1. RETAIL RESEARCH Jyothy Laboratories Ltd. (JLL) – Q1FY15 Result Update Aug 25, 2014
HDFC sec Scrip Code Industry CMP (Rs.) Recommended Action Averaging Band (Rs.) Price Target (Rs.) Time Horizon
JYOLABEQNR FMCG 222.7 Buy at CMP and add on dips 194‐205 240 1 quarter
In our stock note dated March 28, 2014 we had recommended investors to buy Jyothy Laboratories Ltd. (JLL) at Rs. 201.5 and to average it on dips to Rs. 174‐185 for a
price target of Rs. 232 over the next quarter. Thereafter, the stock touched a low of Rs. 172 on June 30, 2014 and subsequently met our price target on August 22, 2014.
Currently, it is quoting at Rs. 222.7.
JLL’s Q1FY15 results were below our estimates. We present an update on the stock.
Q1FY15 Results Review (Consolidated)
Y‐o‐Y
• The consolidated net sales grew by 15.8% to Rs. 3851.4 mn [Q1FY14: Rs. 3325.8 mn], led by healthy growth across soaps & detergents and home care (up 18.2% &
14.8% respectively). The growth was driven by a mix of volume growth and price hikes (+8% each). Growth was across the segments like fabric care, dishwashing and
mosquito repellant segments (up 19%, 24% and 19% Y‐o‐Y) respectively. However, Laundry business reported marginal growth of 4.2% Y‐o‐Y, while Others segment
(which includes body care, tea & coffee) declined by 23.8% Y‐o‐Y.
• Operating profit grew at a slower pace by 8.6% Y‐o‐Y, while OPM declined by 89 bps Y‐o‐Y to 13.5% due to increase in raw material cost and higher other expenses (up
18.9% & 25.4% Y‐o‐Y respectively). The higher raw material cost was on account of inferior mix, arising from lower 12% growth in Ujala fabric whitener. Material Cost /
Net sales increased by 137 bps Y‐o‐Y to 52.2%. However, further margin contraction was restricted due to relatively lower growth in the employee cost & ASP spends
(up 9.3% & 5.1% respectively). Segment‐wise, Soaps & Detergents and Home Care both witnessed margin contraction, while Laundry business reported higher losses
(Rs. 31.7 mn vs loss of Rs. 23.5 mn in Q1FY14).
• PAT grew by 65.8% Y‐o‐Y, aided by lower interest cost (down 80.4% Y‐o‐Y due to reduction in debt), decline in the effective tax rate (down from 0.4% in Q1FY14 to
0.1% in Q1FY15) and higher other income (up 170.8% Y‐o‐Y). EPS for the quarter stood at Rs. 2.3 vs Rs. 1.5 in Q1FY14.
Q‐o‐Q
• Sequentially, the results appeared impressive possibly due to weak performance in Q4. Net sales grew by 8.2% Q‐o‐Q, led by strong growth in soaps & detergents (up
29.6% Q‐o‐Q). However, Home Care & Others de‐grew by 37.8% & 6.1% Q‐o‐Q respectively, while Laundry business reported marginal growth of 3.9% Q‐o‐Q.
• The core operating profit grew by 74.8% Q‐o‐Q, while OPM improved by 513 bps Q‐o‐Q, aided by decline in the ASP cost (down 4.9% Q‐o‐Q). Key segments Soaps &
Detergents and Home Care both witnessed sequential margin expansion.
• PAT grew by 97.9% Y‐o‐Y, while PAT margins improved by 500 bps Q‐o‐Q, led by lower interest cost (down 26.4% Q‐o‐Q) and decline in the tax rates (from 0.6% in
Q4FY14 to 0.1% in Q1FY15).
