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Good performance now priced in

Fabric and personal care drive strong revenue growth Jyothy Labs’ (JYL IN) Q3 revenue grew 10.6% YoY as volume rose 11% YoY, on robust growth in personal care, up 22.3% YoY and fabric care, up 11.9% YoY. Growth in fabric care was aided by growth in post wash and main wash brands, as JYL focused on value offerings in the mid-price detergent powder and premium portfolio of liquid detergents. The dishwashing segment grew 6.7% YoY, hit by increased competition and rural slowdown. Personal care growth was aided by robust growth in the original Margo variant coupled with good offtake of newly launched variants. Household insecticide (HI) sales grew 5.4%, dragged down by unfavorable weather and illegal incense stick.

Distribution and NPDs to remain key growth levers While rural recovery remains the key for revival of category growth, JYL may continue to focus on key levers such as new product developments (NPDs), distribution expansion and brand investments. NPDs such as liquid detergent in Henko and Ujala, and new variants of Margo have aided growth for respective segments. JYL is on track to increase its direct reach outlets by 75,000-1 lac outlets in FY24 on the base of 1.1mn outlet reach at the start of the year.

Softening input prices improve margin Gross margin gain of 670bps YoY on the back of softening of key raw material resulted in an EBITDA margin expansion of 375bps YoY to 17.5%. The management expects to sustain EBITDA margin at 16-17% for FY24 despite an increase in ad spends (up 31.2% YoY in 9MFY24).

Valuation: revise to Reduce with higher TP of INR 540 We raise our earnings 1% each for FY25E and FY26E to factor in better revenue growth. We revise JYL to Reduce from Accumulate as the stock has run-up 42% in the past three months coupled with increased competition and peaking out of operating margin. But we increase our TP to INR 540 from INR 450 on 40x FY26E P/E (from 35x, due to better performance) as we roll-forward.

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