Broker’s call: Jyothy Labs (Reduce)

Jyothy Labs' first-quarter earnings for financial year 2027 fell short of estimates, driven by low revenue growth (+3 percent YoY) and significant margin pressure from rising raw material costs. Revenue growth in the Home Care and Fabric Care segments (excluding Pril and Fa) was modest at 8.1 percent YoY, with only 5.3 percent volume growth.

This performance lagged behind larger competitors in the Home Care segment. Management anticipates double-digit sales growth in FY27, but margin pressure is expected to persist through Q2-FY27, with gradual recovery beginning in Q3-FY27. While improvements have been made in Fabric Care, more needs to be done to strengthen its position and spur growth in other core categories, which may require additional investment.

Despite not requiring high valuations, the company's earnings visibility remains unclear, and FY27 guidance does not indicate significant outperformance relative to peers. Adjusting for the weak Q1-FY27 results, the target multiple is reduced to 23x (from 24x) and FY27/28 earnings estimates are cut by 32/16 percent, resulting in a revised target price of ₹205 (previously ₹230).

Jyothy Labs is downgraded from "Add" to "Reduce." The pace of margin recovery, any potential M&A activity, and the outcome of arbitration proceedings against Henkel will be closely monitored.