAT

Henkel India has a total tax benefit to the tune of `1,200mn on its carry forward losses of `4,000mn. JLL’s whose tax breaks expire by 2013, plans to take advantage of Henkel India’s carry forward losses so as to keep its tax rate near MAT post 2013.

However, Henkel India’s acquisition to weigh heavy on near term performance

• Though the acquisition is expected to EPS accretive over the long term, the near term profitability will be impacted by higher interest burden and non commensurate increase in the revenue.

• Henkel India acquisition has resulted in increased debt to `6bn with net debt to equity at 0.9x

• Our FY12 EPS of `9 include negative contribution of `3.4 on account of Henkel.

Henkel India’s acquisition increases JLL’s debt equity to 0.9x (debt free in FY11) and interest outgo to `500 mn from `20mn in FY11.

The total cost of acquisition of Henkel India’s 85.87% stake works out to `7.7bn. JLL has raised `6bn to fund the acquisition through non convertible debenture of `4.5bn and working capital loans of `1.5bn. The debt raised for the acquisition will impact the company’s financial performance negatively in near term with increased interest burden.

Management plans to rationalize the consolidated debt to more comfortable level of `2-3bn over the next 6-9 months, by selling unutilized land and Henkel India’s Karaikal Plant and through internal accruals. It is also contemplating equity dilution to pay off the debt.

We believe that the financial impact of the acquisition will be EPS dilutive in the short term and benefits to the merged entity will be seen FY13 onwards. We have not factored in equity dilution in our model. Given the current market conditions, we believe dilution of equity could take some more time.

We present here the scenario analysis in case of equity dilution. We have assumed issue of 20.2mn shares (Promoters stake reduced to 51%) in FY13 at `280 per share and proceeds used to totally repay the debt. In this case, FY13 EPS contracts by 1.9% however FY14 EPS increases by 0.8%.

FY13 EPS is contracts by 1.9% however FY14 EPS increases by 0.8%.

Base Case Post Dilution FY13E FY14E FY13E FY14E Debt (`mn) 4,500 4,000 NIL NIL Interest Outgo (`mn) 551 446 315 NIL EPS 9.1 14.9 8.9 15.0





Restructuring in distribution method to affect near term performance Post acquisition, JLL decided to restructure its distribution system from three-level to two-level (eliminating super stockiest and retaining only distributors and retailers) to align with Henkel India’s business. The new distribution model would save ~3% in the distribution margin and reduce the working capital requirement. The full impact of the benefits would be visible from FY13 onwards.

The process of doing away with the superstockiests from the distribution channel impacted 1QFY12 performance however this impact is one time and revival of normal sales growth is likely to be seen from Q3FY13.

Expect steady state growth in core business We expect JLL’s core business (Ujala, Maxo Exo, Maya and Jeeva) to grow at a normal pace and model a 11% revenue CAGR through FY13 driven by

1. Ujala – revival of growth in Ujala Supreme and contribution from detergent portfolio;

2. Maxo - growth driven by liquid vaporizer coupled with launch of outdoor variant and

3. Exo - extending footprint to national level.

Core revenues (Ujala, Maxo Exo, Maya and Jeeva) to witness 11% revenues CAGR (Sales in `mn) Ujala Maxo Exo

2,6502,998 3,037

4,0443,562

1%

17%

14%13%

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500


0%

5%

10%

15%

20%

Ujala Sales Ujala sales growth

1,783

1,459 1,459

2,049

1,751

0%

20%

17%

-18%-

500

1,000

1,500

2,000

2,500


-25%-20%-15%

-10%-5%0%5%10%

15%20%25%

Maxo Sales Maxo sales Growth

1,680

944

1,1971,140

1,436

5%

20%

17%

21%

-

200

400

600

800

1,000

1,200

1,400

1,600

1,800


0%

5%

10%

15%

20%

25%

Exo Sales Exo Sales Growth


Expect core business to return to steady growth post FY12

Core business to return to steady state growth path

• We expect 10% revenue CAGR through FY14 in Ujala portfolio led by (1) sustained growth in Ujala Supreme – mostly price driven (2) high growth in detergents pushed by aggressive marketing (3) benefit due to improved reach in canteen sales and modern retail. Strong brand equity of Ujala, coupled with aggressive marketing and strong distribution network is advantageous for Ujala brand.

