IGI Logo

Weak 4QFY21 result, rising material costs could affect margin

* JYL delivered a miss on all fronts in its 4QFY21 result. Even if one adjusts for the sales impact of ~8% YoY on account of CRS implementation (shared during the conference call), average growth in the last two-years remains weak (in mid-single digits).

* While there has been improvement in net WC days and the company is now net debt free, topline growth is key for a company with sales of only INR19b. The likelihood of 15% sales growth continues to appear difficult. Sales growth CAGR has been 3.7% in the preceding five years.

* With margin likely to under pressure due to material cost increase, earnings growth prospects remain weak. Maintain Neutral

Double-digit volume growth, overall performance below our expectation

* Standalone net sales grew 27.5% YoY to ~INR4.9b (est. INR5.3b) in 4QFY21. Volumes rose ~27% YoY.

* Standalone gross margin expanded ~40bp YoY to 45.1% in 4QFY21. As a percentage of sales, lower ad spends/staff cost/other expenses (down 120bp/120bp/100bp YoY) led to a 380bp rise in EBITDA margin to 14.3% (in line).

* EBITDA grew ~73.9% YoY to INR698m (est. INR750m). PBT grew 171% YoY to INR533m (est. INR589m). Adjusted PAT grew 94% YoY to INR505m (est. INR480m).

* Standalone sales/EBITDA/PAT grew 13.2%/26.8%/35.5% YoY in FY21 to INR18.9b/INR3.2b/INR2.1b.

* Consolidated segmental performance: Fabric Care/Household Insecticides/Dishwashing/Personal Care grew ~16%/36%/33%/38% YoY, to INR1.8b/INR872m/INR1.7b/INR418m in 4QFY21

* Margin for Fabric Care/Dishwashing/Household Insecticides/Personal Care expanded 35bp/450bp/1090bp/150bp YoY to 18.3%/17%/0.2%/17%.

Highlights from the management commentary

* Due to the second COVID wave, JYL is experiencing supply chain disruptions and sales force mobility is getting affected. Many Kirana stores have adopted digital ordering in the past one year.

* Stocks with distributors have now reduced to 8-10 days from 20-25 days earlier as a result of CRS, which partly impacted sales by ~8%/3-4% YoY in 4Q/FY21.

* Compared to commodity basket inflation (5-6% range), the company has taken a 2-3% price increase in Detergents and Soaps and reduced trade schemes. The management did not offer a margin guidance, unlike its usual practice, given the current volatile scenario.

Valuation and view

* For a company with a far lower sales base of INR19.1b in FY21 (v/s peers), its performance over the past five years has been consistently lackluster (at 3.7%/7.2% sales/operating profit CAGR).

* While we have reduced our FY22E/FY23E operating profit estimate by 5.1%/2.8% due to tepid sales growth outlook and rising material costs, there has been a minor increase in our FY23E EPS on lower than earlier interest cost projections (JYL is now net debt ahead of our estimate) and lesser depreciation.

* RoCE at 15% in FY21 remains far inferior v/s its peers. No marked uptick is visible from a medium- to long-term horizon to justify a target valuation of 16x FY23E EV/EBITDA (~50% discount to its peers), which results in a TP of INR160 per share. Maintain Neutral.

To Read Complete Report & Disclaimer Click Here

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html SEBI Registration number is INH000000412

Above views are of the author and not of the website kindly read disclaimer