Buy Jyothy Labs Ltd for Target Rs 320 by Elara Capitals
Margins remain an overhang
Jyothy Labs (JYL IN) delivered a decent Q3, with 5% revenue growth backed by Fabric care (up 9.2% YoY), Household Insecticides (HI; up 12.6% YoY) and Personal care (up 10.9%), while growth in the Dishwashing segment remained muted. Volume growth in Q3 was 7.2%. Negative price growth was due to promotional offers in dishwash and liquid detergent. Management anticipates double-digit volume growth in FY27, but there will be volume-value gap in the near term. We have cut our FY26E/FY27E/FY28E EPS by 4.7%/5.4%/6.1% respectively to factor in lower EBITDA margins. We maintain Buy with a lower TP of INR 320 from INR 390, on 30x December FY27E P/E (from 35x) as we roll forward. Key risks are competitive intensity and lower margins.
GST disruptions impact sales growth in Q3: JYL reported a revenue growth of 5% YoY to INR 7.4bn, in-line with our estimates, with 7.2% volume growth YoY in Q3. The value-volume gap (2.2%) stemmed from MRP reductions, higher grammage offers, and promotional schemes. Management expects this gap to continue in the near term, largely driven by price cuts in Dishwashing and liquid detergents. Fabric Care segment grew 9.2% in value, led by strong double-digit volume growth in liquid detergents and post wash, while HI saw a 12.6% value increase fuelled by liquid vaporizers (LV) and the scaling up of Maxo Aerosol. The Personal Care segment returned to growth, rising 10.9% in value after GST disruptions (September and October were affected but November saw settled trends), whereas the dishwashing segment saw 1.3% value decline despite 7% volume growth, a result of strategic price cuts and grammage-led promotions. Overall, these results were supported by a recovery in General Trade, continued double-digit growth in modern digital channels, and disciplined cost management that maintained operating margins despite elevated input costs.
Momentum in general trade; sustained expansion in direct reach: In Q3, momentum in general trade (contribution is ~2/3 of overall business) continued, while quick-commerce and e-commerce channels saw rapid growth. The company will be expanding its direct reach to ~1.4mn outlets by end-FY26 (from ~1.3mn in FY25).
Input cost pressures weigh on Q3 profitability: Gross margin contracted 326bps YoY to 46.5%, amid lowering of prices, input cost inflation and consumer offers. EBITDA de-grew 4.4% YoY to INR 1.1bn (5.7% below our estimates), with margin at 15% (-157bps YoY). We expect the HI segment to turn profitable by the end of FY27, led by declining share of coils and sustained growth in LV, but Dishwash and Fabric care margins will drag overall margins owing to high competition and higher input cost.
Reiterate Buy with a lower TP of INR 320: We have cut our FY26E/FY27E/FY28E EPS by 4.7%/5.4%/6.1% respectively, since we lower our EBITDA margin. We reiterate Buy with a lower TP of INR 320 from INR 390, on 30x December FY27E P/E (from 35x) as we roll forward. Key risks are competitive intensity and margin contraction
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SEBI Registration number is INH000000933.
