jyothy lab intitiation

Company Overview Jyothy Laboratories (JLL) was established in 1983 as a proprietary concern, led by Mr. M.P Ramachandran. From manufacturing and selling a single product - Ujala in a single district, the organisation has grown to become a multi-brand, multi-product company with operations all over the nation. JLL is an emerging player in the FMCG space catering to various categories like fabric care, mosquito repellents, dishwashing bar, besides marketing the renowned flagship fabric whitener, Ujala Supreme.

Key Business Highlights Exploring untapped laundry market With the acquisition of Snoways chain of laundry business in Bengaluru Jyothy Laboratories has entered into organised laundry services business, through its 75 per cent subsidiary Jyothy Fabricare Services Ltd. (JFSL). Having commenced work in Bengaluru on a strong footing, the company plans to take this model to different metro cities across India, starting from Chennai, Hyderabad and Pune in FY11-12. A mix of changing demographics and economic factors form a strong case for an organised player in the laundry services markets.

Tie-up with DRDO to drive mosquito repellent segment Jyothy Laboratories has signed a Technology Transfer Agreement with Defense Research & Development Organisation (DRDO), for transfer of DEPA technology which is a new variant of mosquito repellent developed by DRDO on an exclusive basis. The company has to pay royalty fee of 2 per cent for domestic sales and 4 per cent for exports to DRDO. The exclusive marketing rights present a Rs. 100 to Rs. 150 crores opportunity for FY11 and FY12.

Maxo and Exo – the future growth drivers Dishwashing soap brand, Exo, is expected to drive the growth of JLL going forward. Exo is the second largest player in South India. On the back of its national rollout, Exo is expected to achieve a CAGR of 40 per cent in the next two years; furthermore, its contribution to the total revenues is expected to increase from 15 per cent in FY09 to 17 per cent in FY11. Maxo is the third largest player in the coil market with a 21.6 per cent market share, contributing 33 per cent to JLL’s revenues in FY09. The brand has a pan India presence with a rural focus.

Healthy balance sheet The company has a sound financial position with Rs 122 crore cash in hand and a nominal debt of Rs 13 crore, raised for its laundry business. The company has no intentions of incurring large scale capex till FY13; hence cash outflow will be restricted for only operational activities.

Key Risks A deficit monsoon may adversely affect the purchasing power of the

rural sector.

Rise in crude oil prices can impact the raw material cost as the packaging material cost is directly linked to crude prices.

Valuations The stock is currently trading at a P/E multiple of 26.1 on its FY10 EPS of Rs. 10.2 and 19.9x EV/EBITDA multiple based on FY10 EBITDA of Rs.92 crores.

July 21, 2010

BSE Code 532926BSE ID JYOTHYLABHigh/Low 1Y (Rs.) 276 / 99Avg. vol (3m) 90,148 Market Cap (Rs Cr) 1,941 Net IB Debt (Rs Cr) (110) Enterprise value(Rs Cr) 1,831

Shareholding % Mar-10 Jun-10Promoters 70.13 70.13MFs/ Fis/ Banks 17.39 15.28FIIs 4.17 6.85Public & Others 8.31 7.74

Stock Chart ( Relative to Sensex)

Stock Perfm.(%) 1M 6M 1YrAbsolute 6.7 56.9 161.7Rel. to Sensex 6.2 51.5 142.3

Financials (Rs.Cr) 03/08 03/09 # 03/10Revenue 380 363 598 y-o-y 4.5% -4.2% 64.5%EBITDA 61 49 92 y-o-y 12.7% -20.0% 88.3%PAT 50 38 74 EPS (Dil.)* 6.9 5.3 10.2y-o-y -3.0% -23.0% 93.6%EBITDA Margin 16.1% 13.4% 15.3%PAT Margin 13.1% 10.6% 12.4%D/E(x) 0.00 0.00 0.03 P/E(x) 38.9x 50.5x 26.1xEV/EBITDA(x) 30.0x 37.5x 19.9xROCE 16.3 11.9 19.8ROE 15.3 11.1 19.2

50100150200250300

21-Jul-09 21-Jan-10 21-Jul-10Jyothy Lab Sensex

Financial Year ends at March 31 Qtry Fin 06/09 09/09 12/09 03/10Revenue 120 130 136 196PAT 22 14 17 27EPS 3.0 1.9 2.3 3.7All figures in Rs. crores except for per share data *Adj for Stock Split FV from Rs 5 to Rs 1 in Dec '08; # FY09 is 9 month period due to year change

Household Products

Jyothy Laboratories Ltd. CMP Rs. 267

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Jyothy Laboratories Ltd.

