Jyothy Laboratories' Q3FY20 results (Outperformer) - Big miss…
Q3FY20 result highlights
- Jyothy Laboratories’ (JYL) standalone net rev. declined by 6.2% yoy to Rs4.07bn (est.: Rs4.59bn), EBITDA fell by 9.3% yoy to Rs651m (est: Rs780m), PBT (bei) was down 24% yoy but reported PAT was down 12.1% yoy to Rs532m (est: Rs466m) due to lower tax rate.
- Consolidated revenues fell 6% yoy, EBITDA was down 8% yoy & PBT (bei) was down 22% yoy.
- Volume declined by 5.6% yoy. Management indicated that 4% decline is due to one-off moderation in Institutional sales (CSD) and 1.9% decline due to pressure in GT channel on account of rural weakness & WC constraints at distributor levels.
- Fabric care sales declined by 11% yoy, Dishwash was flat, HI grew by 1.7% yoy (vol growth of 5%). Personal care declined by 11.7% yoy.
- Consolidated gross margins up 220bps yoy to 48.7% aided by benign input cost. Staff cost increased by 11% yoy, A&P spends up 1.8% yoy while other expenses decreased by 6% yoy (led by IndAS adjustments). Resultant reported EBITDA margins decreased by 30bps to 15.8%. Adjusting for IND AS benefit of Rs52.7m, EBITDA declined by 15%, with margin contraction of 160bps.
Key positives: Recovery in HI segment, healthy gross margins.
Key negatives: Big miss on revenue.
Impact on financials: Cut our FY20/21E EPS estimates by 7%/11%
Valuations & view
JYL’s 3QFY20 volume performance was weak & sharply below estimates on reported as well as adjusted basis (adjusting for 4% decline due to one-time moderation in CSD channel) but we believe that weakness was secular and rev. fall is not attributable to CSD channel beyond ~200bps. With CSD channel sales normalising in 4Q coupled with further recovery in HI, the revenue trajectory is expected to improve in the coming quarter. While for the 9MFY20 execution has been below expectations, from a longer-term perspective, we believe JYL’s portfolio has the potential, with the right execution, to drive sustainable volume growth. Given the weak performance & muted consumer demand, we have cut our revenue estimates for FY20/21E by 6-8%, now factoring 6% sales CAGR (compared to 11% earlier) over FY19-21E, which coupled with stable margins should result in 8% PAT CAGR over the same period. Also given the volatility in execution, we have cut our target multiple to 27.5x (from 30x earlier). However, current valuations at 22.5x FY21E, are undemanding. Hence, we maintain Outperformer rating with a revised price target of Rs177.
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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