JHS Svendgaard – An Oral Care FMCG Major In Making
Posted on July 14,
2016by aceinvestortrader
Background: Fast moving consumer Goods (FMCG) is the fourth
largest sector of the Indian economy and the most consistently growing one too.
Futhermore, it is the only sector that has created long term wealth for the
market participants over the decades. Within the sector, Oral Care is a niche
sub-seqment and one of the fastest growing one. Therefore, if we get an interesting
story in the sector, one should strongly consider it. Increasing disposable
earnings, growing middle class, rising oral awareness, convenient oral care
products, growing distribution chain and logistics storage, increasing
toothpaste penetration, development in oral care solution segments and others
are some of the factors expected to drive the industry’s growth in the coming
decades.
The
Company: JHS is one of the biggest toothbrush contract manufacturers in the country and more excitingly has now launched its own set
of branded oral care products under
the brand “Aquawhite”.
The company will have complete set of oral care products like tooth brush, power tooth
brush, tooth paste, mouthwashes, dental floss and even oral care chewing gum. Company launched Aquawhite last year with its
range of tooth brushes and tooth paste and is set to launch other products in the coming
few quarters. Company has launched its tooth
brush and paste in the North and East markets and is currently launching them in
the southern and western markets as well. The TV advertisements have also
started for these launched products. Within the first year of launch these oral
care products have given around 12cr of revenue and with the launch of these
brushes and toothpaste in the other two markets and impending launch of other
oral care products, the future looks extremely promising. This is ofcourse in addition to the contract manufacturing business which itself isgrowing by leaps and bounds.
JHS was recently bailed out by funds
infusion when it got into debt trap in 2011-12. Till 2011 the company used to
be debt free when in lieu of a large order from its biggest customer, prompted
them to take huge debt for a new facility built specially for that customer
(P&G). After this came the body blow, when P&G went on to terminate the
contract albeit illegally (as per JHS, and the company is fighting for
compensation in court) and this created massive problems for the company as it
had to not only deal with the debt payments but also on drastically reduced
turnover. P&G and that point was contributing 75% of total revenues for JHS
(Client concentration risk ). Needless to say this pushed JHS in a severe debt
trap and was close to be shut down when it was rescued by promoters and a marquee
PE investor pumping in money to revive the company as part of revival strategy.
Also, taking it as a re-birth of the company, JHS consciously decided to use
its expertise in Oral care products to produce their own branded version andrechristen its avatar as a FMCG
player.
JHS is now an almost debt free company with enough capacities (55% capacity utilization),
therefore, there’s no
need of capex for near future. Furthermore, the
company having learnt its lessons the hard way has tweaked its business model
to become a branded FMCG player and not just a contract manufacturer. Though
contract manufacturing is also growing very briskly they are ensuring that in
future there’s no client concentration risk and therefore, would not have more
than 25% revenue coming in from any single customer. At present, its working
with a lot of customers
like Dabur, Patanjali, Colgate, Lavoris, Amway,Apollo, Future Group, Dr. Fresh etc.
With ace investor Nikhil
Vora also a big stake holder in the company, combined with the changed business
dynamics and direction of the company, JHS is bound to create serious share
holder wealth in the coming years.
Valuations: JHS is almost a debt free oral healthcare based FMCG company available at just one time
sales whereas other FMCG companies trade at 7-15 times their annual sales. Also given the fact that their business is
growing exponentially we’ll get the twin benefits of growth and valuations
re-rating. Promoters stake at the moment is around 37.55% which would
increase to around 42% after conversion of warrants this year. The sales of company has grown from 35cr to 100cr in last two years with losses reducing drastically and the company
even posting a notional profits of few lacs rupees at operating level in the
latest quarter. The company is confident of postingprofits this year.
Technicals: The stock has formed a firmed bottom and has made long term basing and
accumulation pattern. The stock is ready for a fresh
upmove and given what we have on the fundamental side, the stock will create
sustainable wealth for its investors.
JHS Svendgaard is
going to be a very interesting bet as it is in the right sector and we are catching it at the right
time when there are business tailwinds and
technical wings, with, just the kind of investors on-board, that we can hope to
guide the management in creating serious shareholder wealth. Yes, the company
has had terrible past 3-4 years but has handled the situation well and
re-discovered itself in the right form – a FMCG player. And most importantly
since its an FMCG player, if one looks to ride it, then ride it for long time
rather than looking at it every day.
JHS Svendgaard Laboratories .... Inching towards Success
ReplyDeleteJHS inching towards the GLORY JHS has become PAT positive after 6 years.
ReplyDeleteThe Company has been through its share of cyclical business upheavals to emerge stronger. JHS has recovered well after its product portfolio growth with top Indian FMCG brand / company in last 2 years. The company has reported total revenues of Rs.105.48 Cr. up by 5.39%. EBIDTA is up 68% at Rs.12.04 Cr. and the PAT at Rs.21.98 Cr.
JHS is also engaged further in aggressive capacity creation and is investing heavily in the capital equipment(s), almost to the tune of Rs.30 Cr. towards setting up additional manufacturing unit and equipment balancing at our first unit, with the objective of creating a future-ready company by July2017. The overall capacity in toothbrushes to increase from 150 million toothbrushes (March 31, 2017) to 250 million toothbrushes (March 31, 2018). For Toothpaste from 90 million toothpaste tubes (March 31, 2017 ) to 175 million toothpaste (July 30, 2017), and from only 3 size tubes to 7 size tubes 18/30/50/80/100/150/200 gms.
The aggressive CAPEX is backed by visibility of business from some of our larger clients including Patanjali and Dabur. Alongwith, JHS own brand, AquaWhite, is scaling distribution and we intend to significantly strengthen the brand franchisee and product positioning in coming months.
Interestingly the Company shall continue to debt-free coupled with strategic equity investors who understands the business and have provided a significant part of the Companys precious growth capital with long term goals in mind.