Event Update

22 n d March 2011

Jyothy Laboratories

Company Update

Key Take Away CMP Recommendation Rs 203 BUY

The Event: Jyothy Laboratories Ltd. has bought 14.9% or, 1,73,51,686 shares at Rs 35 each of Henkel India Ltd from Tamil Nadu Petro Products Ltd (TNPL). The entire transaction is all cash deal amounting to Rs 60.73 crore. Jyothy Laboratories will also participate in the bidding process to gain Henkel AGs 50.9% stake in Henkel India Ltd. The funding: Jyothy will use funds raised from its recent QIP issue and other internal accruals for the acquisition.

Scrip Details Market Cap (Rs crores) P/E (x) FY13E Mkt Cap/Sales FY13E 1637 13.3 1.6

Equity Capital (Rs crores) 8.1 Face Value (Rs) 1.0 52 Week High/Low (Rs) 322.8/162 Website: www.jyothylaboratories.com NSE Code JYOTHYLAB Sensex 17839 Nifty 5364

About Henkel India Ltd - Henkel India Ltd., established in 1987 is a subsidiary of Henkel AG & Co. KGaA, Germany. Headquartered at Chennai in India, Henkel India Ltd., operates in business areas of Laundry, Home Care, Cosmetics, Toiletries and Hair Care. It comprises of national and international brands such as Pril, Henko, Fa, Margo, Mr. White, Chek, Bref, Igora Royal, BC Bonacure, Strait Therapy, Glatt & Natural Styling and Osis. Reasons for Street disappointment

Shareholding Pattern (%) As on December 2010 Promoters MFs, FIs & Banks FIIs Other Bodies corporate Public and others

63.1 17.7 13.0 2.4 3.7

The acquisition will be EPS dilutive initially. Henkel India is suffering from losses. It has witnessed consolidated net loss of Rs 51.8 crores in CY10. Their accumulated loss stands at Rs 365.7 crores. Jyothy Laboratories is a debt-free company. Huge Debt (~Rs 454 crores) of Henkel India is expected to drag down the financials of Jyothy Laboratories in the form of Interest cost burden in P&L. Henkel India also has got a Rs 68 crore preferential allotment from the parent, which may be adding up to the debt. In a bid to buy out the German parents - Henkel AG balance 50.9% stake, Jyothy Laboratories runs the risk of being caught in a bidding war that may increase its acquisition cost.

Reasons for our positive stance

Comparative Price Movement

Analyst: Nisha Harchekar Email: nishaharchekar@way2wealth.com Contact: 022 40192900

Synergy- Both Jyothy Laboratories Ltd and Henkel India have synergy in various business segments, as both are present in Home Care, Fabric Care, Dish wash, Personal Care and Household cleaning segments. This is expected to result in synergies in branding and manufacturing. The acquisition will help to strengthen Jyothy Laboratories urban distribution network, as Henkel has a strong presence in modern retail formats. Faith in the management capability. The management has the ability to turnaround the business operations. If the two firms merge, the accumulated losses of Henkel India will come handy to save on taxes. Opens the path for new categories of products such as deodorants, toothpaste and hair care.

Our View: In order to gain meaningfully out of the acquisition, it is very important for Jyothy Laboratories to acquire the remaining 50.9% stake. We believe that the acquisition could be a game changer for the Jyothy Laboratories. At the CMP of Rs 203, the stock quotes at P/E of 15.9x and 13.3x its FY12E and FY13E EPS of Rs 12.8 and Rs 15.2. BUY.
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Event Update

