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Jyothy Labs - Beat on all counts; top BUY in midcap Consumer Staples - ICICI Securities

Posted On: 2021-01-27 22:45:49 (Time Zone: Arizona, USA)


3Q revenue grew 15%, higher than consensus expectations, driven by (1) strong execution - penetrating into rural markets, increasing throughput, (2) recovery in MT and CSD channels (almost flat sales YoY) and (3) significant investment behind brands (ad-spends up 40% YoY). Seen through the category-state construct, JLL is the market leader (or a strong #2) in most categories and that should benefit in times like these. We like the continued strong performance - 10% volume growth in 9MFY21. Margin outperformance (at 17.2% in 9MFY21) versus a guidance of 15-16% for FY21 provides ample room to invest behind core brands and drive geographic expansion. Upgrade to BUY (from ADD). Stock at ~40% discount to its 10-year average P/E provides significant margin of safety.

- Volumes grew 15%: Consolidated revenue / EBITDA / recurring PAT grew 13% / 38% / 19%. FMCG sales grew 15% driven by 15% volume growth. This strong performance was driven by a combination of (1) portfolio agility (essential and hygiene contributes ~85%), (2) strong execution (enhanced rural distribution, adding sub-stockist and LUPs in rural, new product launches, increased digital media spends) and financial prudence (cash sales, controlled trade schemes etc.).

- Exo Dishwash and Margo soap performance was good: Strong performance across segments with Personal Care and Dish wash continuing to be the two standout performers - revenues up 48% and 21% YoY. Household Insecticide care segment revenue grew 10%, Fabric care revenue grew 2% and other segment (T-Shine and Maya) revenue grew 57%.

- Input cost benefits more than offset the inferior mix: Gross margin was flattish at 47.8%. EBITDA margin expanded by 100bps YoY to 16.7% primarily due to decrease in staff costs (-70bps) and other opex (-170bps) while ad-spends increased by 170bps YoY as there was increase to invest behind core brands.

- Valuation and risks: We increase our earnings estimates by ~5%; modelling revenue / EBITDA / PAT CAGR of 11 / 16 / 21 (%) over FY20-23E. Upgrade to BUY (from Add) with DCF-based revised target price of Rs190 (was Rs180). At our target price, the stock will trade at 23x P/E multiple Mar-23E. Key downside risks are significant competition in hygiene related categories and input price inflation impacting margins.

Shares of JYOTHY LABORATORIES LTD. was last trading in BSE at Rs.151.9 as compared to the previous close of Rs. 157.65. The total number of shares traded during the day was 57333 in over 1687 trades.

The stock hit an intraday high of Rs. 159.2 and intraday low of 150.4. The net turnover during the day was Rs. 8849671.


Source: Equity Bulls

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