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Macquarie Research
Jyothy Laboratories (Outperform)
CMP: ₹194.35
Target: ₹250
Jyothy Laboratories (JYL) was founded in 1983 by MP Ramachandran. JYL was primarily known for its fabric whitener brand – ‘Ujala’ till 2000, post which the company aggressively diversified itself in dishwashing and household insecticides segments. In 2011, acquisition of Henkel brands gave a wider set of products and the critical size for the portfolio.
We like JYL’s diverse product portfolio with a presence in mainstay categories that have a long runway for growth on the back of penetration and premiumisation. The Henkel acquisition and turnaround demonstrate management’s execution skills and gives us confidence in JYL’s scalability in the long run. Despite not being a market leader in most of categories, its strategy for differentiated product positioning and investments in power brands is leading to market share gains in key categories. We believe its focus on new product launches, higher A&P spend & IT-led distribution enhancement will boost volume growth. We are 9-11 per cent ahead of consensus earnings for the next two years.
We value Jyothy Laboratories at 30x FY21E PER, in line with last five years’ average multiple. We expect an improvement in return ratios driven by improved margin delivery, deleveraging of balance sheet.
Key risks: Higher than expected competition, sharp increase in commodity inflation and slowdown in related companies.
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