Corporate India | Portfolio Choice - BHARAT FORGE, BURGER KING INDIA, JYOTHY LABS

Portfolio Choice ¹²³ ¹⁵

Published: Aug 29, 2019
Updated: Aug 29, 2019

BHARAT FORGE

BSE ticker code	500493
NSE ticker code	BHARATFORG
Major activity	Other Industrial Products
Managing Director	Baba Kalyani
Equity capital	Rs. 93.13 crore; FV Rs. 5
52 week high/low	Rs. 568 / Rs. 208
CMP	Rs. 557
Market Capitalisation	Rs. 25913.42 crore
Recommendation	Buy at declines

Riding the auto industry rebound

Bharat Forge Limited is engaged in the business of steel forgings, finished machined crankshafts, and front axles assembly and components. The company’s segments include Forgings and Projects (capital goods). In Forgings, the company produces and sells steel forging products comprising forgings, finished machined crankshafts, front axle assembly and components, and ring rolling, among others. Projects (capital goods) include engineering, procurement and commissioning business for power and infrastructurerelated projects. Growth prospects for the company are immense.

Consider:

Bharat Forge manufactures an extensive array of critical and safety components for several sectors, including automobiles (across commercial and passenger vehicles), oil & gas, aerospace, locomotives, marine, energy (across renewable and nonrenewable sources), construction, mining and general engineering. The company has now entered the defence sector and is moving from being a components manufacturer to a complete product maker.
The company’s manufacturing facilities are spread across India, Germany, France and Sweden. It operates in Delhi, Noida, Hyderabad, Jamshedpur, Kolkata, Chennai and Mumbai.
As part of its risk mitigation efforts, Bharat Forge diversified into a variety of industrial sectors, including oil & gas, infrastructure and marine. Some of its largest customers include the Daimler group, the VW group, Meritor and Dana. The company also has an extensive collaboration with major truck manufacturers. Volvo, Daimler, Paccar and Traton have provided positive demand commentaries. After the steep downturn seen in CY20, the HCV segment is expected to grow strongly in CY21 by 15-30% in North America, 10- 20% in Europe and 100%+ in India, owing to freight recovery, growth in orders which typically translate into production with a lag of 2-3 quarters, and low system inventories.
Global and domestic PV segments have already embarked on a path of recovery and further improvement is expected ahead, supported by a recovery in fleet demand, government stimulus measures and a pick-up in economic activity, as per commentaries by manufacturer/ dealer associations for Daimler, Volkswagen and CIE.
The construction equipment segment is expected to pick up in North America and Europe in CY21, driven by better macros, pick-up in mining/housing segments and low system inventories, as per commentaries of Volvo, CNH Industrials and Caterpillar. Further, the tractor segment should improve in North America in CY21 as per John Deere. The Indian tractor segment is also expected to remain in a growth trajectory, as per commentaries of M&M and Escorts.
Bharat Forge will benefit due to its leadership position in automotive forgings, focus on diversification and an expected cyclical recovery in the core segments. The company is reinventing itself as a global engineering entity with a deeper presence across varied sectors in order to be known as one of the best critical and safety components manufacturers.

For the six months, sales fell 44% to Rs 2,530 crore. PAT was down from Rs 207.08 crore to Rs 0.03 crore. We expect the company to register a consolidated EPS of Rs 2.0 for FY21, Rs 15.0 for FY22 and Rs 24.8 in FY 2023. The scrip is trading around Rs 557, which discounts the FY23 EPS by around 22.4 times.

