InvestorsEye-Oct22_13.pdf

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Visit us at www.sharekhan.com October 22, 2013

Index

Stock Update >> Wipro

Stock Update >> Yes Bank

Stock Update >> Jyothy Laboratories

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2Sharekhan Home NextOctober 22, 2013

Foreign

12%Institutions

5%

Non-promoter

corporate

4%

Promoters

73%

Public & Others

6%

300

350

400

450

500

550

Oct-12

Jan-1

3

Apr-13

Jul-13

Oct-13

investors eye stock update

Company details

Price chart

Shareholding pattern

Price performance

(%) 1m 3m 6m 12m

Absolute 6.5 29.3 39.1 67.9

Relative 3.3 24.3 24.9 47.6to Sensex

Wipro Reco: Buy

Stock Update

Upgraded to Buy with price target of Rs580 CMP: Rs515

Price target: Rs580

Market cap: Rs126,927 cr

52 week high/low: Rs520/299

NSE volume: 22.2 lakh(no. of shares)

BSE code: 507685

NSE code: WIPRO

Sharekhan code: WIPRO

Free float: 65.3 cr(no. of shares)

Result highlights

Revenue growth in line with expectations, posts highest growth in last seven

quarters: Though Wipro continues to lag peers in terms of the revenue growth,

for the quarter, it delivered its highest sequential growth in the last seven

preceding quarters. After reporting tepid 0.9% compounded quarterly growth

rate (CQGR) in the last seven sequential quarters, Wipros revenue growth for

Q2FY2014 was a decent 2.7% quarter on quarter (QoQ) to $1,631 million, 3.2%

on a constant currency basis (in line with our expectations of $1,628 million).

The product business also reported a strong growth of 14.8% QoQ to Rs937.4

crore, though on a lower base (down 24% QoQ in Q1FY2014). In the rupee

terms, the revenues were up by 10.7% QoQ to Rs10,772.7 crore.

Margin ahead of expectations, net income beats estimates: For the quarter,

led by the currency tail winds coupled with rationalisation of headcounts (a

net reduction of 65 employees) and operational efficiency (utilisation excluding

trainees improved by 100 basis points to 74.3%), the earnings before interest

and tax (EBIT) margin of the information technology (IT) services improved

by 250 basis points QoQ to 22.5% ahead of our expectations of 19.7%. The net

income for the quarter was higher by 19% QoQ to Rs1,942 crore ahead of our

estimate of Rs1,866.9 million.

Management commentary reflects improved business visibility: In line withthe improvement in the global economy (especially in the US and some pockets

Results (IT services, IFRS) Rs cr

Particulars Q2FY14 Q2FY13 Q1FY14 YoY % QoQ %

Net sales 10,772.7 9,220.3 9,729.4 16.8 10.7

Direct costs 7,420.7 6,395.8 6,721.7 16.0 10.4

Gross profit 3,352.0 2,824.5 3,007.7 18.7 11.4

SG&A 1,109.8 1,089.8 1,237.5 1.8 -10.3

EBIT 2,242.2 1,734.7 1,770.2 29.3 26.7

Net other income 275.6 239.5 286.6 15.1 -3.8

PBT 2,517.8 1,974.2 2,056.8 27.5 22.4Tax Provision 575.4 463.7 425.1 24.1 35.4

PAT 1,942.4 1,510.5 1,631.7 28.6 19.0

Minority interest 10.3 6.1 8.4 68.9 22.6

Net profit 1,932.1 1,504.4 1,623.3 28.4 19.0

Equity capital (FV Rs2/-) 492.4 492.4 492.4

EPS (Rs) 7.9 6.1 6.6

Margin (%)

GPM 31.1 30.6 30.9

EBIT margins 20.8 18.8 18.2

NPM 17.9 16.3 16.7

Tax rate 22.9 23.5 20.7


3/14



of European regions), Wipros management expects

a surge in the confidence level of the clients. The

positive outlook of the management is reflected in

the decent guidance for Q3FY2014 (1.8-3.6%), which

is almost at the same level with the guidance given

out for Q2FY2014 (2-4%), despite Q3FY2014 being a

seasonally weak quarter due to furloughs and lowerbilling days.

The company continues to see the USA as a primary

growth driver. Nevertheless, there are some green

shoots of improvement in the European geography

as well led by a strong traction seen in the UK.

The company added nine new clients in the

European geography during the quarter.

The company has announced two large multi-

million dollar deals during the quarter, one from

a leading bank in the US and one in the knowledge

process outsourcing (KPO) service line.

