Home insecticides business takes sheen off Jyothy Labs' Q4

Growth in volumes recovers after note ban; news flow on open offer the near-term trigger

Weak show of the household insecticides business (under the brand name Maxo), which forms about a fourth of Jyothy Laboratories’ (Jyothy Labs’) revenue, pulled down overall growth in the March quarter (Q4). Consequently, the company’s consolidated revenue grew 4.2 per cent year-on-year (y-o-y) to Rs 446 crore, missing the Bloomberg consensus estimate of Rs 478 crore. 

While peer Godrej Consumer Products (GCPL), too, witnessed some pressure on its household insecticides revenues in Q4, this business grew four per cent; but for Jyothy Labs, the household insecticides’ revenues fell six per cent y-o-y in Q4, indicating it could have lost market share, unlike GCPL which maintained its leadership position. While the company believes household insecticides could improve in case of a normal monsoon, the Street will keep a close watch on it given the competitive intensity and its high contribution to Jyothy Labs’ top line.

Other than the flattish growth in the smaller segment of laundry services, Jyothy Labs’ other segments of fabric care, dishwashing and personal care grew at a healthy clip in Q4. The company’s overall volume growth of 5.1 per cent was, however, ahead of the three per cent posted in Q3 and indicates most of the demonetisation-related pain is over. Excluding the household insecticides segment, overall volume growth was at 9.7 per cent. 

Jyothy Labs’ operating Ebitda (earnings before interest, taxes, depreciation and amortisation) margin performance was also decent; margins remained largely stable at 13.1 per cent. 

At the net level, a one-time tax reversal of Rs 63 crore boosted profit in Q4. The year-ago period had seen net profit tank 60 per cent y-o-y to Rs 10.8 crore. So, the jump of 968 per cent y-o-y in net profit at Rs 108 crore (ahead of the estimated Rs 41 crore) should be seen in this context. Prior to one-offs, profit before tax was up 8.7 per cent to Rs 45 crore.

In Q4, key brands Ujala, Exo and Margo grew at a healthy clip of 3.3-19.3 per cent despite the company implementing price hikes and lowering promotions. Its naturals offering, Margo, is also witnessing strong traction. On the other hand, apart from Maxo, its detergent brand Henko (strong growth in this segment by peer Hindustan Unilever) also witnessed decline in sales, indicating heightened competitive pressure.

At current levels, the Jyothy Labs scrip trades at 37x FY18 estimated earnings and seems to capture most of the positives adequately. It is important to note that expectations of a potential open offer in case Henkel AG exercises the option to buy up to 26 per cent stake in Jyothy Labs is keeping the stock’s valuations at elevated levels. In the near-term, though the company is prepared for implementation of goods and services tax (GST) and will gain in the longer term, inventory issues in the wholesale channel could exert some pressure on volumes.