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Tuesday, October 6, 2009

JHS Svendgaard Laboratories Ltd:Future growth outlook and analysis

Scripscan:JHS Svendgaard Laboratories Ltd

Story:JHS Svendgaard Laboratories (JHS), is a contract manufacturer of oral-care products such as toothbrushes, toothpaste, whitening products and mouthwash. The company is in the early stages of an emerging opportunity. Buoyant trends in the oral-care segment augur well for contract manufacturers, with FMCG players launching new products. For JHS the opportunities are in catering to the rapidly expanding retailers.Players such as Reliance and Pantaloon are seeking to increase the shelf-space allocated to their own brands or private labels. Private labels are products offered at a cost lower than the branded ones, but offer retailers better margins.Contract manufacturers such as JHS gain by undertaking orders from retailers, as they have better scope for adding value through in-house designs and processes. Margins from retailers are estimated at 30-40 per cent more than that derived from FMCG players. At present, the majority of sales is derived from FMCG companies.As the only listed player of its kind, JHS will enjoy fancy on the back of the uptrend in FMCG. Given the incipient stage of its business, however, JHS' ambitions may take longer than expected to fructify.While the business outlook is bright, JHS, which has been in operation for about a decade, appears to have gained ground only in recent years. JHS' limited track-record heightens the risk of the ambitious scale of its expansion project. Products such as floss and mouth rinse that are in demand in the West are yet to take off in a big way in India, where dental hygiene awareness is poor, even in urban markets.Also, while retailers in international markets have successfully sold private labels across categories, in India, they are yet to make a mark in segments dominated by brands.Management is visionary and aggresive.Jhs can certainly be a stock to watch out for in the months and years to come.A good buy.

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