Jyothy Labs

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About the Company

Jyothy Laboratories was founded in 1983 by a promising entrepreneur MP Ramachandran in Thrissur, Kerala. He began his dream project, Jyothy Laboratories with Rs 5,000 and a vision to create an impact by touching people’s lives. What began as a proprietary concern that manufactured and sold a single product in a single district has grown to become a multi-brand, multi-product company with operations all over the country. They are present in four market segments: fabric care, home care, personal care, and dish wash.

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Q4FY23 Updates

Financial Results & Highlights

Detailed Results:

1. Jyothy Labs delivered top-line growth of 12.8% for the March quarter and 13.2% for the full year FY’23.
2. Despite high input inflation, Jyothy Labs managed to grow its EBITDA by 57% for the quarter and 26% for the full year.
3.  EBITDA margin for the quarter stood at 14.8% compared to 10.5% in the previous quarter.
4. The top-line growth for the quarter was 12.8%, with volume growth at 3.3% and value growth at 9.6%.
5. The volume growth for the quarter is 3.3% and for the full year, it’s 3%.

Investor Conference Call Highlights

1. The company has achieved consistent double-digit growth for over 10 quarters and on a two-year and three-year CAGR basis.
2. The company has crossed 1.1 million outlets in terms of direct reach and has implemented the advanced distributor management system, Botree, to enhance sales efficiency.
3. Jyothy Labs is focused on execution to build scale and gain market share across brands.
4. Manufacturing capacities have been scaled up, including the addition of a detergent powder line at the Pithampur plant in Madhya Pradesh.
5. In April ’23, Jyothy Labs launched three new variants of Margo Neem Naturals: Lemon, Jasmine, and Rose.
6. Jyothy Labs aims to significantly enhance its Margo franchise and increase its personal care share in the overall portfolio with the launch of new variants.
7. The company stated that rural markets are expanding more quickly than urban markets, and the company will focus on rural growth for long-term sustainability.
8. The company stated that it has a healthy P&L growth, a debt-free balance sheet, and a cash balance of INR 283 crores as of March 31, 2023.
9. The company is optimistic about its growth plan and aims for double-digit top-line growth in FY’23-24.
10. The fabric care category showed growth of 20.1% in the quarter and 29% for the full year, supported by strong value propositions and distribution focus.
11. The company stated that the dishwasher category performed well, with steady growth across all SKUs, driven by unique offerings and distribution efforts.
12. The company stated HI (household insecticides) segment had flat growth in the quarter, impacted by extreme weather conditions, but the company aims for better performance in the next year.
13. The personal care segment, particularly the Margo franchise, delivered good growth and introduced three new variants in April ’23.
14. The focus is volume-led top-line growth, leveraging brand strength, distribution strategy, and direct reach.
15.  The company aims to strengthen its rural footprint, enhance sales efficiency through technology, allocate higher resources for brand building, and scale up manufacturing capacity.
16. The focus for FY’23-’24 is on execution and building a larger scale for the business.
17. The laundry business recently merged with the core business, and the focus for the medium term is on consolidating the top line and building profitability.
18. The company is now in a net cash position and will conserve cash for future growth initiatives. 
19. The tax rate for the quarter was higher at around 27%, but no specific explanation was provided. The company did not provide guidance on future tax rates.
20. The tax rate for the quarter was higher due to asset sales, but the annualized tax rate is around 20% and is expected to remain in a similar range in the next few years.
21. Competitive activity in the detergent space, including price cuts by the market leader, is being monitored, but no significant impact has been observed yet. Pricing actions will be taken based on market behavior and consumer demand.
22. The company is targeting double-digit growth for FY24, with a focus on distribution and volume-led growth, as well as increasing the number of outlets.
23. The company aims to continue its growth trajectory in distribution, but specific targets and geographies are not disclosed publicly.
24. Mid-sized brands like Mr. White and More Light have grown significantly over the past few years and now contribute more than INR 100 crores together.
25. The dishwash category is experiencing a temporary slowdown but is still expected to achieve double-digit growth in the coming year. Market share remains intact.
26. The expansion of Crisp & Shine post-wash products into new markets, such as Andhra Pradesh, has been well-received and is expected to generate good numbers.
27. The company stated that it is prepared to face challenges and believes it will continue to achieve growth.
28. The company stated that rural markets are a long-term growth strategy, with gradual improvement in growth seen in both rural and urban markets.
29. The company stated that there are currently no plans to venture into the dishwasher space, as dishwasher penetration in India is still very low. The focus is on growing the existing liquid and bar market.
30. The company aims to increase its market share and expects to outperform industry growth in most categories.
31. The company stated that there are plans to drive distribution to higher numbers and increase reach from 1.1 million to a higher number on a Pan-India basis.
32. When talking about geographies, the company stated that the South contributes 40% of the business, while the non-South contributes 60%. The geographical focus varies for each brand. The company is working towards increasing its presence and growth in the North and West regions.
33. Technology initiatives include implementing the DMS system called Botree, which simplifies scheme management for the sales team and channel partners.
34. The company has reached 100% of the villages with a population of about 10,000.
35. The company stated that the current share of the rural market is around 40%.
36. The effective tax rate for FY’24 and FY’25 is expected to be around 20%.

Analyst’s View

The company is in the business for more than 45 years now. From manufacturing and selling a single product to a household name in the category, Jyothy Labs has come a long way. It is driven by a passion to touch and better lives with constant innovation. Today Jyothy Laboratories manufactures and distributes brands across product categories as diverse as Fabric Care, Household Insecticide, Utensil Cleaners, Fragrances, and Personal Care, besides marketing tea and coffee brands.  Given the company’s strong working, Jyothi Labs Ltd is a good FMCG stock to watch out for.

Q3FY22 Updates

Financial Results & Highlights

Detailed Results:

1. Standalone and Consolidated quarterly revenues were up at 12% & 12.4% YoY respectively.
2. The gross margin for the quarter decreased from 48.8% last year to 41.6%.
3. Operating EBITDA at 11.3% (Rs 61.2 Cr) Vs 16.7% (Rs 79.8 Cr) in the same period last year.
4. In Q3FY22, consolidated revenues were up 12.4% YoY while volumes were up 13.1% YoY.
5. Gross Margin in Q3FY22 was 41.6% from 47.6% in the same period last year.
6. Category wise break-up of Q3 YoY Revenue Growth:
   1. Fabric Care: Up 18.8%
   2. Dishwashing: Up 10.4%
   3. Household Insecticides: Up 9.8%
   4. Personal Care: Up 0.2%
   5. Others: Up 20.5%

Investor Conference Call highlights:

