Monday, July 14, 2014

Lykis Ltd : New Kid on the FMCG Block

Lykis Ltd (‘Lykis”) is a small sized FMCG player listed on the Bombay Stock Exchange (Bse Code : 530689, MCap : ~ 50 Cr) . The company was originally incorporated as a partnership firm by Banwarilal Sutodiya & others under the name and style of Sutodiya & Company in 1965, to carry out the business of tea plantation & processing. The firm was converted into Private Ltd Company on 15th October 1984, and the name of the Company was changed to Greenline Tea & Exports Private Limited . It was converted into Public Limited Company on 27th October the same year. In 1995, the company (then known as Greenline Tea & Exports Ltd) came out with a public issue (IPO) & listed on the Bombay Stock Exchange. Since it’s inception, the company has been engaged in the business of tea plantation & processing at it’s Tea Garden, Iringmara Tea Estate, having a total grant area of 952,000 hectares, situated at Silchar, Assam.

Transfer Of Management Control, Entry into FMCG business :
Between late 2010 to late 2011 , the company underwent a transfer of control that finally culminated in Mr Vijay Kishanlal Kedia taking management control of the company. Mr Prince Tulsyan was appointed as the MD of the company for a period of 5 years ending 2016. 

The new management announced it’s decision to enter into the FMCG space including Food, Pharma and Cosmetics , even while continuing to grow the existing Tea business. 

In early 2012 the new management allotted equity & warrants to themselves & external investors , in order to fund the expansion plans of the company. The name of the company was changed to Lykis Limited (”Lykis”). The company brought two associate companies of the promoter group, Lykis Pharma Private Limited (75% stake) and Jin-X Marketing Private Limited (50% stake) under it’s umbrella as subsidiaries with effect from August 01, 2012. 

Lykis today covers a wide spectrum of FMCG & OTC Pharma products , listed in the table below. The company manufactures a few of it’s products, while getting most of the products sub-contracted (asset light model). The company has concentrated it’s marketing push thus far on 2nd & 3rd tier towns & cities in India - which are witnessing a huge shift in lifestyles and purchasing power , even as it plays close attention to registering & building it’s own brands, e.g. Lykis, BriteX, RoX , BonitaAlways etc. The company will slowly be moving into the metro’s & tier 1 cities. The company has also made a focused effort to penetrate export markets, especially in Africa, and it’s efforts are bearing fruits.

Lykis - Product Portfolio :
Beauty & Toilet soaps
LykisBonitaRoX, Bentol, La Belle, Bom Clair, Bon Fami etc
Deodorants & Perfumes
Deodorants & Perfumes
Lykis, Bonita, RoX
Cosmetics (Skin Care)
Body Lotions, Petroleum Jelly, Fairness Creams, Shower Gels, Face Wash, Moisturizing Creams, Shaving Creams
Lykis, Bonita, RoX, Bon Fami, Bom Clair
Cosmetics (Hair Care)
Shampoo, Conditioner, Hair Colour , Hair Gel , Mehendi, Amla Hair Oil, Almond Hair Oil
Lykis, Bonita, RoX, Vivo
Coconut Oil
Coconut Oil
Baby Care
Baby Lotion, Baby Powder , Baby Soap , Diapers etc
Vogly , Bonita, Lasam’s, Bebe
Body Talc
Body Talc
Lykis, Bonita, RoX, Dermipo
Oral Care
Toothpaste, Mouth Wash
Always , Angola, Meno, Special
Classic, Berry’s, Moco
Candy, Menthol Candy, Gummies
Classic, Crystal
Potato Chips
Tea, Coffee, Corn Flakes, Tomato Ketchup, Mayonnaise, Drink Powders, Salt, Glucose Energy Drinks
Boa Vida Juice, Boa Appetite, Taazagi Tea, Cheers Tea, Lycafe Coffee, Nutriflex Corn Flakes, Gluco Punch
Home Care Solutions
Air Freshener, Glass Cleaner, Toilet Cleaner, Floor Cleaner, Adhesives, Detergent Bar, Detergent Powder, Liquid Shoe Polish, Mosquito Coils / Vapourizers
Britex, Bomcol, Golding King, So Lava, Glit, Cold Grip, Paramos
Health Care
Pain Relief Sprays/Ointments / Tablets, Cold Inhalers, Expectorants / Cough Syrups, Anti-Biotics,  Itch Relief, Foot Care Creams, Eye Drops, Body Creams, Antiseptic creams/liquids, Condoms etc
Lykis, Micoderm, Exoderm, FaryCare, Betavate, Candicyl, Neoprin, Cortizone, Piodine, Davimov, Act Pain, Evicir, Colvate, Diclofenac, Davigra (condoms, sprays, oral jelly), Jin-X (Ayurvedic Cough Syrup), Thanda Thanda (Prickly heat powder)

Lykis’s Tea Division sells Bulk tea packed in jute bags of 26 kgs & 35 kgs weight, as well as in tea chests. It also sells packaged tea in various sizes starting from 50 gms to 10 kgs under the brands Cheers & Taazagi.

Financial Performance :
In 2 years post the change of management, the company has grown at a scorching pace. Turnover has improved from Rs 2.24 Cr in 2011-12 to Rs 129.27 Cr in 2013-14, with the FMCG business achieving a turnover of Rs 123 Cr in 2013-14 . Tea business has also grown but at a much slower pace.