Business Description Jyothy Laboratories came into existence in 1983 as a proprietary concern led by Mr M. P. Ramachandran (Promoter), manufacturing and selling a single product in a single district of Kerala; since then the organization has grown to become a multi-brand, multi-product company with operations all over the nation. Through the launch of Ujala, the company carved out a new product category of liquid fabric whitener. From humble beginings of one product, Jyothy Laboratories Limited, today, manufactures and distributes brands across product categories as diverse as fabric care, household insecticide, utensil cleaners, fragrances, personal care, besides marketing tea and coffee brands. With products that are reasonably priced, conveniently packaged, extensively distributed, Jyothy Laboratories has a pan India presence with brands catering to the needs of consumers across the length and breadth of the nation.

Business Model – FY10

Jyothi Laboratories Ltd

Maxo Cyclothrin CoilMaxo Cyclothrin Liq.Maxo Aerosol

JeevaNaturals

Exo Dish Wash BarExo Dish Wash Liq.

Ujala SupremeUjala Washing Powd.Stiff & Shine

Maya

Fabric Care (46% of FY10 sales)

Utensil Cleaners (16% of FY10 sales)

Personal Care (7% of FY10 sales)*

Household Insecticides (31% of FY10 sales)

Fragrances

Soaps & Detergents Home Care Allied Business

Source: Company Jyothy manufactures its products through 21 manufacturing facilities, spread across 14 locations across India. Out of these 21 plants, eight plants enjoy fiscal benefits. Two plants enjoy a 100 per cent tax and excise benefit while six plants enjoy 30 per cent tax exemption. It has established a wide distribution network across India with 3000 distributors, 1500 field staff with a direct reach of over a million retail outlets and a total reach of over 2.9 million outlets.

Fabric care is the leading segment for Jyothy with 46 per cent revenue contribution

Jyothy Laboratories has a pan India presence with products catering to fabric care, home care and utensil cleaners

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Key Brands UJALA (Fabric Care) Ujala - the flagship brand of Jyothy Laboratories Ltd. is the market leader in its segment with a lion’s share of 72 per cent by value, while the closest competitor is Reckitt’s Robin Blue, which holds a market share of only 3 per cent. The acquisition of the brand ‘More Light’ which has a market share of 4 per cent, pushes the combined market share further to 76 per cent within the segment. The rest 21 per cent market of fabric whitener is highly fragmented and shared across small players.

Ujala – Sales Trend Market share

190220

270

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50

100

150

200

250

300

FY08 FY09 FY10

Rs. C

r.

Source: Company On a state wise basis, Ujala has a 99.99 per cent market share in Kerala, 94.5 per cent in West Bengal and 93.5 per cent in Delhi and Punjab region. MAXO (Mosquio repellant) Maxo brand was launched in 2000 as an indoor mosquito repellent. The brand has become one of the major growth drivers for the company. In less than 10 years the brand now commands a market share of 22 per cent in value terms, competing against the established brands of other big players in the segment.

Sales Trend Market Share

110140

180

0

40

80

120

160

200

240

FY08 FY09 FY10

Rs. C

r.

Source: Company

Ujala is the market leader in fabric whitener with a share of 76 per cent

Maxo commands a market share of 20 per cent in the repellent coil category

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Maxo was able to create a strong brand equity in the markets by focusing on the rural segment, as part of a conscious effort. Overall the repellent market is highly competitive and the total pie is around Rs 2,000 crore of which coils represent close to 50 per cent. Within this 50 per cent share, the company’s brand size is Rs 257 crores and has a 20 per cent market share on an all India basis by value, as per an A.C. Nielson report. EXO (Dish Washer) Exo was launched in 2000 as India’s first anti-bacterial dish wash (with Cyclozan as a key ingredient) and is now worth Rs 146 crore. Till October 2009, Exo was predominantly a south Indian, however, since then the product has been launched in a phased manner across various states - Delhi, Uttar Pradesh, Maharashtra and West Bengal. On a pan India basis Exo has a market share of 9 per cent while in the southern states, it commands a share of 24 per cent. Exo is the second largest dish wash brand in South India and has grown ahead of the leader Vim (by HUL).

Sales Trend Market share

Source: Company Fabricare Services The company has recently forayed into the service sector by moving into organized laundry services through its 75 per cent subsidiary, Jyothy Fabricare Services Limited (JFSL). The company commenced its activities initially in Bengaluru with the acquisition of Snoways chain of laundry business.

