Overview

Jyoti Resins and Adhesives Limited (JRAL), founded in 1994 by Mr. Jagdish Patel, is a prominent manufacturer of synthetic resin adhesives in India. Their flagship product, EURO 7000, is the second-largest-selling wood adhesive in the Indian retail market. JRAL's manufacturing facility in Santej, Ahmedabad, began with a capacity of 1,000 tons per month, which has since doubled to 2,000 tons to meet rising demand.

The company's product range includes white glues for various applications, such as anti-termite, waterproof, fast-drying, and multipurpose adhesives, available in sizes from 500 grams to 70 kilograms. Recent innovations include the launch of Extreme 3 Hi-Strong, EURO EWR, and EWR D2+, showcasing JRAL’s focus on product advancement.

JRAL's distribution network spans 35 branches, 60 distributors, and a 400-member sales team, covering 14 states and reaching 12,000 retailers. With 75-80% of sales concentrated in Gujarat, Rajasthan, Madhya Pradesh, Maharashtra, and Karnataka, the company is expanding into Delhi and Uttar Pradesh to drive growth.

JRAL's carpenter loyalty program, with 350,000 registered carpenters, is among the industry's best, offering a points-based rewards system through a dedicated app. This program enhances customer loyalty and strengthens JRAL’s market position.

Promoter Analysis

Jagdish N Patel

• He owns 15.22% of the company

• Chairman, and Whole Time Director

• He is a first-generation entrepreneur and started this company in 1994

•  More than 25 years of experience in Leadership, Strategic Planning, Technical expertise, Production, Corporate Affairs, and Policy decision-making

Utkarsh J Patel

• He owns 10.56% of the company

• Executive Director, joined the business, after completing his Chemical Engineering and Management courses in Marketing and International Business Management.

• Currently driving the business on all fronts and has been instrumental in the operational turnaround of the company.

  
  

Financial Performance FY2024

FY24 vs FY23

• Total Revenue at ₹ 2,573 Cr. v/s ₹ 2,612 Cr. in FY23 (-5.1% YoY)

• EBITDA at ₹ 839 Cr. v/s ₹ 606 Cr. in FY23 (+38.4% YoY)

• EBITDA Margins at 32.6% v/s 23.2% in FY23 (+940 Bps YoY)

• PAT at ₹ 671 Cr. v/s ₹ 464 Cr. in FY23 (+44.5% YoY)

   

Q1FY25 vs Q1FY24

• Total Revenue at ₹ 69.1 Cr. v/s ₹ 61.2 Cr. in Q1 FY24 (12.9% YoY)

• EBITDA at ₹ 23.4 Cr. v/s ₹ 21.3 Cr. in Q1 FY24 (+9.9% YoY)

• EBITDA Margins at 33.9% v/s 34.8% in Q1 FY24 (-90 Bps YoY)

• PAT at ₹ 18.7 Cr. v/s ₹ 15.7 Cr. in Q1 FY24 (+19.1% YoY)

  
  

Investment Thesis

1.     Brand Leadership

The “EURO7000” brand is the second-largest brand of high-grade and premium synthetic resin adhesives in India. As of FY24, it holds significant market shares in several states, with 30-35% in Gujarat, 30% in Rajasthan, and 20% in Maharashtra.

2.     Margin Resilience Amid Raw Material Volatility:

The volatility in raw material prices (specifically Vinyl Acetate Monomer) can potentially impact JRAL's margins. However, we anticipate the company maintaining an EBITDA margin of 22% to 25% over the next 3 years, despite the occasional fluctuations observed in the past 12-18 months.

3.     Planned Capex and Expansion Initiatives:

JRAL has planned a capital expenditure of ₹ 30-35 Cr. for FY25. The company aims to increase its capacity from 2,000 tons to 5,000 tons, pending environmental clearance. Additionally, they are establishing a new warehouse to improve storage capabilities for both raw materials and finished goods.

4.     Healthy Returns and Financials:

JRAL targets maintaining a ROE of ~35%. The company is committed to remaining debt-free, generating positive operating and free cash flows, and keeping liabilities for expenses below 30-35% of revenue.

5.     Operational Efficiency and Growth Potential:

As of FY24, the company is operating at 55% capacity utilization, indicating significant room for growth. JRAL aims to increase utilization to 70-90% to achieve a revenue target of ₹ 500 Cr. while maintaining an asset turnover of 8x.

6.     Growth Targets and Profitability Goals:

We project a 20-25% CAGR in volume over the next 3 years. For FY25, the company aims to achieve a 20% increase in revenue while focusing on enhancing profitability. However, we anticipate stable profitability margins at 23.5%. 

Valuation and Recommendation

We value Jyoti Resins at 25x FY2027E Earnings Per Share (EPS) of ₹ 69, with a target price of ₹ 1,736, a projected upside of 24% over the next 12-18 months.

We recommend a "BUY" rating on JRAL based on its dominant market position, sustained operating margins, and net debt status.