We maintain ‘buy’ on Jyothy Laboratories and value the stock at a target price of R300, at a P/E of 20x FY17e earnings. In the past eight years, it has quoted at the mean P/E of 32x. Considering that the reduction in debt and interest cost is now behind it, and there is a renewed thrust on brand consolidation and market penetration, we expect the company to report a healthy performance overall.
We estimate 23%, 20% and 27% CAGRs over FY15-17 in, respectively, revenue, Ebitda and PAT. At the current market price, the stock quotes at 26x FY16e and 20x FY17e.
During H1FY15, Jyothy Labs reported a robust 16% y-o-y revenue growth through a mix of volume growth (8%) and price hikes (8%), driven by fabric care, dishwashes and personal care.
Delayed offtake due to a volatile season saw lower volume growth in mosquito repellents. We believe the focused approach on building up the detergents and personal-care sub-categories would drive volumes in coming years and, with the launch of the Ujala liquid sachet, we are upbeat concerning category growth. In addition, we expect the continuing thrust on Margo and Henko, backed by wider retail distribution, to see strong double-digit volume growth. Though the gross margin contracted 40 bps y-o-y in H1FY15 because of higher input prices, the recent steep slide in crude oil prices and downward trend in LAB and palm oil may improve it 70-100 bps further.
Anand Rathi
