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Revenue performance remains under pressure

Jyothy Labs’ 2QFY26 earnings print was a tad below our expectation on revenue/EBITDA. Standalone sales were flat YoY, led by volume growth of 2.8%. Barring fabric care, sales decline was seen across other segments. Weak gross margins and scale deleverage resulted in EBITDA margins coming at 16.1% (inline & lower end of its guided range of 16-17%). Heightened competition & elevated RM has been a drag on 1H performance; gradual demand recovery & portfolio interventions (price hikes & new launches) should drive improvement in 2HFY26. Management maintained its margin guidance at 16%-17% for FY26. Our earnings remain largely unchanged; however, considering weak execution, we have cut our multiple to 30x (vs. 32x earlier). Valuations at 29x/27x FY27/28E are not demanding; restricting downsides. Maintain ADD with revised TP of INR 335 (30x Sep 27E). Rerating from current levels will be contingent on pace of recovery in core segments of fabric wash/dishwash and innovations (especially in HI) considering heightened competition.

* Revenue performance was tad below estimate impacted by adverse pricing: Standalone sales performance was weak and remained flat at INR 7.4bn (1-2% below our and street estimates). Underlying volume growth of 2.8% YoY (inline with est.). Revenue growth was impacted by - a) adverse pricing (in dishwash) due to increase in consumer offers amid weak demand environment, b) disruption due short-term channel destocking on account of GST rate change (in personal care) and continued weakness in HI. In terms of channel performance, GT remained under pressure, while MT and e-commerce (incl. quick commerce) sustained double-digit growth.

* Fabric care fared well, while other categories remained under pressure: 1) Fabric Care grew 6.1% driven by rapid expansion of liquids portfolio (doubled YoY) and continued momentum in powders and bars. New launches continue to gain consumer acceptance and delivered sales inline with mgmt. expectations. 2) Dishwash declined 3.8% YoY due to adverse price/mix on the back of MRP reductions and grammage offers in bars, though volume growth remains healthy at 3.4%. Liquids portfolio continues to outperform bars. 3) Personal Care declined 4.3% YoY impacted by GST-led transition. Management expects this to normalise and revert back to growth in 2H. 4) Household insecticides declined 8.9% YoY due to sustained slowdown in coil sales. Liquid Vaporisers performed well and surpassed coil sales. New launches in aerosols and rackets are gaining traction and management focus remains to improve profitability over the next four to six quarters.

* Gross margin weakness continues to impact earnings: Gross margin delivery was weak – down 214 YoY to 48.1% (better vs. JMFe: 47.2%), due to input cost pressure and higher promotional intensity in order to remain competitive, especially in dishwash. Staff costs grew 5.2% YoY, while pace of growth in A&P spends and other expense was slower at 0.7%/1.4% YoY. Negative flowthrough from gross margin along with scale deleverage resulted in EBITDA margin compression of 280bps YoY to 16.1% (inline with est.). Resultant EBITDA declined 14.5% YoY to INR 1.2bn was 2% below our estimate while 7% below street estimates. PAT declined 16.4% to INR 878mn (below our/street est.) due to higher depreciation. Going ahead, management expects 2H performance to better vs. 1H, supported by stable commodity costs and gradual recovery in demand.

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SEBI Registration Number is INM000010361