Jyothy Laboratories: Steady growth at reasonable price

3 Jul 2023 , 10:34 AM

Recommendation: Buy; Target price: Rs 280

Over the past 4 years, JYL delivered sales Cagr higher than HPC peers. Growth has been very steady over the past ~2 years, on the back of initiatives of improving quality and quantity of distribution, LUP strategy, innovation, and increasing geographic footprint of certain brands, amongst other initiatives; which should continue to drive growth in future as well. Despite this, the stock trades at 23x FY25 PE, nearly half that of other FMCG companies with similar performance. As consistent performance continues, analysts of IIFL Capital Services believe that this discount will narrow. They maintain BUY on JYL and a TP of Rs280.

Good performance in recent past: 

FY19-FY23 JYL has reported a sales Cagr of 8.2% — similar to HUL and higher than the HPC average. Also, the quarterly volatility in sales growth, which used to be high earlier, has reduced in the past ~2 years. While margins had taken a beating, the same have recently revived on the back of input cost deflation. Analysts of IIFL Capital Services believe that the business will now deliver growth in line/ahead of HPC pack, on top line as well as bottom line.

Initiatives taken: 

The company’s good performance is based on: (1) Increased direct distribution from 0.85mn to 1.1mn outlets. (2) Improved quality of distribution via better systems/processes. (3) Playing all 4 brands in the Detergents portfolio. (4) LUP strategy in dishwash. (5) Not occupying unduly large sales bandwidth on HI. (6) varianting strategy in Margo and a national launch basis the same.

Stock is still cheap:

With the stock trading at 23x FY25 PE — nearly half that of other HPC companies with similar performance — the initiatives taken by the company and the results already visible thereof have not been built into the stock price yet. Previously, performance has not been consistent, and therefore, analysts of IIFL Capital Services believe that the stock will do well as performance continues over next few quarters. They upgrade FY24/25/26 EPS by 7.5%/2.5%/1.5% and maintain BUY, with a TP of Rs280.