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Growth outlook remains strong but margins to remain under pressure, maintain BUY on undemanding valuations

Our view

JYL delivered industry leading 7% volume growth driven by strong growth in Dish wash and Household Insecticides segments led by increased mobility and aggressive distribution and marketing initiatives leading to share gains for Maxo LVs, Pril and Exo. While a 2‐yr CAGR growth of 13% for the second consecutive quarter is commendable, a sharp 700bps dip in margins despite a 6% price hike remains a key headwind. 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 13‐14% vs historical range of ~16%, its 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 18x, stock looks attractive and we maintain our BUY despite the margin‐led cut in our earnings estimates.

Result Highlights

* Topline – Revenue growth of 13.1% led by 7% volume growth and 6% price increase, 2‐yr revenue CAGR at 13%. Fabric care/Dishwashing/HI/Personal care registered 19%/10.5%/10%/0.2% growth respectively. Fabrice care registered strong topline led by micro marketing initiatives and low‐cost whitening solution. HI growth was strong at 10% driven by double‐digit growth in liquids and market share gains. Other segment including T‐shine and Maya witnessed ~21% YoY growth.  

* Segmental performance – Fabric care revenue growth of 19% and 15.2% EBIT margin vs 20.4% YoY, Dishwashing revenue growth of 10.5% and 11.7% EBIT margin vs 19.9% YoY, HI revenue growth of 10% and ‐7.8% EBIT margin, Personal care revenue was flat YoY and 13.9% EBIT margin vs 20.3% YoY.  

* Margins – Gross margin improved 150bps QoQ while declined 720bps YoY due to inflation in input costs. EBITDA margin came in at 11.3% vs 11.4%/16.7% QoQ/YoY.

* Earnings growth – PAT declined by 31%/14% YoY/QoQ and came in at Rs 38.4cr against our estimate of Rs49cr owing to sharply lower profitability.

Valuation

We build in revenue/EBITDA/PAT growth of 13%/8%/8% over FY21‐24E, with expectations of strong earnings growth post the sharp dip in FY22. We trim our estimates to incorporate lower margins in the near‐term but slightly higher growth over the next two years. We revise our TP to Rs 193 and maintain our BUY rating based on 25x FY24E earnings.

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