Published on 16/08/2019 9:10:02 AM | Source: Equirus Securities Ltd

Update On Jyothy Laboratories Ltd by Equirus Securities

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Weak dishwashing, HI sales hurt performance; valuations remain reasonable — maintain LONG

JYL’s 1QFY20 standalone sales stood at Rs 4.12bn, up 2% yoy and 6% below EE. Volume growth at 5.6% yoy outstripped sales growth amid higher growth in lower end of the portfolio supported by increased promotions. Below-expected sales stemmed from lower growth in dishwashing (+1.1% yoy) and Household Insecticides (-21.6% yoy). Standalone EBIDTA margins expanded 87bps yoy to 15.9%; absolute EBIDTA came in at Rs 655mn (+7% yoy), 2% above EE. However, adjusting for IND-AS reclassification of rent expenses to depreciation and finance costs, EBITDA growth was flat yoy. We pare FY20/FY21 sales estimates to factor in lower-thanexpected sales in 1Q but raise FY20 EBITDA by 1% to adjust for the IND-AS reclassification. Despite a soft 1Q, valuations remain reasonable at CMP. Maintain LONG with a Sep’20 TP of Rs 182 (Jun’20 of Rs 211 earlier) set at 33x (prev. 35x) its TTM EPS of Rs 5.5.


Ujala sales growth soft despite market share gains: Ujala sales grew ~2.8% yoy to Rs 940mn, marginally below expectations. Ujala Supreme’s market share improved to 81.9% in 1QFY20 as the company continued to invest behind the brand with a new media campaign and activation at consumer and trade levels. We expect Ujala Supreme sales to be in low-single digits while the Ujala brand to grow in mid-single digits over FY20-FY22 led by Ujala IDD and Ujala Crisp & Shine; the product will now be launched in a phased manner in other states over the coming quarters.


HENKO sees strong growth, PRIL/EXO soft: EXO/PRIL/HENKO posted 1.5%/flattish/23.3% yoy growth to Rs 1,000mn/Rs 340mn/Rs 560mn. HENKO growth was aided by strong growth in premium end of the portfolio; LUP growth was also robust (~20% of HENKO portfolio). EXO growth was affected due to the introduction of EXO Ginger which led to down-stocking of the pre-launched stock; PRIL liquid growth slowed to 1.4%. We expect EXO/ PRIL/HENKO to deliver low-teens growth over FY20-FY22 led by product innovations, high A&P spends and a stable demand scenario.


Margo posts robust growth; MAXO sales continue to slide: Margo sales grew 15% yoy to Rs 550mn with uniform growth across states. We expect Margo to deliver low double-digit sales over FY20/FY21 as it continues to leverage the ‘Naturals’ trend. MAXO sales declined by 21.6% yoy to Rs 250mn due to (a) unfavorable seasonality in pockets of central and northern India where MAXO has higher salience, and (b) continued category headwinds due to increasing salience of incense sticks. We expect MAXO sales to decline in FY20 despite a soft FY19 base given weakness in the domestic HI segment.


Valuations & view: At CMP, the risk-reward continues to be favorable for JYL. Hence, we maintain LONG on the stock with a Sep’20 TP of Rs 182 set at 33x TTM EPS of 5.5.


Key risks: Below-expected demand and higher RM costs


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