Defensive portfolio tweak: Reliance Nippon to replace JHS to capture savings shift toward financial assets

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26 Aug, 2025 12:21

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Moneycontrol Research Team

In our pursuit to continuously evaluate the stocks in our defensive portfolio and to focus on quality businesses that can play out in medium to long term, we are replacing JHS Svendgaard with Reliance Nippon Life Asset Management.

Also Read: Reliance AMC: Rising inflows make it an attractive medium to long-term bet

Reliance Nippon Life Asset Management (RNAM), the third largest asset management company (AMC) in India, is one of the key beneficiaries of the shift toward financialisation of savings with an 11 percent market share (March 2018) in the mutual fund industry.

Financialisation of savings refers to the shift in investment trend towards financial instruments from others such as real estate, gold, and property.

Jointly owned by Nippon Life Insurance Company and Reliance Capital, RNAM enjoys strong retail brand recall and well-diversified sourcing platform, which should aid its AUM (assets under management) and profitability, in our view.

At the current market capitalisation of Rs 15,416 crore, RNAM trades at 3.9 percent its FY18 AUM and a trailing P/E of 29. Given the return on equity (RoE) of 25 percent and expected earnings growth of over 20 percent, the current valuation looks reasonable and leaves ample room for rerating.

JHS Svendgaard, the contract oral care manufacturer for marquee clients like Patanjali & Dabur, remains an interesting business story which benefits from the competitive disruption in the Indian Oral market. The company currently trades at a multiple of 17x 2019e (estimated) earnings which is at a discount to the FMCG sector.

Though JHS’ core business is improving on increased demand from leading clients in Oral care and capacity expansion, we are a bit cautious on its recent capital allocation decision.

JHS recently entered into a partnership with Patanjali to set up the latter’s stores at Indian airports. It is targeting about 100 stores in next two years with all the upfront investment done by JHS in return for the exclusivity. While JHS gains from the exclusive platform for some of its own contract-manufactured products for Patanjali, profits are expected to be relatively moderate and be shared with Patanjali. Cost of setting up a store would be Rs 40-50 lakhs entailing a total capex of Rs 50 crore (43 percent of FY17 fixed assets). This has raised red flags and we believe its RoA (return on assets) can fall in the medium term. Overall, we are not excited by this capital allocation decision.

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