Clientele for JSFL as on March, 2010

Hotels & Resorts Airlines Serviced Apartments Others

Royal Orchid Luftansa Oakwood -Prestige Fitness One

ITC – Fortune Air France Sterling Suites Big Bazar – Food Court

Mapple Singapore Airlines Living Space Golden Chariot

Hotel IRIS Paramount Chalet India Talwalkars

Grand Inn Jet Palm Meadows Club

Golden Residency LSG Skychef HAL

Bangalore Gate Taj Sats

Hotel Atria

Ramanashree

Hotel 9 Marks Inn

Source: Company

Exo commands a market share of 24 per cent in the southern states

Exo has been the fastest growing product for JLL and its national rollout is underway

Extending into laundry services segment

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The company offers the service under two broad categories depending on the target audience under the brand name of Fabricare Services Ltd (JFSL) catering to institutional clients, under which, the company currently caters to 55 clients ranging from hotels, service apartments, paying guest accommodation, hostels and airlines. It washes 25,000 pieces a day under this segment and expects volumes to rise to 40,000 pieces a day by end FY11. In the retail category, the company offers premium services under the brand “FABRIC SPA” aimed at high end convenience seekers and the economy services is offered through the brand “SNOWAYS”, which currently has 30 dry cleaning outlets. Door‐to‐Door services are provided for both the segments at a nominal additional cost. Revenue Composition Jyothy Laboratories Ltd. generates its sales through three business segments - Soaps and Detergents, Home Care and others. Soaps and Detergents include fabric whiteners, fabric detergents, dishwash bar and soaps including ayurvedic soaps. Home Care products include incense sticks, dhoop, mosquito coils and scrubbers, while others includes Tea and coffee.

Sales Break-up Profit Break-up

227 210

355

145 154

245

0

100

200

300

400

FY08 FY09 FY10

In R

s Cr

ore

Soaps & Detergents Homecare

6852

95

1 413

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50

100

FY08 FY09 FY10

In R

s Cr

ore

Soaps & Detergents Homecare

Source: Company

The company has diversified into different segments very rapidly in the last 10 years and has not only shown topline growth but also improving profitability. The profitability of the Homecare segment has increased by 225 bps in FY10.

Jyothy Laboratories has reduced it dependency on the leading product Ujala over the years and has been able to change the product mix in favour of brands like Maxo and Exo. In FY10, revenue contribution from the dish washing products (Exo) increased to 16.4 per cent from 13.9 per cent in FY09.

Homecare division’s profitability improved by 225 basis points in FY10

Increased revenue contribution from Maxo and Exo has reduced dependency on Ujala

Laundry services cater to both the institutional and retail segments

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Segment wise revenue

FY10 FY09

Source: Company Growth Drivers

Tapping rural market demand through DRDO tie-up: Jyothy Laboratories has signed a Technology Transfer Agreement with Defense Research & Development Organisation (DRDO), Ministry of Defence, on an exclusive basis, for the transfer of DEPA technology which is a new variant of mosquito repellant developed by DRDO. Presently the product is being used by soldiers posted at the border. This product will soon be made available to civilians at affordable prices. JLL expects to launch this new variant of mosquito and all blood sucking insect repellents in the form of creams, lotions and sprays mainly for outdoor applications by August 2010 which will be priced at Rs 3 per piece. The market of outdoor mosquito repellent is estimated at Rs 90 crore. The company has to pay royalty fee of 2 per cent for domestic sales and 4 per cent for export to DRDO.

The exclusive marketing rights present a Rs. 100-Rs.150 crore opportunity for FY11 and FY12. The penetration of mosquito repellents in India is extremely low at 27 per cent when compared to that in other lesser developed nations like Bangladesh (80 per cent) and Sri Lanka (60 per cent) thus offering potential scope for growth. With the awareness amongst the public about diseases like Malaria and Dengue, on the rise, the mosquito repellent segment of JLL’s business, coupled with its rural focus is likely to grow tremendously. With more focus on increasing penetration in the liquid segment, we expect this segment to grow at a rapid pace in the next two years and also help improve margins for JLL.

Laundry business- key growth driver over the longer-term: After proving its capabilities in the fabric care segment, Jyothy Laboratories has entered into organised laundry services business through its 75 per cent subsidiary Jyothy Fabricare Services Ltd. (JFSL) with the acquisition of Snoways chain of laundry business in Bengaluru. The estimated project cost of this venture is Rs. 35 crore. JFSL registered revenues of Rs 4.5 crore in FY10. Given higher margins in the services sector, as well as a premium clientele, the company’s margins have a visible potential to improve.

