Embed Size (px)
Citation preview
Volume Growth, driven by capacity expansion Jocil Ltd. is mainly into the production of fatty acids, soap noodles, soap bars and toilet soaps. In order to further improve the quality of the products and to expand its capacity, the Company has planned a capex to the tune of Rs.45 crore. It is undergoing an expansion‐cum‐modernization programme, which on completion would not only expand the Company’s fatty acid capacity by 75% from the current level, but also improve the quality of its products and broaden the product range. This programme is likely to be completed by Mar’11. Jocil’s sales volume is thus likely to increase at a CAGR of 14.6% for the next two years resulting into revenue growth of 17.4% for the aforesaid period.
Strong Clientele and market reach Jocil Ltd has a strong clientele and reach in the domestic market. Being present for over 30 years in the industry has enabled the Company to establish itself well. Apart from selling its products directly, the Company is also engaged in contract manufacturing with some of the reputed brands in the FMCG space. It has a long standing and continuing association with FMCG majors like HUL, Johnson & Johnson, Henkel India and Reckitt Benckiser.
Soap Industry to grow at 8‐10% per annum With increasing awareness of hygienic standards the soap industry is growing at 8‐10% p.a in India. The soap market in India is well developed and dominated by multinational companies and a few large Indian companies, HUL being the market leader with 64% market share. Soap has a very high penetration of ~95% in urban areas while the rural region contributes to 85%, which shows potential for growth in rural sector. Per capita consumption is as low as 460 gms per annum, which compares unfavourably with analogous economies such as Brazil having 1,100 gms of per capita consumption per annum, providing growth opportunities.
Healthy Balance Sheet Jocil has a very strong balance sheet with improving return ratios and high dividend payout history of last 12 years (100% in FY10). Its gross D/E as of FY10 is 0.1x. The Company’s working capital cycle has improved tremendously from 105 days in FY08 to 57 days in FY10. Also, its ROCE has almost doubled to 18.7% due to higher capacity utilization levels.
OUTLOOK & VALUATION
Jocil Ltd., a subsidiary of Andhra Sugars, has established a strong foothold in the Indian FMCG space, with industry majors like HUL‐ (largest market share in the soap industry) as its clients. The Company has grown at a CAGR of 53% in the last three years driven by rising volumes. Further capacity expansion is likely to result into a 14.6% volume growth for the next two years. Thus considering the fortune linked with Indian FMCG consumption, marquee clientele, sustainable volume growth, higher dividend payout, Strong Balance Sheet with superior return ratios, we recommend a BUY on the stock with a target price of Rs.540, which will still be at 1/3rd of valuation enjoyed by FMCG players.
Jocil Ltd
Pl f i di l h d f h F i Ci l i O l
September 16, 2010 BUY MEDIUM RISK PRICE Rs.402 TARGET Rs.540
FMCG
SHARE HOLDING (%) Promoters 55.0 FII 0.3 FI / MF 11.0 Body Corporates 1.4 Public & Others 32.3
STOCK DATA
Bloomberg Code JOCIL IN
NSE Symbol JOCIL
Market Capitalization*
Rs. 1785.3 mn US$ 38.8 mn
Shares Outstanding*
4.4 mn
52 Weeks (H/L) Rs. 433 /191
Avg. Daily Volume (6m)
35,738 Shares
Price Performance (%)
1M 3M 6M
9 40 56
200 Days EMA: Rs.294
*On fully diluted equity shares
Please refer to important disclosures at the end of the report For private Circulation Only.
Sushil Financial Services Private Limited Member : BSEL, SEBI Regn.No. INB/F010982338 | NSEIL, SEBI Regn.No.INB/F230607435. Office : 12, Homji Street, Fort, Mumbai 400 001. Phone: +91 22 40936000 Fax: +91 22 22665758 Email : [email protected]
KEY FINANCIALSY/E Mar.
Revenue(Rs mn)
RPAT(Rs mn)
AEPS(Rs)
AEPS (% Ch.)
