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Light lies ahead for investors

india Updated: Nov 26, 2007 22:31 IST

Engaged in the fabric care, insecticide and personal care segments, Jyothy Laboratories’ (JL) is making a public issue through the offer for sale route to provide an exit to its private equity investors. Resultantly, the IPO proceeds will flow into their coffers and not of the company.

The success story of this FMCG company revolves around its two key brands—Ujala and Maxo. The ‘Ujala’ liquid fabric whitener brand reportedly enjoys over 68.5 per cent market share in value terms, while Maxo approximates 20 per cent.

On the SWOT scales, the positives include strong brand equity, wide distribution network, strong production facilities with a tax umbrella and a strategic focus on rural markets that has yielded the company excellent dividends. Now, JL is also leveraging its 1,500 strong work force and 2,500 strong distributor network across India through third party marketing and distribution agreements.

On the flip side, JL’s fortunes (80 per cent) clearly hinge on its two brands, a risk that is magnified in the intensely competitive FMCG industry. Then, the foray into the detergents segment, where established players with deep pockets are well entrenched is another potential concern area till the first signs of success become visible.

Overall then, the scales tilt towards the positive which then takes us on to the financials.

While the topline and bottomline growth in FY07 has slowed down, there is no mistaking this company’s financial muscle as a cash-rich and debt-free company.

This in turn suggests the possibility of inorganic growth being a future driver, alongside its organic progress. Furthermore, the relatively lower and static advertising to sales ratio reflects the strength of the company’s brands.

At a P/E of 21, the exiting shareholders are clearly skimming the cream, but long term investors seeking a slice of a FMCG stock with a rural flavour can consider an exposure in this issue.

(The writer heads Lotus Knowlwealth and can be contacted at )