JHS Svendgaard – An Oral Care FMCG Major In Making

Stock Opportunities Untested - but worth a good look
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Started in : August 1997
Market Cap.: ₹ 132.80 C

Background:
Fast moving consumer Goods (FMCG) is the fourth largest sector of the Indian economy and the most consistently growing one too. Furthermore, it is the only sector that has created long term wealth for the market participants over the decades. Within the sector, Oral Care is a niche sub-segment 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.

The Company:
JHS is one of the biggest toothbrush contract manufacturers in the country and more excitingly has now launched its own set of branded oral care products under the brand “Aquawhite”. The company will have complete set of oral care products like tooth brush, power tooth brush, tooth paste, mouthwashes, dental floss and even oral care chewing gum. Company launched Aquawhite last year with its range of tooth brushes and tooth paste and is set to launch other products in the coming few quarters. Company has launched its tooth brush and paste in the North and East markets and is currently launching them in the southern and western markets as well. The TV advertisements have also started for these launched products. Within the first year of launch these oral care products have given around 12cr of revenue and with the launch of these brushes and toothpaste in the other two markets and impending launch of other oral care products, the future looks extremely promising. This is of course in addition to the contract manufacturing business which itself is growing by leaps and bounds.

Facilities:

  • Noida Special Economic Zone which is an Export Oriented Unit, established in July 2003 and the
  • Kala Amb, Himachal Pradesh, which is a tax free location (till 2020), established in April 2007

Management:

  • Nikhil Nanda Managing Director
  • Manisha Lath Gupta Additional Independent Director
  • Piyush Goenka Nominee Director
  • Vanamali Polavaram Non Executive Director(aged 66)- retired as Resident Commissioner
  • Chhotu Ram Sharma Independent Director (aged 69)- He was the managing director/CEO of Bank of Punjab Ltd. from 30th June 2002 to 30th Sept 2005
  • Mr. Mukul Pathak Independent Director
  • Vishal Sarad Shah Additional Director
  • Mr. Nikhil Vora Nominee Director

Financials:

Screen Shot 2016-08-30 at 7.58.41 AM.png1170×447 42.5 KB

Success Stories:

  • There are a number of reasons why one is optimistic of our prospects:
  • Tano Mauritius took a 14.6% stake in our Company for 24.44 crore
  • Commenced the manufacture of ‘Shiny Clean’ brand toothbrushes, a sub-segment of the Oral B family
  • Added large global FMCG brands to our client list which will help us completely utilise spare toothbrush capacity from a prevailing 70%
  • Operated our laundry product facility at more than 100% capacity in the second quarter of 2011-12. The private equity funding in February 2011 was an important event in 2010-11, a confidence-enhancing watermark. Invested these funds in procuring moulds and other equipment for making toothbrushes for global FMCG brands; this investment will yield results over 12-18 months.

Pros:

  • Company has reduced debt.
  • Company is virtually debt free.
  • Company is expected to give good quarter
  • The penetration of modern oral care products in India is low (toothbrushes 48.6% and toothpastes 72.3%).

Cons:

  • Company has low interest coverage ratio.
  • Company has a low return on equity of -17.31% for last 3 years.
  • Contingent liabilities of Rs.210.56 Cr.
  • Company might be capitalizing the interest cost
  • Inputs are linked to global crude prices. The economic crisis in Europe and the US has stabilised global oil prices at US$ 100 per barrel and this is expected to sustain.

Disc: Not Invested. Too risky call to take as Indian market is dominated by one player Colgate, and it may remain so for next decade too.

3 Likes
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Thanks.

It would be important to highlight the issues with P&G which JHS had - what actually transpired would move the compass re integrity/ethics regards the compnay. While i am in know on the issue on surface but helpful if an informed investor/contributor could give his say. Additionally the costs have been written off on the same - so a clean slate from that perspective.

Patanjali’s impact not factored in here…

R
Samir

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How the company would be able to Compete in the Oral Care Sector which is Dominated by Large Players like Colgate, P and G, Patanjali and so on … No Doubt on there contract manufacturing business.

Lets take a Scenario if a Layman had 50 RS to buy a Toothbrush and Paste … 9/10 people would go for Colgate, Oral-b , Patanjali or any branded name. How to see the Company competing against that.