P/E (x)
ROCE (%)
ROE (%)
P/BV(x)
FY09 1934.2 96.9 21.8 17.1 18.4 9.8 11.3 2.0FY10 3016.6 213.7 48.1 120.5 8.4 18.7 22.1 1.7FY11E 3299.4 226.7 51.0 6.1 7.9 16.6 20.0 1.5FY12E 4155.7 299.6 67.5 32.1 6.0 18.8 22.2 1.2
ANALYST Ishpreet Batra | +91 22 4093 5091 [email protected]
SALES: Devang Shah | +91 22 4093 6060/61 [email protected]
Nishit Shah | +91 22 4093 5074 [email protected]
Initiating Coverage
STRENGTH: Strong Parentage, 30 years of Experience, Strong Dividend Track record,Healthy Balance Sheet, Marquee Clientele WEAKNESS: Raw Material volatility.OPPORTUNITIES: FMCG Consumption play, Capacity Expansion. THREAT: Companies inExempted Areas having lower tax rates, Import Duty, and Excise Duty.
September 16, 2010
2
Jocil Ltd.
COMPANY OVERVIEW
Jocil Ltd. was incorporated in 1978 as Andhra Pradesh Oil & Chemical Industries Ltd. to manufacture toilet soap and fatty acids. In 1982, the Company was renamed as Jayalakshmi Oil & Chemical Industries Ltd. and in 1992 it was rechristened as Jocil Ltd. Its manufacturing unit is located at Guntur district, Andhra Pradesh. This unit has three lines to manufacture three different brands at a time.
Product Profile
Source: Company The Company produces Fatty Acids by sourcing non‐edible oil and Fatty acid distillates from outside. It has a production capacity of 200 TPD for fatty acid. The Company also produces soap noodles and toilet soaps. In case of soap noodles, it provides manufactured products to FMCG companies on a principal‐to‐principal basis wherein it undertakes the complete manufacturing process for the soap bars. The Company also provides services on a job‐work basis, wherein the customer provides Jocil with soap noodles and Jocil converts it into soap bars. Soap products are produced by using the fatty acids produced in‐house and toilet soap is produced using the soap products, thus providing an integrated model.
Product Flow
Jocil Ltd
Fatty Acids Soap Products
Toilet Soap
Power
Non-Edible Oil
Fatty Acid Distillates
Fatty Acids
Soap Products
Toilet Soap
Raw Material sourced from
Outside
Produced internally and
sold as Finished Goods
Glycerin
Pitch
By-Product
September 16, 2010
3
Jocil Ltd.
The Company procures its main raw material, non‐edible oils from Indonesia and Malaysia through C&F agents located in Mumbai and Singapore. Other process‐related raw materials like acid oils and crude glycerin are procured locally from chemical factories in Andhra Pradesh. Power: In 2000‐2001 the Company had commissioned the 6‐MW Biomass cogeneration power plant for captive consumption and for commercial sale. The surplus power after captive requirement for process plant is exported to AP Transco Grid. Presently, the third party sale of power is permitted on month‐to‐month basis; this depends upon the pending final decision of AP Electricity Regulatory Commission. The Company had also set up a 4.8‐MW wind energy project by setting up three Wind Energy Generators (WEGs). The Company has set up another unit of 1.5‐MW at Tripur district of Tamil Nadu in FY10 taking the total wind energy capacity to 6.3‐MW and the total power capacity to 12.3MW.
Source: Company
The Company derives 50% of its revenue from Soap Products – Stearic Acid and Soap Noodles. Fatty acids contribute 38% to the top‐line. It derives only 5% of revenue from Toilet Soap. Apart from selling the aforesaid products directly, the Company is also engaged in the job work business with the FMCG majors, contributing ~2% to the revenue as processing charge. Power including biomass and wind energy contributes ~2% to the top‐line.
50%
38%
5%
2%2%1%2%
Revenue Contribution
Soap Products Fatty Acids Toilet SoapsPitch Processing Charge GlycerinePower
September 16, 2010
4
Jocil Ltd.
