Jyothy Laboratories Ltd.

Transcription

1 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 August 16, 2011 COMPANY RESULTS REPORT REVIEW Jyothy Laboratories Ltd. Transition phase leading to uncertain environment HOLD Nifty: 5,073; Sensex: 16,840 CMP Target Price Rs200 Rs204 Potential Upside/Downside +3% Sector Relative to Sensex Source: Capitaline Analyst Bhaumik Bhatia Key Stock Data Bloomberg / Reuters FMCG JYOI IN / JYL.BO Shares o/s (mn) 81 Market cap. 16,086 Market cap. (US$ mn) m daily average vol. 25,461 Price Performance 52-week high/low Rs322/175-1m -3m -12m Absolute (%) (9) (7) (28) Rel to Sensex (%) (0) (1) (21) Shareholding Pattern (%) Promoters 63.8 FIIs/NRIs/OCBs/GDR 15.6 MFs/Banks/FIs 13.4 Non Promoter Corporate 3.4 Public & Others JYOI Sensex Summary Revenue and EBITDA during Q1FY12 came below estimates on lower sales across brands, higher input cost pressures and Maxo losses. While, PAT was ahead of estimates on lower interest cost and higher other income. Management indicated that sales pressure is likely to continue for next few months, till the time distribution realignment and system inventory correction (shift away from CSA/superstockists) is completed. Maxo sales was also impacted by stiffer competition, which led to rise in industry wide sales promotion, while JYL refrained from such activities. The company has completed acquisition of ~72% stake in HIL (included ~6% acquired till date under open offer), while the mandatory open offer for 20% stake is going on. While we remain optimistic on long term prospects of this acquisition, near term outlook is hazy in the light of uncertainties surrounding HIL s turnaround and integration. We are upgrading JYL s standalone earnings estimates for FY12/13 by 6%/10% to Rs6.2/6.7 to factor in lower interest outgo and higher other income (interest income from loan given to Henkel India) during Q1FY12. However, we note here that we don t have enough clarity on how interest cost and other income is likely to pan out going forward. We upgrade to HOLD from REDUCE led by earnings upgrade, with SOTP valuation at Rs204 (Rs190 earlier). We value JYL s core business at Rs137 (assigning equal weightage to DCF valuation of Rs167 (11.8% WACC; 4% terminal growth) and P/E based valuation of Rs106 (16x FY13E EPS). We value 86% stake in HIL (including 20% open offer) at Rs53 (14x CY13E EPS of Rs4.4) and NPV of tax benefits on HIL s accumulated losses of >Rs5 bn at Rs15. We note that further equity dilution is likely at JYL (it has taken board approval to raise funds to the tune of Rs5 bn), as the company tries to improve its capital structure (reduce debt levels), which could bring down estimated EPS further. Faster than expected turnaround in HIL/JYL operations are downside risks to our estimates. Result highlights Revenue below estimates on lower Soaps & Detergents and Maxo sales Revenue fell 19% YoY to Rs1.2 bn, below IDBIe of Rs1.4 bn, led by lower than expected revenue from Soaps & Detergents segment at Rs914 mn (down 1%; our estimate of Rs1.1 bn) as JYL focuses to reduce system inventories and realign distribution networks of JYL and HIL HIL pays 5% distribution margin and operates through non-csa C&F, while JYL pays ~8% margin and operates through CSA, depots and C&F. JYL aims to bring down combined distribution margin to ~6% levels by realigning distribution networks of two companies. The company expects this realignment to be over by FY12 end, till when it expects revenue to remain impacted. Home care segment revenue was largely in line at Rs314 mn, down 37%, led by change in distribution strategy, 7.5% reduction in trade margin on Maxo during H1FY11 and increased competitive intensity with higher sales promotion, while JYL continued with reduced trade margin, which impacted volume. Resultantly, JYL s revenue mix shifted towards Soaps & Detergents at 74% vs. 68% in Q1FY11 and Home Care at 26% vs. 32%. Table: Financial snapshot Year Revenue EBITDA EBITDA (%) Adj. PAT EPS (Rs) P/E (x) EV/EBITDA (x) RoE (%) RoCE (%) FY10 5, FY11 6, FY12E 5, FY13E 6,