The company expects the discretionary spending to

improve especially in the area of capital markets

(investment banking). The management expects the

momentum in the discretionary spending to

continue.

The company also maintained that it is seeing

improved deal closures overall on a sequential basis

and the total contract value (TCV) of the deal

pipeline is significantly better than in the previousquarter.

The companys increasing focus on driving the non-

linearity is reflected from the fact that its fixed

price project (FPP) component has increased by

240 basis points from 45.8% in Q2FY2013 to 48.2%

in the last quarter.

Valuationimproving earnings predictability,

upgraded to Buy: After several quarters of earnings

disappointments, Wipros performance for Q2FY2014

has seen a marked improvement with a decentrevenue growth, an impressive margin performance

and an increase in the deal wins (with an improvement

in the success ratio). More importantly, a confident

management commentary led by a conducive

operating environment lends support to the earnings

predictability for the coming quarters. We have reset

our currency estimates to Rs61 and Rs62 for FY2014E

and FY2015E respectively and upgraded our earnings

estimates. At the current market price (CMP) of

Rs515, the stock trades at 16.4x and 14x FY2014 and

FY2015 earnings estimates. Given the improvement

in the earnings predictability (estimate earnings

compounded annual growth rate [CAGR] of 20% overFY2013-15E) and undemanding valuation of 14x

FY2015E, we have upgraded our rating on Wipro from

Hold to Buy with a revised price target of Rs580.

Other result highlights

The cash and cash equivalents (including investments

available for sale) stood at Rs15,648 crore for the

quarter as against Rs15,331 crore for the previous

quarter ended June 2013.

The client addition during the quarter has been good.The company added 45 clients in its IT services

business during the quarter against 28 added in the

preceding quarter. The number of active clients has

gone down marginally by 4 clients to 942. This is the

second successive quarter of reduction in the active

client base of the company (in the preceding quarter

the active clients reduced by 32). The decline in the

number of active clients is because of some clients

going below the threshold limit of being counted as

an active client because of the depreciating rupee.

The companys overall workforce has reduced by 65

employees to 147,216. The management expects the

employee addition to be lumpy in nature going ahead

due to its focus on driving non-linearity of the

business. The company continues to honour its

commitments for fresher intake for FY2014, while the

company will take in laterals as and when needed.

The companys voluntary attrition rate has gone up

marginally by 30 basis points to 13.5% during the

quarter. While utilisation (gross) has spiked by 140

basis points to 66.1% for the quarter gone by. On a

net basis, the utilisation has increased by 100 basis

points 74.3% for the quarter.

The overall hedge position of the company stands at

$1.7 billion against hedges worth $1.9 billion in the

previous quarter.


4/14



Operating matrix

Particulars Q2FY14 Q2FY13 Q1FY14 YoY % QoQ %

IT Revenues ($ mn) 1631.1 1540.7 1588.3 5.9 2.7

Geographic mix (%)

Americas 49.8 51.5 49.7 2.4 2.9

in $ mn 812.3 793.5 789.4

Europe 28.9 28.2 29.0 8.5 2.3in $ mn 471.4 434.5 460.6

India & Middle East 8.3 8.6 8.8 2.2 -3.1

in $ mn 135.4 132.5 139.8

APAC & others 13.0 11.7 12.5 17.6 6.8

in $ mn 212.0 180.3 198.5

Service offering (%)

Tech infra. services 24.2 23.2 24.2 10.4 2.7

in $ mn 394.7 357.4 384.4

Analytics & infm. mgmt. 7.4 7.1 7.5 10.3 1.3

in $ mn 120.7 109.4 119.1

Business application services 31.9 30.7 31.3 10.0 4.7

in $ mn 520.3 473.0 497.1

BPO 8.6 8.7 8.8 4.7 0.4

in $ mn 140.3 134.0 139.8

Product engg. 7.6 8.2 7.5 -1.9 4.1

in $ mn 124.0 126.3 119.1

ADM 20.3 22.1 20.7 -2.8 0.7

in $ mn 331.1 340.5 328.8

R&D business 10.6 11.6 10.2 -3.3 6.7

in $ mn 172.9 178.7 162.0

Consulting 2.5 2.4 2.5 10.3 2.7

in $ mn 40.8 37.0 39.7

Industry verticals (%)Global media & telecom 13.9 14.4 13.6 2.2 5.0

in $ mn 226.7 221.9 216.0

Finance solutions 26.4 27.0 26.5 3.5 2.3

in $ mn 430.6 416.0 420.9

Manufacturing & hi-tech 19.0 19.0 19.1 5.9 2.2

in $ mn 309.9 292.7 303.4

Healthcare, life sci. & serv. 10.1 9.5 9.8 12.6 5.8

in $ mn 164.7 146.4 155.7

Retail & transportation 14.8 15.0 15.1 4.5 0.7

in $ mn 241.4 231.1 239.8

Energy & utilities 15.8 15.1 15.9 10.8 2.0

in $ mn 257.7 232.6 252.5

Client contribution (%)

