Hold Jyothy Laboratories; target of Rs 150: ICICI Direct

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ICICI Direct's research report on Jyothy Laboratories

Jyothy labs (JLL) reported strong growth in Q1FY21 with 4.1% revenue growth led by 16.6% & 151.1% growth in dish washing & household insecticide, respectively. However, fabric care segment saw 23.8% de-growth. Personal care segment sales were flat at Rs 60 crore. Overall volume growth was 6%. The strong growth in dishwashing was driven by higher ‘in-home’ consumption & hence more usage of dishwashing products. The robust growth in household insecticide was aided by low base quarter, early arrival of monsoon & large stocking by trade before season. The sharp decline in fabric care was due to lower fabric whitener sales, which was impacted by reduced ‘out of home’ activity. Personal care sales was flat with lockdown more prominent in key state (Margo has larger saliency in WB, TN). Gross margins were down 182 bps with change in product mix (lower fabric whitener sales in Q1). However, operating margins were up 233 bps to 18.3% mainly driven by 350 bps lower marketing spends & saving in overhead spends. Net profit was up 40.4% to Rs 50.4 crore.

Outlook

JLL being able to drive growth & expand margins in the challenging times depicts management’s focus on growth, profitability. However, in long run, it would be difficult to reduce marketing spends & driving volumes simultaneously. We believe in a scenario of high commodity cost & intense competition, JLL would be unable to sustain high margins. Nonetheless, that scenario seem far away from current times. We maintain our HOLD recommendation on the stock with a revised target price of Rs 150/share.

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