FMCG after long

FMCG after long

The listing of Jyothy Laboratories on Wednesday marked an entry from the FMCG space after a long time. The stock listed with a premium of 30% over its issue price of Rs 690 and touched a high of Rs 880 before closing the day at Rs 794.

The public issue, through the offer for sale route, was to provide an exit to its private equity investors.

The key positives for the company emerge from its strong brand equity and wide distribution network which are important for an FMCG company.

The company is into branded products in fabric care, household insecticide, surface cleaning and personal care segments with a retail penetration of 1.3 million outlets.

Its flagship brand, Ujala, is a market leader in the fabric care segment, with a 68.9% market share in India by value for the year ended June 30, 2007 and a 72.7% market share for July 2007. The other major brand, Maxo, which is into mosquito repellants, achieved a 19.7% market share and 20.8% share for the respective periods.

Further, its production facilities enjoy tax benefits. It has 21 factories spread over 14 locations to support a pan-Indian reach.

The company’s uniqueness lies in its successful rural presence, with over 1,500 employees servicing some 2,500 distributors. It has so far used innovative marketing strategies and leveraged its brand value to successfully market newer products.

However, the key risk lies in its skewed revenues, with around 80% coming from the two major brands.

The company intends to foray into detergents, which requires close monitoring given the presence of deep-pocket players and intense competition, which puts pressure on the margins.

Strong macroeconomic parameters are a requisite for this sector as rising disposable incomes have a direct bearing on the off-take of products.

Any inorganic development will also be a key trigger. The stock merits attention at declines, with a long-term perspective.

All-round construction
Jaiprakash Associates, the Jaypee Group flagship, is engaged in construction of large-scale engineering projects including power stations and dams, hospitality and hydro-electric power projects and manufacturing cement. Its turnover stood at Rs 3,719.22 crore last fiscal.

The stock has appreciated by 187.6% in the past one year, clearly outperforming the broader Sensex.

Analysts are betting on its robust order book in hydro projects (Rs 11,500 crore), better execution at two hydro projects in Arunachal Pradesh of 2,525 MW and value unlocking through the listing of Jaiprakash Power Venture (JPV) in the next 12 months, expected to bring in Rs 3,000 crore. It also intends to complete the first Formula One (F1) track in India.

The cement business contributed 55% of its revenues last fiscal. In line with the trend in the cement industry, it also plans to expand capacity, from the current 7 million tones per annum (mtpa) to 30 mtpa by 2011.

Though experts believe there would be an oversupply in the cement industry once all the new capacities come on stream, say by 2011, Jaiprakash has the advantage of having been allotted a coal block. Coal being one of the key raw materials for cement, the block should help it keep costs in check when prices rule weak.

In its power business, Jaiprakash intends to generate 4,500 MW, including 1,000 MW of thermal power. The projects would entail an investment of Rs 30,000 crore till 2013.

Meanwhile, Jaiprakash is planning to sell stake in Jaypee Infratech, which will build the Taj expressway (165 km long) between Greater Noida and Agra, and develop around 350 million sq ft in five proposed townships along the expressway.

Analysts maintain that acquisition of land for the expressway and the development plan of the region including the F1 circuit will act as positive triggers for the stock.

In fact, Jaiprakash is expected to emerge as a major player in the real estate space with the land banks it will accumulate with the Taj expressway and other projects.

The company has recently split its stock of face value Rs 10 into 5 shares of Rs 2 each, in a bid to improve liquidity. This will help small investors consider it.

Jaiprakash has set a revenue target of Rs 20,000 crore for FY2012.

The stock trades at 54 times and 36 times its estimated earnings for 2009 and 2010, respectively.

Though valuations appear expensive at these levels, analysts recommend the stock on the back of growth in revenues from the construction business, commissioning of new cement capacities and expected revenue inflows from the high-margin real estate business.

(p_pallavi@dnaindia.net)(devangib@rediffmail.com)