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2. Quarterly Financials: Consolidated
(Rs. in Million)
Particulars Q1FY15 Q1FY14 VAR [%] Q4FY14 VAR [%]
Net Sales 3851.4 3325.8 15.8 3559.4 8.2
Other Operating Income 3.4 9.6 -64.2 39.3 -91.3
Total Income 3854.8 3335.3 15.6 3598.7 7.1
Total Expenditure 3334.9 2866.0 16.4 3301.3 1.0
Raw Material Consumed 1233.6 916.2 34.6 1217.4 1.3
Stock Adjustment -79.3 53.5 - 18.4 -531.5
Purchase of Finished Goods 857.6 722.1 18.8 786.1 9.1
Employee Expenses 385.4 361.8 6.5 357.2 7.9
Advertisement & Sales Promotion 421.1 400.6 5.1 442.6 -4.9
Other Expenses 516.4 411.8 25.4 479.6 7.7
Operating Profit 519.9 478.7 8.6 297.4 74.8
Other Income 19.7 7.3 170.8 26.6 -26.1
PBIDT 539.6 476.6 13.2 324.1 66.5
Interest 33.7 172.1 -80.4 45.7 -26.4
PBDT 505.9 304.5 66.1 278.3 81.8
Depreciation 81.1 57.1 42.0 62.1 30.6
PBT 424.8 247.4 71.7 216.2 96.4
Tax (including DT & FBT) 0.6 1.1 -45.3 1.4 -56.9
Reported Profit After Tax 424.2 246.3 72.2 214.8 97.4
Minority Interest/ Share in profit -0.5 -0.6 - 0.3 -252.5
Reported Profit after minority interest 424.6 246.9 72.0 214.5 97.9
Extra-ordinary Items 0.0 -9.3 -100.0 0.0 -
Adjusted PAT 424.6 256.2 65.8 214.5 97.9
EPS (Rs.) 2.3 1.5 52.0 1.2 97.9
Equity 181.0 166.0 9.0 181.0 0.0
FV 1 1 0.0 1 0.0
OPM (%) 13.5 14.4 -6.2 8.4 61.5
PATM (%) 11.0 7.7 43.1 6.0 82.9
(Source: Company, HDFC sec)
Quarterly Segmental Financials: Consolidated
(Rs. in Million)
Particulars Q1FY15 Q1FY14 VAR [%] Q4FY14 VAR [%]
Segment Revenue 3880.0 3339.6 16.2 3593.4 8.0
Soaps and Detergent 3045.2 2576.6 18.2 2350.0 29.6
Home Care 673.0 586.5 14.8 1081.5 ‐37.8
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3. Others 60.2 79.0 ‐23.8 64.0 ‐6.1
Laundry Services 101.7 97.6 4.2 97.8 3.9
Less : Inter Segment Revenues 28.6 13.8 107.3 34.0 ‐15.8
Total Segment Revenue 3851.4 3325.8 15.8 3559.4 8.2
PBIT 485.9 451.8 7.6 260.7 86.4
Soaps and Detergent 478.9 460.9 3.9 301.3 59.0
Home Care 37.1 37.8 ‐1.8 ‐17.3 ‐314.2
Others 1.5 ‐23.4 ‐ 7.1 ‐78.6
Laundry Services ‐31.7 ‐23.5 ‐ ‐30.4 ‐
Less : Interest 33.7 172.1 ‐80.4 45.7 ‐26.4
Other Un‐allocable Expenditure 48.7 28.4 71.3 31.0 56.7
Other Un‐allocable Income/Except Item 21.2 ‐3.8 ‐ 32.3 ‐34.3
Net Profit/Loss Before Tax 424.8 247.4 71.7 216.2 96.4
PBITM (%) 12.5 13.5 ‐100 bps 7.3 527 bps
Soaps and Detergent 15.7 17.9 ‐216 bps 12.8 291 bps
Home Care 5.5 6.4 ‐93 bps ‐1.6 712 bps
Others 2.5 ‐29.7 ‐ 11.1 ‐855 bps
Laundry Services ‐31.2 ‐24.1 ‐ ‐31.1 ‐
Capital Employed in Segment
Soaps and Detergent 2849.1 3069.1 ‐7.2 2768.8 2.9
Home Care 975.2 957.1 1.9 764.0 27.6
Others 42.3 75.6 ‐44.1 39.6 6.8
Laundry Services 1255.6 940.3 33.5 1295.7 ‐3.1
Total Capital Employed 5122.2 5042.1 1.6 4868.1 5.2
Add : Unallocable Assets Less Liabilities 2628.3 1640.5 60.2 2491.4 5.5
Total Capital Employed in the Company 7750.6 6682.5 16.0 7359.6 5.3
(Source: Company, HDFC sec)
Other Key Highlights / Developments:
• Ujala Fabric whitener grew at a slower pace by 12% on a high base of the last year with a volume growth of 6%. The management expects Ujala Fabric whitener to
achieve better growth rates in the coming quarters.
