Neutral Jyothy Laboratories; target of Rs 391: Motilal Oswal

Motilal Oswal's research report on Jyothy Laboratories

Jyothy Laboratories (JYL) reported an in-line sales with margin expansion exceeding our expectations in 2QFY24. It gained market share across its portfolio with volume growth of 9% and a value growth 2%. JYL reported an EBITDA margin of 18.5% (est. 16.9%), led by moderation in input costs. GP margin experienced significant growth on both YoY and QoQ basis, reaching 49.2% (est. 47.5%). The likelihood of 17% EBITDA margin for further quarters appears to be difficult as the company's guidance for FY24 ranges from 16% to 17%. While the company achieved a margin of 17.8% in 1HFY24, there's a potential for margin contraction in the remaining quarters due to volatility in RM prices.

Outlook

We upgrade FY24E/FY25E EPS by 9.3%/8.6% to factor in the benefits of lower RM costs, expansions in new geography and market share gain, which will support growth and profitability. However, we reiterate our Neutral rating with a revised TP of INR391 as JYL’s product portfolio is in highly penetrated categories, limiting future volume growth to single digits.