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All efforts on maintaining growth momentum despite margin pressures; maintain BUY on inexpensive valuations

Our view

JYL delivered lower than expected volume growth of 3.6% on a base of 24% owing to subdued performance from HI and Personal care. Dish wash posted strong performance aided by consistent double‐digit growth in LUPs and premiumization through larger tub packs leading to share gains for Exo. Ujala Supreme and Ujala IDD also gained market share in FY22 led by increased focus on new markets. While a 2‐yr CAGR growth stood at 18% (3‐yr CAGR growth is mere 2%) for the quarter, a sharp 400bps dip in margins despite a 7% price hike remains a key headwind. HHI was impacted by seasonality and extreme weather conditions in Q4 and its performance remain a key monitorable going forward. While company’s focus on driving volumes at the expense of margins to gain scale and operating leverage will keep margins in the range of 12‐13% in the foreseeable future vs historical range of ~15‐16%, JYL’s strategy of differentiated product positioning and aggressive marketing behind power brands is driving share gains in key categories.  Its focus on new launches, high A&P spends, and technology‐led distribution enhancements should be key drivers to drive double‐digit earnings growth. At current valuations of 21x, valuations remain inexpensive and therefore, we maintain our BUY rating despite the margin‐led cut in our earnings estimates.

Result Highlights

* Topline – 3.6% volume growth, 2‐yr revenue CAGR at 18%. Fabric care/Dishwashing/HI/Personal care registered 18%/12.2%/‐9%/11.7% growth respectively. Laundry services grew 23% on a low base of 28% decline YoY. Fabric care growth momentum continued aided by opening of workplaces/institutions and acceleration in sales at Modern Trade and Canteen Store Department however growth is still in mid‐single digit on 3‐yr CAGR basis. Dish wash growth registered strong growth driven by focus on distribution, consistent double‐digit growth in Exo and Pril LUPs. HI disappointed owing lower coil sales impacted by extreme weather conditions however liquids performed well. Personal care and Other segment which includes T‐shine and Maya grew moderately on a high base.  

* Segmental performance – Fabric care revenue growth of 18% and 11.9% EBIT margin vs 18.3% YoY, Dishwashing revenue growth of 12.2% and 12.3% EBIT margin vs 17% YoY, HI revenue decline of 9% and 0.4% EBIT margin, Personal care revenue grew 11.7% with 12.7% EBIT margin vs 17% YoY. 

Valuation

We build in revenue/EBITDA/PAT growth of 11%/21%/28% over FY22‐24E, with expectations of strong earnings growth post the sharp dip in FY22. We trim our estimates to incorporate slightly lower volume growth and margins in the near‐term. We revise our TP to Rs 181 and maintain our BUY rating based on 25x FY24E earnings.

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