Growth recovering, valuation moderated
Jyothy Labs Ltd. (JLL) is an Indian FMCG player with products across fabric care, dishwashing, mosquito repellents & personal care.
Key Highlights
•For Q3FY25, revenue grew by 4% YoY. Volumes grew by 8% YoY while higher grammages and promotional prices impacted value growth. Main segments, fabric care & dishwash (78% mix) grew by 9% & 3.6%, respectively, while personal care declined by 3.6% YoY.
• EBITDA declined by 2%YoY as EBITDA margin dropped by 110bps YoY to 16.4%, mainly due to price cuts and higher operating expenses. The company has taken low single digit price hike in personal care in December end and is planning in Q4FY25 also to protect margins due to higher input costs.
•The overall demand environment was subdued, impacted by inflationary pressures and muted urban demand. The company remains cautiously optimistic about achieving double-digit volume growth.
• JLL is committed to new product launches and successfully introduced Mr.White liquid detergent and Maxo Racquet, an anti-mosquito racquet with a long battery life during the quarter. Also have few launches in the coming years to drive future growth.
• JLL has a strong focus on distribution and direct reach has increased to 1.2mn from 86k in FY21. This, along with new launches, has strongly supported double digit growth in last 2 years.
OUTLOOK & VALUATION
Rural demand is picking up, aided by robust kharif production along with higher MSP while urban demand is expected to gradually improve, supported by pick up in government projects, consumption support from the Union budget and a reduction in food inflation. Focus on distribution, brand investments, new product launches and LUP strategies will support JLL’s volume growth. The company has a strong balance sheet and cash flow generation. We roll forward to FY27E EPS, and value JYL at P/E of 30x (10yr avg=30x) to arrive at a target price of Rs. 395, maintain BUY rating considering expected improvement in demand and recent correction in stock price.