JFSL - Bangalore. Retail (~10% of the volume)

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1 Jyothy Laboratories Ltd. 06 March 2012 JFSL s facility visit in Bangalore Jyothy Fabricare Services Ltd. (JFSL) is a subsidiary of Jyothy Laboratories Ltd. (JLL) that provides fabric care service to both institutional and retail customers. Floated in 2009 by JLL, JFSL currently is one of the biggest laundry chains in India. IL&FS has agreed to invest Rs 1,000 mn (Rs 500 mn released so far) for ~25% equity interest in JFSL. In addition to this, JLL s promoters too have personal investments in JFSL. With revenue CAGR of 60% over FY12-15E and potential operating margin profile of 30% by FY15, JFSL is expected to boost consolidated earnings going forward. We visited JFSL s Main Service Station MSS (processing unit), Quick Service Station QSS (retail-outlet-cum-small-processing-unit) and Collection and Delivery Centre CDC (retail outlet) in Bangalore. JFSL s business is modeled across institutional and retail customers (segments) with 90% volume coming from the institutional segment (margin to increase with change in volume mix). While the institutional business is seen as one segment, retail is further distributed across three verticals in Bangalore (Fabricspa, Fabricspa busyeasy and Snowways). The other two brands JFSL runs in Bangalore are Akash and EXPERT. Service positioning structure JFSL Bangalore JFSL - Bangalore Retail (~10% of the volume) Intstitutional (~90% volume) Fabricspa Fabricspa 'busyeasy' Snoways (acquired) Akash (acquired) EXPERT (acquired) Services offered to Railway, Hotels, Airline, etc. JFSL s service offerings across India (ex-bangalore) City Service Brand Outlet Mumbai Fabricspa 3 Akash 4 Delhi Wardrobe 61 Chennai Fabricspa 2 Pune Dhulaai 2

2 Operational model JFSL has structured its Bangalore operation as shown in the following chart. The Main Service Station is a large-scale processing unit spread over 44,000 sq ft facility with washing capacity of 12 tons. The washing process is automated with limited manual interference. Washing is scheduled post aggregation of garments from various outlets (CDC, QSS, Hub and Institutions). CDC is an outlet for JFSL to collect and deliver garments. In addition to this, JFSL s QSS has a small procession unit (8-10 kg capacity). Quick service is delivered within four hours with premium of 50%. JFSL s busyeasy proposition is a brand extension of Fabricspa that operates on a hub and spoke model. The company has two operating hubs in Bangalore. The Institutional business is a negotiated business with relatively higher visibility of order flows. Fabric care operational model in Bangalore Institutional CDC Fabricspa, Snoways, Akash and EXPERT Garments delivered from collection center to MSS is executed in 24 hours time (8.00 PM to 8.00 PM) Hub for 'busyeasy' - a call base service MSS QSS (Fabricspa and Snoways) has a small processing unit (charge 50% extra to deliver in 4 hrs) Customer delivery cycle may vary from 24 hrs to 48 hrs time Smaller quantity can be process in QSS at a premium of 50% Why JFSL thinks fabric care is a Big opportunity? 1) No organised laundry in India compared with the western world 2) Hygienic washing condition it is just a matter of time when people will recognise the importance of hygiene in washing 3) Aggressive promotion of call services ( busyeasy proposition for busy professionals) 3) Buyout of smaller units 4) BOOT agreement with railways According to a KPMG study (The Outlook for Dry Cleaning and Laundry Services), demand for pan-india laundry services is estimated at Rs. 52,000 mn. Further demand would come from people who are currently handling laundry at home and is estimated at additional Rs. 13,000 26,000 mn. Since laundry services are focused on Metros and urban areas, the potential for fabric care is believed to be immense.

3 Insight JFSL s MSS claims to have a 12 ton operational capacity at 80% utilisation Assuming a washing time cycle of an hour and 20 operational hours, JFSL s Bangalore MSS is capable of washing 12 tons of garments every day. The following table presents the working for the same. Sr. No. Capacity (Kg.) No. of machine Total machine capacity (Kg.) Total machine 80% loading (Kg.) Total (A) 600 Operational hours assumed (B) Washing time cycle assumption (C) 20 hrs 1 hr Operational capacity (D=A x B / C) Operational capacity (D/1000) Kgs 12 tons Output boost with higher loading or improving efficiency JFSL s plant output can increase based on the estimate of the load at a given point of time. While a 12-ton plant capacity is estimated at an utilisation level of 80%, incremental loading (which is technically possible) is likely to increase output. As shown in the table below, a 12-ton output at 80% loading increases to 14 tons on 95% machine loading. Further, a change in operational assumptions (through efficiency) is expected to improve plant output (see table below). Particulars 80% loading (Kg.) 90% loading (Kg.) 95% loading (Kg.) Total (A) Operational hours assumed (B) Washing time (hr.) cycle assumption (C) Operational capacity (D=A x B / C) Kg Kg Kg Operational capacity (D/1000) 12 ton 14 ton 14 ton Change in operational assumptions Operational hours assumed (E) Washing time (hr.) cycle assumption (F) Operational capacity (G=A x E / F) 14,000 Kg 15,375 Kg 15,833 Kg Operational capacity (G/1000) 14 ton 15 ton 16 ton

