Jyothy Laboratories

Exit route for institutional shareholders

Little scope for appreciation on sluggish financial performance and lack of interest in the FMCG sector

Promoted by first generation entrepreneur M.P. Ramachandran, Jyothy Laboratories’ key brands are Ujala, Maxo, Exo, Jeeva and Maya. The product line of Ujala consists of fabric whitener, fabric stiffener and washing powder. Maxo’s product line consists of mosquito repellent coils, liquid vapourisers and aerosol sprays, while Exo’s product line includes dish wash bars and liquid with an anti-bacterial agent, dish wash powder and dish scrubbers. The company produces personal-care products under the Jeeva brand and markets air-freshening incense sticks or agarbatti under the Maya brands. It has also entered into joint ventures to market and distribute coffee and spiritual dhoops.

Ujala fabric whitener and Maxo mosquito repellent coils occupy leading position and have significant market shares in their respective product segments. Ujala fabric whitener enjoyed a market share of 68.9% by value and 53.5% by volume, while Maxo coils had a market share of 19.7% by value and 22.1% by volume in India in the year ended June 2007(FY 2007). Exo dishwashing bar captured market share of 15.5% by value and 15.2% by volume in south India in this period.

Jyothy Laboratories manufactures its products through 21 manufacturing facilities in 14 locations in India. Eight of these are tax-efficient units. The company is going to establish new tax-efficient manufacturing facilities in Uttaranchal. It is also going to invest Rs 17 crore in its two plants in Jammu and Guwahati to produce Maxo products currently outsourced.

The initial public offering (IPO) is of 44,30,260 equity shares of Rs 5 each through an offer for sale for cash. The price is to be decided through a 100% book-building process at the price band fixed between Rs 620 and Rs 690 per equity share. This will reduce the institutional shareholding from 30.52% to zero, while public shareholding will increase from 1% to 31.52%. Promoters’ shareholding will remain intact at 68.48%. There will be no change in equity capital of the company after the IPO.

Strengths

Well-recognised brands, tax efficient production units and significant rural presence.

Has approximately 2,500 distributors and has a direct reach of approximately one million retail outlets. This distribution leverage can help in faster product launches and distribution of other non-competitor company’s products.

Weakness

Highly competitive industry.

Recent performance has not been encouraging. Sales were up 20% to Rs 361.89 crore but adjusted net profit increased only 3% to Rs 48.14 crore in FY 2007.

Valuation

The price band is set at Rs 620 to Rs 690 per equity share of Rs 5 face value. At the lower band of Rs 620 per share P/E would be 18.7x times and at the upper price band of Rs 690 per share P/E would be 20.8x times the EPS of Rs 33.2 in FY 2007. In the FMCG industry, comparable companies such as Godrej Consumer Products and Emami have TTM P/E of around 20.6 and 26.4, respectively. Even HLL is available at TTM P/E of 26 times.