MUMBAI : March quarter financial results of Jyothy Labs Ltd, which is primarily in the home care and personal care segments, are not exciting enough. Yes, revenue growth is strong optically. Consolidated revenues have increased by 26% year-on-year to Rs495 crore. However, revenues have declined by 2% on a two-year CAGR basis. CAGR is compound annual growth rate.

“Implementation of continuous replenishment system (CRS) led to a one-time correction in channel inventory, impacting sales growth by 8-10 percentage points, per management," analysts from Kotak Institutional Equities stated in a report on 19 May.

During the March quarter, fabric care, dishwashing, household insecticides and personal care accounted for 36%, 34%, 18% and 9% of the company’s total revenues, respectively. According to Kotak, “Dishwashing continues to benefit from increased consumer preference for in-home consumption, along with Jyothy Labs’ efforts on distribution expansion, and visibility drives for smaller packs." On the other hand, post?wash fabric care is still witnessing pressure owing to lower outdoor activity.

Overall, Jyothy Labs saw 400 basis points year-on-year expansion in its earnings before interest, tax, depreciation, and amortization (Ebitda) margin. One basis point is one-hundredth of a percentage point. Year-on-year, Ebitda margin increase was driven by operating leverage. Employee costs, advertisement and sales promotion expenses, and other expenses have dropped as a percentage of revenues. While that augurs well, note that Ebitda margin has contracted by 240 basis points vis-à-vis the December quarter.

The company has said, going ahead, inflationary pressure in key raw materials would be balanced with strategic price increases, cost optimization initiatives and balanced trade schemes.

Meanwhile, the Jyothy Labs stock has underperformed the Nifty 500 index in the past one year. As such, valuations are not demanding. Currently, the stock trades at around 20 times estimated earnings for financial year 2023, based on data from Bloomberg. However, some analysts believe triggers for the stock to outperform from a near-term perspective are few and far between.

“While balance sheet has improved significantly in FY21, we believe a movement towards double?digit growth would be the key trigger for the stock. And for that to happen, we need to see strong recovery for their key brand Ujala, sustained improvement in market shares and success in more states for their new launches," said analysts from YES Securities Ltd in a report on 18 May.

Currently, the Jyothy Labs stock is around 10% lower than its pre-covid highs seen in January 2020.