Friday, 5 June 2015

Jubilant Industries Ltd: It is Fevicol vs Jivanjor

I entered in Jubilant Industries at 84 in Apr-15. But as I was busy in annual account closing and audits, so I could not post the analysis in this blog and it just went above the roof and touched 170 in just one month. But after the recent fall in the market, Currently it is trading at 140/- I feel this is also a good entry price.

 This belongs to Jubilant bhartiya group…other companies related to the group are Jubilant foods and Jubilant Life sciences. It was under my watch for the last 3-4 years. It was a good profit making company but the problem started when it entered into retail sector with retail chain in Bangalore with the name of Hypermarket. It is posting losses since 2012 only due to the losses in retail business. Their other businesses are good and profitable. I was waiting for the moment when the company would do something for its retail division. Recently it has done a deal with Aditya Birla retail to sell its four hypermarket stores in Bangalore via slump sale for an undisclosed amount.

I think this deal will mark the return of the profitability and growth in its other businesses.
Apart from retail,
it deals in Agri products like fertilizers, crop growth regulators and crop protection. It is one of the largest manufacturer of Super single phosphate fertilizer in india. For more details on fertilizers and SSP, kindly check my study on Coromandel in this blog. Its SSP fertilizer product brand Ramban is widely respected by the farmer community.

In food polymers business, Jubilant is one of the three major global suppliers of Solid Poly Vinyl Acetate (SPVA). Solid PVA is the major raw material for making gum base for Chewing Gum and bubble gum. Jubilant boasts of a customer profile which includes the market leaders worldwide, in the chewing gum industry. Some of these are - The WM Wrigley Jr. Company, Cadbury (The Kraft foods Company) & Perfetti Van Melle Company.

The Consumer Products business is focused on providing customers with a complete range of woodworking solutions ie adhesives & wood finishes, footwear adhesives and epoxy sealants under the Brand name of ‘JIVANJOR’. This is the business which I feel can be the game changer for the company.

Jivanjor is the second largest brand in the wood adhesive and finishing sector after Fevicol. But Fevicol is way ahead in terms of brand recognition and market share. Fevicol controls around 80-90% market share in wood adhesive sector in india. But Jivanjor is growing fast and doing some right things to gain the market share. Just recently I visited my home town Bhatinda in Punjab;  Jivanjor was visible in all the market at par with fevicol. Distributors and retailers are promoting it because of higher margin offered by it than Fevicol because product and quality wise it is no less than Fevicol. Carpenters are offering this to their clients because of commission offered to them by retailers as they can still earn good margin even after giving 5% to carpenters. Even we have used this in our house and it is just as good as Fevicol.

After the deal with Aditya group, Jubilant will be almost debt free and it can spend the money on brand promotion of Jivanjor, which is not visible in mainstream advertising world. It can plan better marketing strategy with additional funds.

Jubilant is having a turnover of around 850 crore. Agri products delivers 170 cr, Performance polymers (Mainly Gum and Jivanjor) 354 cr, Retail 335 cr. Operating profits are 4 cr, 23 cr and    loss of 70 cr respectively. As we can see, the losses are mainly from retail division. If we keep it out, then operating profits for Agri and Performance polymers business will be around 30 cr. Taking a tax rate of 30%, the net profit will be around 20 cr. Although due to accumulated losses of past years, it won’t have to pay any tax for many years in the future, but we are trying to be more conservative. If we assign this 20 cr a PE ratio of minimum 15 because of growing market share of Jivanjor (Pidilite has a PE ratio of 55), then its market value is coming around 300 cr. Although with better product mix and lean balance sheet, it will surely achieve greater turnover and profits. At 30 cr profits and PE of 15, Market value is around 450 cr…you take into account growth factor and NP is around 40 cr and it will become 600 cr. At current market price of 140, the market cap is 167 cr. The scope for increase in the market price is quite visible here.

It is having 300 cr debt in its books. Capital employed in Retail sector is around 160 cr. I believe it will be able to wipe out most of it after the sale. I do not have the data regarding the owned stores and leased stores for its retail divison.

