Promoters of Jyothy Laboratories sold a 4% stake in the company on Friday that would help them reduce the pledge of shares, even as the maker of Ujala fabric whitener is seeking to become debt-free by March 2021. However, with weak results for the September quarter, low return on equities compared with peers and weak presence in high-growth North Indian market make the company’s stock unattractive at the current price, said analysts.
Shares of Jyothy Lab ended 1.03% lower at Rs 173.35 on Friday, and is down 18% so far this year. Analysts see limited upside for the stock from the current levels.
The pace of estimated earnings growth at a compounded annual rate of 18% between FY2019 and 2021 is moderate for a company which is much smaller in terms of size compared with its midcap peers, said Krishnan Sambamoorthy of Motilal Oswal Financial Services. “ROE is also at a discount to peers at 16.7%/ 19.2% in FY20/FY21,” he said. “Valuation of 17.3 times FY 2021 EV/EBITDA and 22 times FY 2021 EPS does not offer scope for any significant upside”.
Promoters held a 67.11% stake as on September 30, of which 24.96% was pledged. They sold 4% of the company worth Rs 260 crore to pay off the debt which was there against the shares, said company officials. “With that, now only 6% of the promoter’s stake will be pledged and the rest will be paid off with this transaction. Post this transaction, promoters’ stake declined from 67.1% to 63%,” joint managing director Ullas Kamath told ET Now. “The company and promoters will be debt-free by March 2021.”
