Jyothy Laboratories - Seemingly disappointing, good underlying trends:: Kotak Sec

Visit http://indiaer.blogspot.com/ for complete details �� ��


Jyothy Laboratories (JYL)
Consumer products
Seemingly disappointing, good underlying trends. Sales grew +11% primarily on
the back of 16% price hike in Ujala. Maxo sales were impacted as JYL lead the market
in withdrawing sales promotion schemes (which competition did not follow). Higher
adspends on launch of Ujala detergent led to EBITDA margin decline of 175 bps. Watch
for
(1) potential for sales mix change in Maxo in favor of aerosols, liquids,
(2) Exo’s national launch in the light of aggressive roadblocks from HUL.



Headline numbers miss estimates, underlying quality is sound
Jyothy reported net sales of Rs1.4 bn (+11%, KIE Rs1.5 bn), EBITDA of Rs156 mn (-4%, KIE Rs217
mn) and PAT of Rs154 mn (+9%, KIE Rs180 mn).
�� Soaps and detergents segment sales grew by 22%—large part of this is driven by16% price
hike in Ujala. Volume growth in Ujala is ~4%. Exo has been launched nationally and is facing
significant roadblocks from HUL (price cuts in Vim and higher trade promotions).
�� Home care sales declined by 3% during the quarter. The management attributed this to the
partial withdrawal of promotions in Maxo which affected primary sales. While the loss in sales
of Maxo for one month (July) hurt the quarterly numbers, we are enthused by the initiative
taken by JYL in turning around the profitability of the category.
�� EBITDA margin during the quarter declined 175 bps due to substantial increase in adspends of
700 bps. On a brand wise basis, adspends on Ujala increased by ~160 bps (endorsement by
Sachin Tendulkar) and on Maxo increased by 130 bps (adspends on Maxo have been restricted
to high margin liquids portfolio). Exo has been nationally launched but growth in adspends is
flat as JYL likely rationalized spends in South India.
�� To carve out a differentiated positioning for itself in the highly competitive dish wash market,
Exo has been launched in a round shape against the traditional rectangular bar shape and is
being marketed as Exo Round.
�� The proceeds from the QIP amounting to Rs2,279 mn have been kept in fixed maturity plans.
The company expects to complete the acquisitions by December2010.
�� The company has applied for exemption from obtaining a license from Drug Control for
distributing and selling the multi-insect repellant manufactured in association with Defence
Research and Development Establishment, a division of Defence Research & Development
Organization (DRDO).