Jyothy Laboratories - With multiple triggers, outlook 'bright'; upgrading to a Buy with a target procee of Rs 360
Jyothy Laboratories' Q1 results were ahead of our estimates: 10% volume growth and a strong 370-bp expanded EBITDA margin driving 78% yoy profit growth. The broad-based volume growth and strong operating-margin tailwinds (driven by the gross margin) reflect strengthening business fundamentals. Multiple triggers (a better monsoon driving rural demand pickup, monetisation of its land assets, and Henkel possibly exercising its option to buy a 26% stake) could offer further potential. Hence, we upgrade the stock to a Buy.
A strong Q1 showing. Revenue grew 9% yoy to Rs. 4.4bn (slightly lower than our estimated 11%), aided by 10% volume growth. EBITDA grew 37% yoy to Rs. 791m. The EBITDA margin expanded ~370bps yoy to 18%, primarily driven by lower employee expenses (down 230bps yoy) and a higher gross margin (up 150bps yoy). Adj. PAT grew 78% to Rs. 459m (lower than our Rs. 555m estimate), hit by higher taxes (a 24.6% rate in Q1, vs. no taxes estimated on expectation of amalgamation of the loss-suffering subsidiary).
Margin tailwinds to ensure strong earnings growth. The flagship brand Ujala clocking 10% growth in Q1 reflects that management efforts to drive growth in the mature soap & detergent category are yielding results. Increased brand investments, innovation and distribution initiatives in the non-south market should help sustain the revenue momentum. Further, cost-saving measures, easing input costs and tax benefits should help drive a 47% earnings CAGR over FY16-18.
Valuation. We have tweaked our estimates to reflect taxes in H1 FY17, while factoring in the tax benefits from the amalgamation with the loss-saddled (Rs. 3bn) subsidiary JCM in H2 FY17 and FY18. Thus, we raise our FY18e EPS 16% while reducing the FY17e EPS 13%. We upgrade the stock to a Buy with a revised price target of Rs. 360, based on 27x FY18e vs. Rs. 340 earlier (30x FY18e). Risks: A steep rise in input costs, weaker demand and keener competition in its Home and Personal care sub-segments.
Shares of JYOTHY LABORATORIES LTD. was last trading in BSE at Rs.282.6 as compared to the previous close of Rs. 285.25. The total number of shares traded during the day was 8837 in over 369 trades.
The stock hit an intraday high of Rs. 286.95 and intraday low of 282.6. The net turnover during the day was Rs. 2515275.