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These are from their latest AR:

We launched branded products. We increased brand promotion. We enhanced shelf-space visibility. The result: we grew proprietary brand revenues 4.5x in 24 months ending 31 March 2016. Now, we are widening our market presence and launching products in West and South India as well as international destinations, protecting the Company from a substantial decline in revenues in the event of unforeseen customer attrition. The JHS of the future will be a company with an ambitious 2020 target of generating 50% of revenues from proprietary brands.

Managing Director’s statement:

MY OVERVIEW CAN BE CONCISED IN JUST TWO WORDS: ‘PRIDE’ AND ‘PREPAREDNESS’.

Pride:
Until not too long ago, there was a tendency to look down on everything Indian.Consumers who went out to buy products generally gravitated towards the international at best and anything that even sounded remotely international at worst.The general conclusion was that if it is international, then it must be superior; if it was Indian, then it must be mediocre. The biggest transformation of the last half-decade is a new-found pride in a number of things Indian. Let me talk of what is happening in our space. The emergence of a deeply Indian brand like Patanjali from virtually nowhere is more than a sign of product success; the robust growth of ITC’s foods and FMCG businesses are pivoted around a business model that extends from farm to fork; the rapid strides made by Emami indicate a growing traction for ayurveda-based FMCG products; the rising trend for Dabur indicates a widening room for home-grown success. Besides, there are a number of other developments at play: a growing scale achieved by these Indian companies, the manufacture of products that reconcile world-class standards with relevant customisation, the growing penetration of these products into rural India, the engagement of home-grown role models to endorse these products and increasing competitiveness. The result is that most of these companies are not merely content to play for incremental market share; through the introduction of innovative products, they are keen to create markets that never existed. The result of this transformation in national identity and pride is captured in the response of friends to our decision to emerge from the outsourcing shadow of a global multinational. When we announced this decision a few years ago, the first response was ‘How will you survive?’ When I explain our business model today, the reaction has largely changed to ‘Wow! It’s so nice of an Indian company to take on international brands.’The bottomline is that it is increasingly inconceivable that the second most populous consumption market in the world would need to depend on global brands for its everyday needs. On the contrary, the time has come for home-grown brands to capture a large slice of the Indian market, leverage the prevailing economies of scale and emerge as successful global brands in their own right.

Preparedness:
It would be foolhardy to assume that a growing respect for Indian brands will raise the level of water for all ships.In an Indian FMCG space populated by a variety of national and international brands, success will be derived through a convergence of diverse competencies.One,a word-class standard. An increasing number of consumers will seek to buy products not because they are Indian, but because they are outstanding and Indian…in that order. And here, I must add that the time has come when a number of Indian FMCG products are not just as good as international brands; they are better. Take the instance of Patanjali’s toothpaste; in the brief tenure of a couple of years, this single product has extensively transformed a decades-old habit of using white toothpaste into a respect for herb-based brown paste. What used to be so downmarket until not too long ago is now considered acceptable.Two,future-readiness.Indian brands will need to invest in research with the objective to create world-beating products instead of conventional reverse-engineering. Besides, Indian brands will need to plan infrastructure from a decadal perspective instead of going back to the drawing board every couple of years.Three, advertising and promotion. Indian companies will need to extend beyond merely putting products on shelf-spaces; they will need to create world-class brands that inspire trust and loyalty.Four,wider portfolio.Indian companies will need to put a wide complement of products in the marketplace, so that the success of one feeds on the offtake of another – and vice versa.At JHS Svendgaard, we have invested with the objective of creating a future-ready company.Even as we are in the process of turning around in the current financial year – the Company was cash-positive in each of the quarters of the last financial year – we are already engaged in aggressive capacity creation and balancing. The Company is investing around C40 crore in additional investment in the creation of a second manufacturing unit and the balancing of capacity at its first unit. This capacity is expected to be commissioned by the end of 2016-17 with the potential to generate an aggregate C500 crore in revenues at peak utilisation.I would like to assure shareholders that in this second coming, we have progressively invested in extensive business derisking.The reinvented JHS will be debt-free coupled with patient equity investors who have provided a significant part of the Company’s precious growth capital.The reinvented JHS will not have any customer accounting for more than quarter of its revenues, compared to our previous incarnation when nearly 80% of our revenues were derived from our largest customer.The reinvented JHS will generate half its revenues from proprietary brands, an excellent revenue shock absorber from unforeseen declines in outsourced volumes.The reinvented JHS has entered into five-year outsourcing contracts with prominent downstream customers as against the erstwhile practice of entering into renewable two-year engagements.The reinvented JHS has rationalised its product portfolio, enhancing focus, specialisation and consequent economies of scale. I am optimistic that in this second coming, JHS Svendgaard will respond with speed and sensitivity to the great Indian consumption boom, not only as an anonymous back-end for some of the most visible Indian brands but as a proud visible player capturing the attractive upside of the Indian consumption journey

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In the Pros " Promoters stake has increased"
In the cons " Promoters stake has decreased"

?