1. The management states that there has been stabilization in all distribution channels in Q3, specifically modern trade and CSD, which had been impacted for the past 18 months.
2. High raw material prices have impacted the margins. These have been managed with calibrated price increases and inward-looking cost rationalization measures according to the management
3. This quarter, the company has grown by double-digit and all categories have witnessed a double-digit growth on a 2-year CAGR basis.
4. Input prices as a percentage of turnover have increased by 14%.
5. The management sees further pressure on margins in upcoming quarters and has further price increases in the pipeline.
6. To continue the sales momentum, the company’s A&P spending for the quarter increased by 7.4%.
7. Ujala Fabric Whitener has achieved pre-covid sales. Crisp and Shine are expected to perform in another quarter and Ujala IDD has received a good response in West Bengal.
8. The management states that market share has been gaining every quarter for Exo, which used to be 11.3% in 2019 and is 13.7% presently.
9. The market share of Maxo has hit double-digits at 10.2% market share for the first time.
10. The management states that it wants to build volume growth and focus on tech-led distribution and increased media spending.
11. The management targets to reach to 15% EBITDA margin as early as possible.
12. The management expects Q4 to be unaffected in terms of topline trajectory.
13. The company has crossed 1 million retail outlets network compared to 8 lacs at the beginning of the FY.
14. Ullas Kamath, Joint MD, would not be seeking reappointment or extension in the company to focus on his passion and other work roles.
15. Dishwash was the best performer this quarter in terms of growth followed by Fabric Care and Personal Care.
16. The management is open to new opportunities in the market like D2C and e-commerce.
17. The industries in which the company operates – Fabric Care, Dishwash, and Detergents do not have much D2C penetration from competitors.
18. Margo brand has seen 20% CAGR growth in the past 2 years. This quarter was flattish due to the early onset of winter.
19. The company continues to be a net-debt-free company in Q3.
20. The company is on a deep search for acquisitions and will share info with shareholders once it gets an opportunity in a relevant category.
21. The company in the last 1 year has added 500 rural stockists, which help it reach its products to villages with a population of up to 5000.
22. Both Prill and Exo have done well in Q3. Prill is focused more on the metro and urban areas while Exo is focused on rural areas.
23. The current cash balance on the books of the company is 60 Cr.
24. E-commerce currently contributes to 4% of the company’s revenues.
25. The company has new products in the pipeline and had recently launched Ujala liquid detergent last quarter.
26. Henko detergent contributed over 200 Cr to the top line of the company.

Analyst’s View:

Jyothy Labs is a consistent performer in the FMCG segment in India. They have successfully carved out a niche for themselves and have established themselves as market leaders in the fabric care and dishwashing segment. The performance of the company was encouraging in this quarter mainly on the back of sustained good performance of all core categories. The company has done well to continue growth momentum in its core categories, but margins have remained under pressure due to rising input costs. It remains to be seen how long will margins remain subdued to raw material price inflation and how the company will fare in the increasingly competitive environment in the health hygiene space. Nonetheless, given the renewed focus on health and hygiene going forward and the company’s good distribution reach and resilient product portfolio, Jyothy Labs may turn out to be a pivotal FMCG stock to watch out for.

Q4FY21 Updates

Financial Results & Highlights

*Contains exceptional item of Rs 23.5 Cr.

Detailed Results

1. Standalone and Consolidated quarterly revenues were up at 27% & 25% YoY respectively. (FMCG sales up by 27.3%)
2. The gross margin for the quarter increased from 45.6% last year to 45.7%.
3. Operating EBITDA at 14.3% (Rs 70.9 Cr) Vs 10.3% (Rs 40.6 Cr) in the same period last year.
4. The exceptional Item pertains to excise duty receivable for previous years of Rs 23.5 Crores written off pursuant to change in the government policy retrospectively (non-cash item).
5. In FY21, consolidated revenues were up 11% YoY while volumes were up 13.1% YoY.
6. Gross Margin in FY21 was 47.1% from 47.4% in the same period last year.
7. Operating EBITDA in FY21 improved to 16.5% vs 14.7% last year.
8. Category wise break-up of Q4 (& FY21) YoY Revenue Growth:
   1. Fabric Care: Up 15.7% (down 5.5%)
   2. Dishwashing: Up 33.2% (up 23.4%)
   3. Household Insecticides: Up 35.8% (up 42.3%)
   4. Personal Care: Up 38.4% (up 20.5)
   5. Others: Up 56.4% (up 32.4%)
9. WC days was at 15 days in FY21.
10. The board announced a final dividend of Rs 4 per share in Q4FY21.

Investor Conference Call Highlights

1. The company is seeing a shift towards digital adoption even from neighborhood stores.
2. The company saw market share gain across all brands including 120 bps in Exo, 130 bps in Pril, 170 bps in Maxo Coil, 40 bps in Maxo LV, 60 bps in Ujala whitener & 100 bps in Ujala IDD.
3. The post wash category remains constrained as offices and schools have yet to resume.
4. Henko has seen a return to normal growth.
5. The management maintains that it is pursuing a higher volume-led growth.
6. Rural and small packs have been big drivers for market share gain for Jyothy Labs, especially from local or unorganized players.
7. The company has added 500-plus sub-stockists to focus more on the rural side in FY21.
8. In urban areas, the company is employing back-end analytics to assist salesmen.
9. Market share gain in Henko is small as it is a small player in a large category.
10. The company has seen a large volume rise in many small stockists indicating a wider spread and reach of products and that it is being used by more and more new users.
11. Currently, the company’s latest innovations at the national stage are Exo Dishwash Bar and Maxo Genius.
12. Maxo Genius LV has seen market share rise from 8.4% to 8.8% in FY21.
13. LV is now 35-40% of Maxo’s portfolio.
14. The company has appointed a CRS system for better demand planning which should lead to better working capital management at the company level.
15. The management has stated that given the company’s efforts it should be able to deliver >10% growth despite the uncertain environment.
16. The company is also open to M&A for regional entities or brands in its core categories, but it will not enter any new categories.
17. The management states that it will be looking to preserve margins and will be ready to do price hikes to combat RM price spikes.
18. The expected tax rate for the next 2 years is 18%.

Analyst’s View

Jyothy Labs is a consistent performer in the FMCG segment in India. They have successfully carved out a niche for themselves and have established themselves as market leaders in the fabric care and dishwashing segment. The performance of the company was very encouraging in this quarter mainly on the back of sustained good performance of all core categories except fabric care and increasing rural penetration. The company has done well to revive the HI segment and push for market share gains in almost all categories. The company still faces the issue of slow recovery in the post-wash segment which used to be the company’s biggest earner. It remains to be seen how long will it take for the post-wash segment to revive and how the company will fare in the increasingly competitive environment in the health hygiene space. Nonetheless, given the renewed focus on health and hygiene going forward and the company’s good distribution reach and resilient product portfolio, Jyothy Labs may turn out to be a pivotal FMCG stock to watch out for.

Q3FY21 Updates

Financial Results & Highlights

Detailed Results

1. Standalone and Consolidated quarterly revenues were up at 15% & 13% YoY respectively. (volume up by 15%)
2. The gross margin for the quarter increased from 48.7% last year to 48.8%.
3. Operating EBITDA at 16.7% (Rs 79.8 Cr) Vs 15.8% (Rs 66.3 Cr) in the same period last year.
4. PAT at Rs 53 Cr as against Rs 45 Cr last year, up by 18% YoY.
5. In 9M, consolidated revenues were up 7% YoY while volumes were up 9.8% YoY.
6. Gross Margin in 9M was 47.6% from 47.8% in the same period last year.
7. Operating EBITDA in 9M improved to 17.2% vs 16% last year.
8. Category wise break-up of Q3 YoY Revenue Growth:
   1. Fabric Care: Up 2.3% (37% of sales)
   2. Dishwashing: Up 21.1% (38% of sales)
   3. Household Insecticides: Up 10% (10% of sales)
   4. Personal Care: Up 48.2% (11% of sales)
   5. Others: Up 56% (4%)
9. A&P expenses to sales were at 7.4% in Q3.

