Neutral Jyothy Labs Ltd For Target Rs.200 - Motilal Oswal Financial Services Ltd
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Gross margin surprise positively; focus on increasing distribution reach
* Jyothy Laboratories’ (JYL’s) topline growth in 4QFY23 was lower than our estimate, due to a weak volume growth of around ~3.3%. For FY23, volume growth stood at ~3%. Currently, the company’s direct reach stands at 1.1m and the management has underscored its emphasis on broadening reach to drive volume growth
* Gross margins surprised positively by improving 420bp YoY and exceeded our expectation by 170bp. The management highlighted that margins would persist in this range in the near to medium term.
* Despite a decent FY23, JYL’s EBITDA CAGR for the five years ending in FY24E is expected to remain in single digits. A topline growth rate of over 15% remains elusive, which is crucial for a company of JYL’s size (revenues of INR24.8b in FY23). We reiterate our Neutral stance on the stock.
Overall miss
* JYL’s standalone net sales grew 12.8% YoY to INR6,159m (est. INR6,986m).
* EBITDA grew 14.7% YoY to INR906m (est. of INR1,048m).
* PBT grew 112.5% YoY to INR817m (est. INR959m).
* Adj. PAT grew 77.2% YoY to INR590m (est. INR782m).
* Gross margin and EBITDA margin expanded ~420bp YoY to 45.7%/14.7%.
* FY23 sales/EBITDA/Adj. PAT grew 13.1%/26.0%/53.8% YoY to INR24,598m/INR3,149m/INR2,321m.
Consolidated segmental performance
* Fabric Care/Dishwashing/ Household Insecticides/Personal Care grew 20.1%/8.7%/0.9%/12.1% YoY to INR2,553m/INR2,062m/INR800m/INR524m in 4QFY23.
* EBIT margins in the Fabric Care/Dishwashing/Personal Care segment expanded 770bp/520bp/60bpbp YoY to 19.5%/17.5%/13.3%, while contracted 160bp YoY to -1.2% in the Household Insecticides segment.
* For FY23 Fabric Care/Dishwashing/ Household Insecticides /Personal Care grew 29.3%/8.4%/(20.2%)/8.7% YoY to INR10,561m/INR8,48m/INR 2,117m/INR2,542m.
* EBIT margins for FY23 for Fabric Care/Dishwashing/ Household Insecticides /Personal Care segment came at 16.3%/15.3%/(9.6%)/10.2%.
Highlights from the management commentary
* The volume growth was 3.3% for the quarter and 3.0% for the full year. In value terms, growth for the quarter stood at 9.5% and 10.5% for FY23.
* The company is delivering consistent double-digit growth for the last 10 quarters, as well as a double-digit growth for the full year.
* The management guided the topline growth to be in double digits for FY24.
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