Jyothy Labs Limited (532926) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Jyothy Laboratories Q4 FY '20 Earnings Conference Call hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Manoj Menon from ICICI Securities. Thank you, and over to you, sir.

Hi, everyone. It's good morning, good afternoon, good evening to whichever part of the world you are in. On behalf of ICICI Securities, it's our absolute pleasure to welcome you to the results conference call of Jyothy Labs Limited. At ISEC, we rate Jyothy Labs an add rating, and it's an outperformer thought process for us. And we have been long-term believers in the growth story of the company. We have from the management, Ms. M.R. Jyothy, Managing Director; Mr. Ullas Kamath, Joint Managing Director; and Mr. Sanjay Agarwal, CFO, for the call. Over to you, sir.

Hi, everybody. This is Ullas Kamath here, and welcome to the analyst call. It is one of the unprecedented, I would say, the situation. All of you must have been seeing what's happening around the world. And it is something first time, all of us are experiencing. And we have announced our result today. And in this analyst call, Jyothy is there, our MD; and Sanjay, our CFO. And first, Sanjay will take you through the presentation, which we have made. And thereafter, we'll take your questions. And over to Sanjay, please.

Thank you. Good evening, everyone. All of you have seen our results. Let me take you through them in detail. Before we talk about the results and the brand performance for the quarter gone by, let me first briefly update you on the current business scenario. So till March 2020, for the preceding 3 quarters, the economy was facing a slowdown in which urban growth for FMCG industry was stable, while the rural growth was weak or declining. In addition to this, we all got impacted by the sudden nationwide lockdown due to the onset of global pandemic COVID-19. Therefore, from 20th March 2020 onwards, there was a severe disruption of operations which brought all our factories and sales operation to a standstill. Friends, majority of our product portfolio comprises of essential goods, which is a strong right to win for us. All the categories in which we operate, detergents, dishwash, household insecticide and soaps, are used in daily household consumption. Hence, from mid-April, when restrictions were partially lifted, we resumed operations. And with the resilience and the agility of our sales staff, who despite all constraints delivered a positive growth in April and May 2020. So as we stand today, our manufacturing operations are back to 80% of the pre-COVID production levels. All state depots are open. The general trade business, barring a few red and containment zones, are coming back to normal. There are some canteen store departments and modern trade stores which are not fully operational yet. We expect them to be normalized soon. During this COVID-19 phase, we have been quite agile in terms of our product launches and distribution strategy. Quickly recognizing and acknowledging the demand of consumer and the need of hour, we launched Margo Hand Sanitizer, which is infused with neem extracts, and it saw an immediate surge in demand. Keeping in mind the safety of our sales force and enhance the speed of orders and delivery, we also launched a mobile application, DISTIMAN, which facilitated direct orders from retailers to distributors. Also, to supplement and boost our direct reach to consumers, we partnered with alternate distribution companies, like Jumbotail, Udaan and last-mile delivery partners like Dunzo, Zomato and Swiggy. During this lockdown phase, we have done focused media activities, especially on Exo and Maxo, whenever the Honorable Prime Minister addressed the nation and also during the telecast of Ramayana and Mahabharat on Doordarshan. Given the challenges, we immediately redesigned our short-term priorities for the business in 3 key areas. Product portfolio. We decided to leverage our core essential household brands like Ujala, Exo, Pril, Henko, Margo and Maxo, which constitute 85% to 90% of our product portfolio. More focus was given to the middle-class India and rural markets as they face lesser disruption than the urban India. Second is consumer trends. We are seeing an increased demand of low-unit packs of INR 5 and INR 10 across all brands. Hence, we have ramped up our manufacturing and distribution for these. There is also -- as you all know, there is also an escalated importance and focus on safety, health and hygiene. So we have renewed our focus on our essential hygiene portfolio. Third, distribution. Bearing in mind the stress on the economy, we are strictly adhering to the business hygiene by ensuring no additional credit and focusing on secondary sales. As you all know, this is very important in these times, and this will ensure healthy, consistent growth in future for us and help in gaining market share for our brand. We can now move on to the results. Due to the sudden halt in primary sales from 20th of March for quarter 4 FY 2020, the net sales were down by 23.8%, while gross margins have been flat at 45%. You will note that the EBITDA for the quarter declined to 10.3% from 15.8%. As employee cost is fixed in nature, at Jyothy manufacturing plants, we produce 80% of production from our own manufacturing plants. And the direct -- the sales force is our own sales force, and therefore, both manufacturing and sales teams are on own payrolls. And the advertisement expenses were fully committed in anticipation of summer season, which is peak for our soaps and household insecticide business. So both these adversely impacted our EBITDA by 5.3% in this quarter: 2.5% by fixed employees and media cost by 2.8%. Similarly, if we look at -- for the full