Investor Conference Call Highlights

1. The company launched Exo All Surface cleaner in South India in Q3.
2. The company stepped up its media spending with the intent to grow its market share.
3. The company faced minor inflationary pressures in raw materials which were mitigated by rise in operational efficiencies and higher contribution from personal care business.
4. A&P spend has increased by 40% in Q3 to Rs 35.3 Cr.
5. Main wash category has started doing better than the last 6 months with modern trade and canteen store department almost coming back to normal.
6. Post wash segment remained subdued as offices, schools, colleges have yet to fully resume.
7. Dishwash segment has benefitted from the renewed focus on hygiene and the focus on small packs has brought in many new users to the category.
8. Household insecticides segment has seen good growth with the vaporizer leading the growth.
9. Margo has seen very good growth due to focus on hygiene and from higher media spend and customer demand for personal hygiene products made from natural ingredients like Neem.
10. The company has taken multiple interventions to promote general trade channel and focus on rural expansion. The most prominent ones would be to direct the sales force to increase the number of outlets and reach and to increase the number of SKUs for small packs.
11. The management expects operating leverage to come into play as higher volumes bring better utilization for the company and also bring down the employee cost as a % of sales.
12. Other expenses have come down for the company due to lack of travel and other activities. It is expected to rise in the future but not to pre-covid levels according to the management.
13. The management maintains margin guidance of 15-16% for FY21.
14. Henko has seen a good recovery in the modern trade channel in the matic versions and the premium products. Ujala is expected to be back within the next 1-2 quarters.
15. The company has already introduced TShine in other Southern states and has gotten a good response to it. It is planning to make the call soon to take the brand up to the national level.
16. The tax rate is expected to be at 18-19% for the rest of the year.
17. Rural growth has been 30% higher than urban growth for the company.
18. The management has stated that the Rs 10 segment has worked well for the company in personal care space and it will be looking to take this to many more places and continue the growth momentum of the personal care segment.

Analyst’s View

Jyothy Labs is a consistent performer in the FMCG segment in India. They have successfully carved out a niche for themselves and have established themselves as market leaders in the fabric care and dishwashing segment. The performance of the company was very encouraging in this quarter mainly on the back of sustained good performance of dish wash and increasing rural penetration. The company has done well to increase sales volumes on the back of small packs and see the rise of the personal care segment and recovery of the fabric care segment. The company still faces the issue of very slow recovery in the post-wash segment which is the company’s biggest earner. It remains to be seen how long will it take for the post-wash segment to revive and how the company will fare in the increasingly competitive environment in the health hygiene space. Nonetheless, given the renewed focus on health and hygiene going forward and the company’s good distribution reach and resilient product portfolio, Jyothy Labs may turn out to be a pivotal FMCG stock to watch out for.

Q2FY21 Updates

Financial Results & Highlights

Detailed Results

1. Standalone and Consolidated quarterly revenues were up at 7% & 6% YoY respectively. (volume up by 8.5%)
2. The gross margin for the quarter increased from 46.4% last year to 47.7%.
3. Operating EBITDA at 17.3% (Rs 87.4 Cr) Vs 16.6% (Rs 78.7 Cr) in the same period last year.
4. PAT at Rs 60 Cr as against Rs 54 Cr last year, up by 11% YoY.
5. In H1, consolidated revenues were up 4.5% YoY while volumes were up 7.3% YoY.
6. Gross Margin in H1 was 47% from 47.4% in the same period last year.
7. Operating EBITDA in H1 improved to 17.5% vs 16.1% last year.
8. Category wise break-up of Q2 YoY Revenue Growth:
   1. Fabric Care: Down 11.7% (34% of sales)
   2. Dishwashing: Up 23.6% (38% of sales)
   3. Household Insecticides: Up 22.6% (12% of sales)
   4. Personal Care: Up 14.5% (12% of sales)
   5. Others: Up 17.8% (3%)
   6. Laundry Services: Down 60% (1% of sales)
9. A&P expenses to sales were flat at 5.9% in Q2.
10. WC improved to 17 days in Q2FY21 vs 23 days last year and 35 days in March quarter.
11. Net debt to equity was reduced to 0.04 from 0.26 a year ago.
12. ROCE improved to 16.8% in Q2 vs 14.4% last year.

Investor Conference Call Highlights

1. Consumers are shifting to Kirana stores and e-commerce from large format stores thus showing a shift towards the general trade channel.
2. Rural demand has been better than urban demand due to good monsoons and government support.
3. The company has been focusing on low unit packs across brands of INR 5 and INR 10 across markets.
4. Ecommerce sales have risen 1.7 times YoY in Q2.
5. The company launched a new product Exo Bioh Fresh, 100% organic vegetable and fruit cleaner, in Kerala in Q2.
6. The company has done across-the-board salary increments and incentive payouts to boost the morale of the entire organization.
7. Media spends have been increased by 6.4%, keeping in line with sales growth.
8. The improvement in EBITDA in Q2 was mainly from the improvement in gross margins.
9. The management expects demand for Ujala to start coming back slowly as schools and offices become functional.
10. The company is initiating a pan-India national rollout with TV campaigns and spends for Henko.
11. The dishwash segment has seen sustained demand from rising in-home consumption of food and a renewed focus on hygiene. The company expects the small packs in this segment to help penetrate rural markets and keep growth sustained for the segment.
12. Household Insecticides has seen good growth due to the good rainy season and consumers adopting a more cautious approach to health.
13. The increase in gross margins is expected to be sustainable as it arises from soft RM prices which are expected to remain at current levels going forward.
14. The management keeps its earlier guidance of EBITDA margins in the 15-16% range as it provides them with some room for strategic marketing for brand growth.
15. The sales breakup in the HI segment is 70-30 for coils and liquid respectively. The company is aiming to scale up on the liquid side with its unique offerings and media spending on the products.
16. The company’s portfolio is currently at 40% rural and 60% urban. The management expects rural to outpace urban growth going forward.
17. The increasing awareness of hygiene and the availability of small packs should drive the acceleration of discretionary products like dishwash liquid, detergent, and personal care products in rural regions.
18. The management has stated that the company has managed to consolidate its market share in the dishwash segment mainly on the back of unique offerings like Exo being the first antibacterial and Pril Tamarind, the shift from older dishwashing methods of using ash to branded products, and focus of the company on increasing distribution in West and North India.
19. The management expects the HI segment to turn EBIT positive in the coming few quarters.
20. The trade channel breakup was 20-80 for modern trade and general trade respectively.
21. The company has Rs 120 Cr of contingent liability out of which Rs 80 Cr is a loan to its subsidiary.
22. The management expects the demand for the vegetable cleaner to remain even after the pandemic is over.
23. The contribution of low unit packs of Rs 5-10 to sales is around 25-30% and this is expected to rise going forward.
24. The company launched the Exo gel to capitalize on the strong brand of Exo and to appeal more to the value-conscious consumer with a thicker gel as compared to liquid dishwash soap.
25. The brand focus for Exo gel is mostly in the South currently as the brand is relatively known here and liquid usage is higher in the South as compared to any other area.
26. The Exo gel is to appeal to customers in the middle of the spectrum of bar and liquid who want to move on from bar but do not want to go into the liquid segment as it is expensive and can have instances of wastage happening from improper usage.
27. The margin profile for Exo bars and gels are roughly the same.
28. In distribution, the company is focusing on helping increase the productivity of sales agents through the use of data analytics and technology. They are also looking to focus on selling more lines in the same shop or improving productive calls.
29. In rural zones, the company is focusing on increasing brand coverage and adding sub stockists.
30. The company has now more than 10,000 villages under rural coverage.
31. The gross margins for coils are much lower than liquid which has margins close to the company average.
32. The company has a net cash position of Rs 30-40 Cr on a standalone basis. On a consolidated basis, it has net debt of Rs 40 Cr.
33. The company is not focusing on high numbers for sanitizers as they are low margins and it is much more preferable to focus on other products with more durable demand like the Exo Bioh vegetable cleaner.
34. The management expects the fabric care segment to come back to the growth of 5-10% once the pandemic issues are resolved.
35. The management expects to see increased investments in media spend across its brand portfolios in H2 while keeping EBITDA margins within the guided range.
36. The average tax rate for H1 was at 17.5-18%. This range is expected to continue even in the next financial year.
37. The company doesn’t have any plans to increase any prices in the personal care segment.
38. The company’s immediate focus will be on market share gains, leaving room for only 50 bps or 100 bps EBITDA expansion in each quarter.

