The Jyothy Laboratories' IPO should bring decent returns to the investor.
FMCG behemoths like Hindustan Unilever, ITC and Dabur India have been big underperformers on the bourses due to intense competition and flat growth. Will the IPO of a relatively smaller FMCG player like Jyothy Laboratories buck the trend?
Strong brands and reach
Jyothy Laboratories has one of the country’s most famous and fast growing brands in its portfolio. The 24-year old flagship brand ‘Ujala’ is the number one in the fabric whitener category with a 72.2 per cent market share in July 2007.
The relatively new brands namely Maxo (mosquito repellent) and Exo (dishwashing product) are also growing rapidly.
Launched in 2000, Maxo has become a Rs 180-crore brand today with about 21 per cent market share, and is the third largest after Mortein (Reckitt Benckiser) and Good Night (Godrej). Exo has an 18 per cent share in south India and will go national in 2008.
Besides strong brands, Jyothy has a wide reach--a key success factor for an FMCG company--due to its focus on rural markets (constituting 50 per cent of FMCG sales) and proximity of its plants to the consuming market. Its national products are available in 2.8 million outlets. Over 40 per cent of its 3,400 employees are in the sales team, which service 2,500 distributors.
The company has 21 manufacturing units spread in 14 locations across the country with eight of them being in tax-free zones.
Says K Ullas Kamath, deputy managing director, “Our focus is to provide value-for-money products and sell what the consumer wants and be where the consumer is.” The company wants to further extend its reach to supermarkets and hypermarkets though that is not its major focus.
Brand extensions and new initiatives
The key trigger is its relatively new brands (other than Ujala) and its efforts of coming out with brand extensions and penetrating new markets.
While Ujala is going through a consolidation phase, the company is trying out various extensions such as fabric stiffener (Stiff n Shine) and washing powder and is likely to come out with more extensions like stain removers, softeners and conditioners and liquid detergent.
Further, Jyothy has undertaken new initiatives in the recent past like JVs in manufacturing and marketing Ujala and Maxo in Bangladesh and marketing and distributing tea (Godrej tea), coffee (Continental Speciale-CCL products) and dhoop (Balaji Telebrands), which will bring incremental sales.
Financials
The issue has been assigned grade 4 (on a scale of 5) by rating agency Care indicating above average fundamentals. Jyothy’s financial performance for the past few years is in line with its peers.
Going ahead, net sales are expected to grow at a decent rate buoyed by Maxo’s growth, Exo’s all-India launch, its joint venture initiatives and its plans to grow inorganically.
However, the margins will depend on several factors--prices of packaging polymers are on a rise, employee costs have consistently grown at a faster pace and advertising and promotional expenses will increase due to launch of its brands and entry in new markets.
| Valuation Jyothy is attractively priced at 17-19 times and 15-17 times its estimated earnings for FY08 and FY09 respectively. Its closest peers (in terms of margins and growth rates), Godrej and Marico trade at 23 times and 15 times for FY09 estimated earnings. |
| Market participants are positive on the company and expect a decent upside after the IPO. Issue opens: November 22 |