Jyothy Labs

Expensive Ujala Jyothy Laboratories is entering the capital market on 22nd November 07 with an Offer for Sale of 44.30 lakh equity shares, of Rs.5 each, in the band of Rs.620 to Rs.690 per share. Five, venture capitalists and PE investors, having acquired the shares of the company between 2000 and 2006, are now offloading their stake and completely exiting from the company. The cost of acquisition per share to these investors was at Rs.143 in 2000 and at Rs.291 in the year 2003. The company has been struggling till FY 04, when it had stagnant topline and negative bottomline. In FY 05, though topline fell to Rs.271 crores from Rs.300 crores, PAT rose to Rs.33.27 crores, against net loss of Rs.23.08 crores, in FY 04. The Offer for Sale is being made by five shareholders, of which ICICI Bank Canada and ICICI Bank UK, PLC is holding maximum number of shares, of about 28.66 lakh shares. These shares were acquired by them in the year 2006, from original allottees like Canzone Ltd., South Asia Regional Fund and CDC Investment Holdings. The company is an FMCG player in fabric care, household insecticide, surface cleaning, personal care and air care segment with brands such as Ujala, Maxo, Exo, Jeeva and Maya. Ujala Fabric Whitener, flagship brand of the company, has 57.5% market share (by volume) and 72.2% share (by value) as at 31st July 07. Maxo Coils has market share of 20.8% as on that date. Rest of the brands are either region based or have yet to catch on. Since the proposed issue is Offer for Sale, no capacity increase is taking place or no new fund is coming to the company, hence only the normal growth would get achieved by the company. Though topline of the company rose by 19.25% from Rs.314.05 crores in FY 06 to Rs.374.52 crores in FY 07, PAT rose only by 3.33% from Rs.46.59 crores in FY 06 to Rs.48.14 crores in FY 07. This is due to fall in the EBITDA margin in FY 07 to 18.12% from 19.34% in FY 06. Due to huge cash surplus of about Rs.77 crores with the company, other income is quite high at Rs.12.63 crores for FY 07. EPS was at Rs.33.20 for FY 07. FMCG sector presently is not a fancied sector and is likely to remain so for the next couple of years. Return on net worth of the company is also quite low at 16.51% when compared to its peers like Emami, which is at 40.5% and Marico at 49.7%. The share is being offered at a PE multiple of close to 21, at the upper band, of Rs.690 per share, thus leaving very low scope for appreciation in the medium to long term. The issue may give listing gains but looking at the pressure on margins of the company, the share may not be able to give decent returns in the long run. It is just a mediocre issue.

Jyothy Labs

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