Henkel India- Financials

Henkel India (Rs crore) (YE December 31) Net Sales Raw Materials Cons. % to Net Sales Stock adj.(-)Inc/(+)Dec % to Net Sales Net Raw Mat adj. for stock % to Net Sales Purchase of traded goods % to Net Sales Other expenses % to Net Sales Contribution % to Net Sales Personnel % to Net Sales Total expenditure Operating Profit OPM (%) Non-Operating Income Interest Gross Profit GPM (%) Depreciation PBT before Extra-ord PBT (%) Less: Extraord. Exp PBT Prov. for Tax- Cur Tax/PBT (%) Profit after Tax PAT (%) PAT (adj. For extraord) Face Value Equity Share capital EPS (Rs.) EPS (adj. for extraord) CEPS (Rs.) Q4CY10 97.1 21.3 21.9% 14.6 15.0% 35.9 37.0% 22.4 23.0% 37.6 38.7% 1.3 1.3% 3.9 4.0% 99.8 -2.6 -2.7% 5.1 3.4 -0.9 -0.9% 1.4 -2.3 -2.4% -2.3 0.0% -2.3 -2.4% -2.3 10.0 116.5 -0.2 -0.2 -0.1 Q4CY09 73.4 15.2 20.7% 8.4 11.4% 23.6 32.1% 31.4 42.8% 7.9 10.8% 10.5 14.3% 2.6 3.6% 65.5 7.9 10.7% 8.2 3.4 12.7 17.2% 1.5 11.2 15.2% 33.5 -22.3 0.0% -22.3 -30.4% -0.6 10.0 116.5 -1.9 0.0 -1.8 % Chg. 32.3% 39.9% 74.4% 52.2% -28.7% 373.5% -87.5% 50.6% 52.2% -133.3% CY10 CY09 Consolidated 533.9 592.3 138.5 173.4 25.9% 29.3% 4.9 1.7 0.9% 0.3% 143.3 175.2 26.8% 29.6% 150.0 145.1 28.1% 24.5% 227.7 239.1 42.6% 40.4% 12.9 33.0 2.4% 5.6% 35.2 35.1 6.6% 5.9% 556.2 594.4 -22.3 -2.2 -4.2% -0.4% 5.4 28.9 -45.8 -8.6% 6.0 -51.8 -9.7% -51.8 0.0% -51.8 -9.7% -51.8 10.0 116.5 -4.5 -4.5 -3.9 10.2 25.9 -17.9 -3.0% 6.3 -24.1 -4.1% 33.5 -57.6 0.0% -57.6 -9.7% -35.8 10.0 116.5 -4.9 -3.1 -4.4 % Chg. -9.9% -20.2% 183.6% -18.2% 3.4% -4.8% -60.8% 0.3% -6.4% 936.7%

-37.1% 2.1% -107.3% -6.0% -121.0%

-47.3% 11.5% 156.4% -3.4% 115.0%

-89.5%

-10.0%

-89.5% 309.4%

-10.0% 44.7%

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Event Update

Segment Revenue (Rs crore) Detergents & Cleansers Cosmetics Less: Inter-segment Revenue Net Sales Segment results (PBIT) Detergents & Cleansers Cosmetics Total Less: Interest other unallocable expn PBT Extraord. Inc (+) / Expn (-) PBT Capital Employed Detergents & Cleansers Cosmetics Total

Q4CY10 70.8 26.3 97.1

Q4CY09 48.4 25.0 73.4

% Chg. 46.2% 5.5% 32.3%

CY10 351.3 182.6 533.9

CY09 390.9 201.4 592.3

% Chg. -10.1% -9.3% -9.9%

-1.4 -1.9 -3.32 3.44 -4.41 -2.35 -2.35

4.2 2.2 6.4 3.4 -8.2 11.2 -33.5 -22.3

-133.7% -188.4% -152.3%

-121.1% -89.5%

-19.7 -7.9 -27.6 28.9 -4.7 -51.8 -51.8

-5.5 -2.9 -8.4 25.9 -10.2 -24.1 -33.5 -57.6

256.3% 175.2% 228.7%

115.0% -10.0%

292.6 102.7 395.3

268.5 138.3 406.8

9.0% -25.7%

219.5 73.0 292.5

182.0 93.7 275.7

20.6% -22.1%

15/A Chander Mukhi, Nariman Point, Mumbai - 400 021. Tel: +91 22 4019 2900 email: research@way2wealth.com website: www.way2wealth.com

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Event Update

Jyothy Laboratories- Financials

INCOME STATEMENT
FY09 Revenues Total Expenditure Operating Profit Dep. & Amortisations EBIT Interest EBT Other Income Extraordinary Items PBT Tax PAT Minority Interest Net profit Revenue Growth % Op. Profit Growth % PAT Growth % 363.5 314.7 48.8 7.5 41.3 0.7 40.6 7.6 0.0 48.2 10.0 38.1 -0.99 38.4 -4.2% -20.0% -25.7%
FY09 49.0 7.5 -5.5 -13.1 8.0 29.9 13.7 0.0 11.3 16.2

BALANCE SHEET
FY12E 854.5 712.6 141.8 17.1 124.8 1.0 123.8 14.0 0.0 137.8 34.4 103.3 0.30 103.0 21.4% 25.2% 14.7%
FY12E 137.8 17.1 1.0 -5.7 27.6 122.6 25.0 0.0 139.8 97.6

FY10 598.1 506.3 91.8 12.4 79.4 1.7 77.7 13.0 4.8 95.5 21.7 73.9 -0.27 74.2 64.5% 88.3% 93.7%
FY10 80.9 12.4 1.7 -29.2 15.7 50.2 32.7 12.9 7.9 30.3

