ICICI Securities Suggests Buy This Small Cap Consumer Goods Stock For Rs 220 Target Price

Stock Outlook & Returns

The current market price of the stock is Rs 179.15 apiece on NSE at the time of writing. The 52-week low of the stock is Rs 130.15 apiece recorded in February 2022. The 52 week high of the stock is Rs 198.40 apiece recorded in August 2022.

The stock in the past 1 month, declined 5.64%. Whereas, in the past 3 months, it gave a positive return of 16.4%. The stock over the past 1 year gave a positive return of 8.06% and in the past 3 years, it gave a positive return of 8.19%, respectively. However, in the past 5 years, it has given 6.14% negative return to shareholders.

Market share gains in most of the categories...

Jyothy Labs has gained shares in most of the categories it has presence in over last few years. It has gained market shares in the range of ~120-280bps over last 2 years in most of the categories. Significant market share gains and sustained growth momentum in the portfolio are pleasing. We like its strategy of prioritising market share/volume growth over margins. In India, a 'growth market', investors tend to (rightly) ignore short-term profit sacrifice, provided the trajectory of volume outperformance is clear (as it's DCF-accretive). 

...driven by volume outperformance

Market share gains for Jyothy Labs have largely been driven by volume growth outperformance (pricing taken in line with market leader given JYL is a relatively small player) despite headwinds in fabric care segment due to covid. Jyothy Labs has been in the top-3 in terms of volume performance till FY22 if we compared the volume index with base of FY18-20. 

Volume-led market share gains in most of categories. Reiterate BUY

According to the broekrage firm, "In India, a 'growth market', investors tend to (rightly) ignore short-term profit sacrifice, provided the trajectory of volume outperformance / market share gains is clear (as it's DCF-accretive). Jyothy Labs has gained market shares across most of its categories over last few years. We like the management's strategy of prioritising market share gains / volume growth over short-term margins which is impacted due to unprecedented input cost pressure."

In terms of categories, the two (larger) segments of dishwashing and fabric care (a multi-brand approach should allay concerns on scalability) have been performing well and present good visibility in the medium term. "We have been highlighting improved volume trajectory in Jyothy - the gross margin weakness is masking improved financial performance. Amongst the value stocks (in our consumer universe), Jyothy continues to be our top pick. BUY maintained," the brokerage stated.

Valuation and risks

Commenting on the stock value, the brokerage said, "Our earnings estimates are largely unchanged. We model revenue / EBITDA / PAT CAGR of 11 / 28 / 38 (%) over FY22-24E. We maintain BUY with revised DCF-based target price of Rs220 (was Rs200) as we roll forward. At our target price, the stock will trade at 26x P/E multiple Mar-24E. Key downside risks are high competitive pressure and RM inflation impacting margins."

Disclaimer

The stock has been picked from the brokerage report of ICICI Securities. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.