MOSL: JYOTHY LABORATORIES (Neutral)-Meager sales growth takes sheen off strong margin performance
JYOTHY LABORATORIES: Meager sales growth takes sheen off strong margin performance
(JYL IN, Mkt Cap USD0.9b, CMP INR161, TP INR170, 5% Upside, Neutral)
- Reported standalone net sales were up 2.3% YoY to INR4.1b (our estimate: INR4.2b) in 1QFY20. EBITDA increased 12.4% YoY to INR655m (our estimate: INR564m). Adj. PAT grew 10.9% YoY to INR359m (our estimate: INR326m).
- Segmental: Fabric care, Dishwashing and Personal care sales grew 5.4%, 1.1% and 13.3%, respectively, while Household Insecticides (HI) sales were down 21.6% YoY.
- Gross margin expanded 70bp YoY to 47.7%. Higher ad spends (+30bp YoY to 8.1% of sales) and staff cost (+40bp YoY to 12.2%) were offset by lower other expenses (-140bp YoY to 11.5%). Consequently, EBITDA margin expanded 140bp YoY to 15.9% (our estimate: 13.5%).
- Concall highlights: (1) Management expects a stable demand environment. However, competition is likely to remain intense in a deflationary commodity environment. (2) At end-FY19, management had guided for 12% top-line growth in FY20. This guidance has now been revised to 10-12%.
- Valuation and view: JYL delivered a better margins performance even after adjusting for the Ind-AS 116 impact. Consequently, we raise our FY20/21 EPS estimate by 1.9%/2.1%. In our view, the expected earnings CAGR of 17% over FY19-21 is moderate for a company that is much smaller in size compared to mid-cap peers. Moreover, RoE is at a discount to peers at 16.1%/18.9% for FY20/21E. Valuation of 16x FY21E EV/EBITDA and 22x FY21E EPS do not offer scope for a significant upside. Targeting 16x FY21E EV/EBITDA (which is ~35% discount to staples peer average), we derive a TP of INR170. Maintain Neutral.
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.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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