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Jyothy Laboratories Ltd (JLL)

BUY Target Price: Rs.201.00 CMP: Rs.175.00 Market Cap.: Rs.12699.75mn.

Date: February 16, 2010

Key Ratios:

Particulars FY09* FY10E FY11E

OPM (%) 16 19 19

NPM (%) 11 14 14

ROE (%) 12 18 18

ROCE (%) 20 28 27

P/BV(x) 3.86 3.16 2.59

P/E(x) 31.67 17.47 14.48

EV/EBDITA(x) 22.03 12.60 10.52 *note: Company has changed its financial year to April-March from July

June, so FY09 is for 9 Months.

Key Data:

Sector FMCG Sector

Face Value Rs.1.00

52 wk. High/Low (Rs.) 192.00/50.01

Volume (2 wk. Avg.) 33000

BSE Code 532926

SYNOPSIS

Jyothy Laboratories Limited engages in the

research, manufacture, marketing, and branding of

fast moving consumer goods in India.

Company Exports to 14 countries including srilanka,

Bangladesh, Mauritius, Malaysia, UAE, Hong Kong

and Saudi Arabia.

Jyothy Laboratories plans to exit from Balaji

Telebrands Limited by selling its stake in the joint

venture. The company holds 50% stake in the joint

venture.

Ujala is main product which it contributes its share

in gross sales is more than 50%.

Net sales and PAT of the company are expected to

grow at a CAGR of 19% and 19% over 2008 to

2011E respectively.

Share Holding Pattern:

V.S.R. Sastry

Vice President

Equity Research Desk

91-22-25276077

vsrsastry@firstcallindiaequity.com

Dr. V.V.L.N. Sastry Ph.D.

Chief Research Officer

drsastry@firstcallindia.com

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Table of Content

Investment Highlights ............................................................................................................ 3

Company Profile.4

Peer Group comparison...6

Keyconcern.6

Financials.7

Charts....9

Outlook and conclusions....11

Industry Overview...... ..12

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Investment Highlights

Q3 FY10 Results Update

Jyothy Laboratories reported a good increase in standalone net profit for the quarter

ended December 2009. During the quarter, the profit of the company rose 24.97% to

Rs.168.45 million from Rs.134.79 million in the same quarter last year. Net sales for the

quarter for the quarter rose 13.53% to Rs.1,356.43 million from Rs.1194.79 million for the

same quarter last year, while total income for the quarter rose 13.99% to Rs 1,389.08

million, when compared with the prior year period. It reported earnings of Rs 2.32 a share

during the quarter, registering 24.97% growth over prior year period.

Quarterly Results - Standalone (Rs in mn)

As At Dec-09 Dec-08 %change

Net sales 1356.43 1194.79 13.53

Net profit 168.45 134.79 24.97

Basic EPS 2.32 1.86 24.97

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Break Even Expenses

Company Profile

Jyothy Laboratories (JLL) was started by M P Ramachandran as a proprietary concern in 1983

manufacturing and marketing a single fabric care product Ujala The company owns 21

manufacturing facilities located in 14 locations Trichur, Wynad, Roorkee, Pondicherry,

Chennai, Hyderabad, Bhubaneshwar, Bankura, Guwahati, Baddi, Silvassa, Salem, Jammu and

Pithampur. The companys manufacturing plants are ISO 9001 and ISO 1400 certified for its

quality manufacturing.It has employee strength of 3,500 people.

The company operates 40 depots to service customer requirements. Jyothy has a team of 1,500

marketing personnel and a marketing network of 2,500 distributors. The company has a pan-

India presence with a reach to over 750,000 Indian households. The company exports its

products to 14 countries that include Sri Lanka, Bangladesh, Mauritius, Malaysia, UAE, Hong

Kong and Saudi Arabia.

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Today Jyothy Laboratories is a multi-product company owning brands like Ujala, Maxo, Exo,

Jeeva and Maya. The company has diversified its operationa in area of fabric care, household

insecticide, incense candles and personal care. Jyothy Laboratories owes its genesis to an

unflinching faith in the power of innovation. This urge to innovate has found expression in

every product category, brand and operation of the organization.

