Stock to buy: Axis Securities recommends Jyothy Labs as its pick of the week; sees up to 10% upside | Stock Market News

FMCG stocks to buy: Shares of Jyothy Labs have been maintaining a steady upward trajectory in recent sessions, supported by value buying at lower levels and a second consecutive rate cut by the RBI. In just the last four trading sessions, the stock has surged 23% to reach ₹367 apiece, outperforming the benchmark indices.

While the stock has been making significant strides in the Indian stock market, domestic brokerage firm Axis Securities, in its latest note, maintained its bullish outlook on the counter, citing multiple tailwinds, including its attractive valuation.

Accordingly, the brokerage has maintained its ‘Buy’ rating on the stock with a target price of ₹405, implying an upside of 10% from the stock’s latest closing price.

Investment Rationale

JLL is embracing the transformation for the next leg of growth– Axis Securities highlighted the company’s recent initiatives, implemented over the last couple of years, which it believes have begun to yield positive results. The brokerage expects these benefits to continue playing out over the coming years. 

Among the key initiatives are the expansion of value offerings through low-unit packs and the promotion of premiumization, primarily in the detergents and dishwash segments. The company has also diversified into the broader body wash category, moving beyond its earlier focus on the niche natural segment, which has significantly expanded its addressable market in the soap segment.

Additionally, the company remains committed to strengthening its direct distribution network, aiming to scale up from the current 1.2 million outlets. On-ground execution is also being improved through a dedicated sales team and a streamlined distribution channel. According to Axis Securities, these measures are positive steps toward long-term, sustainable growth.

Room for margin expansion – Axis Securities expects the company’s EBITDA margin to reach 16–17% by FY26. This improvement is likely to be driven by a more favorable product mix as premium products scale up and a broader portfolio of toilet soaps is introduced, expanding its reach in the bathing soap market.

Enhanced on-ground execution through the sale of a wider range of products and SKUs is expected to improve outlet-level efficiency and throughput. Further gains are anticipated from a stronger focus on economies of scale and cost rationalization initiatives, it said. 

Decent valuation compared to peers – The brokerage projects healthy revenue, EBITDA, and PAT growth of 8%, 9%, and 9% CAGR, respectively, over FY24–27E, which it expects to strengthen the company’s return profile. Return on equity is estimated to improve from 15% in FY23 to 18% by FY26. At the current market price, the company is trading at 32x and 28x its FY26E and FY27E earnings per share.

With visibility on earnings growth and an improved return profile, Axis Securities finds the stock attractive within the small- to mid-cap consumer space.

Improving macroeconomic environment – Axis Securities also pointed out that the improving macroeconomic environment should support sector-wide growth. Recent tax cuts, a favorable monsoon, easing crude oil prices, and supportive fiscal measures are expected to aid consumption trends. However, the brokerage remains concerned over rising palm oil prices, which could be a near-term risk and potentially put pressure on margins.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.