year, due to decline in the sales for the last quarter, our full year revenues have declined by 5.6% and while the gross margins have remained in the range of 47% and EBITDA around 15%. Moving on to the next slide, just wanted to give you -- I mean, take your attention on that. Had it not been for the sudden impact of COVID-19, our business was tracking primary sales growth of 5% till 20th of March, and we were expecting to close the quarter with mid-single-digit growth. Our portfolio of HI, Household Insecticides, and Personal Care soaps have been impacted greatly because generally in the last fortnight of March, our trade partners stock HI products anticipating the onset of high-mosquito infestation season from April and also increased their stock of soaps anticipating a higher demand with the arrival of summer season, sales of both of which got adversely affected due to the nationwide lockdown. If you look at on a run rate basis since we are growing at 5% till 20th of March and we were all aligned to have a mid-single-digit growth, our estimate is our top line got hit because of the sudden halt of our operations by INR 150 crores. And it -- I mean there's a corresponding impact of INR 50 crores pretax on our bottom line. The month of April and May, we have seen positive growth in sales despite all the logistical challenges and restrictions on sales team movement, in most part of India. This is obviously been done with a lot of hard work by our supply chain, production, sales team and the entire team at Jyothy. The adversities of these challenges were overcome by strength of our core portfolio being essentials and hygiene. So these are all the product portfolio, what we have -- are used by consumers on a day-to-day basis. And there is -- they are not discretionary brands. Similarly, with the importance of hygiene, consumers are more inclined to buy and not fell sick. And hygiene is at the highest priority for them. We always give a category wise breakup of our revenue, which is there in the next slide. I will move on to giving a snapshot of our overall financial performance. Just before that, the reconciliation of our EBITDA for the quarter. EBITDA previous year was 15.8%. Because of the reason I spoke about, because of the unabsorbed employee cost, it was down by 2.5%. And because of the precommitted advertisement costs, it has impacted -- adversely impacted 2.8%. However, if you see for the full year, we have been in the guided range of 15%. And for FY '21 also, we believe we will be in the same range of 15%. Moving on to brand performances. Our category-wise business shares remain unchanged. Fabric Care, 40%; Dishwash, 32%; Household Insecticides, 16%. This coming -- March quarter is always high on HI, while Personal Care is at 8%. If you look at our Fabric Care business, Ujala Fabric Whitener, where we are the market leader, we continued to increase our retail visibility. Similarly for Crisp & Shine, we are driving the growth and plan to expand the brand to nearby states. Ujala detergent, again, continues to do well. This quarter, we had changed the packaging for the laundry soap, which is doing well. There's also been a good momentum. Again, all these things which I'm talking about is till March 20, 2020. And in the subsequent period, what we are seeing, there has been a good momentum in the sales of both Henko Stain Care and Henko Matic. To enhance its visibility, Henko cosponsored the regional KBC in Kerala. Dishwash, which is 32% of our total business, both Exo and Pril as a category continues to do well with now renewed focus on hygiene. We have been focused -- we've been doing focused marketing activities, both for EXO and Pril on digital and social media. Toilet cleaner, T-Shine, you all know, was launched in Kerala, where it is doing well. We changed the packaging. There's a new packaging now. And for the first time, the new communication has also gone on air. HI business, as we discussed earlier, the sales of both Maxo coil and vaporizer for the quarter declined as generally in the last fortnight of March. Our trade partners in North and East India stocked HI products, anticipating the onset of high mosquito infestation season. But due to the nationwide lockdown in the last fortnight of March, sales of HI were affected. However, the good thing is, in the last 2 months, the sales has seen a good pickup. We continue to focus on our media activities for our Maxo liquid vaporizer, and we have been witnessing an increase in market share over last few quarters. Personal Care. Our Personal Care business is primarily Margo franchise. We continue to invest behind the brand and have launched extensions in form of Margo hand wash and hand sanitizer. Margo hand wash was launched in early part of the quarter and -- in all the southern states and has done very well. Similarly, hand wash -- hand sanitizer, which was launched in April during the lockdown period, leveraging on our neem equity is in high demand now. We have been -- in the whole COVID phase, we have really found new right to win, an opportunity for Jyothy Labs portfolio, more essentials. All the portfolio brands are essential as well as fall in the category of hygiene. Also being an Indian company and serving Indian consumers, we are proud to support Honorable Prime Minister vision for being vocal for local business. Going forward, we are quite optimistic on our business prospects. We'll all adjust to this new normal. And we, at Jyothy Labs, are certain that our distribution reach, our manufacturing capabilities, our own in-house manufacturing capabilities and brand innovation will drive our future growth. With that, I finish our presentation. We are very happy to answer your questions or any clarifications you need. Thank you, friends.