Top client 3.8 3.5 3.7 14.9 5.5

in $ mn 62.0 53.9 58.8

Top 5 clients 13.9 13.0 13.7 13.2 4.2

in $ mn 226.7 200.3 217.6

Top 10 clients 22.8 22.3 22.5 8.2 4.1

in $ mn 371.9 343.6 357.4

Others 77.2 77.7 77.5 5.2 2.3

in $ mn 1259.2 1197.1 1230.9

Source: Company and Sharekhan Research

The company witnessed a broad-based growth across

geographies barring India and Middle East, which declined

by 3% QoQ

Remarks

In line with the positive commentary on the discretionary

services, the company saw its business application services

grow by 4.7% while the R&D and consulting services grew by

6.7% and 2.7% QoQ respectively

The company witnessed a broad-based growth in all its

verticals

Growth was led by the healthcare, and media and

telecommunications segments, which grew by 6.4% and 5.6%

in a constant currency basis sequentially

The company witnessed broad-based growth in all its client

brackets for the second consecutive quarter


5/14



0.0

200.0

400.0

600.0

800.0

1000.0

1200.0

Mar-04

Oct-04

May-0

5

Dec-0

5

Jul-06

Feb-0

7

Sep-0

7

Apr-08

Nov-0

8

Jun-0

9

Jan-1

0

Aug-1

0

Mar-11

Oct-11

May-1

2

Dec-1

2

Jul-13

One-year forward PE band

30x

25x

21x

17x

13x10x

7x

Source: Company & Sharekhan Research

Valuations

Particulars FY12 FY13 FY14E FY15E

Net sales (Rs cr) 31,874.7 37,425.6 43,966.9 50,217.2

EBIT margins (%) 17.8 18.0 19.2 19.6

Net profit (Rs cr) 5,232.5 6,136.2 7,723.5 8,851.6

EPS (Rs) 21.2 24.9 31.4 35.9

Y-o-Y change (%) 17.3 25.9 14.6

PER (x) 24.2 20.7 16.4 14.3

Price/BV (x) 5.2 4.9 4.2 3.6

EV/EBIDTA(x) 19.0 15.7 15.2 12.8

Dividend yield (%) 1.2 1.3 1.4 1.5

RoCE (%) 15.7 18.8 21.0 21.5

RoE (%) 18.4 21.7 23.5 23.3

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.


6/14


200

250

300

350

400

450

500

550

Oct-12

Jan-1

3

Apr-13

Jul-13

Oct-13

Foreign

35%

MF & FI

19%

Promoter

26%

Public &

others

20%

Company details

Price chart


Price performance

(%) 1m 3m 6m 12m

Absolute 0.7 -15.5 -26.1 -5.3

Relative -2.4 -18.8 -33.6 -16.7to Sensex

Yes Bank Reco: Buy

Stock Update

Price target revised to Rs422 CMP: Rs372

Price target: Rs422


52 week high/low: Rs547/216


BSE code: 532648

NSE code: YESBANK

Sharekhan code: YESBANK


Result highlights

Yes Bank reported a net profit of Rs371.1 crore (up 21.2% year on year [YoY]) in

Q2FY2014, which was higher than our estimate. During the quarter, the bank

had a one-off mark-to-market (MTM) gain of Rs111.6 crore incurred on interest

rate swap, which helped it to absorb the MTM losses on the available-for-sale

(AFS)/held-for-trading (HFT) investments.

The net interest income (NII) growth was very much in line with our estimate as

it grew by 28.2% YoY. Despite a 25-basis-point rise in the base rate, the net

interest margin (NIM) declined by 10 basis points quarter on quarter (QoQ) to

2.9% largely contributed by a rise in the cost of funds (up 20 basis points QoQ). The growth in the customer assets lagged the industry rate as it grew by

12.7% YoY. However, the deposits growth remained strong as it grew by 29.2%

YoY largely contributed by the savings deposits, which grew by 80.8% YoY. The

current and savings account (CASA) ratio was largely stable at 20.4% as compared

with 20.2% in Q1FY2014.

