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Watchlist #4- Jyoti Resins

  • Jan 10
  • 3 min read
With Watchlist we pen down our broader thoughts on an idea that looks interesting and is worth keeping in one’s watchlist. This week’s idea is Jyoti Resins.

Jyoti Resins is a manufacturer of wood adhesives mainly white glue under the brand- EURO 7000. Based out of Gujarat, the company is one of the leading players in the white glue segment with market share of ~35% in its home state of Gujarat.


White glue is ~$1 billion market in India wherein Pidilite with its Fevicol brand is the market leader. Jyoti with ~Rs300 crores of revenues is a small player in this large market but has scaled its business very well over the years with consistent growth.


The business has grown 10x in last 10-years and 3x in last 5-years;


Up until this point, the company has grown on the back of focusing on the distribution and carpenter side of the business wherein it offered high incentives to its channel partners to push its product.


The company however realized that this strategy was good for scaling the business upto a certain size and beyond that they need to create a customer pull for their brand.


As a result, the company hired Pankaj Tripathi as its brand ambassador last year and has increased its consumer level marketing investments from ~2% of revenues to ~7-8%.


This is a very thoughtful and timely step taken by the company to ensure that the business continues to grow and does not stagnate at a certain scale; which is what happens with most smaller companies.


The reason why Jyoti Resins is an interesting opportunity to track is because currently due to these increased investments in marketing, the margins of the company have taken a hit plus the benefits from these investments will come with a lag and thus overall growth at profits level is not much.


As a result, the stock has seen major consolidation and derating over last few years and is now available at very cheap valuations of ~18x TTM earnings.


But once the margins stabilize in few quarters and benefits of consumer level marketing bear fruits, the company could see improved growth rates which would also result in meaningful re-rating for the stock and thus result in strong upside in the stock price.


The risk here is that the company does not see improvement in growth rates even after the consumer level marketing initiatives and the business stagnates at current revenues. But this is something that market has baked into the current prices and thus purely from stock price basis, downside seems limited here.

So, in summary, we have a small company in a large market with decent leadership and good execution & scaleup history, going through a period of consolidation & low growth available at very cheap valuations.


That’s all for this one; we’ll be back with a new idea next week. Meanwhile readers can access some of our more detailed research and resources here;


Disclosures:
Surge Capital is a trade/brand name used by Ankush Agrawal (Individual SEBI Registered Research Analyst INH000008941) to provide equity research services in the Indian Equity Markets.

“Registration granted by SEBI, Enlistment with RAASB and certification from NISM in no way guarantee performance of the Research Analyst or provide any assurance of returns to investors”

“Investments in securities market are subject to market risks. Read all the related documents carefully before investing.”

“The securities quoted are for illustration only and are not recommendatory”

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