A Hidden FMCG Gems ..... JHS Svendgaard

Today I am expressing my view with one not so called known FMCG player trading at NSE and BSE.

If one checks the historical performance of various sector in Indian stock market than one gets the idea that Fast moving consumer Goods (FMCG) is the fourth largest sector of the Indian economy and the most consistently growing one too. 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.

JHS History

Started as a small scale enterprise in August 1997, Sunehari Svendgaard Laboratories Limited moved at a brisk pace and was incorporated as JHS Svendgaard Laboratories Limited on October 8, 2004. By April 2005 the company took over businesses from Sunehari Svendgaard Laboratories Limited, Sunehari Oral Care and Jai Hanuman Exports. Keeping up with the pace it reached new heights on October 21, 2006 when it was listed at BSE and NSE of India Limited at a price of Rs. 58.00.

Starting with manufacturing of only Toothbrushes the company widened its scope to Toothpastes, Mouthwash and Denture Tablets and today is an oral care product manufacturer and exporter. Apart from working on its own brands the company also offers Contract Manufacturing Partnership to brands in the domestic and the international market. One of the most prominent brands manufactured under the company’s name is Dr. Gold which was launched in April 2009 with economy, mid economy and premium toothbrush categories.Some of the prominent brands with whom the company has worked in the past P&G, & currently working Amway India Enterprises Pvt. Ltd., Dabur India Limited, Elder Health Care Limited, J. L. Morison’s India Limited and in the international market are - Dr Fresh , Peanuts , Lavoris, Hello Kitty , Walgreens  and Walmart.

The JHS team is a perfect blend of experienced professionals from technical, commercial and other fields. This combined with the company’s vision ensures in manufacturing of high quality toothbrushes using the best raw materials and equipments from around the world like Dupont USA, Bayer Germany, GE plastics, Nan Ya plastics Taiwan etc. In line with the quality standards of ISO 9001:2000 JHS has grown at a rapid pace to become one of the top Indian exporters and a leading supplier to MNC customers in the Indian market.

Company Rational

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

Valuation wise JHS is very cheap as it is available at just one time sales whereas other FMCG companies trade at 7-15 times their annual sales. 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 profits of 3.37 cr in last 9 months compare to 21.63 cr loss in FY16.

Technicals

The stock is trading at just 40.5 Rs  and 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.

Disclaimer : I am holding stock of JHS.

NOTE : THE ABOVE IS NOT A RESEARCH REPORT NOR A RECOMMENDATION  BUT INFORMATION AS AVAILABLE ON PUBLIC DOMAIN.

Registration status with SEBI: I am not registered with SEBI under the (Research Analyst) regulations 2014 and as per clarifications provided by SEBI: “Any person who makes recommendation or offers an opinion concerning securities or public offers only through public media is not required to obtain registration as research analyst under RA Regulations”