Jyothy Labs: Healthy operational performance

Growth in key brands, benign input costs are key positives

Healthy volume growth led by a double-digit rise in power brands and strong margin gains were the key highlights of Jyothy Laboratories' March quarter results. The numbers were largely in line with expectations but for the one-offs. Consolidated sales grew 11.3 per cent over the year to Rs 396 crore, a tad lower than the Bloomberg consensus estimate of Rs 402 crore. A slight moderation in volume growth from 10 per cent in the December quarter to eight per cent is a possible reason. However, this metric remained in the band of 8-10 per cent witnessed over the past three-four quarters.

In the quarter gone by, company witnessed double-digit growth across key segments- fabric whitener (Ujjala), mosquito repellents (Maxo) and dishwash (Exo, Pril). However, early onset of summer restricted the top line growth of Maxo.

Sharp fall in input costs (down 936 basis points to 24.8 per cent of sales), along with flattish spends on advertisements aided the Ebitda (earnings before interest, taxes, depreciation, and amortisation) margin. Consequently, it expanded 207 basis points over a year to 10.4 per cent. This and a 30 per cent fall in interest costs to Rs 3 crore boosted net profit 26 per cent to Rs 27 crore. The reported net profit, however, was lower than the Bloomberg consensus estimate of Rs 29 crore, on account of several one-offs such as costs towards employee stock options (Esops), payment for retrenchment of employees on closure of the Kandanassery plant and higher depreciation due to a change in accounting policy.

Ullas Kamath, joint managing director and chief financial officer, says, "We should post about 15 per cent volume growth in FY16 and Ebitda margin of 15 per cent versus 12.7 per cent in FY15. While crude oil prices have firmed up, they are still lower than a year ago. Thus, we expect about 100 basis points increase each from lower crude oil prices and scale advantage across segments from higher efficiencies in manufacturing and supply chain processes."

Kamath expects the laundry services business (about three per cent of revenue) to achieve break-even in FY16, as there are no further investments in this business. Notably, the margin gains are after factoring a 100 basis points increase in advertisement spending to 13 per cent, primarily to push penetration of Ujjala and Maxo, and towards new launches such as new liquid vaporiser, Fast Card.

At Monday's closing price of Rs 263, the stock trades at 26 times the FY16 estimated earnings, closer to its historical average one-year forward price/earnings ratio. Analysts at Reliance Securities remain positive on the company but believe high competitive intensity in most of its categories and rural slowdown, due to a weak monsoon, are key risks.

The company is monitoring the monsoon situation. In FY16, the company will be accounting for Rs 28 crore towards Esops, similar to the charge it made in FY15. That apart, the outlook remains healthy.