| Jyothy Laboratories (JYL IN; NC) Analyst meet takeaways | ||
Jyothy Laboratories (JYL IN, Not Covered) hosted its annual analyst meet in Mumbai. Mr. S Raghunandan, CEO and his team (including Mr. Rajnikanth – Head Sales & Marketing) discussed the company’s growth outlook and various initiatives that are underway to drive growth across the six power brands: The company has come a long way consolidating the categories, strengthening sales & distribution network to now focus more on brand innovation (focus on the core and extend into adjacent segments) and improve margin profile (as most of the initiatives are margin accretive in nature). There is greater portfolio clarity and sharper brand communication with lot of innovation on cards (most to hit the market over next 4-8 weeks).
JYL met most of the goals set for FY14 (shared a year ago) barring marginally lower margins (given weak markets which was not anticipated a year ago) and below par performance of the detergent business. For FY14 Net sales grew 23% (led by vol growth of 15%). For FY15 it has set targets of – Sales growth of 20-25% and EBITDA margin of 14%.
Key takeaways from the meeting:
Product innovation – a key focus area for FY15. JYL has planned many new launches/re-launches over 1HFY15 to step up the growth rates across the six power brands. It is optimistic of healthy 20-25% growth rates despite slowing growth for the overall FMCG market.
Brand investments to be significantly higher. In a market that is subdued, mgmt believes product innovation would be critical and marketing initiatives for core brands would be necessary. This would imply higher brand investments and A&P/Sales for the company is likely to rise to 12-13% in FY15 (from ~11% in FY14) as per mgmt. The spends will be on a national basis to grow ahead of the industry.
Non-south business growing faster. JYL has been consistently focusing on Non-south markets where its brand shares are lower and brands are underinvested. As a result of these efforts, the share of Non-south business has grown to 56% in FY14 (vs 52% in FY13). Mgmt aims to take the share of South region down to 25-28% (from 44% currently) over the next five years as it focuses on making its brands national.
Fabric care – Expanding usage, sachet launch, focus on post wash and grow laundry share in South. Ujala brand sales grew 43% in FY14: in a category which is stagnant. The strong growth was aided by share gains (from counterfeits) owing to new packaging and marketing communication and price hike. The Non-south business for Ujala grew 47%. This brand growth is critical to generate healthy cash flows which may be utilized for investing in other brands.
For FY15 there are strong plans to grow this brand further. Three key focus areas for this brand: a) Expand usage via getting new consumers, take share from unorganized players (low cost competition), and offering low cost Re1 sachet to tap into bottom of the pyramid, b) Tap into adjacent categories post wash via Stiff & Shine brand where a re-launch is likely over Nov’14, c) Invest and scale up the Ujala detergent powder in Kerala with a re-launch planned in July’14.
Dish wash – Play the full portfolio. JYL has two brands in the dish wash segment. Aim is to grow share in the bar segment by converting proxies (alternatives, local players etc) and to convert more users to liquids. Focus on product innovation remains high – A Pril re-launch is planned for July’14 which would focus on superior and faster de-greasing solution and a fresh campaign forExo is planned for June’14 highlighting the relevance of anti bacterial efficacy of the brand. Plans are also underway to tap more into the scrubber sub-segment (estimated market size Rs2.7bn growing at ~15%) with launch of first anti bacterial scrubber in July’14.
Exo brand registered growth of 29% with Non-south business growing 74%. Exo which has been a regional brand so far (South share of ~22% vs national share of ~4-5%) and various initiatives are being taken to enhance its penetration beyond South. Prilbrand grew 26% with Non-South business growing 29%.
Household Insecticide – Innovation led growth strategy. The biggest challenge is profitability in this segment and hence the focus is on driving growth for liquids. Liquids now contribute 25% of brand (vs 10% share two years ago). The liquid vaporizer product registered 95% growth in FY14 led by the new product – fits all machines which has worked well supported by aggressive marketing communication. Though Maxo is No.4 in liquids category, it is the fastest growing brand (off a small base) and mgmt is aiming to grow its contribution to ~40% of brand revenue over the medium term.
JYL is looking to introduce Maxo Genius Next Generation Liquid Vaporiser in July’14 which would help to grow in premium segment as per mgmt – this comes with differentiated positioning. Within coils, low smoke coils (launch in JQ’14) should aid growth.
Personal wash – Building on the differentiated positioning. Margo brand grew 28% in FY14 (vs de-growth in overall soaps category). The growth drivers would be expanding geographical reach (making it more pan India), product innovation (recent successful launch of Glycerin variant) and leveraging beyond core into adjacent segments like face washes (in JQ’14).
Laundry – Re-launch should help growth. This is one category where JYL did not do much in FY14. The re-launch of Henkogot delayed and is now expected to happen over the next month. This brand still grew 17% (Non-south at 28%). Mgmt hopes to revive this brand in a significant manner in FY15.
Fa brand removed from power brand list. JYL has decided not to put many resources behind the Fa brand owing to various competitive reasons, though this brand has grown well. As a result it has been removed from power brand list and now it is focused on six power brands – Henko, Ujala, Maxo, Margo, Exo and Pril.
Debt levels come down. As of FY14 Net debt stood at Rs4bn vs Rs6bn in FY13.
ESOP scheme – to lead to ~3% dilution (maximum) over next three years.
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