• We expect 12% revenue CAGR through FY14 in Maxo despite recent decline in sales due to reduction in retailer’s margin and change in method of distribution. We believe future growth in Maxo will be driven by (1) Higher sales in vaporizer and aerosols (thrust given through new modern retail outlets and canteen sales) and (2) Sales from in outdoor category (3) normal sales growth in coils segment.

• Coils currently contribute ~90% to Maxo revenues rest being contributed by liquid repellants. JLL management aims to take this product mix to 75% coils and 25% liquid dispensers and aerosols over the next 2 years which will result in increased margins.




• Further Maxo Military, outdoor mosquito repellant brand has huge market potential in domestic as well as overseas market, even though the current market size is less than `1bn. Apart from the defense orders, JLL is eying consumer market in India. However category creation and educating the consumers will be the key to grow these products in domestic market.

We expect Exo sales to register 14% CAGR over FY14 on the back of (1) national rollout of Exo along with push in modern retail format (2) higher rural sales growth

Aggressive expansion in laundry business

Laundry business still in expansion mode; expect 141% revenue CAGR through FY14

Laundry business in India is predominantly an unorganized sector providing huge opportunity to organized player like JFSL (Jyothy Fabricare Service Ltd). Laundry services market in India is expected to grow from current ~`52 bn to ~`75 bn as per INSEAD and KPMG. JFSL is expected to expand meaningfully in this business driven by its confidence from successful Bangalore operations and through its ability to mobilize the required capital.

We model JFSL’s (Jyothy Fabricare Services Ltd., JLL’s subsidiary with 75% stake) revenue growth at 141% CAGR through FY14 driven by organic and inorganic growth:

1. Growth in its current operation in 4 cities

2. Planned expansion in 2 more cities by the end of FY12

3. Favourable change in business mix

We expect JFSL’s revenue CAGR to be 141% with `1,312mn revenue in FY14. We have modeled the company’s expansion plans in other two cities. The company plans to start full fledged operations in Hyderabad and Chennai by the end of FY12.

Further we believe that company will breakeven in FY13 with `24 mn net profit. As the business gains size we expect EBITDA margin to improve to 21.8% in FY14 from operating losses in FY12.

JFSL revenues to grow 141% CAGR through FY14

42 94

490

1,312

910

421%

86%44%

126%

-

200

400

600

800

1,000

1,200

1,400


0%

50%

100%

150%

200%

250%

300%

350%

400%

450%

Sales Sales Growth Source: Company data, GEPL Capital Research

JLL to have full fledged operations in 6 cities by FY13

After setting up a plant in Bangalore in FY09, JFSL has chosen inorganic route to expand in Delhi, Mumbai and Pune. It has acquired Diamond Fabcare (Wardrobe brand) in NCR region and Akash Dry cleaners in Mumbai and Dhulai Laundry in Pune.




JFSL has raised `1bn for 25% stake sale through issue of convertible preference shares (convertible in 2014) to IL&FS. `500 mn has already been received and remaining funds will be made available post JFSL’s expansion in Hyderabad and Chennai. Part of funds which is already received was utilized for acquisition of Diamond Fabcare and Akash Dry cleaners and Dhulai Laundry in Pune.

Diamond Fabcare is 3-yr old chain with 62 outlets in NCR region (Delhi, Gurgaon, Ghaziabad and Faridabad). It had revenue of `95mn and loss of `30mn in FY11, with a plant of 8 tonne capacity. Akash Dry cleaners Mumbai was profitable in FY11 with revenue of `80mn and processing plant of 6 tonne capacity and has real estate of 1 acre at MIDC in Navi Mumbai and Dhulai Laundry in Pune has two outlets and has profitable operations.

The acquisitions has helped JFSL to expand its operations in much faster way that building the chain from scratch while beating the competition. JFSL is further working on setting up a plant Hyderabad. It has already started a quick service station (QSS) format in Chennai and planning Company plans to expand its washing capacity in Delhi, Mumbai Pune and Chennai in FY13. Management targets `3bn revenues in next five years through organic and inorganic expansion.

