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Jyothy Laboratories (JYL)
Consumer products
Some pain, some gain. 3QFY11 results were marginally below estimates. We are
enthused by JYL’s efforts to turn ‘Maxo’ profitable even as it hurts near-term sales and
potentially market shares (Maxo accounts for one-third of sales and operates at ~1%
EBIT). In FY2012E, watch for (1) market performance of new mosquito repellant cream,
wipes to be launched in association with DRDO, (2) performance of Exo and Ujala
detergents in a heightened competitive environment nationally, (3) ability to implement
further price hikes in Ujala and (3) potential induction of private equity investor in JFSL.
3QFY11 results were marginally below estimates
Jyothy reported net sales of Rs1,484 mn (+10%, KIE Rs1,552 mn), EBITDA of Rs168 mn (-9%, KIE
Rs194 mn) and PAT of Rs169 mn (+0%, KIE Rs179 mn).
Soaps and detergents segment grew by 21% led by (1)16% price hike in Ujala. Volumes in
Ujala likely declined during the quarter, in our view, after the steep price increase in 1QFY11, (2)
Exo had robust sales growth of ~57% and the national launch with a differentiated product
proposition (dish wash product in round format compared with the typical bar format in the
category) is likely successful and (3) Ujala detergent grew by ~51% a large part of which is
driven by Techno Bright which forms about half of the detergent sales.
Home care sales declined by 11% with Maxo sales declining by 15%. Likely trade destocking
and trade switching to competition products is possibly the reason as the company withdrew
trade promotions on Maxo to the extent of 7% in 2QFY11 (which has reduced the
attractiveness of the product for the trade).
According to management, Maxo coils are sold to trade at a premium to competition products,
as of now. While the management says that there is no impact on market shares, as yet, we
believe that share losses are inevitable in FY2012E. However, we are enthused by the
management efforts to turn the segment profitable (potentially significant impact for JYL as
Maxo which accounts for one-third of sales operates at ~1% EBIT).
EBITDA margin declined by 220 bps primarily on the back of phasing of adspends (+220 bps) in
Ujala detergents’ national launch. Higher other income (+120% due to deployment of QIP
proceeds of Rs2.3 bn) curtailed PAT margin drop by 105 bps to 11.4%.
Key variables for FY2012E
Return of volume growth in Maxo. In 2QFY11 and 3QFY11 Maxo sales declined by
8% and 15%, respectively. While we view the management’s decision to reverse
promotional spends positively, we would await demonstration of volume growth in the
brand in the present scenario before building comfort on its market position.
Gross margin pressure likely. JYL is holding on to its retail price in the mosquito
repellent and dish wash category despite input cost inflation. It is a price taker in these
segments and we have modeled margin compression, as input cost remains inflationary
for both these categories.
Fabric Spa – joker in the pack. We do not include JFSL in our estimates as yet.
According to management, the company is in the process of inducting a private equity
investor in JFSL. This could likely relieve the balance sheet of JYL (which has a 75% stake
in the venture) from further investments, in the medium term.
Bangladesh venture. Also, we do not factor in potential gains from the foray in the
Bangladesh market (where JYL has a high probability of success given the similarity in
consumption patterns between India and Bangladesh for home care products and also
the demonstrated success of Marico’s Parachute).
The company has received an 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). The product is slated for national launch on February
14, 2011. This mosquito repellent is in cream format and would require the company to
educate customers on its usage methods. We would keenly watch for market acceptance
for this differentiated product as it requires significant change in consumer usage habits.
Exo has been launched nationally and we are bullish about its success given its superior
product efficacy (as per channel checks) and demonstrated innovation (dish wash in the
round format). 2QFY11 and 3QFY11 numbers are encouraging and we would watch out
for continued growth in this product given the highly competitive scenario
Retain ADD, cut target to Rs270
Building in lower gross margins, we cut estimates – FY2011E EPS at Rs11.4 (Rs12.9
previously) and FY2012E EPS at Rs13.7 (Rs15.2 previously) and maintain ADD rating with a
revised TP of Rs270 (Rs280 previously). Key risks are (1) input cost inflation can potentially
hurt Ujala’s margins, (2) higher-than-expected competition from Vim for the Exo national
launch, (3) any technology change/disruptive competition in mosquito repellant business, (4)
higher-than-expected impact of price war in detergents impacting Jyothy’s detergent
business, and (5) non-acceptability of Jyothy’s laundry spa concept.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Jyothy Laboratories (JYL)
Consumer products
Some pain, some gain. 3QFY11 results were marginally below estimates. We are
enthused by JYL’s efforts to turn ‘Maxo’ profitable even as it hurts near-term sales and
potentially market shares (Maxo accounts for one-third of sales and operates at ~1%
EBIT). In FY2012E, watch for (1) market performance of new mosquito repellant cream,
wipes to be launched in association with DRDO, (2) performance of Exo and Ujala
detergents in a heightened competitive environment nationally, (3) ability to implement
further price hikes in Ujala and (3) potential induction of private equity investor in JFSL.
