Jyothy Labs Ltd - Q4FY21 Result Update - YES Securities

Strong share gains and WC improvement, but category headwinds for fabric care still impacting growth and margins

View - The stock is currently trading around 22x FY23E earnings, which is much cheaper than peers, but we don't see any immediate triggers for the stock to re-rate. While balance sheet has improved significantly in FY21, we believe a movement towards double-digit growth would be the key trigger for the stock. And for that to happen, we need to see a strong recovery for their key brand Ujala, sustained improvement in market shares and success in more states for their new launches.

Macro trends - Healthy demand seen across HPC categories, sustained rural demand with improvement in urban demand, strong market development efforts drove growth across trade channels; 1QFY22 has led to some disruption in supply chain and restricted mobility of sales team, online channel continues to witness strong traction.

4Q result highlights - Numbers look optically strong due to a very weak base quarter when revenue was down 24%, margins were down 500bps and PAT was down 61%; 4Q revenue up 26% with FMCG sales up 27% (24% volume growth), revenue impacted by 8-10% (45-50crs) due to CRS implementation which led to lower channel filling, GMs down 20bps to 45.6%, A&P spends higher by 8%, EBITDA margins up by 400bps to 14.3%, PBT growth of 142% PAT growth muted at 3% due to Rs 24crs one-off non cash item, dividend payout increased to 75% or Rs 4 per share; April has also seen double digit growth.

Segment wise growth - 16% growth in fabric care (post-wash fabric care still under pressure while main wash has recovered), 33% in dishwashing (driven by small packs and hygiene focus), 36% in HI (strong campaigns and product innovation drove share gains), 38% in personal care (strong demand and execution in Margo) and 56% in other products.

Market shares in CY20 over CY19 - CY20 saw share gains in many brands - 120bps in Exo bar, 130bps in Pril, 170bps in Maxo coil, 40bps in Maxo LV, 60bps in Ujala FB.

Strategic initiatives - Added sub-stockists and ramped up van coverage to drive rural growth, pipeline stock reduced to 10 days from 20-25 days; enhanced focus on digital advertising and micro-marketing initiatives; implemented CRS across India, launched retailer app for direct delivery, better visibility across E-com platforms; new innovative launches like Tshine floor cleaner, Exo Bioh Fresh vegetable cleaner, Exo all surface cleaner and Margo sanitizer and hand wash.

Improvement in cash generation - Started selling completely on cash basis, kept inventory levels low through CRS implementation which resulted in WC days reducing from 25 days to 15 days.

Sustainability of share gains - Gained from both local and large players; focus on LUPs, rural markets, increased distribution reach and strong activations drove share gains.

Distribution update - Added 500 sub-stockists and increased van operations to focus more on rural markets, improving sales team efficiency in urban markets; current direct reach of 9 lac outlets and 3mn total reach for Ujala FW.

Growth and margin outlook - 2-yr sales CAGR from FY19-21 at 2.5% looks much lower due to sales impact on post-wash fabric care category and CRS implementation; confident of growing ahead of market in future as well driving towards double-digit volume growth while maintaining margins at current levels.

Innovation - 5 new products contributing 3% of sales as of now; most success in new launches currently seen in key states, confident of replicating it on a national basis; more new launches also being planned.

Pricing action - RM basket has moved up 5-6% necessitating calibrated price hikes, taken 2-3% price hikes and reduced trade schemes to offset 60% of RM inflation.

Maxo LV/coil mix - Coil was 70% and LV 30% last year which has increased to 36-38% in FY21.

Digital initiatives - Multiple systems put in place to drive better WC management and more accurate SKU planning, demand planning, retail distribution.

Shares of JYOTHY LABS LTD. was last trading in BSE at Rs.150.7 as compared to the previous close of Rs. 149.1. The total number of shares traded during the day was 170403 in over 2773 trades.

The stock hit an intraday high of Rs. 154 and intraday low of 142.95. The net turnover during the day was Rs. 25628740.

Source : Equity Bulls

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