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Strong performance along with healthy growth in volumes; Maintain Accumulate

Robust revenue performance: Jyothy Labs posted strong performance as Q1FY25 revenue saw an improvement of 8% YoY and volume growth of 10.8% YoY while on the sequential basis revenue grew by 12.4% to Rs 742cr. Amongst segments, fabric care, dishwashing and personal care drove the growth as compared last year while sequentially personal care, fabric care and dishwashing witnessed growth while subdued growth in home insecticides segment.

Margin improved YoY as well as QoQ: Its Q1FY25 gross profit increased by 15.7% YoY and 16.5% QoQ to Rs 380.5cr and margin came in 51.3%, which increased by 342bps YoY and 179bps QoQ. Further, its EBITDA too has increased by 13.7% YoY to Rs 133.5cr with improvement in margin by 90bps YoY to 18% and sequentially it grew by 23.1% with margin improvement of 157bps. Also, PAT followed the same trend as it posted profit of Rs 101.7cr, growth of 5.7% YoY but marginal decline in margin of 30bps YoY and sequentially it grew by 19.4% QoQ and margin improvement of 80bps to 13.7%. Despite healthy improvement in advertisement & other cost, the profit numbers were strong on the back of healthy topline performance.

Key highlights: 1) Mgmt. expects double-digit volume driven revenue growth in FY25 on the back of improving macro trend and early sign of rural recovery. 2) Rural areas are seeing signs of revival and company is optimistic on rural demand. 3) Direct distribution has crossed 1.2mn outlets with 9,900+ Channel Partners. 4) The company has launched liquid detergent under the Morelight brand at an affordable price point. The acceptance of liquid detergent is more in South India. 5) Management expects demand to accelerate on the expectations of normal monsoon. 6) The company aspires for personal care category contribution to increase to 15% of total sales in future. 7) Management remains intact on EBITDA margin guidance which is 16-17% for FY25. 8) Gross margin expansion is due to product mix and scale benefit. The company would be comfortable with 49%-50% gross margin.

Outlook & Valuation: Jyothy Labs reported strong numbers with steady growth in volumes. Going ahead, the management plan is to focus on volume led growth, drive liquid products which are in demand, continue to spend behind brands, innovation & launches as well on advertisement & promotional spending to increase its recall value. Additionally, company aims for double-digit revenue driven by volume growth and EBITDA margin of 16%-17% for FY25. On the financial front, we expect double digit growth to continue with revenue/EBITDA/PAT to grow at 15.7%/17.3%/16.8% CAGR over FY24-26E. We have revised our rating to Accumulate on the stock by revising the target price to Rs 624 and assigned a P/E multiple of 45x on FY26E EPS

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