The non-interest income posted a robust growth of 61.2% YoY largely contributed

by the financial market segment (includes one-off income of Rs111.6 crore). The

retail fee income also showed a strong growth of 68.6% YoY while the growth in

the financial advisory income remained flat on a year-on-year (Y-o-Y) basis.

The asset quality broadly remained stable as the non-performing assets (NPAs)

and restructured loans remained largely similar to the Q1FY2014 levels. The

provision coverage ratio remained high at 85.3%.

Valuation and outlook

Yes Banks Q2FY2014 results exceeded our estimate on account of a one-off income,

which helped the bank to provide for the MTM losses on the investment book. The

asset quality remains sound, though we expect the credit cost to increase in view

Results Rs cr

Particulars Q2FY14 Q2FY13 YoY % Q1FY14 QoQ %

Interest earned 2,501.3 1,986.4 25.9 2,397.9 4.3

Interest expense 1,829.2 1,462.2 25.1 1,738.8 5.2Net interest income 672.1 524.2 28.2 659.1 2.0

Non-interest income 446.1 276.8 61.2 442.1 0.9

Net total Income 1,118.2 800.9 39.6 1,101.2 1.5

Operating expenses 405.3 316.2 28.2 421.2 -3.8

Pre-provisioning profit 712.9 484.8 47.1 680.0 4.8

Provisions 179.1 31.7 464.5 97.0 84.7

Profit before tax 533.8 453.0 17.8 583.0 -8.4

Tax 162.6 146.9 10.7 182.1 -10.7

Profit after tax 371.1 306.1 21.2 400.8 -7.4

Gross NPA (%) 0.28 0.24 4 bps 0.22 6 bps

Net NPA (%) 0.04 0.05 -1 bps 0.03 1 bps



7/14



of a weak macro-economic scenario. The banks tier I

capital adequacy ratio (CAR) stood at 9.5% (including

H1FY2014 profit) so we have factored for the equity

dilution in FY2015. We have fine-tuned our estimate to

factor a reduction in the marginal standing facility (MSF)

rates and a relatively healthy growth in the fee income,

and expect the earnings to grow at a compounded annualgrowth rate (CAGR) of 14.8% YoY. Consequently, we have

revised our price target to Rs422 (1.7x FY2015 book value).

Given the healthy asset quality and the return on asset

(RoA) of ~1.5%, the valuation seems to be reasonable. We

maintain our Buy rating on the stock.

NIMs dip by 10 basis points QoQ on rise in cost of funds

Yes Banks net interest income (NII) increased by 28.2%

YoY, which was in line with our estimate. The NIM declined

by 10 basis points QoQ to 2.9% due to a rise in the cost of

funds (up 20 basis points QoQ). During the quarter, the

bank raised its base rates by 25 basis points, which partly

arrested the fall in the NIM. Going ahead, the reduction

in the MSF rates and the access to the foreign exchange

(forex) borrowing are likely to ease the pressure on

the NIM.

Advances growth slows down

In view of the slowing economy and rising asset quality

risks, the bank has slowed its asset growth (a growth of

12.7% YoY in the customer assets). In Q2FY2014, the large

corporate advances grew by 13.1% YoY, which was largely

in line with the growth of 13.6% YoY in total advances.Moreover, while the branch banking advances grew by

32.9% YoY, the commercial banking advances declined by

0.4% YoY. We expect the advances to grow at a CAGR of

18.0% over FY2013-15 in our estimate.

Business growth Rs cr

Particulars Q2 Q2 YoY Q1 QoQ FY14 FY13 % FY14 %

Advances 47,717.2 42,019.3 13.6 47,897.6 -0.4

Deposits 67,575.1 52,290.8 29.2 65,244.8 3.6

CD Ratio (%) 70.6 80.4 -974bps 73.4 -280bps

Traction in savings deposits continues

The aggregate deposits grew by 29.2% YoY contributed by

a strong growth in the savings deposits (up 80.8% YoY).

According to the management, the savings deposits

accretion continues to remain strong (~80,000 accounts

per quarter) led by increased customer acquisitions and

an increase in the branches. The CASA ratio was stable on

a sequential basis at 20.4% vs 20.1% in Q1FY2014.

Non-interest income growth aided by one-off income

The non-interest income increased by 61.2% YoY, which

included a one-off income of Rs111.6 crore from the MTM

gain on interest rate swaps. This one-off income helped

the bank to fully absorb the MTM loss of Rs112.6 crore on

the investment book as the bank has not opted to amortise

the losses over FY2014 permitted by the Reserve Bank ofIndia (RBI). The retail fees showed a strong growth of

68.6% YoY driven by an increase in the customer base and

branches. The income from the transaction banking and

financial advisory grew by 13.9% YoY and 3.7% YoY

respectively. The operating expense increased by 28.2%

YoY contributed by an increase in the branches and

employee expenses.

