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Thursday, November 29, 2012

Jyothy Laboratories Ltd:-The largecap Multibagger

Stock idea:-

Jyothy Laboratories Ltd
Traded in:Nse-bse 
Duration:9-12 months
Long term return:30% CAGR for next 5-8 years

Quote:A surprise to start with.In my entire life or to say in my so far stock market career span of over a decade, I have never been votaries of large cap stocks specially the FMCG ones.The stance has recently seen a change where a company with its robust prospects and potential really has made me its newest fan.Its products are a household name atleast in our parts of the eastern world.Ya am talking about the "Ujala" brand of this week's recommendation Jyothy Laboratories.Disclosure immediately would be an entrance which I made in the counter very recently with plans of further accumulating more.A scrip which would compoundly provide a growth of 30%+ every year till next five to eight years.So cancel your FD plans where the money doubles in every eight year and put the same in the counter where it would swell your wealth by over 1000 percentage or 10 times in the same duration.

Story:Jyothy Laboratories Limited engages in the manufacture and marketing of fabric whiteners, soaps, detergents, mosquito repellents, scrubbers, and incense sticks.The company offers liquid fabric whiteners under the Ujala brand name; washing powders under the Ujala Super Washing Powder brand name; fabric enhancers under the Ujala Stiff & Shine brand name; and detergents under the Ujala Techno Bright brand name. It also provides household insecticides, including coils and mosquito repellants under the Maxo A Grade Coils brand name; household kit under the Maxo Aerosol brand name; and liquid vaporizers under the brand name Maxo A Grade Liquid. In addition, the company offers utensil cleaners, such as wash bar and wash liquid under the Exo brand name; incense sticks under the Maya brand name; and beauty soaps under the Jeeva Naturals brand name. Further, the company markets tea and coffee brands; and provides fabric care services, as well as offers laundry services, including dry cleaning and providing linen on rental. Additionally, Jyothy Laboratories Limited, through Henkel India Limited, provides laundry products, home care products, cosmetics, and toiletries.The Henkel buyout has infused a premium brand-width into the hitherto mass-market player Jyothy. Post-Henkel, Jyothy addresses a market opportunity of $5 billion (Rs 26,080 crore) in India, 10 times the size of its stand-alone portfolio a couple of years ago.After acquiring Henkel in June 2011, Jyothy added seven new brands (Pril, Margo, Fa, Henko, Mr White, Neem and Chek) to its kitty and got a strong foothold in urban markets (Jyothy’s rural-urban presence is at 75:25 per cent against 30:70 for Henkel). Thus, strong distribution synergies will not only rationalise Jyothy’s cost structure, but also make it a pan-India player. This will result in strong revenue growth, along with margin gains of about 600-650 basis points, for Jyothy over the next three years.Jyothy’s consolidated revenues and earnings are set to grow at compounded annual rates of 30 per cent and 65 per cent, respectively, over FY12-14. Further, its operating margins are also likely to catch up with industry levels in the next two-three years, driven by increased cost rationalisations and merger synergies . The Jyothy management expects to complete the merger process by March 2013 and expects the combined entity to grow 50 per cent from thereon.Henkel merger is a masterstroke as it makes it a pure FMCG branded player,henkel's loss in book would also limit the merged entity to pay a very tiny tax figure,shareholders too have lot to cheer for as equity dilution would be less  than 3%.Listening to the management meticulously only increases ones conviction."In their words-The firm’s best years lie ahead.Our dream is to grow, over the next 25 years, Jyothy Laboratories into one of India’s largest consumer goods company rivalling multinational firms such as HUL in terms of revenue".The confidence increases when I read the induction of  ex-Reckitt India managing director S Raghunandan as its chief executive officer and whole-time director.He had also held senior positions with companies like Paras Pharmaceuticals (managing director a), Dabur India (executive vice-president, sales), Dabur International (CEO) and Hindustan Unilever (regional sales manager).Raghunandan obtained his degree in Chemical Engineering from Birla Institute of Technology and Science (Pilani) and was an alumnus of IIM-Kolkata.This guy Raghu is considered as one of the pillars in the FMCG sector..The company is going through a transformation following the acquisition of Henkel India and his experience and expertise across the FMCG sector will  be of great value for the company.I dont even care to put ratios and valuation metrics for a FMCG player (FY15 sales would be over 2000crs-FMCG counters trade at 6-7 times their sales whereas present marketcap of jyothy is only 2800crs) which is set to grow by such a massive margin in the coming years.Keep accumulating it only if you have a long term prospective.Short term oriented members you may well get disappointed here though the stake sell of 20%(500crs fund infusion to reduce the debt of the company,stake sell expected anytime) at a decent premium to present market price may offer some rejoice for you guys.

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