Expect favorable change in business mix:

JFSL, with more than 100 stores in four cities, has presence in both institutional and retail laundry service segment.

While the retail operations are high margin, institutional service is volume game. The sales mix between retail and institutional is 20:80 at present and expected to be in the range of 30:70 by FY13 which will improve the margins.




Expect revenue to grow at 38% CAGR and margins expansion to 13.4% (9.7% in FY12E) through FY14

Consolidated revenues to grow at 38% CAGR over FY14

We expect, JLL’s consolidated revenues to grow at 38% CAGR through FY14 mainly driven by 1) growth achieved from improved distribution reach of combined entity, 2) brand building through ad spend support 3) Steady growth in product categories and 4) growth opportunities from as new product and services (laundry business and outdoor mosquito repellants) gain size.

Revenues CAGR of 38% over FY14

16.3

13.8

6.0 6.3

11.365%

5%

80%

22% 19%

13.4%11.6%

9.7%15% 12.8%

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Sales Rs Bn Sales Growth EBITDA Margin Source: Company data, GEPL Capital Research

Margins set to improve going forward JLL’s EBITDA margin declined in FY11 and FY12 mainly due to

1) Increase in crude linked raw materials prices like HDPE, LAB and palm oil, (<40% raw materials being crude linked and with every $10/barrel increase in crude oil price, raw material cost for JLL increase by 4-5%)

2) High ad-spends

3) Delayed breakeven of JLL’s laundry service venture and

4) Integration of Henkel India

However we expect EBITDA margins for the company to improve post FY12 from 9.7% in FY12E to 13.4% in FY14E. Margin expansion will be mainly driven by

1) Revival of core business growth 2) integration benefits and 3) breakeven in laundry business.

We have modeled 10% EBITDA margin of Henkel India as against management guidance of 14.6% in FY14

Margins to improve post FY12

16.313.811.36.36.0

15%13%

10% 12% 13%

7%4% 5%

12% 10%

40%

49%47%

42%42%

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0


0%

10%

20%

30%

40%

50%

60%

Sales Rs Bn EBITDA Margin

PAT Margin Gross Margin Source: Company data, GEPL Capital Research




Investment Risk

• JLL faces stiff competition in all major categories like laundry, dish washing and home insecticides. The competition in the operating categories to keep ad spends high for JLL.

• It is exposed to integration risk associated with the merger with Henkel India.

Valuation and View

While we remain cautious on the near term financial performance led by higher interest outflow and macro factors, we believe acquisition of Henkel India will be value accretive over the longer term. We are positive on the JLL’s long term growth potential. We value JLL on PE basis at `181 with target multiple of 20x on FY13 EPS of `9.1. We initiate coverage with a ‘ACCUMULATE’ rating with a target price of `181 implying a 10% upside from current level.

The stock has witnessed more than 40% correction in last one year as against 18% correction in Sensex as a result of concerns owing to competition in operating segments and acquisition of Henkel India. However, we believe, earlier than expected growth momentum will be positive surprise for the stock.

1 year forward PE Chart of JLL

0

50

100

150

200

250

300

350

Mar

-08

Jun-

08

Sep-

08

Dec

-08

Mar

-09

Jun-

09

Sep-

09

Dec

-09

Mar

-10

Jun-

10

Sep-

10

Dec

-10

Mar

-11

Jun-

11

Sep-

11

Price 8x 15x 25x 30x Source: Company data, Bloomberg, GEPL Capital Research

Comparative EPS and Valuation Table

Market Cap Return (%) P/E (x) P/B (x) EV/EBITDA (x)

`mn 1M 6M 12M FY12E FY13E FY12E FY13E FY12E FY13E

Jyothy Labs 13,296 (5.6) (21.0) (44.1) 27.6 18.2 2.1 1.8 16.2 10.8

Dabur 178,875 (3.6) 7.5 (1.9) 26.3 21.9 10.3 8.2 19.8 16.8

Godrej Consumer 134,144 (0.3) 17.0 0.5 23.0 19.1 6.3 5.1 18.7 15.6

Marico 89,426 (8.2) 11.9 12.6 27.3 21.8 7.6 5.9 19.1 15.7





Company Description

Jyothy Laboratories Ltd. (JLL) is a FMCG Company promoted by Mr. N. Ramchandran in 1983. From the single product with limited regional reach JLL has come a long way to multiple national brands in its portfolio. The company has presence in fabric care, household insecticides and dish washing and personal care. In FY11 its brand portfolio included Ujala, Maxo, Exo, Maya and Jeeva brands.

