Jyothy Laboratories rated ‘Add’; Quality of earnings in Q2 was weak

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New Delhi | Published: October 29, 2018 3:37:31 AM

EPS forecasts cut marginally; ‘Add’ retained on reasonable valuations with TP at Rs 210

Profit outperformance was driven primarily by low A&P spends.

JYL reported ahead-of expectation Ebitda and PAT for 2QFY19 but the quality of the earnings print was weak. Profit outperformance was driven primarily by low A&P spends. Revenue growth was weak and missed expectations by a good margin. Management has toned down its revenue growth guidance for FY2019e a tad (to 12-14% from 15% earlier). We cut our EPS forecasts marginally but retain our fair value target of Rs 210. Add stays.

Q2FY19 earnings print a mixed bag: Ahead-of-expectations Ebitda and PAT delivery notwithstanding, we would term JYL’s Q2FY19 print weak. Revenues grew a modest 7% y-o-y off a low base and missed our estimate by 7%. Gross margins expanded 156 bps to 45.9% aided by (a) low base and (b) a better mix as the low-margin HI business saw a sharp revenue decline. Ebitda of Rs 732 m (+14% y-o-y, 7% 2-year CAGR) was ahead of our expected `704 mn, largely on the back of lower-than expected A&P and other expenses.

Cut estimates marginally; retain Add on reasonable valuations: Our FY19-21e EPS estimates see a modest 0.2-2.6% cut. We retain Add with an unchanged fair value target of Rs 210/share (DCF-based; implies a 30X September 2020e PE).


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