Breakup of non-interest income Rs cr

Particulars Q2 Q2 YoY Q1 QoQ FY14 FY13 % FY14 %

Financial market income 179.8 47.1 281.7 174.1 3.3

Financial advisory income 124.0 119.6 3.7 143.6 -13.6

Transactional banking 90.7 79.6 13.9 87.9 3.2

Retail fees 51.6 30.6 68.6 36.5 41.4

Total 446.1 276.9 61.1 442.1 0.9

Asset quality stable

During the quarter, the bank reported slippages of Rs150

crore, which led to a marginal increase in the NPAs on a

sequential basis. The slippages constituted the sale of assets

to the asset reconstruction company worth Rs94 croreconsisting of three accounts. However, the banks provision

coverage remains comfortable at 85.3% levels and is also

making contingent provisions (Rs27 crore in Q2FY2014) in

view of the weakening macro-economic environment.

Valuation and outlook

Yes Banks Q2FY2014 results exceeded our estimate on

account of a one-off income, which helped the bank to

provide for the MTM losses on the investment book. The

asset quality remains sound, though we expect the credit

cost to increase in view of a weak macro-economic

scenario. The banks tier I CAR stood at 9.5% (including

H1FY2014 profit) and we have factored the equity dilution

in FY2015. We have fine-tuned our estimate to factor a

reduction in the MSF rates and a relatively healthy growth

in the fee income, and expect the earnings to grow at a

CAGR of 14.8% YoY. Consequently, we have revised our

price target to Rs422 (1.7x FY2015 book value). Given

the healthy asset quality and the RoA of ~1.5%, the

valuation seems to be reasonable. We maintain our Buy

rating on the stock.


8/14


-100

0

100

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400

500

600

700

Oct-06

Oct-07

Oct-08

Oct-09

Oct-10

Oct-11

Oct-12

Oct-13

Yes Bank 1.0x 1.5x 2.0x 2.5x 3.0x

0%

20%

40%

60%

80%

100%

Q4FY12

Q1FY13

Q2FY13

Q3FY13

Q4FY13

Q1FY14

Q2FY14

Corporate Banking Commrecial Banking Branch Banking

2.7%

2.8%

2.9%

3.0%

3.1%

Q2FY12 Q2FY13 Q2FY14

0

100

200

300

400

500

Q2FY12

Q3FY12

Q4FY12

Q1FY13

Q2FY13

Q3FY13

Q4FY13

Q1FY14

Q2FY14

Financial Market Financial AdvisoryTransactional Banking Retail Fees

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%


0.00%

0.05%

0.10%

0.15%

0.20%

0.25%

0.30%


Gross NPA Net NPA

Trend in NIM Trend in CASA ratio


Trend in asset quality

Break-up of advances Break-up of non-interest income (Rs cr)

One-year forward P/BV band


9/14


Profit and loss statement Rs cr

Particulars FY11 FY12 FY13 FY14E FY15E

Net interest income 1,247 1,616 2,219 2,656 3,186

Non-interest income 623 857 1,257 1,533 1,912

Net total income 1,870 2,473 3,476 4,189 5,098

Operating expenses 680 933 1,335 1,671 2,153

Pre-provisioning profit 1,190 1,540 2,142 2,518 2,945

Provision & Contingency 98 90 216 343 406

Profit before tax 1,092 1,450 1,926 2,175 2,539

Tax 365 473 625 685 825

Profit after tax 727 977 1,301 1,490 1,714

Balance sheet Rs cr


Liabilities

Networth 3,795 4,677 5,808 7,009 9,975

Deposits 45,939 49,152 66,956 80,347 98,826

Borrowings 6,691 14,156 20,922 22,497 23,718Other liabilities 2,583 5,641 5,419 5,442 5,554& provisions

Total liabilities 59,008 73,626 99,104 115,294 138,074

Assets

Cash & balances 3,076 2,333 3,339 3,616 4,348with RBI

Balances with banks 420 1,253 727 1,205 1,482& money at call

Investments 18,829 27,757 42,976 47,806 57,813

Advances 34,364 37,989 47,000 54,519 65,423

Fixed assets 132 177 230 252 278

Other assets 2,187 4,117 4,833 7,895 8,729

Total assets 59,008 73,626 99,104 115,294 138,074

Key ratios


Per share data (Rs)