PERFORMANCE INDICATORS (Rs. in crore)

Year	Net Sales	Net Profit	EPS (Rs.)	Div (%)	BV (%)	RONW (%)
2018-19	10145.73	1032.17	22.2	250.00	115.94	19.84
2019-20	8055.84	349.83	8.8	175.00	115.02	8.84
2020-21(E)	6429.82	94.88	2.0	0.00	117.02	5.32
2021-22(E)	8869.23	698.89	15.0	175.00	128.43	11.68
2022-23(E)	10357.09	1156.31	24.8	250.00	148.26	18.97

BURGER KING INDIA

BSE ticker code	543248
NSE ticker code	BURGERKING
Major activity	Restaurants
Chairman	Rajeev Varman
Equity capital	Rs. 381.65 crore; FV Rs. 2
52 week high/low	Rs. 219 / Rs. 10
CMP	Rs. 170
Market Capitalisation	Rs. 6493.77 crore
Recommendation	Buy at declines

Taking ‘quick service’ across India

Burger King India Limited (BKIL) is one of the fastest-growing international quick-service restaurant (QSR) chains in India. It commenced business in November 2014 and opened 200 restaurants in the first 5 years of its operations. BKIL ran 261 Burger King restaurants, including 8 sub-franchised restaurants, across 17 states and union territories and 57 cities across India as of the end of H1FY21. The Burger King brand in India offers a wide range of vegetarian and non-vegetarian burgers and accompaniments through a menu customised to suit Indian tastes across price points, thereby catering to different customer segments. The company is expected to grow at a fast pace in the coming years.

Consider:

BKIL is the national master franchisee of the international brand Burger King in India. Founded in 1954 in the US, Burger King is the world’s second-largest burger chain with approximately 18,000 restaurants operating in more than 100 countries. With an exclusive pan-India master franchise, BKIL is one of the fastest growing QSR chains in the country with robust growth potential in the coming years.
The QSR segment has strong growth potential supported by demographic and socio-economic factors. QSRs and casual dining restaurants (CDRs) comprise 74% of India’s restaurant market as they continue to grow exponentially. The Indian QSR market is projected to grow at a CAGR of over 18% during 2021-2025. This could be attributed to increasing urbanization, an expanding young and working-age population, rising disposable income and a growing number of dual-income families.
New store openings in existing and new cities, and an increase in per store revenue, will drive future growth. BKIL has a majority of its restaurants in the northern region with 131 outlets across 5 cities, accounting for 50% of the company’s topline. The northern region contains India’s largest urban agglomeration of the National Capital Region (NCR) as well as Tier II cities which are important commercial hubs with a large number of younger working-age people residing there. This presents further expansion opportunities for BKIL in the region. With a relatively lower presence currently, the western and southern regions (together accounting for 47% of the company’s revenues) present BKIL with a significant scope to expand geographically
Expansion through cluster penetration will generate operating leverage and margin growth. BKIL follows a cluster approach to penetrate and expand in geographical markets. The company identifies high-traffic locations within an urban agglomeration to roll out multiple outlets within that cluster
Small-sized stores and a delivery-focused expansion strategy offer stronger scalability potential. The area of BKIL’s restaurants ranges from 400 sq ft to 4,000 sq ft. The size of an outlet depends on its format/location, i.e., high street, shopping mall, food court, drive-through and transit location. The average size a BKIL restaurant is 1,300- 1,400 sq ft, which is half the average McDonalds store size of 2,600-3,200 sqft. The smaller average store size will allow nimble expansion and keep lease and other overhead costs lower

We expect the company to register a consolidated EPS of Rs 5.7 for FY21 and Rs 1.0 in FY22. The scrip is trading around Rs 170. The company can break even in FY 2023.

CONSOLIDATED PERFORMANCE INDICATORS (Rs. in crore)

Year	Net Sales	Net Profit	EPS (Rs.)	BV (%)	RONW (%)
2018-2019	632.75	38.55	1.0	9.42	15.33
2019-2020	841.29	77.58	2.0	9.92	26.22
2020-2021(E)	441.81	215.82	5.7	9.14	18.21
2021-2022(E)	1265.19	39.10	1.0	10.42	6.46

JYOTHY LABS

BSE ticker code	532926
NSE ticker code	JYOTHYLAB
Major activity	Household Products
Managing Director	M P Ramachandran
Equity capital	Rs. 36.72 crore; FV Rs. 1
52 week high/low	Rs. 165 / Rs. 86
CMP	Rs. 150
Market Capitalisation	Rs. 5498.82 crore
Recommendation	Buy at declines

