Management stated its intention to preserve the existing culture at Jyothy Laboratories (JYL) even after the potential acquisition of equity share capital by German consumer giant Henkel. The company has not yet decided the mode of allowing Henkel an entry if the latter decides to exercise its stake acquisition option ahead of the October 31, 2017 deadline. Jyothy Laboratories reaches 824,000 outlets directly, expanding at 20-25% every year. It will continue growing its direct reach at the same pace. Monsoon is by and large on track. Management expects rural demand to pick up over the next 12 months. However, for any large spike in urban demand, massive job creation needs to happen there, the visibility of which appears low as of now.
There is no material change to our forecasts. As we are also maintaining our target multiple of 22x June 2019E EV/EBITDA, there is no change to our target price or Neutral rating either. There is no update on the Henkel deal yet. Management stated its intention to preserve the existing culture at JYL even after the potential acquisition of equity share capital by Henkel. Henkel knows that JYL has done a far better job compared to them in India, and thus, would not want to upset the applecart. For Henkel globally, the focus under the new CEO is on the B2B business anyway. The company has not yet decided the mode of allowing Henkel an entry if the latter decides to exercise the stake acquisition option ahead of the October 31 deadline. It could be a fresh issue or part sale of shares by the promoters, who have around 67% stake in the company. Management had stated in the FY17 annual report that “the transaction will take place at the prevailing market price on the relevant date and accordingly the fair value of option is considered to be Nil.” The statement considered demand due to Ind-AS accounting and did not preclude a sale of stake at a premium. If the company had not included that statement, Ind-AS would have demanded calculation of fair value in the annual report.
