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Spreading Ujala

Jyothy Laboratories saw strong revenue growth, but its base is still weak because of the Henkel acquisition

Jyothy Laboratories (Jyothy) is still consolidating its March 2011 acquisition of the lacklustre growth company Henkel. It was blasted for undertaking the huge debts owned by Henkel (around Rs 450 crore). Within a year of that announcement, Jyothy's stock tanked to half before recovering its losses this year.

Revenues for the June quarter were up by a strong 70.6 per cent (though on a weak base). Price hikes spiked Ebitda margins by 3 per cent to 12 per cent. Volume growth came in robust at 34 per cent. Sales of its Maxo brand mosquito repellents saw growth of 105 per cent, Exo dishwasher was up 92 per cent while Ujala Fabric care was up 25 per cent.

The company which in the last couple of quarters reduced advertising spending to as low as 4 per cent (Q3FY12) now plans to raise it to 8-10 per cent levels. Current ad spends stand at 7.8 per cent. Today the company appears to be integrating the acquisition well and looks set on the growth path. Although margins today are higher than they were a year ago (7.4 per cent), both revenues and margins for the company have been highly volatile since Q1FY12.

Debt remains a concern for Jyothy. Debt for FY12 stood at Rs 438 crore (Henkel's debt included) as compared to Rs 7.7 crore of debt in FY11.

Though things appear turning around for Jyothy, the company needs a little more time to settle down with the Henkel acquisition. However, valuations at nearly 30 times seem to have run ahead. Wait for fundamentals to improve before selling.