FY11E 703.6 590.3 113.3 13.4 99.9 1.0 98.9 12.0 4.8 115.7 25.7 90.0 0.30 89.7 17.6% 23.4% 21.9%
FY11E 110.9 13.4 1.0 -33.3 22.2 69.8 25.0 0.0 7.3 44.8

FY13E 1014.8 844.3 170.5 20.3 150.2 1.0 149.2 15.0 0.0 164.2 41.0 123.1 0.30 122.8 18.8% 20.2% 19.2%
FY13E 164.2 20.3 1.0 -25.9 32.8 126.7 20.0 0.0 24.7 106.7
Equity Share Capital Reserves & Surplus Networth Total debt Deferred tax liability MI Capital Employed Gross Fixed Assets Net Fixed Assets CWIP Investments Current Assets Current Liabilities Net Current Assets Misc exp not w/off Total Assets

FY09 7.3 339.6 346.9 0.5 10.5 0.3 358.1 247.6 200.4 11.0 0.2 214.0 67.6 146.4 0.1 358.1

FY10 7.3 380.5 387.8 13.0 13.3 0.5 414.6 293.0 233.6 4.1 0.0 301.6 124.9 176.8 0.0 414.6

FY11E 8.1 671.1 679.2 12.9 15.5 0.0 707.6 318.0 245.2 0.0 238.1 335.5 73.0 224.2 0.0 707.6

FY12E 8.1 739.2 747.3 12.9 24.2 0.0 784.4 343.0 253.2 0.0 160.0 497.0 89.0 371.2 0.0 784.4

FY13E 8.1 681.0 689.1 12.9 28.5 0.0 730.4 363.0 252.9 0.0 60.0 563.9 105.3 417.5 0.0 730.4

CASH FLOW
Operating cash earnings Depreciation Interest Change in WC Tax paid CFO Net Capex Net Borrowings Net Chg. in cash FCFE

VALUATION PARAMETERS
FY09 EPS (Rs) P/E Ratio Book Value P/BV CEPS (Rs) Dividend % DPS Dividend Yield 5.3 38.4 47.8 4.2 6.6 200.0% 2.0 1.0% FY10 10.2 19.9 53.4 3.8 12.3 400.0% 4.0 2.0% FY11E 11.1 18.2 84.2 2.4 13.3 500.0% 5.0 2.5% FY12E 12.8 15.9 92.7 2.2 15.8 500.0% 5.0 2.5% FY13E 15.2 13.3 85.5 2.4 18.8 550.0% 5.5 2.7%

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Event Update

RESEARCH TEAM
K.N.Rahaman Jigisha Jaini Nisha Harchekar Sejal Jhunjhunwala Abhishek Kothari Krishna Reddy MSR Prasad Ritu Gupta Aditya Agarwal Amrut Deshmukh Yogesh Wadhwani Arun Kumar Deputy Research Head Sr. Research Analyst Sr. Research Analyst Sr. Research Analyst Research Analyst Research Analyst Research Analyst Research Analyst Sr. Derivative Analyst Sr. Technical Analyst Technical Analyst Technical Analyst Contact Equities & Commodities Capital Goods & Engineering FMCG, Hotels, Media Auto, Shipping & Metals Banking, NBFC & Financial Services Commodities, Economic Update Commodities Mutual Funds Derivative Strategist & Technicals Technical Analysis Technical Analysis Technical Analysis - Commodities rahaman@way2wealth.com jigishajaini@way2wealth.com nishaharchekar@way2wealth.com sejal@way2wealth.com abhishekkothari@way2wealth.com krishnareddy@way2wealth.com Prasad.m@way2wealth.com ritugupta@way2wealth.com aditya@way2wealth.com amrut@way2wealth.com yogeshw@way2wealth.com Arun.Kumar @way2wealth.com

022-40192900

15/A Chander Mukhi, Nariman Point, Mumbai - 400 021. Tel: +91 22 4019 2900 email: research@way2wealth.com website: www.way2wealth.com

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Event Update

DISCLAIMER
Analyst Certification: I, Nisha Harchekar, the research analyst and author of this report, hereby certify that the views expressed in this research report accurately reflect our personal views about the subject securities, issuers, products, sectors or industries. It is also certified that no part of the compensation of the analyst(s) was, is, or will be directly or indirectly related to the inclusion of specific recommendations or views in this research. The analyst(s), principally responsible for the preparation of this research report, receives compensation based on overall revenues of the company (Way2Wealth Brokers Private Limited, hereinafter referred to as Way2Wealth) and has taken reasonable care to achieve and maintain independence and objectivity in making any recommendations. Disclaimer This report is for the personal information of the authorized recipient and does not construe to be any investment, legal or taxation advice to you. 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