MOSL: JYOTHY LABORATORIES (Neutral) - Weak results trend persists; material costs to weigh on margins
JYOTHY LABORATORIES: Weak results trend persists; material costs to weigh on margins
(JYL IN, Mkt Cap USD0.8b, CMP INR172, TP INR168, 2% Downside, Neutral)
- Jyothy Laboratories (JYL)'s 1QFY22 sales came in above expectations, despite a higher COVID impact in the company's largest market, i.e., Kerala. Nevertheless, gross and EBITDA margins were significantly lower than expectations due to a higher material cost impact and higher-than-anticipated ad spends. Material cost inflation is unlikely to see any considerable respite, affecting performance in subsequent quarters as well.
- While improvement was seen in net WC days in FY21 and the company is now net debt free, topline growth is key for a company with sales of just INR19b. The likelihood of 15% sales growth (essential for any re-rating) continues to appear difficult. The sales CAGR has been 3.7% for the preceding five years.
- With margins likely to remain under pressure due to material cost increases, earnings growth prospects remain weak. Maintain Neutral.
Double-digit volume growth benefit; high input cost impacts profitability
- Standalone net sales grew 21.8% YoY to ~INR5.2b in 1QFY22 (est. INR4.8b).
- Gross margins contracted ~280bp YoY to 43.1% in 1QFY22. High RM cost YoY as a percentage of sales (+280bp YoY), high ad spends at 8.2% (+360bp), marginally lower staff costs at 11.7% (-30bp), and lower other expenses at 10.8% (-30bp) led to EBITDA margin contraction of 580bp YoY to 12.5%.
- EBITDA declined ~17% YoY to INR650m (est. INR 787m). PBT declined ~19% YoY to INR476m (est. INR626m). Adj. PAT declined 20.5% YoY to INR401m (est. INR514m).
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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