Sarva Gunn Sampann
We initiate Jyothy Labs (JYL) with a high conviction BUY idea, with a TP of Rs 575 (40x June-26 EPS), as it is one of the few FMCG companies structurally poised for high single-digit volume growth, mid-teen EBITDA growth, and high-teen net income growth. We pencil in revenue/EBITDA/PAT CAGR of 12/16/17% over FY24-27, the second highest amongst our coverage of consumer staple companies. Our confidence stems from the fact that a) it operates in categories which have a higher Total Addressable Market and, despite being a challenger brand, is trying to grab a pie of the same via making the product portfolio comprehensive, launching low unit packs, communicating product superiority vs. competition, and providing value-for-money offerings; b) doing basics of FMCG right under new leadership – i) increasing the distribution network and, at the same time, improving productivity; ii) moving on to Above the Line (ATL) spends, away from BTL spends; iii) focusing on low unit packs across the product portfolio, so that it aligns with the above-mentioned objectives; c) competent key management personnel are ensuring smooth execution of the above strategy, which was not the case with the erstwhile management, who were more tuned towards doing M&A transactions. Reasonable valuations (32x FY26 EPS) provide a significant margin of safety. We call Jyothy Labs sarva gunn sampann – fully versatile and with enough weapons in its armory to combat any challenge.
Playing in bigger TAM categories through differentiated approach: Jyothy Labs, despite operating in categories with much larger Total Addressable Markets (Detergent – INR 350 bn, Soaps – INR 300 bn, Dishwashing – INR 60 bn, HI – INR 70 bn), has not lived up to its promise, although it is at par or better in terms of quality and perception compared to peers in respective categories. Performance since FY15-20 has been sub-par (Revenue CAGR of 2%) due to several factors: a) Henkel acquisition-related tailwinds tapered off. b) Erstwhile management focused on M&A over organic growth. c) A slew of macroeconomic challenges (demonetization, GST implementation) dented its performance. We have seen growth return over FY20-24, with a 13% revenue CAGR, as the company has found its knack for playing effectively in big categories by making the product portfolio comprehensive, launching low unit packs, communicating product superiority versus the competition, and providing value-for-money offerings.
Our view on Jyothy Labs: We pencil in revenue/EBITDA/PAT CAGR of 12/16/17% over FY24-27, the second highest amongst our coverage of consumer staple companies. We initiate Jyothy Labs (JYL) with a high conviction BUY idea, with a TP of Rs 575 (40x June-26 EPS), as it is one of the few FMCG companies structurally poised for high single-digit volume growth, mid-teen EBITDA growth, and high-teen net income growth.
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