2 Profitability hit more than expected by input cost pressures, Maxo losses Soaps & Detergents EBIT margin fell 780bps YoY to 19%, despite price hike of ~17% taken on Ujala Supreme in July QoQ variation in this segment s profitability (30% in Q4FY11) is inexplicable and limits our ability to analyse and forecast the trend effectively. Home Care continued to bleed, with EBIT margin down 2750bps YoY (despite lower offers and trade margins and contrary to management guidance of improving this segment margin) to (13.3%), led by input cost pressures, higher ad spends (money spent on liquids) and increase in excise and VAT rates across states. This resulted in EBITDA falling 67% to Rs109 mn, with EBITDA margin at 8.8%, down 1330bps (IDBIe 11.1%), deviation primarily led by revenue miss. Management indicated that it has taken price hike across Ujala, Exo and Maxo by 7-8% each in July 2011, which should improve profitability going ahead. PAT was ahead of IDBIe of Rs108 mn, down 46% to Rs140 mn, led by lower than expected interest cost at Rs18 mn (IDBIe Rs41 mn) and higher other income at Rs121 mn (Rs50 mn higher on interest income on loan given to HIL). Raise FY12/13 estimates by 6%/10%; upgrade to HOLD We are upgrading JYL s standalone earnings estimates for FY12/13 by 6%/10% to Rs6.2/6.7 to factor in lower interest outgo and higher other income (interest income from loan given to Henkel India) during Q1FY12. However, we note here that we don t have enough clarity on how interest cost and other income is likely to pan out going forward. We upgrade to HOLD from REDUCE led by earnings upgrade, with SOTP valuation at Rs204 (Rs190 earlier). We value JYL s core business at Rs137 (assigning equal weightage to DCF valuation of Rs167 (11.8% WACC; 4% terminal growth) and P/E based valuation of Rs106 (16x FY13E EPS). We value 86% stake in HIL at Rs53 (14x CY13E EPS of Rs4.4) and NPV of tax benefits on HIL s accumulated losses of >Rs5 bn at Rs15. We note that further equity dilution is likely at JYL (it has taken board approval to raise funds to the tune of Rs5 bn), as the company tries to improve its capital structure (reduce debt levels), which could bring down estimated EPS further. Faster than expected turnaround in HIL/JYL operations are downside risks to our estimates. Key highlights from the conference call Management indicated that though primary sales (sales from company to superstockists) have been impacted, secondary sales remain healthy (sales from superstockists/distributor to retailer) and the company has been able to maintain market share across brands. The company expects FY12 volume growth of 6-8% in Ujala, despite weak performance in Q1. Bangalore project under JFSL has turned profitable in Q1. It plans to enter Chennai and Hyderabad during FY12. Management expects to monetize unutilized assets in JYL and HIL to generate Rs500-1,000 mn during FY12. It indicated that there is no likelihood of PE investment in JYL (as has been doing round in media reports) in the next 3 months as it focuses on Henkel integration. Henkel India performance has witnessed improved profitability, which management expects to further improve in the coming quarters. It expects ad spends at 8% of revenue in FY12. 2

3 Table: Quarterly snapshot Q1FY12 Q1FY11 YoY (%) Q4FY11 QoQ (%) Net sales 1,230 1,513 (18.7) 1,553 (20.8) Other operating income 1 20 (93.3) 15 (90.6) Total Operating income 1,231 1,534 (19.7) 1,567 (21.4) Cost of goods sold (13.5) 831 (23.5) % of Sales (1.9) Gross Margin (23.7) 722 (17.6) Gross Margin (%) (3.1) Staff Cost % of Sales Advertising & sales promotion (3.8) 116 (20.5) % of Sales Other expenditure (24.2) % of Sales (0.7) Total Operating Expenses 1,123 1,199 (6.4) 1,400 (19.8) % of Sales EBITDA (67.5) 167 (34.9) EBITDA Margin (%) (13.3) 10.8 (1.9) Depreciation EBIT (76.9) 147 (51.8) EBIT Margin (%) (14.5) 9.5 (3.7) Interest , Other income Pre-tax profit (46.5) 235 (25.9) Pre-tax Margin (%) (7.3) 15.1 (1.0) Tax (50.2) % of PBT (1.5) PAT (45.5) 221 (36.7) NPM (5.6) 14.3 (2.9) Extraordinary items Adjusted PAT (45.5) 221 (36.7) Adjusted Net Margin (%) (5.6) 14.3 (2.9) Equity Share Capital Face Value No. of shares o/s Adjusted EPS (Rs) (50.9) 2.7 (36.7) 3