[Operator Instructions] The first question is from the line of Percy from IIFL Securities.

My first question is on the ramp-up that you've seen in April and May. It's heartening to note that you've gone into positive territory for both these months. But could you give some idea on where your production ramp-up is for the month of April on an average, for month of May on an average and where you are currently in terms of percentage of normal activity levels?

Yes. Thanks, Percy. See, we all know till middle of April, till 14th or 15th of April, the entire operations for all companies were -- manufacturing operations were halted. In our case, most of our 25 factories are there in rural markets. And -- but we all had to go and take permissions from the district authorities. And since we own these factories, it was -- we were able to go and explain that most of the workers were either staying in our own premises or they were close by, hence we could quickly resume operations post getting these local authorities' approval. So by -- if you ask by month of April, we were at 40%, 50% end of April. And by end of May, we are at around pre-COVID levels, our production is at around 80%. And whatever we are producing, we are 100% able to sell now.

Okay. And so right now would you say that this remaining gap of 20%, the constraint is more demand? Or is it supply still, which is the reason why you are at 80% instead of 100%?

Percy, the thing is today, the permissions have come. We can only operate one shift. In certain places, the permissions have come wherein we can only have 1/3 of the staff to work. Certain places, we have been instructed that the staff -- I mean the factory people have to stay within the factory premises. So these are the constraints currently which are there. But as we -- the lockdown phase releases, I think by end of June, things will improve from here on.

Okay. So basically, April and May, you were able to sell the inventory that was piled up because you could not sell last 10, 12 days of March. But in June, if basically you are not able to ramp up to 100% and now that inventory, which was excess lying around has already been sold off, so June month, what is the prognosis? Do you think you could slip into negative territory on a Y-o-Y basis because of the lack of permissions, et cetera?

Look, Percy, the production levels are ramping up as we speak. And as you rightly said, yes, the stocks of March, we're able to do -- we were able to sell it in -- a lot of it in April and May. And going -- now as we speak, the production levels are increasing. So we don't see any shortage of goods being produced at the manufacturing level. And now permissions are coming wherein single shift are becoming double shift and government authorities have made an 8-hour shift into 10 hours and 12 hours. So we don't see any production-related issues for us, at least, because we produce our own goods, and we are not dependent on any third party in our case.

Got it. Second question is just like you've given some flavor on production or supply versus pre-COVID levels. Could you also give some flavor on where do you see demand versus pre-COVID levels? Because people have lost jobs, incomes have declined of people, et cetera. So I mean currently, where we are today, supposing if you were able to produce as much as you wanted to, would you be able to sort of sell at higher than pre-COVID levels adjusted for seasonality? Or you think that demand still is weak and even if there was no supply constraint, it would still take time for your sales to come back to where it was pre-COVID? Hello?

[Technical Difficulty] from time, maybe 15 days, 1 month. And the second, as Sanjay said that production, as we are ramping up, because all our facilities in our control, all the 26 factories in our control were able to take as much as permissions wherever it is possible, and we've able to ramp up. And our problem now is some of the states are still having difficulty, like Maharashtra, Gujarat or Tamil Nadu. It's exactly the way how the COVID is behaving, the market is also behaving accordingly. So net-net looks a little better, but like every day's guess where what's going to happen. And restrictions are -- some of the states have already removed 100% restriction like Karnataka. But the problem is the fear in public. So to that extent, we need to take month-on-month. Production for month of June looks okay, but the demand we need to see. By the end of the June, we know what happens in July. Because as the government spend what they're doing like in the social sector, what we see about INR 170,000 crore what they're spending and also the huge spend on infrastructure, everything has to come, ultimately, a portion of that has to come for consumption in rural. And we are hopeful that rural should recover like going forward.

Right, sir. And one last question if I might squeeze in. There are some categories like dishwashing, detergents, toilet cleaner, et cetera, which are health and hygiene categories, and they will sort of benefit from this higher focus towards health and hygiene that we have in the post-COVID world. But on the other hand, you also have Ujala Fabric Whitener, which basically is a category where people go out of home and, therefore, they want their clothes to look white, et cetera. And in this kind of an environment where people are not going out as much, do you think there could be a sort of negative impact on fabric whitener for the next couple of quarters?

Yes. So like you rightly said, it's only Ujala post wash that we'll be seeing a slight dip in that sense. 85% of our product portfolio is in the hygiene category, more on the cleaning and hygiene category. So that should not be a problem. In fact, we have started seeing some positive trends as well as some of the states has started to open. So that is -- in the post wash, only you will see that, not in the other category.

