IGI Logo

Miss on sales; focus on volume-driven growth

Jyothy Laboratories (JYL) reported flat sales YoY (miss) in 2QFY25. It posted a five-year CAGR of 10%. Volume growth was at 3%, on account of a high base (+11% in 1QFY25, +9% in 2QFY24) and muted consumer demand. Jul’24 saw muted performance, impacted by flooding in the South (40% sales contribution), while Sept’24 delivered double-digit volume growth. Oct’24 volume growth is expected in the mid- to highsingle digits, supported by the festive demand.

* The company is focused on volume-led growth, targeting mid- to highsingle digit growth in 2HFY25 to capture market share across categories. Price hikes are anticipated in the soap category in 3QFY25, with potential low single-digit increases across other segments in 2HFY25, aiming for high single-digit revenue growth.

* The revenue growth was subdued across all segments. Fabric care sales were flat YoY. Dish wash growth stood at 1% YoY. Pril larger packs are gaining momentum in MT. HI sales were flat YoY, with LV delivering double-digit growth, though coil faced a negative impact. Personal care experienced a 5% sales decline (vs. ~22% growth in 2QFY24).

* Gross Margin (GM) was up 100bp YoY but down 100bp QoQ to 50.3%. EBITDA margin inched up 30bp YoY to 18.9%, a 33-quarter high. EBITDA grew 2% YoY during the quarter on account of a high base (~68% EBITDA growth in 2QFY24), and the five-year CAGR is 12%.

* We model a 9%/9% revenue/EBITDA CAGR over FY24-27E. With a stable RM basket, we expect the EBITDA margin to be ~18% in FY25.

* We believe that the margin-led growth will be normalized in FY25. From here on, market share gains and the success of new launches will be critical for JYL’s earnings growth. We reiterate our Neutral rating on the stock with a TP of INR500 (premised on 40x Sep’26E P/E).

Miss on sales

* Flat sales YoY: JYL reported flat YoY net sales of INR7,338m (est. INR7,983m). Volume growth was 3% (est. 10%) in 2QFY25. Fabric Care and HI sales were flat YoY, Dishwashing grew 1% YoY, while Personal Care sales declined 5% in 2QFY25.

* Improvement in margins: Gross margin expanded ~100bp YoY to 50.2% (est. 51.2%). As a percentage of sales, the staff cost increased 50bp YoY to 11.5%, ad spends increased 50bp YoY to 8.3%, while other expenses declined 40bp YoY to 12.0%. EBITDA margin expanded marginally by 30bp YoY to 18.9%. (est. 18.9%).

* Segmental profitability: EBIT margins in the Personal Care and Household Insecticides expanded 260bp/810bp YoY to 13.6%/(9.5%), while Fabric Care and Dishwashing margin contracted 120bp/180bp YoY to 24.9%/19.1% in 2QFY25.

* Marginal growth in profitability: EBITDA grew 2% YoY to INR1,385m (est. of INR1,509m). PBT was flat YoY at INR1,357m (est. INR1,496m). Adj. PAT grew 1% YoY to INR1,050m (est. INR1,146m).

* In 1HFY25, net sales, EBITDA, and APAT grew 4%/8%/8%. In 2HFY25, we expect net sales, EBITDA, and APAT to grow 8%, 11%, and 12%.

Highlights from the management commentary

* The value-volume gap is due to the increase in grammage and price cuts implemented by the company in certain SKUs .

* July saw subdued performance, partly due to flooding in the South, which contributed 40% to sales. September, however, experienced double-digit volume growth.

* The company plans to implement a price hike in the soap portfolio in 3QFY25 as well as in other categories in 2HFY25 if required.

* New products and category expansions are anticipated in CY25.

* Modern Trade (MT) and e-commerce channels are also experiencing doubledigit growth rates.

Valuation and view

* We cut our EPS estimates by 3% for FY25 and 6% for FY26.

* We believe that the margin-led growth will be normalized in FY25. From here on, 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 INR500 (premised on 40x Sep’26E P/E).

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html

SEBI Registration number is INH000000412