Buy Jyothy Laboratories Ltd For Target Rs.496 by Geojit Financial Services Ltd
Margins improved, valuation moderated
Jyothy Labs Ltd. (JLL) is an Indian FMCG player with products across fabric care, dishwashing, mosquito repellents & personal care .
* For Q2FY25, revenue growth was flat YoY largely, due to a high base of 11% last year. Volumes grew by 3% YoY while increased grammage and price cuts impacted value growth. Main segments, fabric care & dishwash (78% mix), along with household insecticides, witnessed flat growth while personal care declined by 4.5% YoY.
* EBITDA margin improved by 40bps YoY to 18.9% despite an increase in ad spend to 8.3% of sales vs 7.8% YoY. However, the company guides for 16-17% EBITDA margin for FY25 due to rise in input prices and requirement for brand investment to support new launches.
* JLL guides for mid to single digit volume growth factoring disruption in July in the southern region, which contributes ~40%, a high base last year and price hike plans for personal care in Q3FY25 due to higher palm oil prices.
* JLL has a strong focus on distribution and direct reach has increased to 1.2mn from 86k in FY21. This, along with new launches, has strongly supported double digit growth in last 2 years. JLL will continue to carefully add the distribution.
Outlook & Valuation
Rural demand is gradually picking up while urban demand has been impacted in H1FY25. We expect rural demand to improve further on the back of good monsoon, expected higher agri production, higher MSP and GoI’s strong rural focus. The likely boost in government spending in H2FY25, along with a reduction in food inflation, will support urban demand. Focus on distribution, brand investments, exploring new product launches and LUP strategies will support JLL’s volume growth. The company has a strong balance sheet and cash flow generation. We lower our target price to Rs. 496 by valuing at 36x December 2026E EPS (2Yr avg=35x), but upgrade to BUY rating considering expected improvement in demand in H2FY25 and recent correction in stock price.
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SEBI Registration Number: INH20000034