Brief Financial Numbers :
Tea Sales
FMCG Sales
Total Sales
Debt / Equity
MCap / Sales

About The New Promoter Group :
The new promoter Mr Vijay Kedia is an industrialist who has more than 35 years experience in finance & industry. He holds directorships in Atul Auto LtdThree PL Services Pvt LtdDharamnagar Tea Estate Pvt LtdKedia Securities Pvt Ltd (where he is Managing Director) etc

He also happens to have made a name of himself as a savvy investor in the Indian Stock Markets. One can read more about this avatar of Mr Vijay Kedia herehere here .

On his blog , on 22nd May 2013, Mr Kedia noted that  “ ….. one cannot go wrong in consumer stocks. Since 1990 we have crossed three stages. India is at the third stage of savings pattern.  

From a "high saving rate with low income"  to "high savings rate to higher income"  to "currently (falling) low savings rate to higher income". 

Our savings rate has fallen from 36% in 2009 to below 30 % in 2011 that too on rising income.  It is a big change which will result in a phenomenal boom in consumerism. 

With the downfall of the Indian economy, consumer stocks or consumerism is the sector which will not be affected and it is advisable to invest in such stocks …”  (PS : Emphasis, quotes & line-breaks added by this author to enhance readability) .

As his investment in Lykis 
shows, Mr Kedia is certainly putting his money where his mouth is.

In Brief : -
Name : Lykis Ltd
BSE Code : 530689
Equity : 18.96 Cr
CMP : Rs 26.25 (closing, BSE, 11th July, 2014)
Market Cap : Rs 49.77 Cr

Product Information :-
Product Range Video :

Export Brochure :

Domestic Brochure : 

Lykis Beauty Soap Advertisment : 

Points To Ponder  :
The company is a small fish in a big FMCG pond that gets bigger every year.

The FMCG industry is poised to grow at CAGR between 10 to 12 percent annually. Annual profit of FMCG sector is $14.74 billion. Market growth rate is : Rural 40% , Urban 25% .  The average Indian spends 40% on Groceries and 8% on personal care. Implementation of the proposed GST and opening FDI are expected to fuel growth of industry's size to $50 billion by 2014 and $95 billion by 2018 (Source : Lykis Ltd Annual Report 2012-13)

Competition : While the size of the opportunity is humungous, the challenges are also huge. The company faces stiff competition from the big guns of Indian FMCG industry – HULITCMaricoGodrej etc with their established brands , loyal customer base & perfected supply chains , besides scores of small & regional players. Lykis has prudently chosen to build a base in the smaller towns & cities first before moving into the bigger cities, even while also exploring the vast untapped opportunity in Africa, and it’s strategy seems to have yielded excellent results thus far.

Low Promoter shareholding : The new promoter group (Mr Vijay Kedia / Kedia Securities Pvt Ltd) have raised their holdings from 13.81% as of 31st March 2012 to 24.81% as of  31st March, 2014.  While this still appears on the lower side, this author draws comfort from the fact that a good percentage of the non-promoter shareholding appears to be held by directors & associates of the company / promoter group. Shareholding of (the promoters + non-promoters with > 1% shareholding) together stands at 85.29% as of  31st March, 2014.

Poor Monsoon - Effect On Rural Consumption : Despite the recent revival of the monsoon in some parts of the country, this monsoon is shaping up to be one of the worst in the last decade. As such, rural consumption may take a hit, particularly for discretionary items. This may be slightly set-off by the social schemes such as MNREGA . 2014-15 could thus be a challenging year for the company.

Funding Growth : Another point to look out for is how the company will fund it’s growth plans. Building new brands & scale in a very competitive market dominated by big established players is an expensive proposition. 2013-14 saw an understandable but marked increase in borrowings. Too much of debt will not be a good thing, whereas any significant equity dilution would erode shareholder returns. So getting the Equity-Debt mix right will be one of the challenges for the new management.

Conclusion :
This author feels that Lykis is an FMCG company that merits close attention, though it's current financials might not be attractive. He believes that the consumption story is for real, and that the pie is large enough to accommodate newer players, though the journey will not be easy, and not all new entrants will survive. 

The company's stock price has doubled in the last few months, and is almost 4-times up from it's 52-week lows. Even so, keeping the company's & industry's prospects in mind, the author recommends readers of this blog to closely study & track this company going forward. At an appropriate time, and after proper research, readers may take a suitable investment call based on their own conviction in this idea.

Author : Bosco Menezes
Recommendation Date : 14.07.2014
Disclaimer/Disclosure :
At the time of writing this article the author has a position in the stock covered by this report. The author or any of his dependent family members may make purchases or sales of the securities mentioned in the report while the report is in circulation. Readers/recipients of this report are strongly advised to do their strict due diligence, and should be aware that the value of investments can go down as well as up. The author shall not be liable for any direct or indirect losses arising from the use of the contents of this report, and readers are therefore cautioned to use the information contained herein at their own risk. In fact, readers would do well to seek the advice of a qualified independent advisor. The author certifies that all of the views expressed in this report accurately reflect his personal views about the subject company at the time of writing this report. Feedback / brickbats may be hurled at the author at