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In-line performance; focus on volume-driven growth

* Jyothy Laboratories (JYL) reported a revenue growth of 8% YoY (in line) in 1QFY25. It delivered a volume growth of 11% and continued to focus on volume-led growth to gain market share across categories. The company is not expecting price hike-led growth in FY25.

* Fabric care delivered 9% growth, with growth from both main-wash and post-wash categories. Dish-wash growth stood at 7% YoY, led by LUPs. Exo's market share in the eastern region increased from low-single digits to double digits. HI grew 2% YoY only, hurt by the extended and harsh summer. Personal care was weaker than expected, clocking 11% YoY growth (vs. ~21% growth in FY24).

* Gross margin (GM) was up 340bp YoY to 51.3%, at an all-time high led by the mix, lower RM costs, and better sourcing. EBITDA margin inched up 90bp YoY to 18%. EBITDA grew 14% YoY during the quarter, on a high base (~96% EBITDA growth in 1QFY24), and a five-year CAGR is 15%.

* We model a 10%/12% revenue/EBITDA CAGR over FY24-26E. With a stable RM basket, we expect the EBITDA margin to be ~18%.

* 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. Due to its expensive valuations, we reiterate our Neutral rating on the stock with a TP of INR565 (premised on 45x Jun’26E P/E).

Overall in-line quarter; volume growth stood at 11% YoY

* Sales growth across segments: JYL registered a net sales growth of 8% YoY to INR7,418m (est. INR7,524m). Volume growth was 10.8% YoY (est. 9.0%) in 1QFY25. The Fabric care/Dish-wash/HI/Personal care sales grew 9%/7%/2%/11% YoY to INR3,228m/INR2,480m/INR503m/INR932m in 1QFY25. The four-year CAGR for Fabric care stood at 23%, while Dish wash and Personal care CAGR stood at +12% each. HI declined 6%.

* Improvement in margins: Gross margin expanded ~340bp/180bp YoY/ QoQ to 51.3% (est. 48.5%). As a percentage of sales, staff costs rose 60bp YoY to 11.6%, ad spending increased 100bp YoY to 8.3%, and other expenses grew 100bp YoY to 13.4%. EBITDA margin expanded 90bp YoY to 18.0%. (est. 17.5%).

* Segmental profitability: EBIT margins in the Fabric care/Household Insecticide segments expanded 270bp/820bp YoY to 24.9%/(10.8%), while Personal care margin contracted 730bp YoY to 11%. Dish-wash’s EBIT margin was stable at 20% in 1QFY25.

* Double-digit growth: EBITDA grew 14% YoY to INR1,335m (est. of INR1,317m). PBT grew 18% YoY to INR1,324m (est. INR1,269m). Adj. PAT increased 17% YoY to INR1,017m (est. INR977m).

Highlights from the management commentary

* Demand is likely to accelerate with normal monsoons. Rural demand pickup is key for positive momentum.

* JYL delivered 11% YoY volume growth during the quarter. The value-volume gap is due to the increase in grammages and price cuts taken by the company.

* The contributions of modern trade and e-commerce to revenue have increased to 15%, up from 10% two to three years ago.

* Capex will be INR500-600m in FY25. Cash balance is over INR6.5b at the end of 1QFY25.

Valuation and view

* There are no material changes to our EPS estimates for FY25 and 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 INR565 (premised on 45x Jun’26E P/E).

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