Hold Jyothy Laboratories Ltd For Target Rs.180 - ICICI Direct
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Commodity inflation to keep margins under pressure
About the stock: Jyothy Labs (JLL) is an FMCG company with a presence in fabric whiteners, detergents, dishwashing products, household insecticides (HI) & personal care category. The company has leading brand Ujala in fabric whitener with 82.6% market share. It has a sizable dish washing & HI business with mid-teens market share. Large part of the revenue is generated from Kerala and Tamil Nadu.
* The company has 23 manufacturing facilities in India. Its pan-India distribution reach is close to 2.8 million outlets with direct reach of 0.86 million. Its major brands include Ujala & Henko in fabric wash, Exo & Pril, in dishwashing, Margo in soaps & Maxo in HI categories
Q1FY22 Results: JLL reported dismal operating margins in Q1FY22 results.
* Sales were up 21.8% YoY, supported by strong rural sales
* EBITDA was at | 65 crore, down 16.9% YoY, with margins at 12.5%
* Consequent PAT was at | 40.1 crore (down 20.5 % YoY)
What should investors do?
JLL’s share price has underperformed the FMCG index with mere 21% return in last five years (from | 145 in July 2016 to | 175 in July 2021).
* We roll over FY24 numbers with moderate revenue growth prospects & stability in margins
* We continue to maintain our HOLD rating on the stock
Target Price and Valuation: We value the stock at | 180, valuing the business at 25x FY24 earnings.
Key triggers for future price performance:
* Strong growth momentum to continue in dishwashing with expected market share gains with distribution expansion
* With the increasing proportion of liquid vaporisers in HI sales, the segment margins are expected to significantly improve in the next two years
* New products (liquid detergent, floor cleaners) are likely to gain traction & drive growth in future.
Alternate Stock Idea: We like Zydus Wellness in our FMCG coverage.
* It is growing at a steady pace in nascent categories with a strong presence in the health and nutrition space and margin expansion possibilities
* Trading at significant discount to FMCG peers. BUY with a TP of | 2,800
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