The companys research and development facility focuses in area of new formulations, creating

cost effective processes and new product offering.

Company Products

Business divisions

Fabric Care

Ujala supreme

Ujala washing powder

House hold insectiside

Maxo cyclothrin coil

Maxo cyclothrin liquid

Maxo Aerosol

Utensil Cleaners

Exo dish wash bar

Exo dish wash liquid

Fragrances

Maya.

Personal care

Jeeva naturals

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Allied Business

Continental special

Godrej Tea

Ektas Dhoop

Peer Group Comparison

Name of the company CMP (Rs.)

Market

Cap.(Rs.mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend(%)

Jyothy Laboratories Ltd 175.00 12699.75 5.53 31.67 3.86 200.00

ITC Ltd 250.00 949815.4 10.11 24.72 6.94 370.00

HUL 238.05 517110.8 9.24 25.65 25.08 750.00

Marico Ltd 99.80 60806.2 2.97 33.60 16.52 65.50

Key Concerns

Rising prices of raw materials and fuels.

Change in fiscal benefits/ laws.

People attraction and retention.

Competitive environment with diverse Players.

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Financials Results

12 Months Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) FY08 FY09 FY10E FY11E

Description 12m 9m 12m 12m

Net Sales 3753.01 3523.77 5349.24 6419.09

Other Income 79.05 69.07 128.17 147.39

Total Income 3832.06 3592.84 5477.41 6566.48

Expenditure -3060.51 -3016.26 -4469.40 -5359.94

Operating Profit 771.55 576.58 1008.01 1206.54

Interest -6.82 -2.72 -0.72 -0.74

Gross profit 764.73 573.86 1007.28 1205.80

Deprecation -74.08 -68.12 -99.37 -109.31

Profit Before Tax 690.65 505.74 907.91 1096.50

Tax -166.58 -104.69 -180.90 -219.30

Profit After Tax 524.07 401.05 727.01 877.20

Equity capital 72.57 72.57 72.57 72.57

Reserves 2865.12 3219.38 3946.39 4823.59

Face value (Rs.) 1.00 1.00 1.00 1.00

EPS 7.22 5.53 10.02 12.09

*note: Company has changed its financial year to April-March from July June, so FY09 is for 9 Months.

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Quarterly Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) 30-Jun-09 30-Sep-09 31-Dec-09 31-Mar-10E

Description 3m 3m 3m 3m

Net sales 1196.17 1304.57 1356.43 1492.07

Other income 28.12 31.48 32.65 35.92

Total Income 1224.29 1336.05 1389.08 1527.99

Expenditure -907.68 -1138.27 -1170.11 -1253.34

Operating profit 316.61 197.78 218.97 274.65

Interest 0.00 -0.47 -0.12 -0.13

Gross profit 316.61 197.31 218.85 274.51

Deprecation -23.18 -23.60 -25.78 -26.81

Profit Before Tax 293.43 173.71 193.07 247.70

Tax -74.15 -32.59 -24.62 -49.54

Profit After Tax 219.28 141.12 168.45 198.16

Equity capital 72.57 72.57 72.57 72.57

Face value (Rs.) 1.00 1.00 1.00 1.00

EPS 3.02 1.94 2.32 2.73

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Charts:

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1 Year Comparative Graph

Outlook and Conclusion

At the current market price of Rs.175.00, the stock is trading at 17.47 x FY10E and

14.48 x FY11E respectively.

Price to Book Value of the stock is expected to be at 3.16 x and 2.59 x respectively

for FY10E and FY11E.

Earning per share (EPS) of the company for the earnings for FY10E and FY11E is seen

at Rs.10.02 and Rs.12.09 respectively.

Net Sales and PAT of the company is expected to grow at a CAGR of 19% and 19%

over 2008 to 2011E respectively.

On the basis of EV/EBITDA, the stock trades at 12.6 x for FY10E and 10.52 x for

FY11E.

We expect that the company will keep its growth story in the coming quarters also.