Jyothy can target new mosquito repellent products using DRDO’s DEPA technology to its rural market stronghold

After Ujala, Maxo contributes highest revenue of 31 per cent to JLL

The exclusive marketing rights present a Rs. 100- Rs.150 crore opportunity for FY11 and FY12

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JFSL Business Model: Brand Name Category Segment Target Profitability

Fabric Spa Retail Premium Services High end convenience seekers

High margin

SNOWAYS Retail Economy segment

Lower price segment High margin

Jyothy Fabricare services

Institutional Premium Services Hotel, apartments, airline, hostels.

High volume, low margin

Source: Company JFSL currently operates 30 economy outlets under the ‘Snoways’ chain and five premium outlets under the ‘Fabric Spa’ brand. The operations are currently restricted to Bengaluru city only. Current wash rate for JFSL is 25,000 pieces per day at the institutional level and 3,000 pieces per day at the retail level. The institutional segment accounts for 80 per cent of the business currently and management expects that the institutional and retail business will equally contribute to the top line over the next three years. Having commenced work in Bengaluru on a strong footing, the company plans to take this model to different metro cities across India beginning from Chennai, Hyderabad and Pune in FY11-12. It plans to tap branded cloth and garment manufacturers to establish direct contact with their customers. JLL targets Rs 25 crore of revenues in the first year of operation, operating at 50 per cent capacity utilisation (20,000 garments a day). JLL expects this business to break even in FY11 and achieve gross margins of 35‐40 per cent in FY12. The management targets to open 500 Fabric Spa outlets across India and generate a turnover of Rs 500 crore with PAT of Rs 100 crore in FY15. The organised laundry service industry in the country is valued at about Rs 5,000 crore with Bengaluru accounting for about Rs 100 crore of the market. Currently the aim is to focus on the Metros and urban areas, which offer the biggest opportunity for growth. A mix of changing demographics and economic factors form a strong case for an organised player in laundry services. These include an increasing middle class segment and nuclear families. Rising number of working women coupled with a visible shift towards products and services that make daily life simpler. Further growth in hotel chain, airlines, service apartments, paying guest accommodation and an increase in business and leisure travelers, provides clear visibility of a large growth potential for such services.

Maxo and Exo- the growth drivers in the near-term: Dishwashing soap brand,

Exo, is expected to drive the growth of JLL going forward. Exo is the second largest player in South India, improving its market share from 15.5 per cent in FY07 to 24.3 per cent in Sep 09. Having already achieved a formidable position in the south, JLL has launched this brand nationally in a phased manner and was made available across all major cities in March 10. Exo is expected to achieve a CAGR of 40 per cent in the next two years due to its national rollout. Its contribution to the total revenues is expected to increase from 15 per cent in FY09 to nearly 17 per cent in FY11.

Institutional segment accounts for 80 per cent of the laundry business

Leverage on strong brand equity of ‘Ujala’ for new product launches

During FY11-12, JFSL plans to roll out its laundry services in Chennai, Hyderabad and Pune

Exo is expected to achieve a CAGR of 40 per cent in next two years due to national rollout

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After Ujala, JLL has a second strong brand - Maxo, which is the third largest player in the coil market with 21.6 per cent market share, contributing 33 per cent to JLL’s revenues in FY09. The brand has a pan India presence with a rural focus. JLL has slowly extended the product line from mosquito repellent coils to liquid vaporizers and aerosol sprays. A comparison between the liquid and coil segments shows that the former is growing at a higher rate of 25 per cent and also enjoys higher margins. Hence JLL plans to increase its revenue share from liquid vaporizers and aerosol sprays from 10 per cent in FY09 to 50 per cent of the overall category in FY12. Household Insecticide category, a Rs.1000 crore market, is a fast growing category with rising rural pie.

Strong Balance Sheet: The company has a healthy balance sheet with Rs 122 crore cash in hand and nominal debt at Rs 13 crore, raised for its laundry business venture. The company has no intentions of incurring large capex till FY13; hence cash outflow will be restricted for only operational activities.

Strong Distribution Reach: Jyothy Laboratories has the third largest distribution network in India with a retail reach of 2.7 million outlets next only to giants like Colgate- Palmolive (3 million) and Lifebuoy (Company: HUL,2.9 million). The company has approximately 3500 distributors with over 1800 personnel servicing the distributors. The field staff has a direct reach to 1 million outlets with a strong presence both in urban and rural areas. This well established distribution network acts as a strong foundation to sustain growth in existing product lines as well as driving new product launches. Strong distribution network along with largest rural market penetration act as a platform to replicate the success of Ujala and Maxo for other product launches as well.