Its agri divison will see better days after the current lull in Indian fertilizer sector is ended. India is heavily dependent on import of pulses due to inadequate production of these in the country as our farmers are busy in producing Wheat and rice only to let these rotten in the dirty warehouses of government agencies. The country annually imports about 30-35 lakh tonnes of pulses for around 15000 crores. India is the biggest producer of pulses in the world at 19 million tonne and their biggest importer. same is the situation for refined oil. SSP is a better option for growing pulses and oilseeds

Jubilant ranks No. 1 in India and is No. 2 globally, for manufacturing VP Latex used in dipping of automobile tyre cord and conveyor belt fabric. The Company also produces SBR Latex used in tyre cord fabric. The Company is bulk supplier of these lattices to global automobile tyre manufactures and dippers. The Company is also engaged in manufacturing of Indian Made Foreign Liquor (IMFL) products for the various established brands in India, engaged in liquor business. The capacity is 100,000 cases/month for IMFL. The specific details of these businesses are not available, but latex seems to be one with good volume and better future .

Good buy at current market price and at every fall.

(Views are personal and should not be taken as a recommendation for buying or selling a stock. Stock markets are inherently risky so kindly do your Due Diligence before investing)

8 comments:

  1. Thanks for this recommendation.

    Isn't the group into undue diversification? Each of their divisions Agri, Polymers, Retail, IMFL manufacturing are into unrelated field of operations.
    High debt on the books (although it'll get some breather after HyperMarket sale goes through.)
    Wouldn't one consider these as Management's faults? Few of their products in Agri (RAMBAN), Polymers (Jivanjor), etc are famous and managment should focus more on making these big by going for a kill. But I didn't find any reference of these being their focus areas going forward. Are you confident that management won't venture into other fields with their Retail divisions sale proceeds?

    Agri division can be severly affected by Monsoons. And in the wake of poor monsoon forecast is it still a good bet? Any idea on the agrochemicals sector growth going forward?

    With respect to polymers, the operating margins are still at 6-7% while market leaders like Pidilite maintain upwards of 15% margins.

    Need your clarifications on these please.

    Thanks,
    Kumar

    ReplyDelete
    Replies
    1. Dear sir,

      Diversification is good if you can handle it profitability. It safeguards you from any adverse happening in one passage because business today is very unpredictable and risky than ever before as world has transformed into a global village. Tata group is highly diversified but managed by professionals. Jubilant was a big group earlier but later Jubilant foods and Jubilant life sciences demerged from jubilant ind and it retained businesses like agriculture and polymers.

      Our Godrej Industries and Balmer Lawrie are also diversified but they are also managed by efficient people. They made a mistake by venturing into retail just like so many of our biggies. I am tracking Raymond for a long time, from 180, but still not bought it due to its high exposure to retail. But the good thing is that it (jubilant) realized its mistake and sold the retail division.

      IMFL is just a small business…not even worthy of studying…that’s why I just left it. So after these, it is just left with two businesses agriculture and Polymers which is not over diversification by any standards.

      Regarding its margins, these can’t and shouldn’t be compared with the big Daddy, Pidilite. Because Jivanjor is in the process of establishing its name and it is doing it by offering attractive margins to distributors and retailers. There is a place for at least 2-3 good organized players in adhesive sector in india. You can see Asian paints, Nerolac, Berger, Deluxe in paint segment…Exide and Amara raja in batteries. So 80-90% market share is way too big for Fevicol, so I am sure Jivanjor will break into it just like Amara Raja disrupted the market share of Exide.

      But one last important thing…it is still a risky investment hence make investment only after investing in some good quality established players.

      Regards

      Delete
    2. Dear Gurpreet,

      Thanks for putting things in perspective on diversification. I get it now.

      Your point on Jivanjor becoming significant player in adhesive segment with analogy in what happened recently in Ancillary segment makes perfect sense. Great insight from you here, really. (Not many would have thought from such an angle.)
      Just goes on to show in-depth analysis carried out which helps develop conviction on such stocks.

      I consider myself very lucky to have discovered your blog and get your insights through these writings on various stocks.
      Please continue to post great content. Thanks!

      Delete
  2. gurpreet sir g namaskar. Venky's products are under FSSAI scanner after maggi Ki lagda ha tuanu??? Sir g panga na pe j kithe???/

    ReplyDelete
  3. I consider myself very lucky to have discovered your blog


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    ReplyDelete