4 Table: Segment results Q1FY12 Q1FY11 YoY (%) Q4FY11 QoQ (%) Segment revenue Soaps & Detergents 914 1,025 (10.8) 936 (2.3) % of Total Sales Home Care (37.4) 621 (49.4) % of Total Sales (7.6) 40.0 (14.5) Others 2 3 (49.2) (4) (142.2) % of Total Sales (0.1) (0.3) 0.4 Less : Inter-segment revenue - 18 (100.0) 0 (100.0) Gross Sales 1,230 1,513 (18.7) 1,553 (20.8) Segment profit Soaps & Detergents (36.9) 281 (38.2) PBIT (%) (7.8) 30.0 (11.0) Home Care (42) 71 (158.6) (60) (30.9) PBIT (%) (13.3) 14.2 (27.5) (9.7) (3.6) Others 1 1 (46.1) (3) (119.5) PBIT (%) (36.7) PBIT (61.9) 218 (39.2) Less: Interest , Other unallocable exp. (net) (63) 22 (391.0) (27) PBT (46.5) 242 (28.1) Capital Employed Soaps & Detergents 1,804 1,862 (3.1) 2,847 (36.6) % RoCE (5.2) 9.9 (0.2) Home Care ,008 (4.7) % RoCE (4.3) 8.0 (12.4) (6.0) 1.6 Others % RoCE (14.8) (63.8) 75.9 Other unallocable items 3,799 1, , Total 6,568 4, , Table: Category wise net sales Q1FY12 Q1FY11 YoY (%) Fabric Care (18.0) Mosquito repellant (35.3) Dishwasing Others (32.1) Total 1,230 1,513 (18.7) 4

5 Figure: Trend in financials 2,000 1,600 1, Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Sales EBITDA PAT Table: Brand wise market share (%) Value Volume Q1FY12 Q1FY11 Q1FY12 Q1FY11 Ujala Maxo Exo Table: Distribution Shift away from Superstockists Area Sales - Q1FY12 % of sales Sales - Q1FY11 % of sales YoY (%) CSA/Superstockists (48.4) Non-CSA Total 1,230 1,513 (18.7) Table: Channel margin JYL vs. Henkel India: Focus on reducing level of intermediation (%) Jyothy CSA/Superstockists Distributor Retail Total CSA Area Non-CSA Depot Non-CSA C&F Henkel India CSA/Superstockists Distributor Retail Total Non-CSA C&F Proposed - post merger CSA/Superstockists Distributor Retail Total Non-CSA Depot

6 Henkel India Table: Quarterly snapshot (standalone) Year-end: March Q1FY12 Q1FY11 YoY (%) Q4FY11 QoQ (%) H1CY11 H1CY10 YoY (%) Net sales 1,047 1,329 (21.2) 1, ,060 2,365 (12.9) Other operating income Total Operating income 1,047 1,329 (21.2) 1, ,060 2,365 (12.9) Cost of goods sold (22.2) ,335 1,515 (11.9) % of Sales (0.8) 65.4 (1.2) Gross Margin (19.5) (14.7) Gross Margin (%) (0.7) Staff Cost (1.6) 42 (15.4) % of Sales (0.8) Other expenditure (41.5) 274 (23.6) (26.3) % of Sales (6.9) 27.1 (7.1) (4.3) Total Operating Expenses 918 1,259 (27.1) 979 (6.3) 1,897 2,227 (14.8) % of Sales (7.0) 96.7 (9.0) (2.1) EBITDA EBITDA Margin (%) Depreciation (5.9) 15 (2.0) (6.1) EBIT EBIT Margin (%) Interest (36.5) 38 (21.4) (13.6) Other income , ,400.0 Pre-tax profit ,228.7 (14) (908.4) Pre-tax Margin (%) (1.4) Tax % of PBT Adjusted PAT ,228.7 (14) (908.4) NPM (%) (1.4) Extraordinary items Reported PAT ,142.5 (14) (2,681.1) ,110.9 Reported Net Margin (%) (1.4) Equity Share Capital 1,165 1,165 1,165 1,165 1,165 Face Value No. of shares o/s Adjusted EPS (Rs) ,228.7 (0.1) (908.4)

