Recommendation from Personal Care Sector

Recommendation from Personal Care Sector

This section gives a recommendation of a stock having stock price below Rs 100 with sound fundamentals and expected to give handsome returns over a one-year time horizon.

JYOTHY LABS LIMITED - ON A ‘CLEAN’ PATHWAY TO SUCCESS 

HERE IS WHY

☛Good market position
☛Healthy balance-sheet
☛Good growth prospects. 

Jyothy Labs Limited (JLL), founded in 1983, commenced its operations as a proprietary concern to manufacture and sell a single product – ‘Ujala’ fabric whitener – in the single district of Thrissur, Kerala. Over the years, JLL has grown and diversified to become a multi-brand, multi-product company with operations across the country. Today, the company has a diversified product portfolio of fabric care, dishwashing, household insecticides (HI) and personal care. This results in reduced dependence on a single category. 

The company enjoys prominent market positions in some of the product categories, namely, fabric care, dishwashing and HI segments through its power brands, ‘Ujala’, ‘Henko’, ‘Exo’, ‘Pril’ and ‘Maxo’. Ujala enjoys a leading market position in the fabric whitener space and the Exo and Pril brands together enjoy the second position in the dishwashing bar and liquid category. JLL has largely maintained its market-share across categories with the help of its consistent efforts to innovate and refresh its product portfolio for catering to the evolving consumer needs.

The company enjoys healthy brand equity because of its long track record and constant product innovation, coupled with effective marketing efforts. In addition, JLL provides laundry services to large corporate and retail clients under the brand, Fabric Spa, which is managed by its subsidiary, Jyothy Fabricare Services Limited. Currently, it is the largest laundry chain in India with around 140 outlets spread across six major cities of Mumbai, Pune, Bangalore, Chennai, Delhi and Ahmedabad. With over three decades of operations, the company enjoys an established position in the domestic FMCG industry, supported by strong pan-India distribution network of approximately 5,400 stockists and sub-stockists and retail reach of 2.8 million outlets.

The current corona virus-induced slowdown will have a limited effect on FMCG products that may be deemed necessary for household. The products of Jyothy Labs fall in this category. Hence, it might see decent numbers in the coming quarters. Moreover, with crude prices reducing, FMCG players would see some cost reduction on the raw material side. Raw material cost is a major part of the company’s expenditure. Reduced raw material prices will result in improved margins.

On a consolidated basis, the gross sales have decreased 5.93 per cent to Rs.420.79 crore in Q3FY20 from Rs.447.33 crore in Q3FY19. EBITDA, excluding other income, showed a decrease of 8.03 per cent to Rs.66.31 crore in Q3FY20 from Rs.72.10 crore in the same quarter last year. PAT for Q3FY20 stood at Rs.45.02 crore as against Rs.51.14 crore in the same quarter last year, showing a decrease of 11.97 per cent. The RoCE is 16.88 per cent.

With its established market position, the company is poised to perform well in the near future. It has good dividend yield of around 3 per cent and manageable debt levels with healthy interest coverage ratio of about 8x. With healthy cash and investment levels, the company will not see any liquidity issues in the coming quarter. By virtue of these factors, we recommend our reader-investors to BUY this stock.

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DALAL STREET INVESTMENT JOURNAL - DEMOCRATIZING WEALTH CREATION

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