Buy Jyothy Laboratories Ltd - PINC Result Review

Robust volume growth, Inline with expectation

Jyothy's Q1FY11 numbers were in line with our estimates. Net sales grew by 27% largely on robust volumes growth across the categories. Gross margins dipped by 352bps on higher crude based input prices. Staff cost and other expenditure (% of net sales) declined by 116bps and 7bps respectively and resulted in 235bps fall in EBITDA margin. Tax rate reduced by 400bps on higher production from the tax free zone and it helped PAT to grow by 17%.

We believe strong volume growth on higher marketing efforts along with stabilising of the laundry business will maintain the growth trajectory. We retain our estimates and BUY recommendation with a TP of Rs307.

Volume growth spanning across segments

Jyothy exhibited strong volume growth i.e. Ujala (+22%), Maxo (+10%) and Exo (+48%) driven by back of consistent efforts on branding and market share improvement of Ujala and national launch of Exo. Post national launch of Exo, it has touched 500k outlets from 350k and plans are to reach 1,000k by the year end.

Mixed bag on margin front

PBIT margin for Soaps & detergent segment contracted by ~700bps on higher crude related inputs and higher promotional expense on detergents. Home care segment margin has improved by 750bps, half of this was due to inclusion of excise benefits.

Laundry business stabilise

Laundry business has now been operationally stabilised and can extend to other cities too. The company plans to expand it to 4-5 other cities. At present, daily outflow stood at ~34k pieces (+20% from Q4FY10).

VALUATIONS AND RECOMMENDATION

We retain our target multiple at 16x on strong performance in previous years and robust earnings visibility. We expect 37% earnings CAGR over FY10-12E to improve RoE from 19% to 25% and derive for higher multiple. At 16xFY12 earnings our TP stands at 307, we maintain 'BUY' recommendation.

Source : Equity Bulls

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