New Business Initiatives

Looking for acquisition opportunity in the domestic market: Jyothy Laboratories is looking for acquisition in the domestic market as the company is sitting on a large pile of cash. JLL will target a company either in soaps & detergent space or homecare segment with a fund raising of up to Rs. 300 crore.

JFSL has bid for contracts from Central Mumbai and Southern Railway: JFSL has

bid for Central Mumbai's 12 ton per day and Southern Railway's 10 ton per day contract. The value of contract is estimated around Rs 150 crore.

Key Risks

Monsoon impact: A deficit in monsoon may see the purchasing power of the rural sector go down and this may affect sales of the company.

Ujala market share near saturation level: While the Company has been riding on

the success of Ujala Supreme liquid fabric whitener historically, this market has now been saturated with close to 76 per cent combined market share between Ujala Supreme and More Light brands. While the category may see growth annually, but capturing market share would prove daunting.

Planning to a buy a domestic FMCG company in similar line of business in near term

Market share for Ujala stands at a saturation level of 76 per cent, giving concerns for future growth prospects

JLL has Rs. 122 crores cash in hand and has no plans for capex till FY13

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High competition level for Exo/Maxo: While Ujala Supreme enjoyed a very low competition territory with JLL initiating the category itself, this is not so for Maxo and Exo.

Competition to JFSL: While the company has a first mover advantage in

Bengaluru, it may face competition in other cities where new players would replicate the business model of the company.

Raw material price dependent on Crude oil price: JLL is a large consumer of

plastics. The costs of this packaging material are directly linked to global crude oil prices. A spurt in the same could lead to reduced margins.

Profitability JLL’s consolidated total revenue for FY10 increased by 64.5 per cent to Rs 598 crore from Rs 363.5 crore in FY09 (which was a 9 month period) while the net profit grew by 98 per cent to Rs 74.3 crore. On a like to like basis the sale (net of trade discount) in FY10 has grown by 27.5 per cent compared to corresponding previous twelve month period.

Revenue growth trend

363 380 363

59828%

5%

-4%

65%

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0

100

200

300

400

500

600

700

FY07 FY08 FY09 FY10

Rs. i

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-10%

0%

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70%

Gro

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Total Revenue YoY Growth

Source: Company Financials, ICRA Online Research Margins coming back to normal levels JLL’s EBITDA margin shows an improving trend since FY09 due to stable raw material prices (crude prices) and cost control measures taken by the company. The raw material cost as a percentage to total revenue has remained constant at 53.9 per cent in FY10 in spite of a steep rise in revenue which helped the EBITDA margin to increase from 13.4 per cent in FY09 to 15.3 per cent during FY10. The volatility in crude prices, the key raw materials for HDPE (derivative of crude oil) was observed during 2008-09 which partly impacted margins along with the economic slowdown, affecting a decline in EBITDA margins of 265 basis points in FY09.

JLL’s revenue has grown at a CAGR of 18.6 per cent for the period 2006-10

EBITDA margins witnessed an improvement of 194 bps in FY10 due to stable raw material prices and cost control measures

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Margin Trend

46 54 6149

92

41 48 5341

79

15.1% 14.9%16.1%

13.4%15.3%

13.4% 13.1%14.0%

11.4%13.3%

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Rs. i

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15%

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Mar

gins

EBITDA EBIT EBITDA Margin EBIT Margin

Source: Company Financials, ICRA Online Research Return Ratios The company has posted an average ROE of 16.2 per cent during FY06‐08. During FY09, the ROE dropped to 11.1 per cent, as the period under consideration is a 9 month period due to change in financial year ending from June to March. In FY10 the ROE & ROCE again surged above 19 per cent levels surpassing the previous average of 16 per cent for FY06-08 on the back of strong growth at the operational level.

Trends in Return Ratio

15.8%

17.6%

15.3%11.1%

19.2%16.1%

16.2%

16.3%

11.9%

19.8%

0%

5%

10%

15%

20%

25%

FY06 FY07 FY08 FY09 FY10

Rat

ios

ROE ROCE

Source: Company Financials, ICRA Online Research

ROE and ROCE improved on back of strong growth at operational level in FY10

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Input Cost The cost of goods sold witnessed an increase of 31 per cent to Rs 317.2 crore in FY10 compared to Rs 242.5 crore in the corresponding previous twelve month period. The increase was in line with the increase in turnover.

