IGI Logo

Healthy volumes amidst challenges

Jyothy Laboratories Ltd (JLL) is an Indian FMCG player with products across Fabric care, Dishwashing, Mosquito repellents & Personal Care.

* We maintain Accumulate rating on JLL with a revised target of Rs190, given healthy performance and improving demand outlook.

* For Q1FY22, revenue grew by 21%YoY (6%QoQ), aided by volume growth of ~16%YoY and price hike of ~5%.

* Growth was across all segments, Dishwash (22%YoY), Household Insecticides (13%), Personal care (13.5%). Fabric care segment is still to reach pre-covid levels.

* EBITDA margin declined sharply by 560bps YoY due to 290bps reduction in Gross margin along with the increase in ad spends. With a ~10% surge in raw material prices, 5% were passed on to consumers.

* Any recovery in Modern Trade (MT) & Canteen Stores Department (CSD) channels will improve volumes, product mix and gross margin.

* We factor revenue/earnings to grow at ~12%/20% CAGR over FY21-23E and value JLL at 25x FY23 P/E.

Healthy growth across segments.

For Q1FY22, revenue grew by 21%YoY backed by healthy growth across all categories owing to higher growth in General Trade (GT) and E-Com channels. Dishwashing grew by 22%, Personal care (13.5% YoY), and Household Insecticides-HI (13%YoY) on YoY basis. JLL’s enhanced focus on essential hygiene products along with healthy rural demand aided volume growth. Fabric care segment grew by 27% YoY (Vs de-growth of 24% in YoY quarter) but is still to reach pre-covid levels due to work from home culture and closure of schools.

Covid-19 have changed consumer preferences more towards essential & hygiene products. ~85% of the product portfolio comprises of essential & hygiene products. The rural growth was better than urban, and the company is enhancing rural coverage by adding more sub-stockists & Van coverage and has introduced low unit packs across brands. Good monsoon and GOI’s rural focus will support rural demand. These along with gradual revival in MT & CSD channels will aid volume growth. We expect ~12% revenue CAGR over FY20-23E.

Surge in RM prices and ad-spend impact margins

EBITDA margin declined by 560bps YoY to 12% mainly due to reduction in gross margins and increase in ad-spends. Gross margin declined by 290bps due to surge in raw material (RM) prices. With a ~10% surge in RM prices, 5% was passed on to consumers and 2% was absorbed through efficiency. Ad-spend increase was about 8.2% of the sales Vs 4.6%YoY (Rs430 Vs Rs199 YoY). Ad-spend is likely to be maintained at 7%-8% of sales for the year. Gradual recovery in MT & CSD channels will improve volumes and product mix which will improve margins. The company aims to increase revenue contribution from personal care in the coming years to enhance margins further. JLL has opted for concessional income tax rate from FY27 onwards once the benefits under 80IE are utilised (till FY26). We expect PAT growth of 20% CAGR over FY20-23E.

Valuation & Outlook

Expect gradual improvement in urban demand which will support volumes through MT & CSD channels. Strong rural demand aided by good monsoon and GoI’s rural initiatives along with JLL’s focus on essential hygiene products will support volume growth. We maintain Accumulate rating with a revised Target of Rs.190 based on 25x FY23E EPS.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at www.geojit.com
SEBI Registration number is INH200000345

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