Neutral Jyothy Laboratories Ltd For Target Rs.450 by Motilal Oswal Financial Services Ltd
Miss on margins; focus on volume-driven growth
* Jyothy Laboratories (JYL) reported 4% YoY sales growth (in line) in 3QFY25. Volume growth was 8% (est 4%). Excluding HI, value/volume growth stood at 6%/10%. The gap between value and volume growth was due to higher grammage and trade promotions on select SKUs.
* Fabric Care delivered 9% value growth (led by liquid detergents), EBIT margin contracted by 300bp YoY to 22.2%, and EBIT declined by 4% YoY. Dishwash posted 4% YoY growth, EBIT margin was flat, and EBIT grew 5% YoY. Large packs of Pril saw good momentum in MT.
* HI posted a 25% YoY value decline, driven by weak seasonal demand and a shift toward incense sticks. LV also declined in 3Q, though it showed double-digit growth YTD. EBIT margin pressure persisted, down 920bp YoY to -29.7%. Personal Care revenue declined 4% due to weak consumption, and EBIT declined 20% YoY.
* Gross margin (GM) was flat YoY at 49.8% (in line). JYL took a low singledigit price hike in soaps in Dec’24, benefits of which will reflect in 4Q. However, EBITDA margin contracted 110bp YoY to 16.4% (est. 17.6%) due to negative operating leverage. EBITDA declined 2% YoY.
* We estimate a CAGR of 10%/12% in revenue/EBITDA during FY25-27E. However, sustaining the operating margins will be challenging due to relatively slow revenue growth and competitive pressure. Going forward, market share gains and the success of new launches will be crucial for JYL’s earnings growth. We reiterate our Neutral rating on the stock with a TP of INR450 (premised on 35x Dec’26E P/E).
Healthy volume growth; miss on margins
* Healthy 8% volume growth: JYL net sales grew by 4% YoY to INR7,045m (est. INR7,142m). Volume growth was 8% (est. 4%) in 3QFY25. Fabric care saw healthy growth, while HI remained weak.
* Miss on margins: GM was flat YoY at 49.8% (est. 49.7%). As a percentage of sales, staff costs rose 40bp YoY to 11.5%, other expenses rose 70bp YoY to 12.8%, and ad spends were flat YoY at 9.0%. EBITDA margin contracted 110bp YoY to 16.4% (est. 17.6%).
* Decline in profitability: EBITDA declined 2% YoY to INR1,158m (est. INR1,255m). PBT inched down 1% YoY to INR1,138m (est. INR1,231m). Adj. PAT declined 4% YoY to INR874m (est. INR953m).
* In 9MFY25, net sales, EBITDA and APAT grew by 4% each.
Highlights from the management commentary
* The quarter saw food inflation, moderation in urban consumption, and a gradual recovery in rural demand. Rural demand is improving, supported by a good monsoon and rising wages, while urban demand is under pressure
* JYL expanded its liquid detergent portfolio with Mr. White and Morelight, strengthening innovation and catering to diverse price segments.
* Jovia was launched in the mass segment at a highly competitive price point of INR25-26, targeting downtrading consumers. The product is expected to be margin-dilutive in the initial years.
* Competitive intensity remains high in small pack grammage in Dishwah. Pril maintains its leadership in Modern Retail and E-commerce, driven by larger SKUs.
Valuation and view
* We cut our EPS estimates by 2% for FY25 and keep FY26E EPS unchanged.
* We believe that the margin-led growth will be normalized in FY25. From hereon, market share gains and the success of new launches will be critical for JYL’s earnings growth. JYL’s margin expansion beyond ~18% is also constrained by its focus on the mass and rural segments. Therefore, we believe its growth potential is adequately priced in at the current valuation. We reiterate our Neutral rating on the stock with a TP of INR450 (premised on 35x Dec’26E P/E).
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