Input costs Particulars FY07 FY08 FY09 # FY10 Cost of Raw material 189.2 189.1 196.0 322.5

% to sales 52.1% 49.8% 53.9% 53.9% Stock in Trade (3.1) (6.5) 2.7 (5.3) Total Cost of Goods Sold 186.2 182.7 198.7 317.2

% to sales 51.3% 48.1% 54.7% 53.0% Source: Company Financials, ICRA Online Research; # FY09 is 9 month period Jyothy Laboratories is a large consumer of plastics. The costs of this packaging material are directly linked to global crude oil prices. JLL is exposed to fluctuations in raw material prices especially HDPE, which is a derivative of crude oil. JLL plans HDPE stock levels and procurements based on price indications in future.

Raw Material Cost Break-up – FY10

30%

30%

22%

6%4%

3% 5% Fatty Oils & Perfumes

Dyes & Chemicals

Plastic

Synthetic Dye

Soap Noodles

Packing materials

Others

Source: Company Annual Report

Competitor Analysis We have compared Jyothy Laboratories with other FMCG companies. Jyothy is trading at a discount of 31 per cent on P/E basis to its peers although it has shown healthy growth in FY10. The peer group is trading at an average P/E multiple of 34.2x for FY10.

Particulars Year End

CMP M Cap Revenue EBIT

Margin EPS P/E EV/EBITDA

Jyothy Lab. Mar-10 267 1,941 598 13.3% 10.2 26.1x 19.9x

Dabur India Mar-10 213 18,499 3,416 18.0% 5.8 36.9x 27.5x

Godrej Consumer Mar-10 372 12,028 2,044 21.1% 11.3 32.8x 25.7x

Marico Mar-10 126 7,692 2,661 12.5% 3.82 33.0x 20.2x Source: Company reports, BSE, ICRA Online Research; Market cap and Revenue in Rs. crores @P/E and EV/EBITDA is based on FY10 EPS and EBITDA

Input cost increased by 31 per cent in FY10 due to proportionate rise in turnover

Plastics and synthetic dyes contributes close to 60 per cent to the raw material cost

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Industry Overview Macro Economy India’s GDP grew by 7.4 per cent in 2009-10 on the back of the strong performance of the manufacturing sector and positive agricultural growth. This growth has come at a time of a challenging external economic environment and the worst drought that the country has seen in nearly four decades, as per the finance ministry. According to a study by the McKinsey Global Institute (MGI), The Rise of India’s Consumer Market, Indian incomes are likely to grow three-fold over the next two decades and India is expected to become the world’s fifth largest consumer market by 2025, moving up from its 2007 position as the world’s 12th largest consumer market.

India’s household income growth

Source: Mckinsey Global Institute report India ranks second in the Nielsen Global Consumer Confidence survey released on January 7, 2010-an indication that recovery from the economic downturn is faster in India with consumers willing to spend more. According to the latest data from market researcher AC Nielsen, volume growth, expansion of rural reach, low-priced packs and consumer-led promotions in categories like soaps, shampoos, biscuits and packaged tea helped the FMCG industry post a 14 per cent sales growth year-on-year in April 2010, Indian FMCG Industry The Indian FMCG industry is divided into five primary segments – personal care products, household care products, packaged food products, branded spirit and tobacco products as well as health care products. According to a FICCI-Technopak report, despite the economic slowdown, India’s fast growing consumer goods (FMCG) sector is estimated to clock USD 43 billion by 2013 and

According to the study made by Mckinsey Global Institute, India will be the world’s 5th largest consumer market by 2025

India’s aggregate consumption will quadruple by 2025

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USD 74 billion by 2018. The report states that implementation of the proposed Goods and Services Tax (GST) and the opening up of Foreign Direct Investment (FDI) are expected to fuel growth further and raise the industry’s size to USD 47 billion by 2013 and USD billion by 2018. The combination of rapidly rising household income and a robustly growing population will lead to a striking increase in the overall spending. According to the study made by Mckinsey Global Institute, aggregate consumption in India will grow in real terms from Rs 17 trillion in 2005 to Rs 34 trillion by 2015 and Rs 70 trillion by 2025, a four fold increase. Prices of daily use products such as soaps, talcum powder, shampoos, etc are expected to increase, in line with a growing economy. Most FMCG companies have large manufacturing plants in excise-free zones that are not affected by a hike or a cut in excise duty, while higher cost of raw materials will inevitably cause a price hike. Managing this price sensitive market is a key challenge for FMCG players.