INVESTMENT ARGUMENTS
Volume Growth, driven by capacity expansion Jocil is mainly into the production of fatty acids, soap noodles, soap bars and toilet soaps. The Company has a state‐of‐the‐art manufacturing plant at Guntur in Andhra Pradesh with the following capacities – Fatty Acid 200 TPD, Soap Products 150 TPD and Toilet Soap 60 TPD. In order to further improve the quality of the products and to expand its capacity, the Company has planned a capex to the tune of Rs.45 crore. It is undergoing an expansion‐cum‐modernization programme, which on completion would not only expand the Company’s fatty acid capacity by 75% from the current level to 350 TPD, but also improve the quality of its products and broaden the product range. This programme is likely to be completed by Mar’11. This expansion would partly be financed by debt.
Source: Company, Sushil Finance
Jocil’s sales volume is thus likely to increase at a CAGR of 14.6% for the next two years resulting into revenue growth of 17.4% for the aforesaid period. Its Fatty Acid sales volume is likely to increase by 25.8% for the next two years on the back of the 75% capacity expansion.
Source: Company, Sushil Finance
17.2
27.129.8
42.9
23.1
38.8 40.6 41.2
0.5 1.7 3.0 4.7
0.0
10.0
20.0
30.0
40.0
50.0
FY09 FY10 FY11E FY12E
Sales Volume Break‐up (In '000 tonnes)
Fatty Acid Soap Products Toilet Soap
Fatty Acid to Grow at CAGR of 25.8%due to capacity expansion
Revenue Mix FY10 FY12E Soap Products 50% 39% Fatty Acids 38% 44% Toilet Soaps 5% 10%
Others 7% 7%
September 16, 2010
5
Jocil Ltd.
The Company’s revenue mix from the top three revenue contributing products would also change going ahead due to higher contribution from Fatty Acids. Soap Products contribution would go down from 50% in FY10 to 39% in FY12. Revenue contribution from Fatty Acids and Toilet Soaps would increase from 38% & 5% to 44% and 10% respectively in FY12. Strong Clientele and market reach Jocil Ltd has a strong clientele and market reach in the domestic market. Being present for over 30 years in the industry has enabled the Company to establish itself well. Apart from selling its products directly, the Company is also engaged in contract manufacturing with some of the reputed brands in the FMCG space. It has a long standing and continuing association with FMCG majors like HUL, Johnson & Johnson, Henkel India and Reckitt Benckiser. Product s User Industry Clients
Stearic Acid Rubber, PVC, Cosmetics, Metal Polish, Paints, Pharmaceuticals, Tyres, Food and Speciality Chemicals.
MRF, Nestle, HUL, Clariant, BASF, Sun Pharma, Century Pharma
Soap Noodles FMCG HUL, ITC, Marico, Reckitt Benckiser, Emami, Jyothy Labs, Henkel India etc.,
Toilet Soap FMCG HUL, ITC, Marico, Henkal India, Johnson & Johnson
Source: Company
Soap Industry to grow at 8‐10% per annum With increasing awareness of hygienic standards, the soap industry is growing at 8‐10% per annum in India. The soap market in India is well developed and dominated by multinational companies and a few large Indian companies. HUL has the largest market share of 64% in the soap industry.
Company Share Soaps
HUL 64.0% Lux, Lifeboy, Hamam, Liril
Nirma 16.8% Nirma Bath & Rose
Godrej 4.4% Cinthol, Fairglow, Godrej No.1
Others 14.8% Dettol, Medimix etc
Source: Industry
The per capita consumption of soap in India is as low as 460 gms per annum which compares unfavourably with analogous economies such as Brazil having 1100 gms of per capita consumption per annum.
September 16, 2010
6
Jocil Ltd.
Rural India to drive growth‐ Soap has a very high penetration level of ~95% in urban areas while the rural region has ~85%, which shows potential for growth in rural sector. Fast Moving Consumer Goods are largely insulated from the slowdown. The demand for consumables in urban India didn't grow as fast as it did in rural markets. According to the Nielsen Company estimates the FMCG market in India grew 14% in the 12 months ending Nov’09. Rural demand grew by 18%, while urban demand made up only 12%. Toilet soaps are marketed through 5 mn retail stores of which 3.75 mn are in rural areas, reaching 70% of India’s population but selling only 50% of its volume (Source: soap industry of India). The market is thus vast offering exciting opportunities.
