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What’s the theme?
Jyothy Laboratories (Jyothy) is in the transformation phase following the acquisition of Henkel India. The
strong operational performance of Henkel India in Q2CY11 gives us confidence of a turnaround. We see
various operational synergies following the acquisition and expect numerous positives for Jyothy Labs in
the medium to long term, which would improve overall profitability. Jyothy is among the few companies in
the FMCG space which has immense potential for long-term profitability growth.
What will move the stock?
1) The acquisition of Henkel India added 4-5 established brands that improved Jyothy's sales mix; 2) Full
impact of the price increase of Ujala Supreme will support revenue and profitability growth; 3) Maxo Military
will add Rs600mn and Rs700mn revenue in FY12 and FY13 respectively; 4) We expect improvement in
profitability in Henkel India; 5) Debt restructuring can lead to higher profitability; 6) Merger of Jyothy and
Henkel India will engender massive tax benefits of Rs1.2bn; 7) Restructuring of Jyothy's distribution model
would improve EBITDA margin by 3%.
Where are we stacked versus consensus?
Our estimates for FY13 are among the highest on the street, led by expectation of profitability improvement
in Henkel India. We assign 16x to FY13 earnings and add Rs12/share NPV on tax saving of Rs1.2bn
@12% discount rate to derive the TP of Rs246.
What will challenge our target price?
1) We are cautious on FY12 performance due to restructuring over next 6-9 months; 2) Any delay in operational
improvement in Henkel India will impact the overall profitability; 3) Higher brand building investments; 4) Change
in our estimates for input costs owing to volatility in crude prices and 5) Inability to attract retail clients in the
laundry business.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
What’s the theme?
Jyothy Laboratories (Jyothy) is in the transformation phase following the acquisition of Henkel India. The
strong operational performance of Henkel India in Q2CY11 gives us confidence of a turnaround. We see
various operational synergies following the acquisition and expect numerous positives for Jyothy Labs in
the medium to long term, which would improve overall profitability. Jyothy is among the few companies in
the FMCG space which has immense potential for long-term profitability growth.
What will move the stock?
1) The acquisition of Henkel India added 4-5 established brands that improved Jyothy's sales mix; 2) Full
impact of the price increase of Ujala Supreme will support revenue and profitability growth; 3) Maxo Military
will add Rs600mn and Rs700mn revenue in FY12 and FY13 respectively; 4) We expect improvement in
profitability in Henkel India; 5) Debt restructuring can lead to higher profitability; 6) Merger of Jyothy and
Henkel India will engender massive tax benefits of Rs1.2bn; 7) Restructuring of Jyothy's distribution model
would improve EBITDA margin by 3%.
Where are we stacked versus consensus?
Our estimates for FY13 are among the highest on the street, led by expectation of profitability improvement
in Henkel India. We assign 16x to FY13 earnings and add Rs12/share NPV on tax saving of Rs1.2bn
@12% discount rate to derive the TP of Rs246.
What will challenge our target price?
1) We are cautious on FY12 performance due to restructuring over next 6-9 months; 2) Any delay in operational
improvement in Henkel India will impact the overall profitability; 3) Higher brand building investments; 4) Change
in our estimates for input costs owing to volatility in crude prices and 5) Inability to attract retail clients in the
laundry business.
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