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Jocil Ltd – Low P/E Stock with Investment Grade

September 7, 2010

Jocil Ltd (JOCIL) was incorporated in 1978 by the Jaylakshmi group of companies. The product portfolio of JOCIL includes Stearic Acid Flakes, Crude/Distilled/Hydrogenated fatty acids, Soap Noodles, Toilet Soap, Refined Glycerine, Industrial Oxygen and Pitch (By product). It is also involved in power generation and distribution. The installed capacities for various products are as under.

JOCIL is an old and established player (since 1978) in the soaps and its raw materials market. It manufactures Fatty Acids, Soap Noodles and Toilet Soap on job work basis for reputed customers. The products manufactured are marketed directly from the factory as well as through Depots and C&F Agents located in major cities and towns in the country. Majority of the Fatty Acids produced are consumed as raw material in the soap Industry for Toilet Soap making. JOCIL also exports the raw material used for soaps i.e. fatty acids to Sri Lanka. Its dependability and reputation in the market is known through its client list, which includes major MNC FMCG companies like HUL, ITC, J&J, Marico, Reckitt Benckiser, etc.

JOCIL reported 12.9% y-o-y in net sales at Rs.80.5 cr in Q1FY11. Chemicals segment sales witnessed growth of 23.9% y-o-y to Rs.72.2 cr while the soap segment revenues rose by 25.5% to Rs.45.9 cr. Higher expenditure, lower other income and higher depreciation charges led to Net Profit falling by 11.5% y-o-y to Rs.5.9 cr in Q1FY11. Net profit margins were lower by 200 bps
at 7.3%. JOCIL earned an EPS of Rs.13.2 in Q1FY11.

HDFC Sec Analys Recommends – One can buy JOCIL at the CMP and add on declines to Rs.350-360 band for sequential targets of Rs.437 (7.5x FY11E EPS) and Rs.466 (8x FY11E EPS) in 2-3 quarters. At the CMP, the stock is trading at 6.7x FY11E EPS.

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