Outlook Business — December 07, 2017

30

My Best Pick

22 December 2017 / Outlook BUSINESS

I

have been a contrarian at heart, looking for

interesting ideas among the fallen angels.

Many a times such stock or sector-specifi c

pessimism provides excellent entry levels.

These stocks tend to try one’s patience but they gen-

erally provide a superior risk-return trade-off. Jyo-

thy Laboratories (JLL) grabbed my attention when it

fell sharply by 14 % early November aft er Henkel, it’s

licensor for a few brands, decided not to exercise its

option to buy up to 26 % stake in the company. I asked

myself whether Henkel was the lifeline that JLL was

eagerly awaiting for and does this refusal mean the

beginning of the end? Let’s explore

THE POWER OF BLUE

JLL was set up by its current chairman and manag-

ing director M P Ramachandran in 1983. His attire of

white shirt and trouser is a testimony of his fascina-

tion for his company’s fl agship product ‘Ujala’, a fab-

ric whitener which has 72 % market share in the seg-

ment with a turnover of over # 400 crore. In the past

decade, having more than doubled the market share

of its closest competitor, JLL also realised that it was

limiting the growth of the company given the dearth

of a strong portfolio of brands. So, how did this pri-

marily one-product company become one of the key

players in the Indian FMCG landscape, having a sig-

nifi cant presence in the fast-growing fabric care and

dish washing segments?

The answer probably lies in the story of how vision-

ary promoters forge a long- lasting bond with key

professionals who execute their plans. For Ramach-

andran, it was Ullas Kamath, a chartered accoun-

tant, who joined him in the 1990 s and now elevated

as the joint managing director and chief fi nancial of-

fi cer. The big opportunity came when Kamath suc-

cessfully closed the deal to acquire the beleaguered

Indian arm of German major, Henkel AG, which had

an array of brands. It is said to be Kamath’s unstint-

ed eff ort, spread over a decade, to convince Henkel,

which fi nally decided to throw in the towel. However,

JLL also had to takeover about # 450 crore of debt, a

tall task for a debt-averse company.

The buyout was though a great fi t. JLL had an excel-

lent distribution network, which Henkel lacked. JLL

has about 2 , 000 salespersons with a reach of more

than 12 lakh outlets and 24 manufacturing facilities

across the country. Henkel’s failure was partly at-

Bright as ever

Jyothy’s diverse product portfolio helps it negate any demand weakness in its fl agship Ujala brand

Revenue growth across key brands

Brandwise comparable revenue growth for Q2FY18 in %

Segmental revenue mix in H1FY18 In %

Source: Company Source: Company

Dishwash

30

Fabric care

42

Household

insecticide

12

Personal care

12

Laundry

2

Others 2

Ujala Exo Maxo Henko Pril

15

3

0

10

9

Note: Market related data as on December 1, 2017;

Financials for FY17; Consolidated fi nancials considered

wherever applicable

Data: Ace Equity

net sales#1 ,683cr

stock price# 386 M-CAP#7 , 010cr

ROE 21.32%