Rural incomes are on the rise due to increasing food price realizations and government‐sponsored employment programs, and that in turn is leading to growing consumption in those markets. A frequently‐quoted statistic is that rural India already accounts for 54% of India's fast‐moving consumer goods (FMCG) sales, while the Confederation of Indian Industry predicts that the rural consumer market will reach US$425 bn in 2010‐11, with 720 to 790 mn customers. According to Godrej ‐ Estimates indicate that over 300 mn people will move up from the category of rural poor to rural lower middle class between 2005 and 2025. With this change, rural consumption levels are expected to rise to current urban levels by 2017. Such developments in India's markets are expected to create major opportunities for Indian consumer product companies. Thus Indian FMCG space is likely to grow at a decent pace going ahead.
September 16, 2010
7
Jocil Ltd.
Healthy Balance Sheet Jocil has delivered very strong growth numbers in the past. The Company’s net sales have grown at a CAGR of 52.7% in the last three years, while the EBITDA and net profit have grown at 37.9% and 56.6% respectively as shown in the diagram below:
Source: Company, Sushil Finance
Source: Company, Sushil Finance
845.6 1,129.2
1,934.2
3,016.6 3299.4
4155.7
‐
500.0
1,000.0
1,500.0
2,000.0
2,500.0
3,000.0
3,500.0
4,000.0
4,500.0
FY07 FY08 FY09 FY10 FY11E FY12E
Net Sales (Rs. Mn)
130.5 150.0
183.2
343.0 381.9
472.1
‐
100.0
200.0
300.0
400.0
500.0
FY07 FY08 FY09 FY10 FY11E FY12E
EBITDA (Rs. Mn)
55.6
86.7 96.9
213.7 226.7
299.6
‐
50.0
100.0
150.0
200.0
250.0
300.0
FY07 FY08 FY09 FY10 FY11E FY12E
RPAT (Rs. Mn)
0.04 0.03 0.07
0.11
0.17
0.08
‐
0.10
0.20
0.30
0.40
0.50
‐
300.0
600.0
900.0
1,200.0
1,500.0
FY07 FY08 FY09 FY10 FY11E FY12E
(In Rs. M
n)
Debt/Equity
Equity (L.H.S) Debt (L.H.S) Gross D/E (R.H.S)
September 16, 2010
8
Jocil Ltd.
Jocil has a very strong balance sheet with improving return ratios. The Company’s gross D/E has not crossed 0.2x as shown in the diagram above. Its return on capital employed has almost doubled in FY10 due to higher capacity utilization.
Source: Company, Sushil Finance The sales volume of the Company has grown at a CAGR of 54% in the last three years resulting into higher return ratios.
Source: Company, Sushil Finance
*Sales volume is of the top three products of the Company (Fatty Acid, Toilet Soap and Soap Product) The Company’s working capital cycle has also improved tremendously from 105 days in FY08 to 57 days in FY10, thereby reducing the working capital needs
6.1
9.0 9.8
18.7 16.6
18.8
7.0
10.7 11.3
22.1 20.0
22.2
‐
5.0
10.0
15.0
20.0
25.0
FY07 FY08 FY09 FY10 FY11E FY12E
Return Ratios (%)
ROCE (%) ROE (%)
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
FY07 FY08 FY09 FY10 FY11E FY12E
18.420.3
40.8
67.5 73.4
88.8Sales Volume (tonnes) *
September 16, 2010
9
Jocil Ltd.
Shareholder Rewarding The Company has an excellent track record of paying dividend as shown in the diagram below. Dividend has grown at CAGR of 18.8% in last 3 years.
Source: Company
The Company has paid a dividend of 100% in FY10, generously rewarding the shareholders thereby.
RISK & CONCERNS
Raw Material Volatility The basic raw materials‐ Non Edible Oil and Fatty Acid Distillates are very volatile in nature. Unfavorable price movement by these raw materials could impact the margins of the Company. Increase in Excise Duty Any further increase in Excise Duty on the goods manufactured by the Company may be unfavorable to the Company as it will result in increase in cost of production of goods manufactured by the Company as compared to similar goods manufactured in the exempted areas.
