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Soft quarter due to decline in HI sales; valuations reasonable — maintain LONG
JYL’s 4QFY19 standalone sales stood at Rs 5.04bn, up 6% yoy on GST comparable basis and 4% below EE. Volumes grew ~6.3% yoy led by strong growth in EXO and PRIL, partly offset by a decline in Maxo and Henko. Standalone EBIDTA margins stood at 16.4%, down 213bps yoy; absolute EBIDTA came in at Rs 826mn (-6% yoy), 13% below EE. We pare FY20/FY21 EBITDA estimates to factor in higher A&P spends in the coming quarters, even as EBITDA could be aided by gross margin gains. A stable demand scenario, new product launches and higher A&P spends could boost volumes for JYL. Despite a soft 4Q, current valuations remain reasonable post the recent stock price correction. Maintain LONG with a Jun’20 TP of Rs 211 (Rs 221 earlier) set at 35x its TTM EPS of Rs 6.
Ujala sales growth remains soft:
Ujala sales grew ~1.5% yoy to Rs 1,020mn on GSTcomparable basis and on expected lines. Ujala fabric whitener sales were flat with Ujala Supreme market share improving to 81.1% for 4QFY19. We expect Ujala Supreme sales to be in low-single digits due to category stagnation, and the overall Ujala brand to grow in mid-single digits over FY20-FY22 led by Ujala Crisp & Shine and Ujala IDD.
PRIL/EXO see strong growth; HENKO hit by pricing wars:
EXO/PRIL/HENKO registered sales growth of 25%/12%/-5% to Rs 1,250mn/Rs 370mn/Rs 450mn on GST-comparable basis. Strong growth in EXO was led by bars which grew 32% yoy. PRIL liquid registered growth of 14.4% yoy in 4Q, aided by incremental volumes from the recently launched PRIL Tamarind. HENKO sales were affected by pricing wars among the top-2 players. Given a stable demand environment, continued product innovations and higher A&P spends, we expect PRIL, HENKO and EXO to grow in mid-teen digits for FY20E/FY21E.
Margo growth trajectory slowing; MAXO sales decline:
Margo posted sales growth of 5% yoy during the quarter to Rs 420mn. We expect Margo to deliver low double-digit sales over FY20/FY21 due to consumer preference for natural products. MAXO sales declined by 4.4% yoy in 4Q to Rs 1,000mn due to unfavorable seasonality and category headwinds owing to increasing salience of incense sticks. We have built in mid-single digit growth for MAXO given the low FY19 base and JYL’s complete portfolio of HI (coils, LVs and incense sticks). MAXO agarbathi, launched in 2QFY19 to ride on the new incense stick format within the mosquito repellent category, has 1% or more market share now in five states across India. With first-mover advantage in branded incense sticks, JYL will extend the MAXO agarbathi to other markets.
Valuations & view:
Risk-reward continues to be favorable for JYL. Hence, we maintain our LONG rating with a Jun’20 TP of Rs 211 set at 35x TTM EPS of 6. Key risks: Lowerthan-expected demand and higher RM costs.
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