Small Cap Stock With Solid Brands Is Available At 52-Week Lows, Should You Buy?

Jyothy Labs is a player in the FMCG sector with reputed brand names like Ujala, Pril, Henko, Mr. White, Margo, Maxxo etc. The last few weeks has seen the stock languish.

Shares close to 52-week lows

The shares of Jyothy Labs is trading very close to its 52-week lows. The stock price of Jyothy Labs is around Rs 142, as against the 52-week low price of Rs 135. In fact, the stock has fallen from 52-week highs of Rs 186. The problem is that most FMCG stocks are seeing their share price fall as investors move money into economy driven stocks. Another problem is that inputs of some of the raw materials have gone up, which has been impacting most FMCG companies.

Financial performance of Jyothy Labs

The Financial performance for the second quarter ending Sept 30, 2021 has not been great, thanks to rising cost of raw materials. The net profits were placed at Rs 44 Crores as against Rs 60.1 Crores, in the same period last year.

The gross margin slipped to 40.1% from 47.7% in the same period last year. Margins also slipped on account of the A&P spends at Rs 40.7 Crores (6.9% of Net Sales) versus Rs 30 Crores (5.9% of Net Sales) in the same period last year, an increase by 35.5%.

Valuations and view

Going by the first two quarters and also the fact that the raw material prices have fallen slightly, we believe that the company would be able to report an EPS of around Rs 5 for FY 2021-22. This still makes the stock expensive at the levels of Rs 142. Though the stock has fallen to 52-week lows, its still available at a p/e of 30 times. Now, one can pay a premium when there is some heavy growth that we are seeing in the future. To be honest we do not see too much of the same. Hence, we do not recommend buying the stock same at the current levels. A price around Rs 100, the stock of Jyothy Labs would be attractive for Jyothy Labs. However, the shares may or may not fall so sharply.

Disclaimer

Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article. The author and his family do not own any of the stocks mentioned above.