Pole player in fabric whiteners

Jyothy Labs, formerly known as Jyothy Laboratories Limited, is a multi-brand, multi-product company focused on the fast-moving consumer goods industry. The company is mainly engaged in manufacturing and marketing of fabric whiteners, soaps, detergents, mosquito repellents, scrubbers, bodycare and incense sticks. It operates through three segments: Soaps and Detergents (which includes fabric whiteners, fabric detergents, dishwash bars and soaps, including ayurvedic soaps), Home Care products (which includes incense sticks, scrubbers, dhoop and mosquito repellents), and Others, which includes bodycare, tea and coffee. Its products are under various brands, which include Henko, Mr White, Ujala, More Light, Chek, Pril, Exo, Maxo, Margo, Fa, Neem, Fabric Spa, Snoways, Busy Easy and Wardrobe. The company’s prospects are highly encouraging.

Consider:

JLL has a leadership position in the fabric whitener segment in India, whereas it ranks number two in the dishwash bar, liquid, and mosquito repellent coil categories. Going forward, long-term strategies undertaken to enhance growth include winning through innovations in the fabric wash segment, leveraging rural penetration in the dishwash segment, increasing its footprint, and relevant extensions in the household insecticide (HI) and personal care segments. Its large presence in the essential and hygiene segment will help the company drive near-term growth in the continuing pandemic situation. Resurgence in the HI segment will help drive growth in the medium term.
Brand extension or new product launches remain one of the core growth strategies for the company. JLL launched Exo Bio Fresh, a 100% organic vegetable and fruit cleaner, in response to market demand in Kerala in Q2FY21. Both products are gaining good traction since their launch. The company also sells products such as floor/toilet cleaners in the southern markets, which have gained good traction in the recent past. The company expects the contribution from new product launches to be 3%-5% in the coming years.
The company currently has a distribution reach of 8 lakh direct outlets and 3 million indirect outlets. It is focusing on optimising its existing distribution reach along with a steady increase in the reach in the coming years. The company is focusing on increasing revenue per store (sale of 3 lines instead of 2 lines; or sale of 12 bottles of a particular product from 6 bottles earlier) and is regularly following up with the stores’ requirement of any product. In rural markets, the large focus would be on expanding zone-wise reach through the stockist and sub-stockist model.
The company is maintaining inventory levels of 2- 3 weeks with trade partners, compared to 4-5 weeks prior to the pandemic. JLL’s net working capital has improved significantly from 23 days in H1FY20 to 17 days in H1FY21. All goods are sold on a cash-and-carry basis. With wholesale and CSD channels expected to come back on track, the company expects working capital days to stay at 20-21 days in the near term.
With double-digit growth likely to sustain in categories such as dishwashing and personal care and 100% recovery in the core fabric whitener category, the management is confident of maintaining a steady growth momentum in the second half of FY 2021.

In the September 2020 quarter, revenue grew 6.2% (FMCG sales up by 7.6% and volume up by 8.5%). PAT at Rs 60.1 crore, as against Rs 53.6 crore, increased by 12.2%. For the six months, sales grew 4.5% (FMCG sales up by 6% and volume up by 7.3%). PAT increased 21% to Rs 110.1 crore. We expect the company to register an EPS of Rs 4.0 for FY21 and Rs 6.5 in FY22. The scrip is trading around Rs 150.

PERFORMANCE INDICATORS (Rs. in crore)

Year	Net Series	Net Profit	EPS (Rs.)	Div (%)	BV (%)	RONW (%)
2018-19	1814	198	5.4	300.00	23.25	22.62
2019-20	1711	159	4.3	300.00	20.24	21.72
2020-21(E)	1861	201	4.0	200.00	23.71	20.22
2021-22(E)	2125	242	6.5	300.00	27.30	21.68

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Portfolio Choice 123 15

BHARAT FORGE

Riding the auto industry rebound

BURGER KING INDIA

Taking ‘quick service’ across India

JYOTHY LABS

Pole player in fabric whiteners

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