Analyst’s View

Jyothy Labs is a consistent performer in the FMCG segment in India. They have successfully carved out a niche for themselves and have established themselves as market leaders in the fabric care and dishwashing segment. The performance of the company was very encouraging in this quarter mainly on the back of good performance of dish wash segment and increasing rural penetration. The company has done well to be able to achieve good growth in its prime dish wash segment and in the revival of the HI segment. The company still faces the issue of a fall in demand in the post-wash segment which is the company’s biggest earner. It remains to be seen how long will it take for the post-wash segment to revive and how the company will fare in the increasingly competitive environment in the health hygiene space. Nonetheless, given the renewed focus on health and hygiene going forward and the company’s good distribution reach and resilient product portfolio, Jyothy Labs may turn out to be a pivotal FMCG stock to watch out for.

Q1FY21 Updates

Financial Results & Highlights

*Contains tax credit of Rs 6.4 Cr

**Contains tax credit of Rs 3.4 Cr

Detailed Results

1. 1. 1. Standalone and Consolidated quarterly revenues were flat at 4% & 2% respectively. (volume up by 6.1%)
      2. The gross margin for the quarter fell from 48.6% last year to 46.2%.
      3. Operating EBITDA at 17.7% (Rs 76.5 Cr) Vs 15.5% (Rs 65.6 Cr) in the same period last year.
      4. PAT at Rs 50 Cr as against Rs 37 Cr, down by up 35%.
      5. The impact of COVID on sales was estimated to be Rs 150 Cr and Rs 50 Cr of pre-tax profit.
      6. Despite volumes being muted in almost all categories, market share across all brands continue to remain intact.
      7. Category wise break-up of Q1 Revenue Growth:
         1. Fabric Care: Down 23.8% (33% of sales)
         2. Dishwashing: Up 16.6% (36% of sales)
         3. Household Insecticides: Up 151.1% (15% of sales)
         4. Personal Care: Up 0.4% (14% of sales)
         5. Laundry Services: Down 75% (2% of sales)
      8. A&P expenses to sales were reduced to 4.6% from 8% last year.

Investor Conference Call Highlights

1. The company has increased production of small unit packs of Rs 5 & Rs 10 due to increased demand for these units. It has also increased focus on the e-commerce platform, which allows for contactless delivery and fast growth in urban areas.
2. Ecommerce growth for the company has been 1.75 times YoY.
3. The company has added a new product of T-Shine Floor Cleaner which is a 100% organic compound based floor cleaner.
4. The company has launched its first corporate TVC covering all 6 power brands which have been launched in 8 regional languages and in Hindi.
5. The company has commenced operation of a new dish wash manufacturing plant at Pithampur in Dhar, which is expected to cater to increased demand for dish wash products in Central India.
6. Fabric Care sales declined as consumption of post-wash category, Ujala Fabric Whitener, and Crisp & Shine saw a reduction.
7. Dish wash category has seen a good uptake and momentum during the lockdown with increased emphasis on hygiene.
8. The company is seeing demand coming back to 60-70% of normal levels in its laundry business.
9. T-Shine toilet cleaner was extended to Bangalore from Kerala.
10. Sales of post-wash products are widely expected to come back to normalcy as the economy comes back to normal. Raw material prices are also expected to stay stable. The management has guided for EBITDA margins to be in the range of 15-16%.
11. The management has stated that the increased demand for small packs for Margo, Exo, etc has come from rural markets where demand is coming back faster than in urban areas.
12. The management has stated that it is still too early to provide any revenue guidance and it will stick to the EBITDA margin guidance provided earlier.
13. Margo has underperformed mainly as it is strong in traditional markets like Tamil Nadu and West Bengal both of which have been the worst hit by state lockdowns.
14. The company is looking to focus on liquid vaporizers in the HI category. The company’s automatic machine has seen a good response and this category is expected to see good growth in the coming quarters.
15. Almost 40% of sales come from rural markets for the company. The company is looking to add sub-stockists in white spaces in rural markets to keep up with the demand growth.
16. The company has in fact reduced promotions on all products as demand is good here. It will introduce new offers based on competitor actions and situations in each category.
17. Another reason the company wants to focus on LVs in the HI segment is that it returns greater margins as compared to coils which are on the low end of the margin spectrum for the industry.
18. EBIT loss for HI was at Rs 2 Cr vs Rs 5 Cr a year ago. This is expected to reverse and return to profitability as the share of LV rises and the segment grows for the company.
19. The ratio of coils to LV has moved from 70:30 to 60:40. A further shift of 5-10% should bring the segment back to profits according to the management.
20. Despite the entry of many big players like ITC in the surface cleaner category, the management remains confident that the company will be able to carve its niche in this rising segment.
21. The company will only be spending for A&P for LVs in the HI segment.
22. The company is not discontinuing any SKUs but it will be focussing more on faster moving SKUs.
23. Unlike the competition in the HI segment, the company is not facing any supply chain issues from the season starting a few weeks earlier than estimated.
24. No major capex is planned for FY21. The debt for the company stands at Rs 100 Cr on the standalone level.
25. General trade has done well despite all constraints for the company while modern trade has declined slightly.
26. The company has not reduced any of its employee salaries as part of the cost-cutting measures.

Analyst’s View

Jyothy Labs is a consistent performer in the FMCG segment in India. They have successfully carved out a niche for themselves and have established themselves as market leaders in the fabric care and dishwashing segment. The performance of the company was very encouraging in this quarter despite industry disruption from the lockdown. The company has done well to be able to achieve good growth in its prime dish wash segment and in the revival of the HI segment. The company still faces the issue of fall in demand in the post-wash segment which is the company’s biggest earner. It remains to be seen how long will it take for the post-wash segment to revive and how the company will fare in the increasingly competitive environment in the health hygiene space. Nonetheless, given the renewed focus on health and hygiene going forward and the company’s good distribution reach and resilient product portfolio, Jyothy Labs may turn out to be a pivotal FMCG stock to watch out for.

