Angel Broking - Initiating Coverage - Jyothy Laboratories

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 Initiating Coverage on Jyothy Laboratories with a Buy recommendation and a Target Price of `248 (12 months).

Exploring new opportunities with Henkel’s acquisition

Jyothy Laboratories Ltd. (JLL), a company having three brands, is set to transform into a multi-brand company with the acquisition of an 83.7% stake in Henkel India (Henkel), which owns seven brands. As a result of this synergy, we expect JLL’s consolidated revenue to post a CAGR of 35% to`1,627cr and profit to post a CAGR of 36% to `166cr over FY2011-14E. We initiate coverage on JLL with a Buy recommendation and a target price of `248, based on SOTP valuation.

Investment rationale

Turnaround of Henkel – A bright future for JLL

JLL acquired an 83.7% stake in Henkel in August 2011. Management is now planning various turnaround strategies for Henkel, such as a new management, revamping of all its brands and shifting its manufacturing to JLL’s units. We expect Henkel’s turnaround to result in profit of `19cr in FY2014E. 

Jyothy Fabricare Services Ltd. (JFSL) – A long-term growth driver

We expect JFSL, JLL’s subsidiary engaged in the laundry business, to post a 102.4% CAGR in its revenue to `193cr over FY2012E-14E with an operating margin of 26.1% in FY2014E. Further, JFSL is expected to reach its breakeven and start yielding profit from FY2013E, registering a profit of `30cr in FY2014E.

Outlook and valuation

We expect JLL’s consolidated revenue to post a CAGR of 35% to `1,627cr and profit to post a CAGR of 36% to `166cr over FY2011-14E. We initiate coverage on JLL with a Buy rating view and an SOTP target price of `248.