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In my view they should stick to contract manufacturing and focus on increasing supplying to Colgate, Patanjali etc…Branding is risky and expensive and take lot of execution skills.

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I have seen number in past due to FMCG sector but passed as number were not impressive. After reading this thread, I again got curious about the company and its name. How it get name JHS Svendgaard?

While checking on history on moneycontrol, in 2007, I get following description
"-JHS Svendgaard has set up a new subsidiary in the Ras-Al-Khaimah, Free Trade Zone, UAE with the name Jones H Smith FZE."

http://www.moneycontrol.com/company-facts/jhssvendgaardlaboratories/history/JHS01#JHS01

Hence I believe that JHS stands for Jones H Smith. While still need to figure out second part of puzzle i.e. Svendgaard (one of the properietory concern which merged in the company has same, but do not understand whether it is name, place name, technical partner name or what), I was impressed with the Indian ethos of Brand boasted by the manager is described post number 4 by chets. I find really amazing that Indian company first adapt firang name and then boast patriotic trumpet of Bhartiya Brand.

I would see it clearly conflicting signal and would be cuation all investor to take proper due diligence.

Also, find enclosed other group company and Delhi listed company details. As with JHS, that is also consistent in loss making
http://www.sunehari.com/Investors.html

Discl: I have no investment in the company

1 Like
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didnt get you. are you saying that the 206cr+ claim that P&G has made has been accounted by JHS?

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Yes; per my understanding.

Kind regards,
Samir

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so in the unlikely case of P&G winning, there would not be any impact on JHS’s balance sheet and cash flow? also why is it still in contingent liabilities section then?

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My sense is: P&G could ask for damages; we all know how companies write off part and expect a judicial Verdict to save them; provisioning for this is key which they seem to have done.

Kind regards,
Samir

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Had a look at this in 2010 or 2011 I guess. At that time it was recommended by some Bengali teen and I was following him for multibaggers:smiley:

I was not going with fundamentals at that time.Not invested though.

Simple rule-

  1. If the company you think needs to be a multibagger then it should reflect in the quarterly/annual results. just like the famous dialogue from Dirty picture. Entertainment, Entertainment, Entertainment. Same here. Growing quarter by quarter, Quarter by quarter, Quarter by Quarter.
  2. And on top of that after showing loss the share price if also not diving but increasing.

Why to look in a company which is giving abysmal results and to expect that it will turnaround and start giving good results overnight.

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how did you come to conclusion that provisioning has been done. did you find it in any annual report?i am still trying to figure out

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The negatives

  1. It’s a contract manufacturer - Some 2-3 years back P & G cancelled their order citing weak finances
  2. The company is not able to add new players - Capacity Utilization is very low
  3. The major FMCG players are actually not too much concentrated on the products the company manufactures. Most of them are me too products, just to fill the product line
3 Likes
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June 2016 - Q report… they managed to get a profit out of the business. if this continues for another 2 to 3 quarter, then in my opinion this company/business is a turn around story.

http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/A96F8B4B_4A9D_436A_9975_3C49A2212F6C_163034.pdf

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i have been trying to research the company after reading about it here and it “appears” to be very interesting. i have also seen the interviews of the promoter in cnbc tv18 and CNBC Awaaz and it looks promising. what i want to know is if anyone from the east and north india has seen JHS products on shelf? any scuttlebutt possibility ?
As i also follow the technicals closely the stock is very promising on intermediate term charts and therefore, a little excited.

Any scuttlebutt guys?

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Two private equity funds have invested in the company viz.Tano Capital and Sixth Sense Ventures. Their purchase price though is not clear. Any views on their holding?

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i beleive their purchase price was at par, i.e 10rs as they were given warrants as part of debt reduction and restructuring, though six sense was holding some part even before so their average might be little higher. dont recall if tano was holding earlier or not.

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This is a pure Hope Story. Important fact, Tano Mauritius constantly selling in open market.

1 Like
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every company is a hope story especially turnaround ones. also larger investors booking profits are not really a problem. everyone is entitled to do it and ofcourse everyone is free to infer something out of it.
Disc - not invested yet.