Q4FY20 Updates

Financial Results & Highlights

*Contains tax credit of Rs 6.4 Cr

**Contains tax credit of Rs 3.4 Cr

Detailed Results

1. 1. 1. Standalone and Consolidated quarterly revenues were down 25% (volume down by 22.1%)
      2. The gross margin for the quarter improved slightly from 45.2% last year to 45.7%.
      3. Operating EBITDA at 10.3% (Rs 40.6 Cr) Vs 15.8% (Rs 81.3 Cr) in the same period last year.
      4. PAT at Rs 26.6 cr as against Rs 66.8 cr, down by 59.7%.
      5. FY20 numbers were as follows.
         • Revenues decline of 6% YoY (volumes down by 4.4%).
         • Operating EBITDA at 14.7% (Rs 251.1 Cr) Vs 15.5% (Rs 281.8 Cr) in the same period last year.
         • PAT at Rs 136 cr as against Rs 130.8 cr, up by 4%.
      6. The sales decline in 2020 so far was exacerbated by the loss of sales in late March which is time for good sales for insect repellants.
      7. The impact of COVID on sales was estimated to be Rs 150 Cr and Rs 50 Cr of pre-tax profit.
      8. Despite volumes being muted in almost all categories, market share across all brands continue to remain intact.
      9. Category wise break-up of FY20 Revenue Growth:
         • Fabric Care: down 3%
         • Dishwashing: down 3.5%
         • Household Insecticides: down 19.1%
         • Personal Care: down 6%
         • Laundry Services: up 2.5%
      10. The company launched Margo’s hand wash and hand sanitizer post COVID.

Investor Conference Call Highlights

1. The company back to 80% of pre-COVID production levels currently.
2. The company has launched a mobile app called DISTIMAN which is used to facilitate direct orders from retailers to distributors.
3. The company has also partnered up with Jumbotail, Udaan, Dunzo, Zomato, and Swiggy for alternate distribution and direct reach to customers.
4. The company is seeing demand growth in low unit packs of Rs 5 and Rs 10 across all brands. Thus it has ramped up manufacturing and distribution of these products.
5. The company is maintaining a strict business regime and providing no additional credit and is focusing on secondary sales.
6. The biggest impact of the lockdown was on the household insecticides and personal care segments.
7. The category wise business share is:
   • Fabric Care: 40%
   • Dishwash: 30%
   • Household insecticides: 16%
   • Personal Care: 8%
8. The company sponsored the regional KBC in Kerala to enhance the visibility of Henko in the state.
9. The management does not expect any production-related issues to persist going forward.
10. The company expects good growth going forward due to the renewed focus on healthcare and hygiene and the fact that 85% of the company’s portfolio is related to health and hygiene.
11. The management expects FY21 EBITDA margins to be around 15-16% on account of low oil prices which accounts for 40-50% of the company’s RM costs.
12. The company has been very fast to return to manufacturing as most of the workforce for them is local and their factories have all been located out of the red zones. Thus the company was able to come back quickly.
13. The company was also able to develop the Margo hand sanitizer in 21 days which also stands as a testament to the company’s robust R&D and supply chain.
14. The management believes that household insecticides is one category that should go up as people become more health-conscious as a result of COVID-19.
15. Exo and Margo have been the best performing brands for the company so far in FY21.
16. The management admits that rural recovery has been much faster than urban recovery.
17. Around 85-90% of the company’s distributors are back and 50-60% of outlets are open now.
18. The company will be cautious with capex in FY21 and will hold on to its land bank. It will only sell for the right price and will not be desperate to offload this asset without much return.
19. The effective tax rate for the next 2 years is expected to be 15% as the company continues to run down its MAT.
20. The management is not concerned about the drop in Q4 mainly as it does not expect any major change in market share for its products across all categories.
21. The management expects the post-wash segment to remain steady going forward and recover by the end of the year.
22. The increased demand for small packs not only helps consolidate market share for the company but also brings margin appreciation. There have been a 15-20% increase in sales volumes in small packs in the relevant market for the company. On average margin on these packs is estimated to be 25%.
23. The management is definitely looking to expand T-Shine to other southern states but is still some ways from a national launch.
24. The management expects good growth from Exo as it is the first antibacterial dish soap in the country.
25. The direct reach of the company is currently at 8.5 million outlets.
26. The promoter share in Jyothy labs has fallen from 67% to 62%. The promoters had earlier pledged some share and they sold off 4% to remove that pledge. The remaining pledge is of Rs 60 odd Cr.
27. The management has admitted that the company will not make any additional capex in JFSL going forward. The laundry business has been hit hard by the pandemic and the company is now looking for a strategic partner to take it forward.
28. The company continues to pay royalties on Pril and Fa to Henkel as these are global brands.
29. The management expects 10-11% category growth in Household insecticides in FY21.
30. Around 50-70% of Household insecticides category sales are from coils.

Analyst’s View

Jyothy Labs is a consistent performer in the FMCG segment in India. They have successfully carved out a niche for themselves and have established themselves as market leaders in the fabric care and dishwashing segment. The performance of the company was dismal in this quarter due to industry disruption and the lockdown. The company has done well to be able to come back fast and resume production much faster than many of its peers. It has also showcased its R&D capability by launching Margo hand sanitizer in just 21 days. The company still faces the big issue of an impending decline in the post-wash segment which is the company’s biggest earner. It remains to be seen how the company will fare in the tough economic environment ahead and whether it will be able to capitalize on the renewed focus on health and hygiene through its product offerings. Nonetheless, given the renewed focus on health and hygiene going forward and the company’s good distribution reach and resilient product portfolio, Jyothy Labs may turn out to be a pivotal FMCG stock to watch out for.

Q3FY20 Updates

Financial Results & Highlights

Detailed Results

1. 1. 1. Jyothy Labs had a subdued quarter.
      2. Consolidated quarterly revenues were down 5.9% (volume down by 5.6%)
      3. The gross margin for the quarter improved slightly from 46.5% last year to 48.7%.
      4. Operating EBITDA at 15.8% (Rs 66.3 cr) Vs 16.1% (Rs 72.1 cr) in the same period last year, down by 8%.
      5. PAT at Rs 45 cr as against Rs 51.1 cr, down by 12%.
      6. YTD numbers were slightly better.
         1. Revenues growth of 1.6% Y0Y.
         2. Operating EBITDA at 16% (Rs 210.5 cr) Vs 15.4% (Rs 199.8 cr) in the same period last year, up by 5.5%.
      • PAT at Rs 136 cr as against Rs 130.8 cr, up by 4%.
      7. Reduction in Revenue of 5.9% primarily due to:
         1. One-off Moderation in Institutional Sales (impacting sales by 4%)
         2. As a result of General Trade (GT) channel facing rural slowdown & working capital constraints at distributor & wholesale level (impacting sales by 1.9%)
      8. Despite volumes being muted in almost all categories, market share across all brands continue to remain intact as there was an industrywide slowdown.
      9. Category wise break-up of 9MFY20 Revenue Growth:
         1. Fabric Care: up by 2%
         2. Dishwashing: up by 3.3%
         3. Household Insecticides: down by -5.6%
         4. Personal Care: up by 4%
         5. Laundry Services: up by 4.5%