It has also entered the laundry service segment with 75% subsidiary Jyothy Fabricare Services Ltd (JFSL). Remaining 25% of the stake of the subsidiary is held by Mr. Ulhas Kamath, Managing Director of JLL.

Post acquisition, Fabric Care is the highest revenue contributing (52%) segment, followed by mosquito repellants and dishwashing products contributing 14% and 18% respectively; personal care contributed 16% revenues in FY11

The company’s manufacturing facilities are spread across India. It has 28 facilities in 16 locations across India and some facilities are tax efficient. It has recently built two plants one in Jammu (for Maxo Coils) other in Guwahati. Post acquisition of Henkel India, it also owns a plant at Kairakal Pondicherry. The combined entity has 4,250 distributors pan-India reaching to 1.3 million to take its products to millions of households. Also, the company has 1,800 field staff reaching directly to 1 million outlets.

Segment-wise Revenue Contribution (FY12E)

52%

14%

19%

16%

Fabric Care (28% fron Ujala Brand)Mosquito RepellentDishwashingPersonal Care


The company’s manufacturing facilities are spread across India. It has 28 facilities in 16 locations across India. It has recently built two plants one in Jammu (for Maxo Coils) other in Guwahati. Both these plants have recently commenced its operations and some facilities are tax efficient. The company has wide distribution network reaching to 1.3 million outlets. The combined entity has 4,250 distributors pan-India to take its products to millions of households. Also, the company has 1,800 field staff reaching directly to 1 million outlets.




Income Statement Y/E march (`mn) FY09(A) FY10(A) FY11(A) FY12(E) FY13(E)

Total net revenues 3,635 5,981 6,276 11,306 13,768

COGS 1,987 3,172 3,203 6,729 8,034

Gross Profit 1,648 2,809 3,074 4,577 5,734

Employee Cost 473 754 813 1,223 1,436

Advt. Spending' 185 380 556 1,142 1,425

Other Expenditure 503 758 899 1,062 1,280

EBITDA 488 918 805 1,100 1,592

EBITDA Margin (%) 13.4% 15.3% 12.8% 9.7% 11.6%

Depreciation 75 124 130 170 215

Other Income 76 178 157 98 79

Interest (Net) 7 17 20 500 551

PBT 482 955 812 528 905

PBT Margin (%) 13.3% 16.0% 12.9% 4.7% 6.6%

Tax 108 215 154 116 181

Minority Interest (10) (3) (30) (70) (7)

Adjusted Pat after Minority Interest 384 743 688 482 731

Extraordinary /exceptional - - - - 680

Reported PAT 384 743 688 482 1,411

Balance Sheet Y/E March (`mn) FY09 FY10 FY11P FY12E FY13E Equity capital 73 73 81 81 81 Reserves & Surplus 3,396 3,805 6,230 6,241 7,454 Preference Capital 1,363 1,363 Net worth 3,469 3,878 6,311 7,684 8,898 Minority interest 3 5 5 (66) (72) Deffed tax liability 105 133 216 216 216 Total debt 5 130 691 6,000 4,500 Total Liabilities & Equity 3,581 4,146 7,222 13,835 13,541 Net block 2,004 2,336 2,566 3,930 4,316 Capital WIP 110 41 41 41 41 Total fixed assets 2,114 2,377 2,607 3,972 4,357 Investments 797 925 3,007 1,100 - Goodwill - - - 6,894 6,894 Current Assets 1,345 2,092 2,704 3,756 4,542 Inventories 470 730 694 1,156 1,320 Debtors 429 707 1,053 1,173 1,429 Cash & bank 224 303 409 389 531 Loans & advances 218 340 534 1,024 1,247 Other Current Assets 3 11 14 14 14 Current Liab. & Prov. 676 1,248 1,097 1,887 2,251 Creditors 107 304 300 1,003 1,196 Other liabilities 315 482 238 318 380 Provisions 253 462 559 566 675 Net Working capital 669 844 1,607 1,869 2,290 Miscellaneous Exp 1 - - - - Total Assets 3,581 4,146 7,222 13,835 13,541

