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March of the White Knight

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Jyothy Laboratories Ltd (JLL), a Rs 762 crore company, was established in 1983, having started as a manufacturer and seller of liquid fabric whitener. JLL now markets a range of brands like Ujala, Maxo and Exo and has a pan-India presence, besides exporting to 14 countries. With lower-than-average valuations and an enviable market dominance, it is certainly worth a look in the FMCG space.

In December 2007 the company came out with a new public issue at Rs 690 which was over-subscribed 45.41 times and it was listed at Rs 799 per share. In March 2009 it entered the laundry business through its 75 per cent owned subsidiary, Jyothy Fabricare (JFSL).

JLL's Home Care division, made up of Maxo mosquito repellant, contributed 44 per cent of FY09 revenues — 39 per cent last year. This increased contribution to revenues was primarily due to declining raw material prices and withdrawal of special offers to consumers which caused Maxo profits to jump 170 per cent.

Ujala fabric whitener, JLL's flagship product, has a lion's share of the market (85%) in this  segment. It witnessed a volume CAGR of 13 per cent through FY05-to-FY08 and a pricing CAGR of 11 per cent. Going forward, due to lack of competition, its dominance may continue with estimated volumes likely to grow 8 per cent through FY10E-11E.

In FY08, JLL's capacity utilization stood at 16.1 per cent for its soaps & detergents portfolio and at 66.7 per cent for its home care portfolio. This was well within the installed limits. There should be no need to augment installed capacities through FY10E-11E, which will result in free cash flow per share of Rs 5.6 in FY10E and Rs 8.5 in FY11E. Furthermore, the company is expected to end FY10E with net cash of Rs 1.2 billion, which constitutes 15 per cent of its current market cap.

In March 2009, the company had acquired Snoways, an economy-class laundry chain, through JFSL. It has already added eight additional outlets to the 16 it originally acquired. The company has announced the launch of its own collection and delivery centres (CDC) called 'Fabricspa' for its premium clientele in June 2009 with an initial cost of Rs 40 crore. JLL further plans to open 20 more outlets with facilities such as changing rooms, wash rooms, and tailoring across multiple cities. It also plans to start a 60,000 sqft main service center with initial cost of Rs 350 million of which Rs 200 million will come by way of new equity shares.

JLL reported buoyant FY09 numbers with net sales up 38 per cent, EBITDA up 102 per cent, PAT up 195 per cent y-o-y,  led partly by its home care business returning to profitability. Furthermore, Ujala's market dominance and Maxo's positive EBIT are expected to drive a sales CAGR of 30 per cent and earnings CAGR of 25 per cent through FY09-11E.

At CMP of Rs 106, JLL trades at 13.8x of FY10E EPS.

Also see: Jyothy Laboratories
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