OUTLOOK & VALUATION
Jocil Ltd., a subsidiary of Andhra Sugars, has established a strong foothold in the Indian FMCG space, with industry majors like HUL‐ (largest market share in the soap industry) as its clients. The Company has grown at a CAGR of 53% in the last three years driven by rising volumes. Further capacity expansion is likely to result into a 14.6% volume growth for the next two years. Thus considering the fortune linked with Indian FMCG consumption, marquee clientele, sustainable volume growth, higher dividend payout, Strong Balance Sheet with superior return ratios, we recommend a BUY on the stock with a target price of Rs.540, which will still be at 1/3rd of valuation enjoyed by FMCG players.
60
50
60
70
80
100
0
20
40
60
80
100
FY05 FY06 FY07 FY08 FY09 FY10
Dividend (%)
September 16, 2010
10
Jocil Ltd.
PROFIT & LOSS STATEMENT (Rs.mn)
Y/E March FY09 FY10 FY11E FY12E
Net Sales 1934.2 3016.6 3299.4 4155.7
Raw material 1241.3 1942.3 2114.1 2667.6
Manufacturing Exp 318.7 495.0 537.8 681.5
Staff Cost 93.6 119.4 132.0 166.2
Total Expenditure 1751.0 2673.6 2917.5 3683.6
PBIDT 183.2 343.0 381.9 472.1
Interest 3.4 5.5 10.6 6.2
Depreciation 52.3 51.1 66.0 70.6
Other Income 24.6 34.4 33.0 51.9
PBT incl OI 152.1 320.7 338.4 447.1
Tax 55.2 107.1 111.7 147.6
RPAT 96.9 213.7 226.7 299.6
BALANCE SHEET STATEMENT (Rs.mn)
As on 31st March FY09 FY10 FY11E FY12E
Share Capital 44.4 44.4 44.4 44.4Reserves & Surplus 842.0 1003.9 1178.6 1426.2Net Worth 886.4 1048.3 1223.0 1470.6Secured Loans 28.2 34.8 134.8 34.8Unsecured Loans 32.6 78.3 78.3 78.3Total Loan funds 60.8 113.1 213.1 113.1Deferred Tax 109.9 107.5 108.0 109.0Capital Employed 1057.1 1268.8 1544.1 1692.7Net Block 483.4 550.6 834.6 813.9Cap. WIP 14.1 74.6 87.5 79.1Investments 6.3 10.0 10.0 10.0Sundry Debtors 228.8 355.3 385.9 456.6Cash & Bank Bal 239.1 103.8 59.9 182.4Loans & Advances 216.4 279.7 316.9 366.2Inventory 169.0 285.9 293.3 393.7Curr Liab & Prov 301.8 391.6 444.0 609.3Net Current Assets 553.4 633.6 612.0 789.6Total Assets 1057.1 1268.8 1544.1 1692.7
FINANCIAL RATIO STATEMENT
Y/E March FY09 FY10 FY11E FY12E
Growth (%) Net Sales 71.3 56.0 9.4 26.0EBITDA 22.1 87.3 11.3 23.6Adjusted Net Profit 11.8 120.5 6.1 32.1Profitability (%) EBIDTA Margin (%) 9.5 11.4 11.6 11.4Net Profit Margin (%) 5.0 7.1 6.9 7.2ROCE (%) 9.8 18.7 16.6 18.8ROE (%) 11.3 22.1 20.0 22.2Per Share Data (Rs.) EPS (Rs.) 21.8 48.1 51.0 67.5CEPS (Rs.) 34.7 59.1 65.9 83.4BVPS (Rs) 199.6 236.0 275.4 331.2Valuation PER (x) 18.4 8.4 76.9 6.0PEG (x) ‐ 0.1 1.3 0.2P/BV (x) 2.0 1.7 1.5 1.2EV/EBITDA (x) 8.8 5.2 5.1 3.6EV/Net Sales (x) 0.8 0.6 0.6 0.4Turnover Debtor Days 41 35 41 37Creditor Days 20 22 26 25Gearing Ratio D/E 0.1 0.1 0.2 0.1Source: Company, Sushil Finance Research Estimates
CASH FLOW STATEMENT (Rs.mn)
Y/E March FY09 FY10 FY11E FY12E
Profit before tax & Extraordinary Items 152.1 320.7 338.4 447.1Depreciation & Amortization 51.0 48.9 66.0 70.6
Chg. in Working Capital 55.3 ‐215.6 ‐22.2 ‐55.2Cash Flow from Operating 208.0 44.6 271.0 316.1 (Incr)/ Decr in Gross PP&E ‐12.2 ‐116.2 ‐350.0 ‐50.0(Incr)/Decr In Investments 0.0 ‐3.8 0.0 0.0Cash Flow from Investing ‐25.9 ‐180.4 ‐362.9 ‐41.6
(Decr)/Incr in Debt 33.8 52.2 100.0 ‐100.0(Decr)/Incr in Share Capital 0.0 0.0 0.0 0.0Dividend ‐26.0 ‐31.2 ‐52.0 ‐52.0Cash Flow from Financing ‐7.8 0.4 48.0 ‐152.0
Cash at the End of the Year 239.1 103.8 59.9 182.4
September 16, 2010
11
Jocil Ltd.