• The company has re‐launched Henko Matic in the premium to mild‐premium detergent segment with a new proposition (with LINTelligent technology to protect the
clothes from ageing). The harsh enzymes, soda and bleach result in shredding of fibres during the wash. These broken fibres are called LINT. LINT on the clothes traps
dirt and stains leaving them dull, rough and faded. The brand was promoted through a digital campaign, social media and on ground tie‐ups. Henko Matic has been
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4. launched with the aim of grabbing a 20% share in the matic segment and a 10% share in the super premium detergent segment in the coming years. The brand has
higher margins compared with other brands in the portfolio & with increased sales of the brand the detergent segment's margins will improve over the period of time.
• In dishwashing segment Pril was re‐launched in August 2014 with a new formulation. The company has also launched 225ml bottles and pouches to attract first time
users to the brand and the liquid format of the dishwashing detergent.
• Robust growth in mosquito repellent segment was largely driven by strong sales in the liquid segment which now accounts for 25% of the total mosquito repellent
sales. In the quarter, the company launched a low smoke coil in the domestic market. Going ahead, it is planning to launch a new mix of liquid vaporizers in Q3FY15.
The liquid vaporizer sales are expected to grow strongly in the coming quarters.
• The personal care segment revenues declined by 4%, largely on account of a decline in the sales of the Margo soap brand due to a drop in promotions. The
management expects Margo's sales to revive in the coming quarters. Margo face wash will be launched in the domestic market in September 2014.
• Non-South revenue contribution was 58%, flat Y-o-Y. The company expects this contribution to rise going forward.
• The raw material cost inflation stood at 8%, which was mitigated by around 8% price increase during quarter. Inflation was high in palm fatty acid prices and hence the
company dropped the promotions for Margo soaps during the quarter. The management said that it does not expect any significant increase in the palm oil prices in
the coming quarters.
• The management is confident of sustaining the revenue growth momentum in the coming quarters on the back of innovations, increased distribution reach and
adequate promotional activities. The OPM is expected to remain at 13.5‐14% in the near future. The gross margins are expected to improve going forward, led by a
revival in growth of high margin products like Ujala fabric whitener.
• ASP for the FY15 will be around 12‐13%.
• The debt at consolidated level is around Rs. 4 bn (compared to Rs. 5.27 bn as on March 31, 2014) and cash is Rs. 1.1 bn as on June 30, 2014.
• The management expects laundry business to be EBIDTA positive by March 2015.
• The management started reporting consolidated financials on a quarterly basis from Q1FY15 onwards.
• Effective April 1, 2014. the Company has revised the useful life of certain fixed assets based on Schedule II to the Companies Act, 2013 for the purposes of providing
depreciation on fixed assets. Accordingly, the carrying amount of the assets as on April 1, 2014 has been depreciated over the remaining revised useful life of the fixed
assets. Consequently, the depreciation for Q1FY15 is higher and the PBT is lower to the extent of Rs 17.2 mn. Further, an amount of Rs. 20.5 mn (net of tax of Rs. 10.6
mn) representing the carrying amount of the assets with revised useful life as Nil, has been charged to the opening reserves as on April 1, 2014 pursuant to the
Companies Act, 2013. In the consolidated unaudited financial result the depreciation for Q1FY15 is higher and profit before tax is lower to the extent of Rs. 21.2 mn.
