Jyothy Labs’ Q2 margins are a sore point; sustainable improvement remains key

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26 Aug, 2025 12:21

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Shares of Jyothy Labs Ltd, which is mainly in the home and personal care segments, have underperformed the broader markets in 2021. So far this calendar year, the stock has increased by 8 percent compared to the 33 percent gain in the Nifty 500 index.

The company’s September quarter results (Q2FY22) announced on November 2 did not impress investors. While consolidated revenue growth was decent, margins were under pressure. Gross profit margin and EBITDA (earnings before interest, depreciation and amortisation) margin contracted sequentially and year-on-year.

Sharp inflation in key raw materials led to a gross margin drop of 756 basis points (bps) compared to last year’s September quarter. One basis point is one-hundredth of a percentage point. Gross margin was down 320bps versus the June quarter. Analysts from ICICI Securities Ltd said gross margin at 40.1 percent was the “lowest ever.”

Jyothy Labs maintains, “Due to consistent rise in input prices, there has been a margin pressure which has been partially managed with calibrated price hikes and persistent cost rationalisation measures.”

Further, EBITDA margin in Q2FY22 stood at 11.4 percent, representing a year-on-year drop in 595bps, which was a shade better than the gross margin drop. True, employee costs and other expenses as a percentage of revenues declined year-on-year. But that didn’t help much as advertising and sales promotion (A&P) expenses increased sharply, weighing on EBITDA margin performance.

The upshot: Jyothy Labs’ EBITDA in Q2FY22 declined by 24 percent to Rs 66.5 crore. This is at a time when revenues grew by 16 percent to Rs 585 crore. According to ICICI Securities’ analysts, “Jyothy Labs’ robust top-line momentum – double-digit 2-year CAGR (11 percent) – is clearly under-appreciated by the street.” CAGR is compound annual growth rate.

The company’s fabric care segment saw strong 25 percent growth and contributed 36.6 percent of the company’s total revenues. Here, the post-wash segment did well with the easing of mobility during the quarter. Further, the dishwashing segment contributed 36.9 percent of revenues and grew by 12.5 percent.

Kotak Institutional Equities has cut FY2022-24E EPS (earnings per share) by 6-11 percent as it factors in higher-than-estimated RM (raw material) inflation in near term and continued investments in A&P. The brokerage also added, “In case input cost inflation sustains, the company plans to take calibrated price increase to recover the EBITDA margin to about 16-17 percent over the medium term.”

To be sure, valuations of the Jyothy Labs’ stock aren’t exactly pricey. ICICI Securities has maintained a ‘buy’ rating on the stock with an unchanged DCF-based target price of Rs 200. DCF refers to discounted cash flow. “At our target price, the stock will trade at 25 times price-to-earnings multiple  (for) Mar-23E,” said the brokerage. On November 4, Jyothy Labs’ shares closed at Rs 158.15 per share on the National Stock Exchange. Sustained improvement in sales and margins may well improve sentiments for the stock, going ahead.