3QFY11 results were marginally below estimates
Jyothy reported net sales of Rs1,484 mn (+10%, KIE Rs1,552 mn), EBITDA of Rs168 mn (-9%, KIE
Rs194 mn) and PAT of Rs169 mn (+0%, KIE Rs179 mn).
Soaps and detergents segment grew by 21% led by (1)16% price hike in Ujala. Volumes in
Ujala likely declined during the quarter, in our view, after the steep price increase in 1QFY11, (2)
Exo had robust sales growth of ~57% and the national launch with a differentiated product
proposition (dish wash product in round format compared with the typical bar format in the
category) is likely successful and (3) Ujala detergent grew by ~51% a large part of which is
driven by Techno Bright which forms about half of the detergent sales.
Home care sales declined by 11% with Maxo sales declining by 15%. Likely trade destocking
and trade switching to competition products is possibly the reason as the company withdrew
trade promotions on Maxo to the extent of 7% in 2QFY11 (which has reduced the
attractiveness of the product for the trade).
According to management, Maxo coils are sold to trade at a premium to competition products,
as of now. While the management says that there is no impact on market shares, as yet, we
believe that share losses are inevitable in FY2012E. However, we are enthused by the
management efforts to turn the segment profitable (potentially significant impact for JYL as
Maxo which accounts for one-third of sales operates at ~1% EBIT).
EBITDA margin declined by 220 bps primarily on the back of phasing of adspends (+220 bps) in
Ujala detergents’ national launch. Higher other income (+120% due to deployment of QIP
proceeds of Rs2.3 bn) curtailed PAT margin drop by 105 bps to 11.4%.
Key variables for FY2012E
Return of volume growth in Maxo. In 2QFY11 and 3QFY11 Maxo sales declined by
8% and 15%, respectively. While we view the management’s decision to reverse
promotional spends positively, we would await demonstration of volume growth in the
brand in the present scenario before building comfort on its market position.
Gross margin pressure likely. JYL is holding on to its retail price in the mosquito
repellent and dish wash category despite input cost inflation. It is a price taker in these
segments and we have modeled margin compression, as input cost remains inflationary
for both these categories.
Fabric Spa – joker in the pack. We do not include JFSL in our estimates as yet.
According to management, the company is in the process of inducting a private equity
investor in JFSL. This could likely relieve the balance sheet of JYL (which has a 75% stake
in the venture) from further investments, in the medium term.
Bangladesh venture. Also, we do not factor in potential gains from the foray in the
Bangladesh market (where JYL has a high probability of success given the similarity in
consumption patterns between India and Bangladesh for home care products and also
the demonstrated success of Marico’s Parachute).
The company has received an 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). The product is slated for national launch on February
14, 2011. This mosquito repellent is in cream format and would require the company to
educate customers on its usage methods. We would keenly watch for market acceptance
for this differentiated product as it requires significant change in consumer usage habits.
Exo has been launched nationally and we are bullish about its success given its superior
product efficacy (as per channel checks) and demonstrated innovation (dish wash in the
round format). 2QFY11 and 3QFY11 numbers are encouraging and we would watch out
for continued growth in this product given the highly competitive scenario
Retain ADD, cut target to Rs270
Building in lower gross margins, we cut estimates – FY2011E EPS at Rs11.4 (Rs12.9
previously) and FY2012E EPS at Rs13.7 (Rs15.2 previously) and maintain ADD rating with a
revised TP of Rs270 (Rs280 previously). Key risks are (1) input cost inflation can potentially
hurt Ujala’s margins, (2) higher-than-expected competition from Vim for the Exo national
launch, (3) any technology change/disruptive competition in mosquito repellant business, (4)
higher-than-expected impact of price war in detergents impacting Jyothy’s detergent
business, and (5) non-acceptability of Jyothy’s laundry spa concept.
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