Q4FY23 Review: Jyothy Laboratories: Robust margin recovery

4 May 2023 , 11:16 AM

Jyothy Labs reported Q4FY23 results with EBITDA above IIFL estimates, driven primarily by better than expected performance on the gross margin front (+428bpsYoY). Fabric care and Personal care registered double-digit growth and Household Insecticides returned to positive growth territory after four consecutive quarters of YoY decline. Analysts at IIFL Capital Services have upgraded their EPS estimates by 3% for FY24 and FY25 and have maintained their Buy recommendation on the stock.

Significant beat on margins

Jyothy Labs reported a strong Q4FY23 with a net sales growth of 13% (3% above IIFL estimates) and EBITDA growth of 59% (11% above IIFL estimates). Overall volumes grew 3.3% during the quarter. Fabric care and Personal care posted double digit growths with fabric care leading the way at 20% YoY growth. HI growth was flat YoY (versus -16% in 3Q). EBITDA beat was driven largely by sharp gross margin improvement – up 428bps YoY and 262bps QoQ.

Focus on distribution expansion

Direct reach stood at 1.1mn outlets (1mn in end-FY22) with the company reaching all the villages above 100k population in India directly. Management is focusing on distribution expansion to drive volumes in near term and has implemented ‘Botree’- distributor management system to increase productivity. With consistent drives on availability and offtake-led initiatives on LUPs, Exo-dish wash brand reached its highest-ever market share of 13.8% in CY22, led by strong double-digit volume growth. The company has launched 3 new variants of Lime, Jasmine and Rose in Margo Neem naturals Soap in April 2023.

EPS upgrades

The company has delivered 13% sales growth in FY23, on the back of strong price hikes taken in recent quarters. However, as price hikes anniversarize in next few quarters, sales growth is going to taper down unless volume growth picks up. Management has guided for a double-digit top-line growth for FY24; however, analysts at IIFL Capital Services are building 8% YoY keeping a margin for safety. The company has clocked an EBITDA margin of 14.8% in Q4 and going ahead, analysts at IIFL Capital Services expect FY24 margins to remain at similar levels.