Earnings 20.9 27.7 36.3 41.5 43.5

Dividend 2.5 4.0 6.0 6.9 7.2

Book value 109.3 132.5 161.7 195.2 253.0

Adj. book value 109.1 132.0 161.5 194.4 251.6

Spreads (%)

Yield on advances 10.6 12.2 12.7 12.8 12.5

Cost of deposits 6.3 8.1 7.9 7.7 7.2

Net interest margins 2.7 2.6 2.7 2.6 2.7

Operating ratios (%)

Credit to deposit 74.8 77.3 70.2 67.9 66.2

Cost to income 36.3 37.7 38.4 39.9 42.2

CASA 10.3 15.0 18.9 24.3 30.2

Non-interest income/ 33.3 34.7 36.2 36.6 37.5total income

Return ratios (%)

RoE 21.1 23.1 24.8 23.2 20.2

RoA 1.5 1.5 1.5 1.4 1.4Assets/Equity (x) 13.9 15.7 16.5 16.7 14.9

Asset quality ratios (%)

Gross NPA 0.23 0.22 0.20 0.29 0.36

Net NPA 0.03 0.05 0.01 0.05 0.08

Provision coverage 88.6 79.2 92.6 82.7 77.2

Growth ratios (%)

Net interest income 58.2 29.6 37.3 19.7 20.0

Pre-provisioning profit 37.7 29.4 39.1 17.6 17.0

Profit after tax 51.8 34.4 33.1 14.5 15.0

Advances 54.8 10.5 23.7 16.0 20.0

Deposits 71.4 7.0 36.2 20.0 23.0

Valuation ratios (x)

P/E 17.8 13.4 10.3 9.0 8.6P/BV 3.4 2.8 2.3 1.9 1.5

P/ABV 3.4 2.8 2.3 1.9 1.5




10/14


130

150

170

190

210

230

Oct-12

Jan-1

3

Apr-13

Jul-13

Oct-13

Promoters

64%

FIIs

16%

Domesticinstitutions

10%

Others

10%

Company details

Price chart


Price performance

(%) 1m 3m 6m 12m

Absolute 10.7 1.0 8.6 4.3

Relative 7.3 -2.9 -2.5 -8.2to Sensex

Price target: Rs260


52-week high/low: Rs211/140


BSE code: 532926

NSE code: JYOTHYLAB

Sharekhan code: JYOTHYLAB


Result highlights

Q2 results ahead of expectations: Jyothy Laboratories Ltd (JLL)s Q2FY2014

results are ahead of expectations largely on account of a higher than expected

growth in the revenues during the quarter. However, the margin profile (including

the gross profit margin [GPM] and operating profit margin [OPM]) was in line

with the expectations for the quarter. Continuous media and promotional

activities helped all the power brands to deliver a strong performance, which

grew by 36%yoy during the quarter. Ujala Fabric Whitener continues to perform

well and registered a stupendous revenue growth of 77% year on year (YoY)

during the quarter. In a bid to reduce the debt on books the companys board

has decided to make a preferential allotment of 1.5 crore shares to the promoter(raising around Rs250 crore) as well as issue redeemable non-convertible

debentures of Rs400 crore. This will help the company to zero its interest cost

and improve the earning growth in the coming years. Also, it will help the

company to utilise the cash generated from the business operations in improving

the growth prospects of its power brands in the coming years.

Revenue growth of above 30%: JLLs revenues grew by 33.0% YoY to Rs306.1

crore (on a comparable basis) in Q2FY2014. The strong revenue growth can be

attributed to a 25% year-on-year (Y-o-Y) volume growth and an 8% Y-o-Y price-

led growth during the quarter. The two key segments of soaps & detergents and

homecare products registered a strong revenue growth of 35% YoY and 37% YoY

respectively in Q2FY2014. JLLs flagship brand Ujala Fabric Whitenermaintained

Jyothy Laboratories Reco: Buy

Stock Update

Price target revised to Rs260 CMP: Rs190

Results (stand-alone) Rs cr

Particulars Q2FY14 Q2FY13 YoY % Q1FY14 QoQ %

Net sales 305.9 229.8 33.1 318.2 -3.9

Other operating income 0.2 0.3 - 1.0 -82.1

Total revenues 306.1 230.1 33.0 319.2 -4.1

Total expenditure 263.4 208.8 26.2 270.5 -2.6

Operating profit 42.7 21.3 100.0 48.6 -12.2

Other income 13.1 11.8 11.7 12.9 2.2Depreciation 15.4 15.3 - 15.2 1.8

Interest cost 17.9 16.5 8.8 16.7 7.6

PBT 22.4 1.3 - 29.6 -24.3

Tax 0.2 0.0 - 0.0 -

Adjusted PAT 22.2 1.3 - 29.6 -25.0

exceptional items -1.4 0.0 - -0.9 -

Reported PAT 20.9 1.3 - 28.7 -27.3

EPS (Rs) 1.3 0.1 - 1.8 -25.0

GPM (%) 46.9 46.0 91 47.2 -28

OPM (%) 13.9 9.3 466 15.3 -133



11/14



its leadership in the Fabricare category and registered

a strong value growth of around 77% YoY while Maxo

registered a growth of 33% YoY in the same quarter.