India’s aggregate consumption growth till 2025

Source: Mckinsey Global Institute report Industry Trends and Growth Drivers Relatively Insulated from the Slowdown: Despite the global economic downturn, the Indian economy continued to display resilience and this is evident in the growth numbers projected by the Finance ministry. This augurs well for the FMCG sector and especially Jyothy Laboratories which has an India centric focus. Rural Demand - biggest growth driver: The rural market accounted for a 57 per cent share of the total FMCG market in India. Rural India, which accounts for more than 70 per cent of the country’s one billion population (according to the Census of India 2001), is not just witnessing an increase in its income but also in consumption and production. Further the Union Budget for 2010-11 has hiked the allocation under the National Rural Employment Guarantee Act (NREGA) to USD 8.71 billion in 2010-11, giving a boost to the rural economy.

Average household disposable income in India is expected to grow by 5.3 per cent till 2025

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According to a study on the impact of the slowdown in rural markets commissioned by the Rural Marketing Association Of India (RMAI) and conducted by Mart, the rural economy has not been impacted by the global economic slowdown. Moreover, the rural consumer market, which grew 25 per cent in 2008, when demand in urban areas slowed due to the global recession, is expected to reach USD 425 billion in 2010-11 with 720-790 million customers, according to a white paper prepared by CII-Technopak. This will be double the 2004-05 market size of USD 220 billion. According to the study, the rural market is experiencing a 15 per cent growth rate. Increase in promotional and advertisement expenditure: Promotional expenses continue to remain high for FMCG companies which are intensely competitive. With the economy showing signs revival, the advertising industry in India expects advertising spend to show a growth of 10-13 per cent during FY11. Large outlays on advertisement and promotional activities will spur growth in the industry.

Indian advertising industry is expecting advertising spend to show a growth of 10-13 per cent during FY11

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Summary Financial Profit & Loss Statement

Particulars (Rs crores) FY06 FY07 FY08 FY09# FY10 Net Sales 302 363.04 379.56 362.23 593.94 Other Operating Income 0 0 0 1.3 4.2 Total Revenue 301.9 363.0 379.6 363.5 598.1 Growth (%) 20.2% 4.5% -4.2% 64.5% Cost of Good Sold (143.3) (186.2) (182.7) (198.7) (317.2) Gross Profit 158.6 176.9 196.9 164.8 280.9 Growth (%) 11.5% 11.3% -16.3% 70.4% Employee Costs (33.6) (41.9) (51.0) (47.3) (75.4) Other Expenditure (79.2) (80.9) (85.0) (68.8) (113.7) EBITDA 45.7 54.1 61.0 48.8 91.8 Growth (%) 18.3% 12.7% -20.0% 88.3% Depreciation (5.2) (6.6) (8.0) (7.5) (12.4) EBIT Profit 40.6 47.5 53.0 41.3 79.4 Growth (%) 17.1% 11.5% -22.1% 92.5% Net Interest expense (0.1) (0.2) (0.7) (0.7) (1.7) Other Income(expense) 12.1 8.7 7.9 7.6 17.8 Exceptional Items (3.5) 2.8 6.3 0.0 0.0 PBT 49.0 58.8 66.5 48.2 95.5 Growth (%) 20.0% 13.1% -27.6% 98.3% Income Tax (9.0) (7.4) (16.7) (10.8) (21.5) Profit after Tax 40.0 51.4 49.9 37.4 74.1 Growth (%) 28.5% -3.0% -25.1% 98.2% Extra Ordinary Items & Others 0.0 0.0 0.0 1.0 0.3 Net Profit 40.0 51.4 49.9 38.4 74.3 Basic EPS * 5.5 7.1 6.87 5.3 10.2 Diluted EPS * 5.5 7.1 6.87 5.3 10.2 DPS 6.3 6.3 2.0 2.0 4.0 Equity Capital 7.3 7.3 7.3 7.3 7.3 Face value 5 5 1 1 1