Investor Conference Call Highlights

1. During the quarter due to the slowdown in the economy, the demand scenario was tepid. Urban demand was stable but rural off-take was muted.
2. Working capital has been stretched for channel partners.
3. Categories that have lower penetration like dish-wash and insecticides have seen better growth.
4. The company has not extended credit for the channel partners to maintain business hygiene. However, it has helped channel partners to reduce inventories.
5. General Trade forms around 80% of the total volumes. Remaining is Modern trade and others.
6. The gross margin has gone up due to the softening of Raw material prices and process efficiency.
7. As per the management, the next couple of quarters’ performance will be dictated by the macro situation.
8. Management says that it is too early to speak about any impact of Coronavirus in the company’s business. They hope that they would not be affected.
9. In the soap category, the company is into a niche sub-segment with its product Margo. So, they do not need to engage in the price war which was happening in the main soap category between the competitors.
10. Inventory days with the distributors have come down from 30 days to 22-25 days.
11. Management refrained from giving any guidance on Sales for FY21. They would be able to give guidance only after Q4FY20.
12. Margo facewash was launched in the quarter and hence advertising expenses for personal care had gone up.
13. As the management views that the raw material prices will remain soft, they believe margins in the personal care segment would remain intact despite advertisement spends.
14. In the household insecticide, coils form 60% and liquids form 40% of the total sales for the company.
15. 40% of the total business of the company comes from the south market and that continues to do well compared to the rest of the country.
16. The tax rate for the full year would be around 15% and the company expects a similar number for next year as well.
17. Tax expense low because of two reasons:
    1. lower MAT, and
    2. Increased exemptions from plants exercising benefit of Sec 80 IA of Income Tax.

Analyst’s View

Jyothy Labs is a consistent performer in the FMCG segment in India. They have successfully carved out a niche for themselves and have established themselves as market leaders in the fabric care and dishwashing segment. The performance of the company was tepid in this quarter due to a slowdown in the economy. Rural demand was very subdued compared to urban demand. It remains to be seen how the company will be able to come out of this slowdown in demand. They have maintained the policy of not extending credit to distributors. However, working capital has been stretched for channel partners. The company has helped the channel partners reduce the inventory levels. Management has refrained from making any guidance for FY21 as it is difficult to anticipate the market movements currently. Nonetheless, given its strong brand portfolio and good market shares in respective categories, Jyothy Labs is a good FMCG stock to watch out for, particularly given the relative undervaluation with respect to the peers in the FMCG industry.

Q2 2020 Updates

Financial Results & Highlights

*Includes an exceptional loss of Rs 3.78 Cr

Detailed Results

1. 1. The Q2 was modest for the company with revenues rising 9% YoY both in standalone and consolidated terms.
   2. Standalone and consolidated profits for Q2 rose 17% and 16% YoY respectively. The gain was mainly on account of the reduced tax expenses under the new corporate tax regime.
   3. Volume growth was on par with revenue growth at 8.3% YoY.
   4. Gross margins were at 46.4% vs 46.7% in Q1FY19.
   5. Operating EBITDA came in at 16.6% in the current quarter vs 16.3% last year.
   6. Operating EBITDA margins improved 110 bps to 16.1% in H1FY20 vs H1FY19.
   7. The category wise breakup of revenue growth is as follows:
      • Fabric Care: 1% Up YoY
      • Dishwashing: 6% Up YoY
      • Household Insecticides: 3% Down YoY
      • Personal Care: 9% Up YoY
   8. Ujala Fabric Whitener now enjoys 82.1% market share in its category.
   9. The company saw encouraging demand for their new product Ujala Crisp & Shine which grew 24.8% YoY and is expected to be launched Karnataka in the next quarter.
   10. In the dishwashing segment, the market shares of Exo bar and Pril remained steady at 11.2% and 16 % respectively.
   11. The company launched Pril Tamarind in a 20 rupees pouch format in Q2 which was well received and is already 10% of total Pril sales.
   12. The household insecticides segment declined mainly due to delayed monsoon season in the key contributing states.
   13. Despite this, the Maxo coil and LV brands gained market share in the quarter. The Maxo Genius brand grew more than 55% YoY in the quarter.
   14. Personal Care was a segment that grew steadily in Fy20 with a category revenue growth of 10.1% YoY in H1FY20. The company launched a new product Margo Glycerine in Kerala in the quarter.

Investor Conference Call Highlights

1. The management expects rural momentum to pick up post the festival season.
2. The management feels that it is still early days to be speculating how to capture the spare market share from the spurious agarbathis but it has seen encouraging signs that point to the decline of the spurious products in the industry.
3. The management has indicated that they will not institute price cuts in response to price cuts done by competitors as they believe that their product is highly differentiated and they remain confident of the brand’s pulling power.
4. The company has a lot of branching opportunities like Margo Glycerine which are in the pipeline for the future.
5. The company has not done anything to offer help to their distributors in terms of liquidity.
6. The company expects a 10%-15% growth in the dishwashing segment.
7. The management has maintained that they should be able to achieve their growth guidance for the year as they expect the agarbathi segment to do well after the import restrictions were put in on the segment which is good for domestic manufacturers.
8. The full-year tax rate for the company will be 17% and they will continue on the same 19% tax rate as before.
9. The slight margin improvement is mainly due to the change in product mix and margins are expected to be at current levels for the rest of the year.
10. The management has maintained that it is not looking to make any acquisitions for the rest of the year but they will be on the lookout for potential opportunities.
11. The breakup in urban-rural sales is around 60:40 and the management expects this ratio to remain stable.

Analyst’s View

Jyothy Labs is a consistent performer in the FMCG segment in India. They have successfully carved out a niche for themselves and have established themselves as market leaders in the fabric care and dishwashing segment. The performance of the company so far in H1 was modest with only 5.6% consolidated revenue growth. The fabric care and dishwashing segment which has been the mainstays for the company has maintained its steady growth trajectory and the company is moving forward with plans to enter new geographies with their existing product portfolio. The household insecticides segment which has been subdued for some time now has shown signs of revival and the import restrictions on agarbathis and the government crackdown on spurious agarbathis should provide a boost to the ailing industry and the company is expected to benefit from the same. It remains to be seen how the company will be able to capture the spare market share in the agarbathi segment and how fast will the household insecticides segment revive. Nonetheless, given its strong brand portfolio and good market shares in respective categories, Jyothy Labs is a good FMCG stock to watch out for, particularly given the relative undervaluation with respect to the peers in the FMCG industry.

Notes from Annual Report FY2018-19

Management Discussion Analysis

Industry Overview

The FMCG industry consists of Food & Beverages (F&B) (19%), Healthcare (31%) and Household & Personal Care (HPC) (50%) segments. This sector is expected to have grown 11-12% in FY19 according to Nielsen.

The rural segment has also been a big contributor to industry growth and is expected to be the new frontier for the industry growth in the years to come. According to IBEF, India’s rural FMCG market is estimated to grow to $220 billion by 2025 from $ 23.6 billion in 2018.

According to “Reimagining FMCG in India”, a report by BCG and CII, the industry is projected to expand at a CAGR of 14% between 2021-2025 to a size of $ 220-240 billion. The main factors behind this industry expansion are expected to be:

Brand Innovation in FY19

The company is gradually establishing itself as a national player with more than 2.8 million outlets across the country. It operates 26 manufacturing facilities across 22 locations and has a pan-India presence, supported by its extensive distribution network of 5,400+ stockists and sub-stockists.

Business Segment Review

Fabric Care Segment 

Brands

The company operates 5 main brands under this segment which are Ujala, Henko, Mr White, Chek and More Light. The combined FY19 revenues of this segment was Rs 725 Cr. The company launched a new product called Ujala Crisp & Shine Gold Collection in this segment in FY19.