4 Distribution of garments and plant load across the week Load distribution The load between Institutional and retail differs based on the consumption pattern across corporate accounts and individuals. As shown in the table below, institutional load is heavy during weekends as against the retail push during the beginning of the week. Segment Monday Tuesday Wednesday Thursday Friday Saturday Sunday Institutional Retail Peak load Relatively lower load Estimated distribution of quantity across segments Currently institutional volume is estimated at ~90% of total daily volume. JFSL s Bangalore unit is estimated to process 39,000 institutional garments per day whereas the retail unit is estimated to process 4,000 garments per day. Segment Monday Tuesday Wednesday Thursday Friday Saturday Sunday Average Institutional (No.) 35,000 32,500 32,500 30,000 45,000 49,000 49,000 39,000 Retail (No.) 4,500 4,400 4,200 4,100 3,800 3,700 3,600 4,043 Load consumption estimate based on average garments processed Average weight for institutional and retail garments is estimated at 270 gram and 250 grams respectively. Based on these estimates, average output is estimated at 11.5 tons. Segment Average garment processed (No.) Composition (%) Average weight (gms/garment) Total weight (tons) Institutional % Retail % Total Estimated daily distribution of plant load capacity Plant capacity utilisation changes based on volumes processed. Given higher volume processed during weekends, plant utilisation increases to 14 tons as against 12 ton operational capacity reported by JFSL. Segment Monday Tuesday Wednesday Thursday Friday Saturday Sunday Institutional (ton) Retail (ton) Total

5 Direct cost economics Direct cost in fabric care services of JFSL s scale in Bangalore includes fuel to produce steam, labour, washing agents and chemicals and logistics. Direct cost estimate across the segment and verticals The table below present average realisation and direct cost related to various segments. Based on these estimates, gross margin for the institutional business is derived at 36%. Gross margin for retail business is 52 75%. At the consolidated level, JFSL realises gross margin of 58%. Segments Realisation (Rs) Direct cost (Rs) Institutional/ Kg Retail Fabric Spa/ piece Fabric Spa - 'busyeasy'/piece Snoway/piece Per Kg. cost analysis based on current volume mix (estimated at Rs 6/kg) Working represented in the table. Segments/vertical Average garment processed (No.) Average weight (gms/garment) Total cost (Rs) Institutional 39, ,480 Fabric spa ,000 Fabric spa - 'busyeasy' 1, ,000 Snoways 1, ,800 Total 43, ,280 Direct cost per Kg. 6 Fuel economics JFSL s Bangalore unit runs on agro-based fuel (briquettes) entailing fuel expenses of Rs 4-5 to wash one kilo of garments. The Delhi unit, which use diesel (fuel cost of approx. Rs to wash one kilo of garments) as primary source of fuel due to regulatory compulsion, is making loses. Fuel economics Rs per Kg. wash of garment Agro based fuel (Briquettes) 4-5 Diesel 10-12

6 16 August 2011 GSPL Disclaimer: I-Fin Disclaimer: All information/opinion contained/expressed herein above by I-Fin has been based upon information available to the public and the sources, we believe, to be reliable, but we do not make any representation or warranty as to its accuracy, completeness or correctness. Neither I-Fin nor any of its employees shall be in any way responsible for the contents. Opinions expressed are subject to change without notice. This document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this document. This document is for the information of the addressees only and is not to be taken in substitution for the exercise of judgment by the addressees. All information contained herein above must be construed solely as statements of opinion of I-Fin at a particular point of time based on the information as mentioned above and I-Fin shall not be liable for any losses incurred by users from any use of this publication or its contents. Analyst declaration: I, Girish Raj, hereby certify that the views expressed in this report are purely my views taken in an unbiased manner out of information available to the public and believing it to be reliable. No part of my compensation is or was or in future will be linked to specific view/s or recommendation(s) expressed by me in this research report. All the views expressed herewith are my personal views on all the aspects covered in this report. I-Fin Investment Rating: The ratings below have been prescribed on a potential returns basis with a timeline of up to 12 months. At times, the same may fall out of the price range due to market price movements and/or volatility in the short term. The same shall be reviewed from time to time by I-Fin. The addressee(s) decision to buy or sell a security should be based upon his/her personal investment objectives and should be made only after evaluating the stocks expected performance and associated risks. Key ratings: Rating LARGE CAP MID CAP Market Cap >= Rs 100 bn Market Cap < Rs 100 bn BUY (B) > 15% > 25% Hold (H) 5-15% 10-25% SELL (S) < 5% < 8% Not Rated (NR) Not initiated coverage on the stock IFIN: IFCI Financial Services Limited Corporate Office: 'Continental Chambers', III Floor 142, Mahatma Gandhi Road Nungambakkam Chennai Tel: Fax: Mumbai Office: 2B (1), Gr. Floor, Filmcentre 68, Tardeo Road Mumbai Central I Mumbai Tel: sales@ifinltd.in Website: IFIN reports are also available on the Bloomberg [IFCI <GO>] 2