ICICIdirect.com has recommended a hold rating on Jyothy Laboratories with a target price of Rs 188 per share in its May 23, 2014 research report.
"Jyothy Laboratories reported higher-than-expected revenue growth of 21.2 percent YoY to Rs 329.9 crore (I-direct estimate: Rs 311.4 crore) with volume growth of ~15 percent during the quarter. Margins, however, declined ~240 bps YoY to 10 percent on the back of higher employee cost and marketing expenses. In spite of lower margins, PAT posted robust growth of ~147 percent YoY to Rs 29.2 crore following savings in interest cost of ~Rs 13 crore."
"Leveraging on its strong brand equity of Ujala (fabric whitener & detergents) Jyothy Laboratories (JLL) diversified from a single brand and single product into a multiproduct company. Having built strong brands of its own until FY11, Maxo (mosquito repellent) and Exo (dishwash), JLL extended its footprint to the FMCG market through acquisition of Henkel India in FY12. The acquisition added to the company's kitty with brands like Henko, Mr. White, Chek, Pril, Margo, Neem and Fa. The acquisition also provided the company with a larger geographical presence (north & east India) against JLL's dominant presence largely in south India. Post Henkel's acquisition, JLL has carved out six 'Power' brands (Ujala, Henko, Maxo, Pril, Exo and Margo) for itself, which would be the key focus points for the company to drive innovation and revenues, going ahead. We believe that led by the company's clear strategy for its brands, strong innovation pipeline, re-launch of existing brands and an able management team at helm, JLL's revenues would continue to grow at a healthy pace of 15.2 percent CAGR (FY13-16E)."
"We believe that though earnings growth would remain strong at 32.7 percent CAGR in FY13-16E, growth in operating margins is limited. Further, with JLL's presence in highly competitive segments where market leaders are already leading a tough fight, we remain cautious on JLL's ability to transform the stagnating segments (whitener, soaps and detergents) and translate it into a strong performance. We value the stock at 20x FY16E (~10 percent discount to historical two-year forward multiple of 22x) arriving at a target price of Rs 188 and maintain a HOLD rating," says ICICIdirect.com research report.
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