Profitability improved substantially: The GPM

improved by 91 basis points YoY to 46.9%. However,

the improvement in the GPM was lower compared withthe previous quarter due to a change in the sales mix

and the impact of the rupees depreciation that

resulted in a higher input cost. The employee cost as

a percentage of sales declined by 358 basis points YoY

to 9.3%, as there was restructuring at the organisation

level due to the merger of Jyothy Consumer Products

Ltd (JCPL) with JLL. Hence the OPM expanded by 466

basis points YoY to 13.9%. However, in an inflationary

environment there was an impact of 2% of higher

freight charges on the OPM which would have been

absent in a normal business environment. The

operating profit doubled YoY and stood at Rs42.7 crorein the quarter. At Rs22.2 crore the adjusted profit after

tax (PAT) was ahead of our expectation of a profit of

Rs16.7 crore for the quarter.

Outlook and valuation: In H1FY2014 JLLs revenues

and operating profit grew by 22% and 70% respectively

at the stand-alone level. The management has

maintained its guidance of around a 22-25% revenue

growth and an OPM of around 15% for the stand-alone

business in FY2014. Jyothy Fabricare Services Limited

(JFSL) is expected to clock revenues of over Rs50 crore

and turn earnings positive (at earnings before interest,

depreciation, tax and amortisation [EBIDTA] level) at

the end of the current fiscal.

We have marginally revised our earning estimates for

FY2014, FY2015 and FY2016 by 3%, 1% and 4%

respectively. In line with the revision in earning

estimates, we have revised upwards our 18-month price

target for the stock to Rs260. We have not factored in

the preferential allotment of 1.5crore shares to the

promoter and raising of Rs400 crore through the

issuance of redeemable non-convertible debentures.We shall factor in the same as and when the events

unfold. However, our rough-cut calculation suggests

that the incremental benefits of savings in interest

cost due to a debt repayment could result in additional

upside of 12-15% to our price target. At the current

market price the stock trades at 23.2x its FY2015E

earnings per share (EPS) of Rs8.2 and 15.0x its FY2016E

EPS of Rs12.6. We maintain JLL as our top pick in the

mid-cap fast moving consumer goods (FMCG) space and

retain our Buy rating on the stock.

Key conference call highlights

JLL posted a strong volume growth of 25% YoY in

Q2FY2014. However, it has lost some amount of sales

in Andhra Pradesh and Telangana due to the political

instability and also due to the floods in Gujarat and

Madhya Pradesh. Rest all the geographies have

performed well for the company. The management hasmaintained its guidance of achieving around 22-25%

revenue growth in FY2014.

The power brands have performed extremely well for

the company and registered a growth of 36% YoY in

Q2FY2014. The new campaign for Ujala Fabric

Whitenerwith the tag line Safedi ke Aage Ujala was

well received and along with the relaunch helped the

brand to achieve a strong volume growth during the

quarter. Ujala Fabric Whitenerregistered a growth of

77% YoY in Q2FY2014. Maxo witnessed an increase in

the revenue contribution to the companys revenuesdue to the season registering a growth of 33% YoY during

the quarter. The company is planning to launch a new

product in the household insecticide portfolio by the

end of Q3FY2014.

The detergent category witnessed some stress due to

a high competitive intensity with respect to the price

cuts and promotions done by two large multi-national

competitors. This led to a slower growth in the

detergent category for JLL in comparison to other

categories during the quarter. The management is

planning to do a relaunch of its Henko brand by January2015, which will help in gaining share in the premium

detergent segment.

The dishwash segment (liquid and bar) has grown by

24% YoY, which is largely in line with the industry

growth. Even though Fa has not performed as per the

managements expectations, it was able to clock in

revenues of Rs9 crore in H1FY2014.

In H1FY2014, JLLs GPM at the stand-alone level stood

at 47%. The management is confident that they would

be able to maintain the GPM in the range of 47-48%going ahead as the full impact of the rupees

depreciation and inflation has been absorbed in

H1FY2014 itself. Hence, the company is not intending

to take price increases in its portfolio over the next

three to four months.

