Jyothy Laboratories' Q3FY18 results (Outperformer) - Volume recovery on track

Q3FY18 result highlights

• Jyothy Laboratories’ (JYL) consolidated net revenues increased by 12.3% yoy to Rs4.3bn, EBITDA increased by 36% yoy to Rs693m and Reported PAT was up 59% yoy to 329m.
• Comparable net sales increased by 15.9% yoy with a volume growth of 11.5%. The growth was led by Fabric care, Dishwash & Personal care which grew by 17.9%, 18.9% and 37.9% yoy. HI sales declined by 10%.
• Comparable gross margins improved by 130bp yoy to 48.3%. Staff cost increased 14.2% yoy, A&P spends were up 20.5% while other expenses increased by 5.9% yoy. Resultant EBITDA increased by 36% yoy; margins expanded 290bps to 16.1%. On comparable basis, EBITDA increased by 36.2% with a margin expansion of 240bps yoy.
• PBT before exceptional items was up 64% yoy. However a onetime deferred tax impact resulted in a higher tax rate and subsequently a lower PAT growth of 59%.

Key positives: Strong growth in Farbic care, dishwash and personal care

Key negatives: Continued weakness in HI sales.

Impact on financials: Factoring higher tax rate for FY18E we have cut our estimates by 8%; FY19E/FY20E estimates remain unchanged.

Valuations & view

JYL’s performance has been in line with expectations for the quarter. Going forward, key portfolio price reductions due to GST rate cuts (on 45% of the portfolio), specific portfolio opportunities, and continued innovations in its key segments will drive double digit volume growth. Though significant margin expansion from current levels of ~16% is unlikely, a key driver of profitability will be continued debt reduction and the benefit of better interest rates (7.5% cost of debt for next 3 years). We are factoring a 23% EPS CAGR for JYL over FY18-20E on the back of the above mentioned factors; Maintain Outperformer.