Key Highlights

• The fabric care business, the largest business, grew by 7.6% (on GST adjusted sales) during the FY 2018-19.
• Ujala Franchise registered a 5% growth (on GST adjusted sales), led by new product innovation and campaigns across brands.
• The company introduced Ujala Crisp & Shine ‘Gold Collection’ with the added feature of premium fragrances inspired by French Fine Fragrances. The brand extension was launched with a new campaign featuring the southern superstar ‘Suriya’ as the brand ambassador.
• The Henko franchise reported a 10.3% growth (on GST adjusted sales), with complete refurbishing of Henko Matic and Henko Stain Care and relaunch with a far superior mix.
• ‘Henko Stain Champion’, the Bucket Wash variant, was renamed as ‘Henko Stain Care’ and launched in the premium detergent space.
• The company introduced a new pack of Ujala IDD.
• Henko Lintelligent was upgraded and it continues to stay differentiated in the matic powder category owing to its lint reduction technology.

The company expects their Ujala product to continue to dominate the segment while the relaunch of the Henko Staincare should help consolidate brand image in the coming years.

Dishwashing Segment

Brands

The company operates 2 main brands in this segment which are: Exo and Pril. The FY19 revenues from this segment were at Rs 587 Cr. The company launched a new product called Pril Tamarind in this segment in FY19.

Key Highlights

• The combined revenue growth in this segment was at 17.3% YoY.
• Exo maintained its market share of 11.1%.
• Pril gained 20 bps of market share to end the year at 16.6%.

Backed by product innovations and unique propositions, the company expects both these brands to gain market share in the near future. Their new product in this segment Pril Tamarind should help consolidate the brand’s position in the category and fuel improvement in market share.

Household Insecticides Segment

Brands

The company operates under a single brand Maxo in this segment. They sell mosquito repellent vaporizers and agarbathis. The revenues from this segment in FY19 were Rs 224 Cr. The segment has suffered a YoY decline due to a decline in overall household insecticides industry in India.

Key Highlights 

• The segment revenues declined 2.5% YoY.
• Maxo Liquid Vapouriser gained the market share by 50 basis points to 7.7%.
• Maxo Coil gained the market share by 30 basis points to 21.3%.

Despite the revenue decline, the company managed to gain market share in both of its product categories. This highlights the good market position of the company in this industry segment and they expect this category to revive and grow faster than the market once the industry revives.

Personal Care Segment

Brands

The company operates 3 main brands in this segment. They are Margo, Neem and Fa. The combined revenues from this segment were Rs 192 Cr in FY19. The company launched a new product ‘Margo Glycerine’ in this segment.

Key Highlights

• The segment revenues grew 6.9% YoY.
• Margo showed a growth of 7.8% in FY19 (on GST adjusted sales).
• The company launched a multi-media advertising campaign which garnered 2 million views in the first 2 weeks of the campaign on Youtube.

The company is looking to build the Margo Glycerine consumer base on the back of the original Margo Neem brand. They expect to carry out sustained marketing campaigns to expand this segment into non-traditional markets in India.

Laundry Services Segment

Brands

The company operates multiple brands in this category. They are Fabric Spa, Wardrobe, Four Seasons, Expert, Snoways and Clickwash. The segment revenues for this segment were Rs 40.3 Cr. The company has established as the largest laundry chain in India with over 140 units operating in Bengaluru, Delhi, Mumbai, Pune, Chennai, and Ahmedabad.

Key Highlights 

• The segment revenue grew 18.5% YoY.
• The market potential of this segment is huge at $ 76 billion, almost all of which is unorganized.
• The company is the only organization in this industry with 3 ISO certifications (ISO 9001, 14001, 18001)

The company sees huge potential in this industry segment due to the lack of any organized players here. The company hopes to capitalize on the first-mover advantage and stay ahead of the competition by expanding into new cities and introducing new outlets using the franchisee model.

Financial performance in 2018-19

• Brand Wise Revenue Distribution is given below:

• The company witnessed modest revenue growth with 6% growth YoY in yearly revenues.
• The normalized profits for the company also saw a modest rise with 9% YoY growth in PBT for FY19.
• The company delivered an EBITDA margin of 16.2% which was in line with the previous guidance provided by them on the subject.
• The yearly revenue growth for the different business areas in FY19 are as follows:
  • Fabric Care:                                       Up 7.6% YoY
  • Dishwashing:                                     Up 17.3% YoY
  • Household Pesticides:                     Down 2.5% YoY
  • Personal Care:                                   Up 6.9% YoY
  • Others:                                                Up 18.5% YoY
• The company has reduced the days for working capital to 23 days as compared to 31 days last year.
• The net debt to equity ratio has been reduced to 0.03 from 0.36 last year.
• The company gave out a dividend of Rs 3 per share in FY19.

Analyst’s View

Jyothy Labs is a consistent performer in the FMCG segment in India. They have successfully carved out a niche for themselves and have established themselves as market leaders in the fabric care and dishwashing segment. The company has significant room to grow in these segments due to the presence of their power brands and the expansion into newer states for their lesser brands. The company is gearing for new product launches for Margo and Exo which will be significant for the company in the near future. It remains to be seen how the new brands perform. Further, we also need to watch out whether the declining household insecticides industry will continue to bring down revenues for the company in this segment. Nonetheless, Jyothy Labs remains an interesting FMCG company which is reasonably valued and have the potential to grow sustainably.

Q1 2020 Updates

Financial Results & Highlights

*Includes an exceptional loss of Rs 3.78 Cr

**Includes a deferred tax credit of Rs 11 Cr

***Includes a deferred tax credit of Rs 8.48 Cr

Detailed Results

1. 1. The Q1 was dismal for the company with revenues rising only 2% YoY both in standalone and consolidated terms.
   2. Profits for Q1 were almost flat YoY but have fallen significantly since previous quarter.
   3. Volume growth was higher than revenue growth at 5.6% YoY.
   4. Gross margins improved to 48.6% from 47.9% in Q1FY19.
   5. Operating EBITDA came in at 15.5% in the current quarter vs 13.7% last year.
   6. The category wise breakup of revenue growth is as follows:
      • Fabric Care: 4% Up YoY
      • Dishwashing: 1% Up YoY
      • Household Insecticides: 6% Down YoY
      • Personal Care: 3% Up YoY
   7. The company saw encouraging demand for their new product Ujala Crisp & Shine which grew 21.8% YoY and is expected to be launched in Andhra Pradesh, West Bengal and Karnataka in the rest of the financial year.
   8. The Henko franchise also grew 23.3% YoY and cemented its spot as the fastest growing brand for the company.
   9. According to the company, the introduction of the new Exo Ginger required down-stocking of the pre-launch stocks which resulted in lower primary sales and thus muted growth for this brand.
   10. The household insecticides segment declined mainly due to delayed monsoon season in the key contributing states.
   11. Despite this, the Maxo coil and LV brands gained market share in the quarter. The Maxo Genius brand grew more than 20% in the quarter.
   12. The reasons for volume growth to outpace revenue growth for the company are that the products at the lower price end have grown faster and in highly competitive segments, the company has had to aggressively promote their products leading to the current situation.
   13. The gross margin expansion was due to fall in raw material prices and the lowest margin product of insecticide coil saw decline which helped push margins up.

