Update on JHS Svendgaard

I don't provide updates here but this time I thought to add about JHS Svendgaard.

Here are updates about JHS after quarter 1 result (June, 2017):

In Q1 FY18, JHS witnessed 17 percent YoY growth in net sales led by improved offtake contracts from clients. Gross margins improved by 145 bps due to relatively lower increase in raw material prices. EBITDA margin, however, decreased by 85 bps due to higher other expenses that was partially offset by lower employee expenses.

It is noteworthy here that excise exemption for the unit manufacturing toothpaste (Kala Amb) is over and hence from this quarter onwards the company has started paying excise duty. However, JHS continues to enjoy duty exemption for its unit manufacturing toothpaste till 2020.

Patanjali and Dabur could be a key clients for growth.

Based on Annual Report, we expect a 30 percent sales CAGR and 330 bps operating profit margin expansion during the period FY17-20E.

In FY18, the company expects a 20-25 percent revenue growth on account of capacity expansion and another 10-15 percent by way of organic growth in the business. We think organic growth of 15 percent can easily be achieved, particularly due to the base effect as FY17 was impacted to the tune of Rs 20-25 crore owing to demonetization.

The company has recently concluded its capacity re-alignment. It has raised its toothpaste manufacturing capacity to 175 million tubes (from 90 million tubes) which is now aligned with its manufacturing cum packaging capacity of 28,000 TPA. This capacity enhancement is expected to be commissioned in the current quarter.

More on Q1 Result about JHS Svendgaard

JHS Management here on q1 result.

JHS Svendgaard Laboratories - Can it count as a FMCG company!

JHS Svendgaard Laboratories is in toothbrushes and toothpastes. It has few other products - Hand sanitizer, and room fresheners.

Mainly it has two products type - Tooth brush and tooth paste which it take as contract manufacturing and also trying to build its own brand.

Patanjali, HUL and Dabur are its clients.

P & G was a client of the company for contract manufacturing but P & G abruptly canceled the contract and that resulted in heavy loss for the company. JHS has setup the plant for the company. This resulted in court case too. 

The court case has settled recently. This has resulted in clearing of 206 Cr contingent liability.

It has won contract manufacturing last year from Patanjali. This will help it gain topline I believe. Dant Kanti is doing good.

JHS Svendgaard lab is doing capacity expansion too by investing Rs 30 Cr.

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. More

It plans to increase its own tooth brush and paste business under own brand name too but there it may not find space. That space is fought by biggies like Colgate and HUL. Patanjali and Dabur started doing well in Ayurveda space.

Company has learnt from its past mistake and now it does not take more than 20% manufacturing contract from a single client.

CMP: Rs 66.
P/E = 13.26.
P/S = 2.7.
P/B = 2.2.

It has become profitable after three years. That has helped it improve its Ratios.

Patanjali should help it stay profitable and give some growth too. If this can capture own space for its brand (Aquawhite, ..) then that will transform it to a truly FMCG company.

June qtr result is on Aug 29th, 2017.