Jyothy Laboratories' Q2FY20 results (Outperformer) - Volume growth surprises positively
Q2FY20 result highlights
- Jyothy Laboratories’ (JYL) standalone net rev. grew by 8.5% yoy to Rs4.64bn (est.: Rs4.45bn), EBITDA grew by 8.1% yoy to Rs791m (est: Rs787m), PBT(bei) was up 5.1% yoy. Reported PAT was up 17.4% yoy to Rs532m (est.: Rs466m) as tax rate came in at 11% vs exp. of 20% for the quarter.
- Consolidated revenues grew by 8.7% yoy, EBITDA was up 10.7% yoy & PBT(bei) was up 4% yoy.
- Overall volumes grew by 8.3% yoy, Ex-HI the volume growth was even better at 9.1% yoy. Fabric care grew by strong 13.1% yoy (driven by Crisp & Shine and others), Dishwash grew by 8.6% yoy (bounced back after weak Q1), HI fell by 1.3% yoy (after falling by 21.6% yoy in Q1) while Personal care grew by healthy 6.9% yoy.
- Consolidated gross margins fell by 24bps yoy to 46.4% despite fall in crude prices because of mix issue in the qtr and higher promotional activity. Staff cost increased sharply by 12.2% yoy, A&P spends jumped by 21.6% yoy (up 60bps as a % to sales to 5.9%) while other expenses decreased by 4% yoy (largely led by IndAS adjustments). Resultant reported EBITDA margins increased by 30bps to 16.6% but adjusting for Rs52.1m benefit due to IND AS led reclassification, EBITDA grew by 3.3% yoy with margin drop of 80bps to 15.5%.
Key positives: Strong growth in fabric care, overall UVG.
Key negatives: HI continues to be weak, weak gross margin.
Impact on financials: Largely unchanged.
Valuations & view
JYL’s ~8% volume growth in Q2 is a strong print, especially given subdued consumer demand, largely led by its diversified portfolio and strong focus on innovation. After a tepid Q1, growth in Fabric Care and Dishwash has revived and we expect gradual recovery in HI led by heavy monsoons and some interventions from the Govt. to limit the menace of incense sticks. As a result our revenue estimates are largely unchanged (factoring in ~11% CAGR over FY19-21E ) and we marginally tweak our margin estimates which gets neutralized on lower tax rate (JYL sticking to existing regime). From a longer-term perspective, we believe JYL’s portfolio has the potential, with the right execution, to drive sustainable volume growth and given superior near-term execution, we upward revise our target multiple to 30x FY21E (from 25x). Maintain Outperformer with a revised price target of Rs218.
Jyothy Labs Limited, formerly Jyothy Laboratories Limited, is a multi-brand, multi-product company focused on fast-moving consumer goods industry. The Company is principally engaged in manufacturing and marketing of fabric whiteners, soaps, detergents, mosquito repellents, scrubber, bodycare and incense sticks. It operates through three segments: Soaps and Detergents, which includes fabric whiteners, fabric detergents, dish wash bar and soaps, including ayurvedic soaps; Home Care products, which includes incense sticks, scrubber, dhoop and mosquito repellents, and Others, which includes bodycare, tea and coffee. It products are under various brands, which include Henko, Mr. White, Ujala, More light, Chek, Pril, Exo, Maxo, Margo, Fa, Neem, Fabric Spa, Snoways, Busy easy and Wardrobe. Its subsidiaries include Jyothy Consumer Products Marketing Limited, Four Seasons Drycleaning Company Private Limited, Snoways Laundrers & Drycleaners Private Limited and Jyothy Fabricare Services Limited.
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