Further, an amount of Rs 24 mn (net of tax of Rs 12.4 mn) representing the carrying amount of the assets with revised useful life as Nil, has been charged to opening
reserves as on April 1, 2014 pursuant to the Companies Act, 2013.
Conclusion & Recommendation:
After a subdued Q4FY14, JLL’s Q1FY15 results (Y‐o‐Y) were again below our estimates. Though 15.8% Y‐o‐Y growth in consolidated net sales was healthy, we expected the
growth to be faster. Margin contraction led by higher material cost was disappointing. However, lower interest cost & tax rates supported the overall PAT growth.
While the results were disappointing, we expect the growth to recover in the coming quarters. Sales growth would be driven by brand and geographical extension and
aggressive marketing initiatives. The company’s power brands are expected to do well, especially the flagship brand, Ujala, which would continue to be a major growth
catalyst. We expect the operating margins to improve over FY14 on the back of improved product mix & cost rationalization. However, the expansion is likely to be
limited on the back of higher ASP spends, which are expected to be incurred to support the new launches and continued innovations in power brands. Further, we do not
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5. expect JLL’s subsidiary JFSL to be positive at EBIT level for a few more quarters, which would further limit significant margin expansion. Lower interest cost would boost
the PAT growth in FY15.
After a weak Q4FY14 & Q1FY15, we fell JLL could find difficult to meet our FY15 projections. Hence we are downgrading our net sales, operating profit & PAT estimates by
3.3%, 10.4% & 18% respectively. Accordingly revised EPS for FY15 is estimated at Rs. 9.5 (Rs. 11.6 originally estimated). We have incorporated projections for FY16,
wherein we expect the net sales, operating profit & PAT to grow by 18%, 21.5% & 20.1% respectively. EPS for FY16 is estimated at Rs. 11.4.
Despite not so impressive performance from FMCG companies in Q1FY15 (in line with overall sector slowdown), the entire FMCG pack (except ITC) has got re‐rated over
the last two months on expectations of a turnaround in the economic growth & improvement in spending power over the next one year. If JLL impresses the street with
robust numbers in the coming quarters, it could also be re‐rated gradually going forward.
Valuing the stock at 21xFY16E EPS, we arrive at a price target of Rs. 240. We recommend investors to buy the stock at current levels and add it on dips to Rs. 194‐205 (17‐
18xFY16E EPS) for our price target over the next quarter.
Financial Estimations: (Consolidated)
(Rs. in Million)
Particulars FY12 FY13 FY14E FY14 (Act) FY15 (OE) FY15 (RE) FY16E
Net Sales 9126.2 11041.5 13581.1 13183.9 16025.7 15491.1 18279.5
Operating Profit 840.9 1296.7 1928.5 1572.1 2298.4 2060.3 2504.3
Adjusted PAT 445.8 196.5 1255.2 837.2 2097.1 1719.5 2065.6
EPS 2.5 1.1 6.9 4.6 11.6 9.5 11.4
OPM (%) 9.2 11.7 14.2 11.9 14.3 13.3 13.7
NPM (%) 4.9 1.8 9.2 6.4 13.1 11.1 11.3
PE 90.4 205.1 32.1 48.1 19.2 23.4 19.5
*Act = Actual; OE = Original Estimates; RE = Revised Estimates (Source: Company, HDFC sec Estimates)
Analyst: Mehernosh K. Panthaki – IT, FMCG & Midcaps; Email ID: mehernosh.panthaki@hdfcsec.com
RETAIL RESEARCH Tel: (022) 3075 3400 Fax: (022) 2496 5066 Corporate Office
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