7 Table: Quarterly snapshot (consolidated) Year-end: March Q1FY12 Q1FY11 YoY (%) Q4FY11 QoQ (%) H1CY11 H1CY10 YoY (%) Net sales 1,231 1,649 (25.4) 1, ,423 2,842 (14.7) Other operating income Total Operating income 1,231 1,649 (25.4) 1, ,423 2,842 (14.7) Cost of goods sold (17.6) ,376 1,527 (9.9) % of Sales Gross Margin (33.9) 528 (1.6) 1,047 1,314 (20.3) Gross Margin (%) (5.5) 44.3 (2.1) (3.0) Staff Cost (25.6) 101 (27.9) (12.6) % of Sales (0.0) 8.4 (2.5) Other expenditure (44.8) 509 (21.4) 908 1,232 (26.3) % of Sales (11.4) 42.7 (10.2) (5.9) Total Operating Expenses 1,184 1,684 (29.7) 1,273 (7.0) 2,457 2,958 (16.9) % of Sales (5.9) (10.7) (2.7) EBITDA 47 (35) (235.2) (81) (158.1) (34) (116) (70.7) EBITDA Margin (%) 3.8 (2.1) 5.9 (6.8) 10.7 (1.4) (4.1) 2.7 Depreciation (11.7) 15 (2.0) (6.1) EBIT 33 (51) (164.1) (96) (134.2) (63) (147) (57.1) EBIT Margin (%) 2.7 (3.1) 5.8 (8.1) 10.7 (2.6) (5.2) 2.6 Interest Other income 62 (5) (1,466.7) 6 1, ,600.0 Pre-tax profit (2) (113) (98.5) (183) (99.1) (185) (257) (28.0) Pre-tax Margin (%) (0.1) (6.9) 6.7 (15.4) 15.2 (7.6) (9.0) 1.4 Tax % of PBT Adjusted PAT (2) (113) (98.5) (183) (99.1) (185) (257) (28.0) NPM (%) (0.1) (6.9) 6.7 (15.4) 15.2 (7.6) (9.0) 1.4 Extraordinary items Reported PAT 252 (113) (322.0) (183) (237.4) 69 (257) (126.7) Reported Net Margin (%) 20.5 (6.9) 27.3 (15.4) (9.0) 11.9 Equity Share Capital 1,165 1,165 1,165 1,165 1,165 Face Value No. of shares o/s Adjusted EPS (Rs) 2.2 (1.0) (322.0) (1.6) (237.4) 0.6 (1.0) (160.4) 7

8 Financial Summary Profit & Loss Account Cash Flow Statement Net sales 5,760 6,080 5,464 6,293 Growth (%) (10.1) 15.2 Operating expenses (4,808) (5,208) (4,812) (5,479) EBITDA Growth (%) 87.2 (8.3) (25.2) 24.7 Depreciation (105) (108) (159) (168) EBIT Interest paid (6) (3) (88) (88) Other income Pre-tax profit 1, Tax (210) (153) (125) (264) Effective tax rate (%) Net profit Adjusted net profit Growth (%) (37.6) 7.1 Shares o/s (mn nos) Pre-tax profit 1, Depreciation Tax paid (184) (76) (125) (264) Chg in working capital (370) (871) 518 (241) Other operating activities Cash flow from operations (a) , Capital expenditure (206) (357) (140) (165) Chg in investments (9) - (7,733) - Other investing activities Cash flow from investing (b) (214) (962) (7,267) (165) Equity raised/(repaid) - 2,274 (450) - Debt raised/(repaid) ,000 (500) Dividend (incl. tax) (131) (368) (292) (14) Chg in minorities Other financing activities (4) (73) - - Cash flow from financing (c) (135) 2,416 4,258 (514) Net chg in cash (a+b+c) 210 1,570 (1,831) (215) Balance Sheet Financial Ratios Net fixed assets 2,016 2,265 2,246 2,243 Investments ,912 7,912 Other non-curr assets Current assets 3,089 5,944 3,037 3,136 Inventories Sundry Debtors 696 1, ,020 Cash and Bank 1,212 2, Loans and advances Total assets 5,285 8,389 13,195 13,291 Shareholders' funds 3,989 6,527 6,520 6,994 Share capital Reserves & surplus 3,917 6,447 6,439 6,913 Total Debt ,585 5,085 Secured loans ,583 5,083 Unsecured loans Other liabilities ,795 5,295 Curr Liab & prov 1,161 1, ,003 Current liabilities 1,161 1, ,003 Provisions Total liabilities 1,296 1,861 6,675 6,297 Total equity & liabilities 5,285 8,389 13,195 13,291 Book Value (Rs) Adj EPS (Rs) Adj EPS growth (%) 99.6 (9.8) (37.6) 7.1 EBITDA margin (%) Pre-tax margin (%) ROE (%) ROCE (%) Turnover & Leverage ratios (x) Asset turnover (x) Leverage factor (x) Net margin (%) Net Debt/Equity (x) Working Capital & Liquidity ratios Inventory days Receivable days Payable days Valuation PER (x) Price / Book value (x) PCE (x) EV / Net sales (x) EV / EBITDA (x) Dividend Yield (%)

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