Re: {LONGTERMINVESTORS} Jyothy Laboratories ....Thread

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Rajesh Desai

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Aug 13, 2013, 3:36:54 AM8/13/13

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Jyothy Laboratories - Sharekhan
Recommendation: Buy
Price target: Rs254
Current market price: Rs168

A robust operating performance

Result highlights

Results ahead of expectation: Jyothy Laboratories Ltd (JLL)'s Q1FY2014 results are way ahead of our expectations on account of a significant improvement in the gross profit margin (GPM) and operating profit margin (OPM) during the quarter. Various factors during the quarter (eg the sales mix was improved by increasing the contribution of the high-margin products, the distribution network was restructured and the distributor margin was reduced) helped the company to post a 679-basis-point year-on-year (Y-o-Y) improvement in the GPM to 47.2% in Q1FY2014. The strong improvement in the GPM flowed to the bottom line, which more than doubled in Q1FY2014. Ujala fabric whitener (which contributes 20% of the company's total sales) in a new packaging gained good acceptance in the domestic market and grew by 37% year on year (YoY) during the quarter. The flat sales of Maxo household insecticide products were the only disappointment of the quarter. The company was able to reduce its debts by around Rs20 crore compared with the FY2013 levels. The debt-to-equity ratio reduced to 0.7x in Q1FY2014 from 0.9x in FY2013.
Strong operating performance: JLL's net revenues grew by 13.1% YoY to Rs318.2 crore driven by a strong growth of around 15% in the power brands in Q1FY2014. The volume growth stood in the range of 5-6% during the quarter. The soap and detergent segment grew by 17% YoY to Rs253.5 crore with Ujala fabric whitener registering a strong value growth of 37% YoY during the quarter. Several strategic initiatives including an improvement in the revenue mix and sales realisation aided the GPM to improve by 679 basis points YoY to 47.2% in Q1FY2014. As indicated by the management earlier, the advertisement and promotional spending went up by 402 basis points YoY to 12.1%, as the company increased its spending on the power brands. Despite a sharp increase in the advertisement and promotional spending the OPM was increased by 373 basis points YoY to 15.3%. The operating profit grew by about 50% YoY to Rs48.6 crore in Q1FY2014. With the depreciation charge remaining almost flat on a Y-o-Y basis, the adjusted profit after tax (PAT) almost doubled to Rs29.6 crore (ahead of our expectation of Rs16.3 crore).
Outlook and valuation: We are enthused by the strong improvement in the GPM and OPM of the company in Q1FY2014. The management is confident of achieving a revenue growth in the range of 20-25% and expanding the OPM to around 15% in FY2014 (an improvement of 300 basis points YoY). We have marginally increased our earnings estimate for FY2014 to factor in the higher than expected profitability but broadly maintained the FY2015 earnings estimate. The performance of the homecare segment has to be keenly monitored in the coming quarters. At the current market price the stock is trading at 20.9x its FY2015E earnings per share (EPS) of Rs8.0. We like JLL in the mid-cap fast moving consumer goods (FMCG) space because of the strong visibility of its future earnings and its thrust on becoming a strong consumer goods player in the domestic market. Hence, we maintain our Buy recommendation on the stock with a price target of Rs254.