Decent Q2 Numbers, Valuations Fairly Attractive – Just Another Investor

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Jyothy Labs (click here for detailed initiating report) posted decent set of Q2 Fiscal 2021 numbers with EBITDA and PAT increasing by ~9% and ~12% on-year respectively for the company. However, the revenue from Fabric care segment saw a ~12% on-year drop as sale of main wash products continue to remain impacted as lack of people’s mobility led to lower demand for the products

Trend in Quarterly Performance

Source: Company Filings

  • The revenue growth during the quarter was supported by the growth of Dishwashing and Household Insecticides segment which grew by ~24% and ~22% respectively on-year basis
  • The Fabric Care segment saw ~12% on-year drop in revenue as lower mobility by people led to weak demand for the company’s main-wash as well as post-was segment
  • The rise in EBITDA margins were supported by Fabric Care and Dishwashing segment on account of softening raw material price

Trend in Half-Yearly Performance

Source: Company Filings

  • The Trend during H1 fiscal 2021 was similar to the Q2 Fiscal 2021 with Dishwashing & Household Insecticides segment driving the revenue, and Fabric Care & Dishwashing segment strengthening the margins
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Segment-wise Quarterly Revenue Performance

Source: Company Filings

Segment-wise Half Yearly Revenue Performance

Source: Company Filings

Trend in Margins during H1 Fiscal 2021

Source: Company Filings

  • The negative margins for the Household Insecticides segment was on account of significant spend in marketing by the company during the period; the high marketing spend is expected during H2 Fiscal 2021 as well, post which the segment will generate positive cash flows as per the management

Balance Sheet continues to strengthen; Company has no long-term Debt

  • The company had zero long-term debt as of September 2020
  • The short-term borrowings stood at INR 167.3 Crore; cash & liquid investments stood at ~ INR 121 Crore
  • During H1 Fiscal 2021, the company generated cash flow of INR 246 Crore from operations, as compared to INR 102.5 Crore during the year ago period

What to Expect Going Forward

  • In the concall, the management mentioned that the demand for Ujala Fabric Whitener has returned to pre-Covid levels; however, the demand for Ujala Crisp and Shine is still below the February 2020 levels
  • The demand for the company’s main wash products is unlikely to return to pre-Covid levels before Q4 Fiscal 2021.
  • The laundry business continues to remain impacted thereby reporting loss of INR 8 Crore during H1 Fiscal 2021
  • The company’s strengthening balance sheet will also give impetus to additional marketing spend going forward
  • The gradual drop in losses in laundry segment in H2 Fiscal 2021 will help reduce erosion in profits for the company, thereby aiding cash flows
  • At INR 136 per share, the company trades at 26X TTM Earnings which is the lowest among its peers; however, its slower growth rate compared to peers perhaps justifies the same
  • The company’s ability to create successful brands (ex-Ujala and Henko) and ability to leverage its strong supply chain for the new launches will determine long-term value creation for shareholders; however, the valuation continues to provide good margin of safety to the investors
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Saurabh Prabhu

Saurabh Prabhu

Stock Market. Cricket. F1 Enthusiast. Private Equity Professional . Ex- Crisil.
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