Company’s portfolio comprises of fabric care, home care, personal care and dish wash. It’s brand portfolio includes Ujala, Henko, Margo, Maxo and Pril amongst others.
The stock has been an under performer over the last few years primarily due to the increased competitive pressures and consequent average financial performance.
Sales and profits just grew at a CAGR of 5% and 2% respectively over the last 3 years and stock gave a -8% annual return during this period.
This was also the period of management transition in the Company whereby promoter’s daughter took charge and based on quarterly conference calls, I believe investors in general were cautious about the same.
So in a nutshell, if I have to attribute a reason towards stock’s under performance over the last few years –
“It’s investor’s doubt about Company’s ability to withstand competition and hence the overall prospects of the Company.”
So what is changing now and why the stock may do well –
- The Company has consistently out-delivered investors’ expectations albeit maybe marginally. Most brands have been able to maintain or better their position.
- Management transition has been smooth and the daughter looks more confident and a person with focus and eye for details.
- There is a keen intent on increasing distribution pan India, innovations and hiring good people.
- Company’s product portfolio is focused on health and hygiene that has a natural tailwind due to Covid.
- Recent financial performance is good and maybe indicating towards a reversal in the trend. TTM sales growth is robust at 16% and one can expect atleast a sustained double digit growth going forward. Profits would depend upon input prices that currently continue to be a problem and company’s ability to negate the same through high retail product prices and process efficiencies is a key variable that investors would be watching for.
- Trailing P/E at around 30x is almost half of larger peers and hence provides decent margin of safety.
- Technically also, the stock has recently broke a three year trending line and currently retesting the same. Volume action in the stock further suggests accumulation.
Keep in mind – Jyothy labs at one point of time was a fancied emerging FMCG company. It still continues to have the attention of the investors though more cautiously.
If confidence starts coming back, one can expect significant outperformance.