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Jyothy Laboratories' Q1FY19 results (Outperformer) - Volume growth disappoints in an otherwise in line quarter

Q1FY19 result highlights

• Jyothy Laboratories’ (JYL) standalone net revenues increased by 18% yoy to Rs4bn, EBITDA increased by 40% yoy to Rs610m, PBT was up 83% yoy to Rs417m and Reported PAT was up 57% yoy to 324m.
• Comparable net sales increased by 20.6% yoy with a volume growth of 18.5%. The growth was led by Dishwash, HI & Personal care which grew by 28% yoy each. Fabric care sales grew by 13.4% yoy.
• In terms of power brands, Exo/Maxo/Margo/Pril grew by 29.6%/28%/29.5%/23.2% yoy while Ujala/Henko sales grew by 12.2%/10.9% yoy.
• Gross margins declined by 240bp yoy to 47.4%. Staff cost increased 14% yoy, A&P spends were up 3% yoy while other expenses decreased by 6% yoy. Resultant EBITDA increased by 40% yoy; margins expanded 240bps to 15.1%.
• Other income was 21% yoy, interest cost declined by 10% yoy while tax rate was higher (22.3% versus 9.5% in base quarter) resulting in PAT growth of 57% yoy.

Key positives: Lower overhead cost, decline in interest costs.

Key negatives: Volume growth below expectations, weak gross margins

Impact on financials: We have marginally reduced our earnings estimate by 2%/1% for FY19/20E and introduced FY21E earnings.

Valuations & view

After a strong end to FY18, JYL’s 1QFY19 performance was sub-optimal as volume growth was below expectations despite very weak base.  Going forward, we are factoring volume led 14% revenue CAGR over FY18-21E led by improving demand scenario, innovations and share gains in key power brands. While gross margin expansion will be a challenge in the near term given the input cost inflation, judicious price hikes coupled with leverage benefit will drive operating profitability. Further, decline in interest costs led by reduction in debt will drive ahead of peers earnings growth (24% CAGR over FY18-21E). Maintain Outperformer.