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JYOTHY LABS: BUY, TP-Rs281 (22% upside)
What’s the theme?
We are bullish on Jyothy's long-term growth as it rolls out key brands nationally and expands its laundry
business. Excluding the QIP money and the underlying value of its subsidiary, JFSL (laundry business),
would result in lower valuation for its FMCG business. Jyothy has underperformed the BSE FMCG Index
by 5% in the past three months and offers room for further upside.
What will move the stock?
1) Full impact of the price increase of Ujala Supreme will support revenue and profitability growth. Pricing
power in Ujala Supreme will underpin volume growth as well; 2) Launch of Maxo Military will enhance
revenue growth. We assume ~Rs600mn revenue from this brand, at ~7% of total sales in FY12e; 3)
Aggressive marketing efforts on Techno Bright (Washing powder) and Exo would translate into improved
performance in FY12.
Where are we stacked versus consensus?
Our estimates are among the highest on the street, led by expectation of superior margins from Ujala
Supreme and Maxo. We assign P/E of 18x on core EPS FY12 (Rs14/share - excluding other income from
QIP funds) and add Rs28/share QIP cash to derive at a TP of Rs281.
What will challenge our target price?
1) Change in our estimates for input costs owing to volatility in crude prices; 2) Inability to attract retail
clients in the laundry business; 3) Abrupt reduction in Maxo Military volume on discontinuation of sales
promotion; 4) Higher brand building investments and; 5) Lower retail participation for Maxo Military.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
JYOTHY LABS: BUY, TP-Rs281 (22% upside)
What’s the theme?
We are bullish on Jyothy's long-term growth as it rolls out key brands nationally and expands its laundry
business. Excluding the QIP money and the underlying value of its subsidiary, JFSL (laundry business),
would result in lower valuation for its FMCG business. Jyothy has underperformed the BSE FMCG Index
by 5% in the past three months and offers room for further upside.
What will move the stock?
1) Full impact of the price increase of Ujala Supreme will support revenue and profitability growth. Pricing
power in Ujala Supreme will underpin volume growth as well; 2) Launch of Maxo Military will enhance
revenue growth. We assume ~Rs600mn revenue from this brand, at ~7% of total sales in FY12e; 3)
Aggressive marketing efforts on Techno Bright (Washing powder) and Exo would translate into improved
performance in FY12.
Where are we stacked versus consensus?
Our estimates are among the highest on the street, led by expectation of superior margins from Ujala
Supreme and Maxo. We assign P/E of 18x on core EPS FY12 (Rs14/share - excluding other income from
QIP funds) and add Rs28/share QIP cash to derive at a TP of Rs281.
What will challenge our target price?
1) Change in our estimates for input costs owing to volatility in crude prices; 2) Inability to attract retail
clients in the laundry business; 3) Abrupt reduction in Maxo Military volume on discontinuation of sales
promotion; 4) Higher brand building investments and; 5) Lower retail participation for Maxo Military.
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