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Jyothy Labs: Strong overall performance - Views on News from Equitymaster

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Jyothy Labs: Strong overall performance

Feb 5, 2010

Performance summary
  • Net sales grow by 14% YoY in 3QFY10, 26% YoY during 9mFY10. Sales growth during 3QFY10 led by revenue growth in both segments – soaps and detergents and home care.
  • Operating margins during the quarter expand by 0.2% YoY to 13.6 %. This is mainly due to lower raw material costs (as a percentage of sales).
  • Net profits grow by a strong 25% YoY during the quarter, largely aided by a good operating performance and a lower tax outgo.
  • As for 9mFY10, net profits are down up by a strong 45% YoY. This is on account of a strong operating performance and higher other income.

(Rs m) 2QFY10 3QFY10 Change 9mFY09 9mFY10 Change
Sales 1,192 1,354 13.6% 3,051 3,849 26.2%
Expenditure 1,032 1,170 13.3% 2,607 3,216 23.4%
Operating profit (EBDITA) 160 183 15.0% 444 633 42.6%
Operating profit margin (%) 13.4% 13.6%   14.6% 16.4%  
Other income 27 36 31.8% 74 101 36.3%
Interest 1 0 -87.6% 1 1 -39.7%
Depreciation 23 26 14.2% 65 73 11.1%
Profit before tax 163 193 18.5% 452 661 46.3%
Tax 28 25 -12.6% 86 131 53.1%
Profit after tax/(loss) 135 168 25.0% 366 529 44.6%
Net profit margin (%) 11.3% 12.4%   12.0% 13.8%  
No. of shares (m)         72.6  
Diluted earnings per share (Rs)*         7.8  
P/E ratio (x)*         20.6  
* On a trailing 12-months basis

What has driven performance in 3QFY10?
  • Jyothy Laboratories (JLL) reported 14% YoY growth in revenues during the quarter. Growth during the quarter was led by a 14% YoY growth in the company’s soaps and detergents business and a 19% YoY growth in the home care segment. ‘Soaps and Detergents’ business, which includes products such as fabric whiteners, detergents, dish wash bar and soaps, contributed nearly 60% of revenues during the quarter. This is a similar figure as compared to last year. JLL’s ‘Home Care’ segment, which includes products such as mosquito coils, dish wash scrubbers and incense sticks, contributed the balance.

    Segment-wise performance*
    (Rs m) 3QFY09 3QFY10 Change 9mFY09 9mFY10 Change
    Soaps and detergents
    Revenues 725 825 13.7% 1,894 2,396 26.5%
    % share 60.9% 59.8%   62.1% 61.8%  
    PBIT margin 27.0% 25.5%   24.3% 27.7%  
    Home care
    Revenues 466 554 18.7% 1,156 1,483 28.3%
    % share 39.1% 40.2%   37.9% 38.2%  
    PBIT margin -2.6% 1.9%   3.7% 3.8%  
    Source: Company; *Excluding others

  • JLL’s operating margins expanded marginally during the quarter ending December 2009. This expansion in margins was mainly due to lower raw material costs (as a percentage of sales; including goods purchased for trading). Raw material costs increased at a slower rate of 8% YoY in absolute terms and stood at nearly 52.9% of sales during the quarter as compared to 55.6% during 3QFY09. JLL would have been able to expand margins further had it not been for the 72% YoY increase in sales and ad expenses. The same stood at about 8.2% of sales during the quarter as compared to 5.4% last year. The management cited the nationwide launch of its ‘Exo’ brand as the reason for the same.

  • JLL’s net profits grew by 25% YoY. This was possible on the back of a good operating performance coupled with higher other income and a lower tax outgo. The effective tax rate during the quarter stood at 12.8% as compared to 17.3% during 3QFY09. This was possible due to an increased production from the company’s tax free manufacturing units.

  • JLL signed a Technology Transfer Agreement with Defense Research & Development Organisation (DRDO), Ministry of Defence, during the quarter. As per the agreement, JLL will be allowed to use DEPA, which is an in-house product development of DRDO on an exclusive basis. This molecule is a product which will acts as a mosquito and other insect repellent. This will be a new product line for the company (as and when it launches the same) as it would be in the form of cream, lotion and spray. These products will be mainly used for outdoor applications. The launch of this product is likely to happen in the final quarter of 2010.

What to expect?
At the current price of Rs 160, the stock is trading at a multiple of 20.6 times its trailing 12-month earnings. At this valuation, JLL’s stock does seem a bit expensive. However, one cannot discount the rate at which the company’s revenues are growing. In addition, JLL’s revenues are likely to get a boost considering that it has taken recently launched certain products on a pan-India basis.

However, one must not ignore the fact that the company’s home care business is still facing pressure on the PBIT margin front. Also, it should be noted that the volumes and revenue wise, the segment has been doing well. The segment’s PBIT margins, which stood at nearly 2% during the quarter and at nearly 4% for the nine month FY10 period, are eroding the overall margins for the company. The management has attributed the same to strong competition, especially in its mosquito repellant product range. Going forward it expects margins of this segment to gradually improve on account of certain reasons – in-house production, share of other products in this segment to rise and the new venture (DRDO) gradually taking off.

JLL started its laundry business recently. While the company believes this would do well in the long term, in the short term, this business is expected to be a drag on the company’s profitability. This is especially considering that a certain FMCG major has tried to get into this segment, but had to eventually shut shop on account of it being unviable.

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