Key Ratio Y/E (`mn) FY09 FY10 FY11P FY12E FY13E Per Share Ratios Fully diluted E P S 5.3 10.2 8.5 6.0 9.1 Book Value 47.8 53.4 78.3 78.4 93.4 Dividend per share 2.0 4.0 5.0 2.1 3.2 per share FCFF 2.2 2.4 (6.6) (95.8) 6.6 Valuation Ratio P/E 31.2 16.1 19.3 27.6 18.2 P/BV 3.4 3.1 2.1 2.1 1.8 EV/EBITDA 22.4 11.8 13.9 16.2 10.8 EV/Sales 3.0 1.8 1.8 1.6 1.3 Price/ FCFE per share 77.3 41.7 5.8 (8.6) (8.7) Growth Ratios Sales Growth (0.1) 0.6 0.0 0.8 0.2 EBITDA Growth (0.3) 0.9 (0.1) 0.4 0.4 Net Profit Growth (0.3) 1.0 (0.1) (0.3) 0.5 EPS Growth (0.2) 0.9 (0.2) (0.3) 0.5 Common size Ratios Gross Margin 53% 45% 47% 49% 40% EBITDA Margin 13% 15% 13% 10% 12% PAT Margin 10% 12% 10% 4% 5% Employee Cost 13% 13% 13% 13% 11% Ad spend 8% 5% 6% 9% 10% Return ratios RoAE 11% 20% 13% 7% 10% RoACE 11% 20% 12% 8% 9% Turnover ratios (days) Debtors ( Days) 43.1 43.2 61.3 37.9 37.9 Creditors ( Days) 12.4 21.9 20.0 35.9 35.9 Inventory (Days) 47.2 44.6 40.4 37.3 35.0 Net working capital 44.7 33.0 69.7 47.8 46.6 Solvency Ratios Total Debt/Equity 0.0 0.0 0.1 0.9 0.6 Interest coverage 98.2 68.9 57.4 41.8 2.1


Cash Flow Y/E March, (`mn) FY09 FY10 FY11P FY12E FY13E PBT 482 955 812 528 905

Add: Depreciation 75 124 130 170 215

Add: Interest expense 7 17 20 500 551

Less: Other Income 62 92 157 98 79

Other Adjustments 8 (54) 0 0 0

Change in working capital 131 292 658 282 279

Taxes paid 80 157 154 116 181

CF from operations 299 502 (6) 702 1,133

Change in fixed assets 137 325 523 1,534 600

Changes in Intangible Asset 0 0 0 6,894 0

Change in investments (40) 128 2,083 (1,907) (1,100)

Other income 75 90 157 98 759

CF from investing acti. (22) (363) (2,450) (6,423) 1,259

Change in debt 0 127 560 5,309 (1,500)

Change in Equity capital 13 0 8 0 0

Changes in Pref. capital 0 0 0 439 0

Dividend & dividend tax 170 170 340 472 197

Interest paid 7 17 20 500 551

Other Adjustments 0 0 83 0 0

CF from financing acti. (164) (59) 2,562 5,701 (2,249)

Change in cash 112 79 106 (20) 143

Opening cash 111 224 303 409 389

Closing cash 224 303 409 389 531

Du-Pont Analysis (%) FY09A FY10A FY11E FY12E FY13E Net Profit Margin 12% 10% 4% 5% 7% Asset Turnover 1.0 1.4 0.9 0.8 1.0 Leverage 1.0 1.1 1.1 2.2 1.8 ROE 13% 16% 4% 9% 14%

* FY09 is only for 9 months as the company had changed its FY end date, ** FY12 includes financials of Henkel India




NOTES

Recommendation Rationale

Recommendation Expected Absolute Return (%) over 12 months

BUY >20%

ACCUMULATE <20% and >10%

NEUTRAL <-10% and <10%

REDUCE >-10% and <-20%

SELL >-20%

Expected absolute returns are based on share price at market close unless otherwise stated. Stock recommendations are based on absolute upside (downside) and have a 12-month horizon. Our target price represents the fair value of the stock based upon the analyst’s discretion. We note that future price fluctuations could lead to a temporary mismatch between upside/downside for stock and our recommendation.

