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Quarter an aberration, expect growth to pick up
Revenues grew just 11.3%, lower than estimate
Jyothy Lab’s 2QFY11 net sales grew just 11.3% YoY, much lower than our
estimate of 25% growth, to `1.45bn.
Sales growth was led by 22.3% YoY growth in soaps and detergents segment,
while Homecare (largely Mosquito repellent–Maxo) declined 2.7% YoY.
Ujala’s volume grew 4%, despite 16% price hike taken by the company during
beginning of the year.
EBITDA margin impacted by higher brand spends
The EBITDA margins contracted 175 bps to just 10.8% of net sales, driven by
700bps increase in advertising and sales promotions expenses (A&P) to 11.9%
of net sales and 50 bps increase in other expense to 12.1%. The EBITDA
declined by 4.2% YoY to `156mn.
Gross margin improved 376bps to 46.8% aided by price hike by the company in
flagship Ujala brand (50% of its sales). Staff expenses declined 200bps to
12.1% of net sales, due to lower variable remunerations.
Net profit grows 9.7%
Net profit grew just 9.7% YoY to `155mn, much below our estimate.
Taxes declined 23% YoY to `25mn. Tax rate stood at 13.9% as against 18.8%
in 2QFY10.
Valuations
Jyothy Lab’s 2QFY11 result performance has been below our expectation. The company
attributed the same to partial withdrawal of retail promotion in Maxo coils and higher
brand spend of new detergent brand, Ujala Techno Bright. With good monsoon, launch
of new detergent brand and likely completion of targeted acquisition in the current
quarter we expect growth to return for the company.
At a CMP of `275, the stock is trading at P/E of 21.6x and 16.7x and EV/EBITDA of 15.4x
and 11.7x our FY11E and FY12E estimates, respectively. We believe current quarter is an
aberration and expect the company to report better number in 2HFY11 (which forms
over 60% of sales and profit for the company). We maintain our Buy recommendation
on the stock with price target of `330 (22x FY12 EPS).
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