Annexure Existing Soap Brands:
Liri l 2000 for HUL
Life Buoy Skin Guard for HUL
Superia Lemon Fresh for ITC
Superia Soft Sandal for ITC
Superia Milky Glow for ITC
Superia Fragrant Flower for ITC
Superia Natural Glow for ITC
Superia Healthy Glow for ITC
Vivel Satin Soft for ITC
Vivel Ayurveda Essence for ITC
Manjalfor MARICO
Parachute Jasmine for MARICO
September 16, 2010
12
Jocil Ltd.
Customer List
September 16, 2010
13
Jocil Ltd.
Rating Scale
This is a guide to the rating system used by our Equity Research Team. Our rating system comprises of six rating categories, with a corresponding risk rating.
Risk Rating
Risk Description Predictability of Earnings / Dividends; Price VolatilityLow Risk High predictability / Low volatility
Medium Risk Moderate predictability / volatility
High Risk Low predictability / High volatility
Total Expected Return Matrix
Rating Low Risk Medium Risk High RiskBuy Over 15 % Over 20% Over 25%Accumulate 10 % to 15 % 15% to 20% 20% to 25%Hold 0% to 10 % 0% to 15% 0% to 20%Sell Negative Negative Negative Neutral Not Applicable Not Applicable Not ApplicableNot Rated Not Applicable Not Applicable Not Applicable
Please Note �Recommendations with “Neutral” Rating imply reversal of our earlier opinion (i.e. Book Profits / Losses).
�** Indicates that the stock is illiquid With a view to combat the higher acquisition cost for illiquid stocks, we have enhanced our return criteria for such stocks by five percentage points.
Additional information with respect to any securities referred to herein will be available upon request. This report is prepared for the exclusive use of Sushil Group clients only and should not be reproduced, re‐circulated, published in any media, website or otherwise, in any form or manner, in part or as a whole, without the express consent in writing of Sushil Financial Services Private Limited. Any unauthorized use, disclosure or public dissemination of information contained herein is prohibited. This report is to be used only by the original recipient to whom it is sent. This is for private circulation only and the said document does not constitute an offer to buy or sell any securities mentioned herein. While utmost care has been taken in preparing the above, we claim no responsibility for its accuracy. We shall not be liable for any direct or indirect losses arising from the use thereof and the investors are requested to use the information contained herein at their own risk. This report has been prepared for information purposes only and is not a solicitation, or an offer, to buy or sell any security. It does not purport to be a complete description of the securities, markets or developments referred to in the material. The information, on which the report is based, has been obtained from sources, which we believe to be reliable, but we have not independently verified such information and we do not guarantee that it is accurate or complete. All expressions of opinion are subject to change without notice. Sushil Financial Services Private Limited and its connected companies, and their respective directors, officers and employees (to be collectively known as SFSPL), may, from time to time, have a long or short position in the securities mentioned and may sell or buy such securities. SFSPL may act upon or make use of information contained herein prior to the publication thereof.
