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Dish wash and fabric wash were positive while margins to improve from H2FY23, Downgrade to Neutral due to limited upside

Our view

JYL delivered volume growth of 5% (21.8% ex. HHI) on a base of 16.6% driven by strong performance from Dish wash and Fabric wash. Dish wash posted strong performance aided by consistent double?digit growth in LUPs and premiumization through larger tub packs leading to steady share for Exo in a difficult environment. Ujala Supreme also maintained market share in Q1FY23 led by new campaigns. While a 2?yr CAGR growth stood at 33% (3?yr CAGR growth is at 10.4%) for the quarter, a sharp 340bps dip in gross margins despite a 9% price hike remains a key headwind. HHI was impacted by extreme weather conditions in Q1 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 with increasing focus in distribution expansion.  Its focus on new launches, high A&P spends, and technology?led distribution enhancements should be key drivers to drive double?digit earnings growth., valuations remain inexpensive while we maintain our estimates and wait for next quarters performance, current valuations of 23x remains inexpensive and downgrade to Neutral rating.

Result Highlights

* Topline – 5% volume growth (21.8% ex. HI), 3?yr revenue CAGR at 10.4%. Fabric care/Dishwashing/HI/Personal care registered 38.6%/9.6%/?37.5%/2.1% growth respectively. Laundry services grew 3.7x on a low base of 10% decline YoY. Fabric care growth momentum continued aided by opening of workplaces/institutions and acceleration in sales at Modern Trade and Canteen Store Department with 3? yr growth at 10%. Dish wash growth registered strong growth driven by focus on distribution, clear choice for Exo and Pril LUPs and rural category penetration. HI disappointed owing to extreme weather conditions impacting North and East India demand. Personal care and Other segment which includes T?shine and Maya grew moderately on a high base.  

* Segmental performance – Fabric care revenue growth of 38.6% and 12.3% EBIT margin vs 17.6% YoY, Dishwashing revenue growth of 9.6% and 13.2% EBIT margin vs 11.3% YoY, HI revenue decline of 38% and ?10% EBIT margin, Personal care revenue grew 2.1% with 3.6% EBIT margin vs 18.2% YoY.

Valuation

We maintain our estimates and wait for Q2FY23 margin performance, currently building in revenue/EBITDA/PAT growth of 11%/21%/28% over FY22?24E. We maintain our TP to Rs 181 and downgrade to Neutral rating based on 25x FY24E earnings due to limited upside.

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