Neutral Jyothy Laboratories; target of Rs 160: Motilal Oswal

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Motilal Oswal's research report on Jyothy Laboratories

Sales came in above our expectation in 2QFY22. Gross/EBITDA margin was significantly lower than our estimate due to a greater material cost impact and higher-than-anticipated ad spends. No respite is expected in material cost inflation, affecting performance in subsequent quarters as well. Topline growth is key for a company with sales of just INR19b. The likelihood of consistent 15% sales growth (essential for any re-rating) continues to appear difficult. Sales CAGR has been 3.7% for the preceding five years. With margin likely to remain under pressure due to material cost increases, earnings growth prospects remain weak. We maintain our Neutral rating.

Outlook

RoCE at 15% in FY21 remains far inferior v/s its peers. No marked uptick is visible over the medium- to long-term. We maintain our 16x EV/EBITDA target multiple (~50% discount to its peers) even as we roll forward to our Dec’23 targets, resulting in TP of INR160 per share. We maintain our Neutral rating.

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