Ratio Analysis Particulars (Rs crores) FY06 FY07 FY08 FY09# FY10 Margins Gross Margin (%) 52.5% 48.7% 51.9% 45.3% 47.0% EBITDA Margin (%) 15.1% 14.9% 16.1% 13.4% 15.3% EBIT Margin (%) 13.4% 13.1% 14.0% 11.4% 13.3% Net Profit Margin (%) 13.3% 14.2% 13.1% 10.6% 12.4% Valuation EPS 5.5 7.1 6.9 5.3 10.2 BVPS 34.8 40.3 44.9 47.8 53.4 P/E (x) 48.5 37.7 38.9 50.5 26.1 P/BV (x) 7.7 6.6 6.0 5.6 5.0 EV/ EBITDA (x) 40.0 33.8 30.0 37.5 19.9 EV/ Sales (x) 6.1 5.0 4.8 5.1 3.1 Profitability ROCE (%) 16.1% 16.2% 16.3% 11.9% 19.8% RONW (%) 15.8% 17.6% 15.3% 11.1% 19.2% Solvency Ratio Deb/ Equity Ratio (x) 0.00 0.00 0.00 0.00 0.03 Interest Cover (x) 282.3 264.9 77.4 58.2 46.9 Turnover Ratio Inventory T/o Days 59 63 88 86 68 Debtors T/o Days 35 35 31 34 34 Creditors T/o Days 13 17 23 20 23 Other Ratios Dividend Payout (%) 125.0% 125.0% 200.0% 200.0% 400.0% Dividend Yield (%) * 0.5% 0.5% 0.7% 0.7% 1.5% * Adj. for Stock Split of FV from Rs 5 to Rs 1 in Dec'08; # FY09 is 9 Month period due to change in FY ending from June to March

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Balance Sheet

Particulars (Rs crores) FY06 FY07 FY08 FY09# FY10 Sources of Funds Equity Capital 7.3 7.3 7.3 7.3 7.3 Reserves & Surplus 245.3 285.3 318.2 339.6 380.5 Shareholders Fund 252.5 292.6 325.5 346.9 387.8 Long Term Debt 0.1 0.8 0.5 0.5 13.0 Deferred Tax Liability, Net 6 5.01 8.3 10.48 13.28 Minority Interest 0.0 0.0 0.0 0.3 0.5 Total 258.4 298.4 334.3 358.1 414.6 Application of Funds Fixed Assets 83.4 110.5 194.9 200.4 233.6 Capital Work-in-Progress 8.4 57.3 9.4 11.0 4.1 Investments 1.7 0.9 0.5 0.2 0.0 Current Assets Inventory 23.6 41.4 47.9 47.0 73.0 Sundry Debtors 29.4 40.7 25.4 42.9 70.7 Loans& Advances 12.9 13.8 18.9 21.8 34.0 Cash & Bank Balance 127.7 77.0 96.0 101.9 122.7 Other Current Assets 0.3 0.2 0.2 0.3 1.1 Total Current Assets 194.0 173.1 188.4 214.0 301.6 Current Liabilities Sundry Creditors 5.3 12.4 11.3 10.7 30.4 Provisions 6.2 5.1 22.2 25.3 46.2 Other Current Liabilities 17.6 26.0 25.5 31.5 48.2 Total Current Liabilities 29.1 43.5 59.0 67.6 124.8 Net Current Assets 164.9 129.6 129.4 146.4 176.8 Miscellaneous Exp not W/Off 0.0 0.1 0.1 0.1 0.0 Total 258.4 298.4 334.3 358.1 414.6

Cash Flow

Particulars (Rs crores) FY06 FY07 FY08 FY09# FY10 CF from Operating Activities Profit Before Tax 49.0 58.8 66.5 48.2 95.5 Depreciation, amortization & Impairment 5.2 6.6 8.0 7.5 12.4 Direct Taxes paid (47.1) (7.7) (13.0) (8.0) (15.7) Others 42.2 (7.2) (10.9) (4.7) (12.9) Change in Working Cap 1.9 (18.1) 6.1 (13.1) (29.2) CF- Operating Activities 51.1 32.4 56.6 29.9 50.2 CF from Investing Activities Change in Fixed Assets (11.9) (80.8) (46.1) (13.7) (32.7) Change in Investments (1.4) 56.2 (21.6) - 0.4 Others 10.3 7.6 5.2 11.5 (4.1) CF- Investment Activities (3.0) (17.0) (62.4) (2.2) (36.3) CF from Financing Activities Increase in Equity - - - 1.3 - Changes in Minority Interest - - - - - Changes in Borrowings 8.4 0.5 (0.3) - 12.7 Dividend Paid (8.3) (9.1) (1.8) (14.5) (14.5) Others (9.6) (1.5) 5.3 (1.9) (4.2) CF- Financing Activities (9.6) (10.1) 3.3 (16.4) (5.9)

Net Change in Cash 38.6 5.4 (2.5) 11.2 7.9

Opening Cash & Bank Balance 89.2 8.3 13.7 11.1 22.4 Closing Cash & Bank Balance 127.7 13.7 11.1 22.4 30.3

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