[T.S.R:16946] Jyothy Labs-High Crude Will Kill FMCG; Exit

Jyothy Labs-High Crude Will Kill FMCG; EXIT

Virtually all raw material inputs and packaging materials are based on Crude price. Unless we see a rapid rise in inflation FMCG companies will be unable to take aggressive price hikes. Margins will continue to squeeze through most of FY12. 

Jyothy Laboratories Ltd (JLL) reported a poor set of numbers for the quarter ended December FY11. On a quarterly standalone basis, y-o-y, Net Sales increased by 9.7% from Rs.1,353.5 Mn to 

1,484.2 Mn while profits were almost flat at ` 169 Mn against ` 168.4 Mn. On a segmental level, Soaps and Detergents (comprises fabric whitener, detergent, dishwash bar and soaps) grew by 20.6%.  

Volumes for the fabric whitener were flat. Realization improved by 12%.

Home Care (comprises mosquito coils, dishwash scrubber and incense sticks) saw another quarter of de-growth. Sales dropped by 10.7%. JLL continues to maintain its stance on the scheme withdrawal for Maxo coils. Maxo sales experienced a 16% dip for the quarter. Management said that they don't intend to re-instate the scheme but may consider if their market share starts getting affected. DEPA technology products have finally received the license and will be launched officially on the 14th Feb, 2011. 

Cost inflation across all products impacted the Company's margins.  

JLL also increased its ad spends considerably. It was up by 39.4% from ` 110 Mn to ` 153.4 Mn. As a result, Total Expenditure increased by 12.5% to ` 1,316.5 Mn and Operating Profits were down by 8.7% to ` 167.7 Mn. Other Income however was up by 120% at ` 78.3 Mn. This was primarily due to the interest earned on the unused QIP money. Consequently PAT was flat at ` 169 Mn. EPS however was lower by 9.7% at ` 2.1 due to increased equity base post QIP.  

JFSL (Jyothy Fabricare Services Ltd.) continues to wash about 30,000 pieces on a daily basis. The Company has received an approval from the Board to raise upto ` 1500 Mn through equity/debt on private placement basis. Over the last 6 months, there have been many concerns that have sprung up regarding the Company. Maxo sales have taken a hit due to part withdrawal of sales scheme.

Inflation has corroded margins of the Company's products (except Ujala fabric whitener). The Company finds itself unable to take a price increase unless the market leader takes one. However inflationary pressures have now been so for a while and if price increases across the industry are missing/minimal then it sends clear signals that the categories itself do not have enough pricing power. This makes them more like a commodity business. 

On the bright side, the huge price increase in the fabric whitener seems to be absorbed successfully. After some early delay, DEPA technology products will finally be launched. These will have better margins than the coils. Management expects Bangladesh JV to register sales of ` 1000 Mn for FY12 (JLL's stake in the JV is 75%).

At the CMP of ` 233.9, JLL trades at a PE(TTM, standalone) of 20.5 times and Price to Sales(TTM,standalone) of 2.97 times.  On the whole, while there may be some positive triggers in the near future we believe that the concerns outweigh the positives over the longer term. Recommend investors to 'Exit'

 

Safe Harbor Statement:

Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.

 

Nothing in this article is, or should be construed as, investment advice.

 

 

 

 

 

--
For Anything related with Stock market be Online at
http://www.niftyviews.com/
 
Get free updates on your mobile phone. Sms "Join TSR " and send to 09223492234
 
FOR TRIAL STOCK/NIFTY/OPTION CALLS
 
 
You received this message because you are subscribed to Google Group "STOCKRESEARCHER" group.
To post to this group, send an email to STOCKRESEARCHER@googlegroups.com
 
To unsubscribe email
Stockresearcher-unsubscribe@googlegroups.com
 
for more info visit
http://groups.google.com/group/STOCKRESEARCHER?hl=en-GB
.
This is Not a Spam Mail.
Disclaimer :-
"The opinions expressed by the members on this board are based on
their individual experience and perceptions and to share information
with other members with the best of intentions to help fellow members
in investment decisions as equity investment is a risky venture."