JLL is planning to raise up to Rs400 crore of non-

convertible debenture (NCD; zero coupon bonds, whose

repayment has to be done after three years) in order

to provide liquidity and drive growth as now the

business has set in with the required sales and


12/14



Non South

55%

South

45%

Thrust on regional brands becoming national in Q2FY2014

Non South

51%

South

49%

Thrust on regional brands becoming national in Q2FY2013

71

57

18 20

5 5

21 20

11 105 5

16 169

1719

57

71

11

0

10

20

30

40

50

60

70

80

Value V olume V alue Volume Value Volume Value Volume Value V olume

Ujala Fabric

Whitener

Maxo Coil Maxo L iquid Pr il L iquid Exo Bar

Sep-12 Sep-13

Market share of JLL brands

Other

Products

1%

Home Care25%

Soaps &

Detergents

74%

Segment-wise sales contribution in Q2FY2014

Home Care

25%

Other Products

2%

Soaps &

Detergents

73%

Segment-wise sales contribution in Q2FY2013

profitability growth. Also, the promoters will infuse

Rs250 crore by way of a preferential allotment of 1.5

crore shares by the end of Q3FY2014. Both these

measures would help JLL to hive off its debt of

Rs635 crore as on September 30, 2013.

Also, out of this total fund raising of about Rs650 crore,

the company is planning to acquire back IL&FS Trust

Company Ltd (IL&FS) stake in JFSL for about Rs70 crore.

JLL would be acquiring 0.3 crore of compulsory

convertible cumulative preference shares of Rs10 each

and fifty thousand equity shares of Rs10 each in JFSL

presently held by IL&FS.

JFSLs revenues for H1FY2014 are at Rs28 crore with a

loss at the EBITDA level of about Rs2 crore, which the

management feels would turn positive by March 2014.

The management expects JFSL to end the fiscal with

revenues of above Rs50 crore.

JLLs products are available through 2.9 million outlets

in India and have direct reach of 1 million outlets.

Though the company does not expect the number of

distributors to increase from the current level, it

expects the sub-stockist (largely catering to rural India)

will increase by 20% from the current 2,000 to 2,400

by the end of FY2014.

Inventory of finished goods reduced from 55 days to

47 days as JLL has partnered with IBM to improve

efficiencies in forecasting/demand planning and has

also systematically implemented right source for

finished goods procurement on total delivered cost

basis. The company has taken several initiatives and

targets overall working capital to reduce over the

period of time.


13/14




Valuations (consolidated)

Particulars FY2012 FY2013 FY2014E FY2015E FY2016E

Net sales (Rs cr) 913.0 1,106.0 1,340.8 1,616.6 1,945.7

Operating profit (Rs cr) 84.1 129.7 203.0 248.6 310.5

Adjusted PAT (Rs cr) 38.4 16.1 77.6 135.6 209.7

EPS (Rs) 2.8 1.2 4.7 8.2 12.6

OPM (%) 9.2 11.7 15.1 15.4 16.0

PE (x) 68.6 155.7 40.6 23.2 15.0

EV/EBIDTA (x) 42.3 27.5 17.6 13.7 10.4

RoE (%) 6.2 2.6 12.0 19.7 26.8

RoCE (%) 8.6 5.8 11.5 16.7 22.9


14/14

Sharekhan Stock Ideas

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The information contained herein is from publicly available data or other sources believed to be reliable. While we would endeavour to update the information herein on reasonable basis, SHAREKHAN, its subsidiaries and associatedcompanies, their directors and employees (SHAREKHAN and affiliates) are under no obligation to update or keep the information current. Also, there may be regulatory, compliance, or other reasons that may prevent SHAREKHAN andaffiliates from doing so. We do not represent that information contained herein is accurate or complete and it should not be relied upon as such. This document is prepared for assistance only and is not intended to be and must not alonebetaken as the basis for an investment decision. The user assumes the entire risk of any use made of this information. Each recipient of this document should make such investigations as it deems necessary to arrive at an independentevaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. The investmentdiscussed or views expressed may not be suitable for all investors. We do not undertake to advise you as to any change of our views. Affiliates of Sharekhan may have issued other reports that are inconsistent with and reach differentconclusion from the information presented in this report.This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability oruse would be contrary to law, regulation or which would subject SHAREKHAN and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in alljurisdictions or to certain category of investors Persons in whose possession this document may come are required to inform themselves of and to observe such restriction

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