Investor Conference Call Highlights

1. The management believes that the demand scenario should pick up with normal monsoons and the company should witness positive volume growth.
2. The company has revised its revenue growth guidance to 10%-12% from above 12% earlier.
3. The company expects margins to remain stable and sustainable for the near future.
4. The company expects the Exo brand to bounce back strongly in Q2 after the launch of Exo Ginger.
5. The company maintains that it will keep its marketing and promotion aggressive to keep up with the industry and to promote its new brand image.
6. The company expects the growth to be led by volumes due to intense competition in a price-sensitive market and high promotions and incentives by other makers to boost volumes.
7. The company expects rural consumption to revive as the government starts to tackle the slowdown in the country and the advent of the late monsoon.
8. In the household insecticides, the company is focused on capturing market share in the LV segment and to stay ahead of the competition in the segment which has been in decline for the last few years.
9. The company expects to clock more than 10% growth in Margo for the year.
10. The company is confident in their revised revenue growth because of the increasing market shares in all segment even in the HI segment where they have gained market share despite a decline in revenues in the segment.
11. The company has not faced any adverse material impact from the water crisis in Chennai and South India.
12. The company maintains that their growth in the Fabric Care segment will not be too fast but shall remain steady as they are not engaging in the price and marketing wars as other majors in this segment and are slowly and steadily carving their niche on the strong base of their whitener product.
13. The company has seen a growth of almost more than 20% in the 10-rupee pack for Henko and they expect this segment to contribute significantly in the future. The growth in the other packs of half kg and one kg has been slightly lower than the overall growth for the brand.

Analyst’s View

Jyothy Labs is a consistent performer in the FMCG segment in India. They have successfully carved out a niche for themselves and have established themselves as market leaders in the fabric care and dishwashing segment. The company has significant room to grow in these segments due to the presence of their power brands and the expansion into newer states for their lesser brands. The company is gearing for new product launches for Margo and Exo which will be significant for the company in the near future. It remains to be seen whether their new brands will be as well-received or not. Further, we also need to watch out whether the declining household insecticides industry will continue to bring down revenues for the company in this segment. Nonetheless, Jyothy Labs remains an interesting FMCG stock which is still not as high priced as other FMCG majors in the market thus representing a value proposition for any investor looking into the theme of consumption.

Q4 2019 Updates

Financial Results & Highlights

*Includes a deferred tax credit of Rs 11 Cr

**Includes a deferred tax credit of Rs 12.58 Cr

***Includes a deferred tax charge of Rs 21 Cr

Detailed Results

1. 1. The company witnessed modest revenue growth with 6% growth YoY in yearly revenues.
   2. The normalised profits for the company also saw modest rise with 9% YoY growth in PBT for FY19.
   3. The company delivered an EBITDA margin of 16.2% which was in line with the previous guidance.
   4. The yearly revenue growth for the different business areas in FY19 are as follows:
      • Fabric Care: Up 7.6% YoY
      • Dishwashing: Up 17.3% YoY
      • Household Pesticides: Down 2.5% YoY
      • Personal Care: Up 6.9% YoY
      • Others: Up 18.5% YoY
   5. The company has reduced the days for working capital to 23 days as compared to 31 days last year.
   6. The net debt to equity ratio has been reduced to 0.03 from 0.36 last year.
   7. The company currently enjoys 81.1% market share in the fabric care segment for their Ujala brand.
   8. Ujala has gained 3.2% market share in Maharashtra in the past quarter.
   9. Ujala detergent, which is only sold in Kerala now, grew 18% in FY19 while the industry segment grew only 8.5%. The Henko franchise saw growth of >10% in FY19.
   10. The dishwashing segment has outpaced the industry growth with market share of 11% and 16.7% for Exo and Pril brands.
   11. The Exo bar has grown >20% in FY19 which is almost double of the industry which grew 10.7% in the same period.
   12. In the household insecticide segment, the company ended with 21.2% and 7.7% market share in FY19 for their Maxo coil and Maxo LV products.
   13. The sales figures for their new product in this segment, Maxo Genius, has been good with 44.5% yearly revenue growth YoY and 69% YoY growth for the last quarter.
   14. In the Agarbathi, personal care and toilet cleaner segments, the company is focusing on sales and brand visibility and are undertaking marketing campaigns to do the same.
   15. In the year ahead, the company is focussing on maintaining the growth in their star segment of dishwashing while improving brand recognition and launching new products in other segments.

Analyst’s View

Jyothy Labs is a consistent performer in the FMCG segment in India. They have successfully carved out a niche for themselves and have established themselves as a formidable player in the fast-growing dishwashing segment. As this industry segment shifts from unorganized to organized, there is a lot of room of opportunity in this market. In other areas, the company has shown their product quality with successful pilots in Kerala which they expect to replicate in other states. Whether they will be as successful in other states as they have been in Kerala is a point to watch. Nonetheless, Jyothy Labs is a good bet on the FMCG sector especially given its relative undervaluation compared to other FMCG majors.

Q3 2019 Updates

Financial Results & Highlights

Detailed Results

1. 1. The Revenue and volume growth has been modest growing at 6% year on year
   2. PBT and PAT have risen 20.4% and 29.9% respectively emphasizing better margins compared to last year
   3. The growth in revenue segments YoY is as follows:
      • Fabric Care: 8% up to 193 Cr now
      • Dishwashing: 7% up to 150 Cr now
      • Household Insecticides: 7% up to 42 Cr now
      • Personal Care: (6.2) % down to 40 Cr now
      • Others: 8% up to 9 Cr now
      • Overall: 6% up to 434 Cr
   4. The decline in personal care products is due to drop in revenues of the product ‘Margo’ soap which has been attributed to lower sales due to the winter season.
   5. The management of the company remains optimistic about future growth especially in Henko, Pril, Margo and Maxo brands within which they are launching new products.
   6. They are also planning to expand to newer states with existing portfolio.

Investor Conference Call Highlights

1. Expecting Pril market share to rise in the dishwashing segment in India with the launch of their new variant ‘Pril Tamarind’ which has been very well received in test markets.
2. Expecting Maxo market share to rise in household insecticides market with the relaunch of their product ‘Maxo Genius’ in the mosquito repellent machine segment.
3. Have a very expansive and optimistic outlook in their Maxo Agarbatti segment. Organized mosquito repellent coil segment market size in India is around Rs 500 Cr. The company is expecting their Maxo Agarbatti to capture a sizeable portion of the market in the next few years.
4. The company believes that Maxo Agarbatti shall differentiate itself from the rest of the market by empahsizing its safety and high quality through the use of promotional and customer awareness campaigns.
5. The company is also bullish on their Personal Care Segment with the launch of their new product ‘Margo Glycerine’ which they expect to do well in the near future.
6. The company is also optimistic on their new product T-Shine which is a 100% organic toilet cleaner. They believe T-Shine can stand apart from the rest of its segment and capture a sizeable portion of the market in the next few years.
7. Other than new products, the company’s sales force automation is set to be completed by the next quarter end so this should also yield significant benefits towards cost reduction and process optimization.
8. All in all, the company is very optimistic in its forward outlook and expects to see sustained revenue growth for the next few years.

Analyst’s View

Jyothy Laboratories Ltd has been on a good upward trajectory for a while and the management is still optimistic in their forward outlook. The higher than proportional profit growth compared to revenue growth in comparison to last year shows the high margin they command for their products. Looking at the upcoming product launches across various segments, it is safe to say that Jyothy Labs is probably in for a good upward path for the near future and seems like a good investment opportunity in the FMCG industry.

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