Jyothy Laboratories Ltd

Jyothy Laboratories Ltd (JLL) came out with a mind-boggling set of numbers for the September quarter FY10. On a y-o-y basis, Net Sales shot up by 48.8% from Rs. 874 mn to Rs. 1,300 mn while profits increased almost three fold from
Rs.50.9 mn to Rs.141 mn.

This impressive performance was led by an all-round topline growth across both segments of JLL i.e. Soaps and Detergents as well as Home Care. Soaps and Detergents segment grew by 49% while the Home Care segment grew by 48%.
In the Soaps and Detergents segment, it was Exo and the detergents business that led the growth. Exo grew by 60% (value) while the detergents business, though on a lower base, grew four fold. Exo, is on its move towards a national
rollout and has now been launched in Maharashtra, Uttar Pradesh, West Bengal and Delhi region. This trend in Exo is expected to continue for another two quarters as the company intends to make a complete rollout by Mar 2010.

Gross margins for the segment improved from about 16% to 23%. This was directly related to the crude prices. Home Care segment, which primarily comprises Maxo, benefitted from an extended monsoon. Apart from that, the
focus on liquids and a low base effect aided the high growth. While the category is growing at decent rates, such high rises may be a one-time phenomenon and not sustainable on a prolonged basis. Also, Maxo saw it gross margins improve and segmental profits increased more than four fold from Rs. 4.74 mn to Rs. 21.6 mn. Improvement in Gross margins was primarily because of the in-house production from Jammu plant as against getting it done by TPMs (Third Party Manufacturers).

Overall, it has been a very impressive quarter. Operating margins improved by 510 bps to 12.5% while EPS grew by 177% from Rs. 0.70 to Rs. 1.94. Taking into account the increased margins on Maxo, we have revised our yearly forecasts upwards, from Rs. 9.0 to Rs. 10.3 for FY10 and from Rs. 11.4 to Rs. 13 for FY11. Under this revised forecast, the stock trades at 14.1xFY10E which still makes it attractive as compared to other FMCG companies and considering the high growth trajectory that the company is experiencing. We recommend a BUY.

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