Jyothy Labs Q1 Results Review - Firing On All Cylinders: HDFC Securities

HDFC Securities Institutional Equities

Jyothy Laboratories Ltd.'s Q1 FY25 results came ahead of our estimates, owing to strong volume growth, broad-based performance across segments (ex-household insecticides) and higher-than-expected gross margin expansion (up 340bps YoY).

Domestic volume growth of 11% versus consensus expectation of 7-8% is commendable, given the challenging macro environment.

We maintain Jyothy Labs as a high conviction Buy idea, with a target price of Rs 600, (42 times June-26 EPS), as we upgrade our target multiple from 40x to 42x, given 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 CAGRs of 12/15/17% for FY24-27, the second-highest amongst our coverage of consumer staple companies.

Our confidence stems from several factors:

1. Jyothy Labs operates in categories with a higher total addressable market and, despite being a challenger brand, is capturing market share by making its product portfolio comprehensive, launching low unit packs, communicating product superiority versus the competition, and providing value-for-money offerings;

2. under its new leadership, Jyothy Labs has mastered the fundamentals of FMCG with initiatives such as- increasing the distribution network while improving productivity; shifting marketing spend from Below the Line to Above the Line; and focusing on low unit packs across the product portfolio to align with its objectives;

3. competent key management personnel are ensuring the smooth execution of this strategy, a significant improvement over the previous management, which was more focused on M&A transactions.

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