GEPL CAPITAL Pvt Ltd (formerly known as Gupta Equities Pvt. Ltd.)

Head Office: D-21/22 Dhanraj mahal, CSM Marg, Colaba, Mumbai 400001

Reg. Office : 922-C, P.J. Towers, Dalal Street, Fort, Mumbai 400001 Analyst Certification The following analysts hereby certify that their views about the companies and their securities discussed in this report are accurately expressed and that they have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report: Name : Chanchal Biyani Sector : FMCG Disclaimer: This report has been prepared by GEPL Capital Private Limited ("GEPL Capital "). GEPL Capital is regulated by the Securities and Exchange Board of India. This report does not constitute a prospectus, offering circular or offering memorandum and is not an offer or invitation to buy or sell any securities, nor shall part, or all, of this presentation form the basis of, or be relied on in connection with, any contract or investment decision in relation to any securities. This report is for distribution only under such circumstances as may be permitted by applicable law. Nothing in this report constitutes a representation that any investment strategy, recommendation or any other content contained herein is suitable or appropriate to a recipient’s individual circumstances or otherwise constitutes a personal recommendation. All investments involve risks and investors should exercise prudence in making their investment decisions. The report should not be regarded by the recipients as a substitute for the exercise of their own judgment. Any opinions expressed in this report are subject to change without notice and may differ or be contrary to opinions expressed by other business areas or groups of GEPL Capital as a result of using different assumptions and criteria. GEPL Capital is under no obligation to update or keep current the information contained herein. The securities described herein may not be eligible for sale in all jurisdictions or to certain categories of investors. Options, derivative products and futures are not suitable for all investors, and trading in these instruments is considered risky. Past performance is not necessarily indicative of future results. Foreign currency rates of exchange may adversely affect the value, price or income of any security or related instrument mentioned in this report. Any prices stated in this report are for information purposes only and do not represent valuations for individual securities or other instruments. There is no representation that any transaction can or could have been effected at those prices and any prices do not necessarily reflect GEPL Capital’s internal books and records or theoretical model-based valuations and may be based on certain assumptions. Different assumptions, by GEPL Capital or any other source may yield substantially different results. GEPL Capital makes no representation or warranty, express or implied, as to, and does not accept any responsibility or liability with respect to, the fairness, accuracy, completeness or correctness of any information or opinions contained herein. Further, GEPL Capital assumes no responsibility to publicly amend, modify or revise any forward-looking statements, on the basis of any subsequent development, information or events, or otherwise. Neither GEPL Capital nor any of its affiliates, directors, employees or agents accepts any liability for any loss or damage arising out of the use of all or any part of this report. In no event shall GEPL capital be liable for any direct, special indirect or consequential damages, or any other damages of any kind, including but not limited to loss of use, loss of profits, or loss of data, whether in an action in contract, tort (including but not limited to negligence), or otherwise, arising out of or in any way connected with the use of this report or the materials contained in, or accessed through, this report. GEPL Capital and its affiliates and/or their officers, directors and employees may have similar or an opposite positions in any securities mentioned in this document (or in any related investment) and may from time to time add to or dispose of any such securities (or investment). The disclosures contained in the reports produced by GEPL Capital shall be strictly governed by and construed in accordance with Indian law. GEPL Capital specifically prohibits the redistribution of this material in whole or in part without the written permission of GEPL Capital and GEPL Capital accepts no liability whatsoever for the actions of third parties in this regard.

equity | india | fmcg jyothy laboratories ltd.breport.myiris.com/geplcap1/jyolabor_20110927.pdf ·...

Documents