We recommend BUY in this particular scrip with a target price of Rs.201.00 for

Medium to Long term investment.

Jyothy Laboratories BSE SENSEX

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Industry Overview

Items in this category include all consumables (other than groceries/pulses) people buy at

regular intervals. The most common in the list are toilet soaps, detergents, shampoos,

toothpaste, shaving products, shoe polish, packaged foodstuff, household accessories and

extends to certain electronic goods. These items are meant for daily of frequent

consumption and have a high return.

A major portion of the monthly budget of each household is reserved for FMCG products.

The volume of money circulated in the economy against FMCG products is very high, as the

number of products the consumer use is very high. Competition in the FMCG sector is very

high resulting in high pressure on margins

FMCG companies maintain intense distribution network. Companies spend a large portion

of their budget on maintaining distribution networks. New entrants who wish to bring their

products in the national level need to invest huge sums of money on promoting brands.

Manufacturing can be outsourced. A recent phenomenon in the sector was entry of

multinationals and cheaper imports. Also the market is more pressurized with presence of

local players in rural areas and state brands

Scope of the Sector

The Indian FMCG sector with a market size of US$13.1 billion is the fourth largest sector in

the economy. A well-established distribution network, intense competition between the

organized and unorganized segments characterizes the sector. FMCG Sector is expected to

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grow by over 60% by 2010. That will translate into an annual growth of 10% over a 5-year

period. It has been estimated that FMCG sector will rise from around Rs 56,500 crores in

2005 to Rs 92,100 crores in 2010. Hair care, household care, male grooming, female hygiene,

and the chocolates and confectionery categories are estimated to be the fastest growing

segments, says an HSBC report. Though the sector witnessed a slower growth in 2002-2004,

it has been able to make a fine recovery since then.

Growth Prospects

With the presence of 12.2% of the world population in the villages of India, the Indian rural

FMCG market is something no one can overlook. Increased focus on farm sector will boost

rural incomes, hence providing better growth prospects to the FMCG companies. Better

infrastructure facilities will improve their supply chain. FMCG sector is also likely to benefit

from growing demand in the market. Because of the low per capita consumption for almost

all the products in the country, FMCG companies have immense possibilities for growth. And

if the companies are able to change the mindset of the consumers, i.e. if they are able to

take the consumers to branded products and offer new generation products, they would be

able to generate higher growth in the near future. It is expected that the rural income will

rise in 2007, boosting purchasing power in the countryside.

However, the demand in urban areas would be the key growth driver over the long term.

Also, increase in the urban population, along with increase in income levels and the

availability of new categories, would help the urban areas maintain their position in terms of

consumption. At present, urban India accounts for 66% of total FMCG consumption, with

rural India accounting for the remaining 34%. However, rural India accounts for more than

40% consumption in major FMCG categories such as personal care, fabric care, and hot

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beverages. In urban areas, home and personal care category, including skin care, household

care and feminine hygiene, will keep growing at relatively attractive rates. Within the foods

segment, it is estimated that processed foods, bakery, and dairy are long-term growth

categories in both rural and urban areas

Indian Competitiveness and Comparison with the World Markets

The following factors make India a competitive player in FMCG sector:

Availability of raw materials

Because of the diverse agro-climatic conditions in India, there is a large raw material base

suitable for food processing industries. India is the largest producer of livestock, milk,

sugarcane, coconut, spices and cashew and is the second largest producer of rice, wheat and

fruits &vegetables. India also produces caustic soda and soda ash, which are required for the

production of soaps and detergents. The availability of these raw materials gives India the

location advantage.

________________ ____ _________________________

Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation

for the purchase or sale of any financial instrument or as an official confirmation of any

transaction. The information contained herein is from publicly available data or other

sources believed to be reliable but do not represent that it is accurate or complete and it

should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of its

affiliates shall not be in any way responsible for any loss or damage that may arise to any

person from any inadvertent error in the information contained in this report. This document

is provide for assistance only and is not intended to be and must not alone be taken as the

basis for an investment decision.

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