Right. Got it. So you're saying most of your product portfolio is actually going to be sort of beneficially impacted by the higher health and hygiene focus on account of COVID?

Yes. Yes. Almost 85% to 90%, yes.

The next question is from the line of Harit Kapoor from Investec.

Just a few from my side. Firstly is on the margin. Given that we'll be seeing significant reduction on the commodity cost side going forward as well as the fact that your revenue expectation should be fairly okay given that your portfolio is in health and hygiene and that you'll probably see the benefit of some cost savings coming going forward only, which you didn't see in quarter 4, just wanted to get your sense on how do you look at operating margins? Do you see them coming back to that 15%, 16% level in F '21? Or how do you see them moving?

Yes. So, Harit, yes, there is an impact of falling crude prices. 40% to 50% of our RM/PM is linked with crude prices. So we'll get the benefit of the soft prices with a lag of one quarter. And for the full year, as I said, we would be -- on an EBITDA margin, we would be in the range of 15% to 16%.

On the region-specific commentary. So you have a large portfolio in the South. I just wanted to get a sense. As trends are different in south versus rest of the country, do you see a slightly better recovery there, probably ex Tamil Nadu? But do you see a better recovery in the southern region overall versus, say, rest of the markets, given that your presence is higher there?

Yes. Harit, South has been with more hygiene focused and, therefore, the growth rate will be much better there. But again, it is more urban and rural. Places where there are red and containment zone are not there, it's able to -- easy for our salespeople to move. So at this point of time, yes, south is better. States which are not doing that better would be, say, Maharashtra, Gujarat, Tamil Nadu. So I think that is how we look at the entire India for instance. But things are now coming back, I think, all over India.

Last question. I'll come back for more. Was that -- on the innovation side this quarter actually prior to COVID, you've done a few things in terms of the hand wash, also the detergent soap. And also in Exo, you had new launches as well on the super gel stuff. So I just wanted to know that over the next 6, 9 months, the focus on just pushing these new launches through and just consolidating them as well as the balanced portfolio? Or would you think about new things as well over the next 6, 9 months?

Yes. So like you rightly said, we had launched the hand wash early this quarter in one state. And because of the new environment right now, we had to expand it to other states as well. And that would be the strategy and -- for hand wash and for sanitizer. And in the coming 6, 9 months, like you said, we will be seeing some more launches, which will happen in the hygiene space.

The next question is from the line of Manoj Menon.

Just only a couple of questions. One, on the -- when I look at the supply chain architecture which you follow versus some of your peers, you seem to have more number of factories across India and probably closer to the market. How has been your experience in the last 2 months? What I'm actually trying to understand is, as there is an opportunity for you currently and possibly going into -- until a point in time when everything stabilizes a share gain opportunity.

Manoj, this is Ullas Kamath here. I think this is like exactly it is favored in our thing because the people who are operating from few factories, they are actually in problem. And when we are closer to the consumer and operating from 26 factories in 17 locations, while we did have the fixed cost on employees in the last 10 days of nonfunctioning, in reality, we were the first in the marketplace to take the production because our factory managers were all able to go to the local, and most of our workers are living in the nearby villages. And that's where we were able to call them, and they came in the factory and production ramped very, very quickly. So going forward also, most of the people will be now relooking like having scattered manufacturing facility across the country. And in that case, we are already there. And the way how our supply chain team has worked in April and May, it is a clear indication that it is always better to be closer to the market, and you can produce as much as required and supply in the marketplace. So to that extent, we are in a much better position. The second one is that -- which is like based on the innovation and R&D. It is the first time in my 30 years' experience, a product out of Jyothy Labs has come out in 21 days in the form of Margo sanitizer. And this will also give you kind of understanding of the leadership team and also the R&D and supply chain. Everybody are operating from home, and we felt that it was the need of the day. And it has come out, and beautifully, it has come out. And now it is a -- supply is a problem for us and -- because it's asked for everywhere. Now in 21 days lockdown period, if the company is able to launch a beautiful product in Margo sanitizer, that says a lot of things. And that's the reason like we always say that go to the market. And consumer insight, when they want it then they get it. So to that extent, I'm very, very proud about the Margo sanitizer and also the Margo Hand Wash. Both are now on top.

Okay. Understood. Just 2 quickly actually. One, I heard you commenting about the hygiene segment opportunities this year. I was just trying to understand how big is the opportunity for you? Because Margo is one product, which probably falls under hygiene. But how do you define hygiene and how do you see those opportunities this year? A little more detail category wise would be helpful.

So Manoj, the thing is sanitizer, if you know, earlier, it was not a big category at all. It was there in existence but most of them were not using it. And now after this, the scenario has changed completely. We don't know what would be the estimate. But going the way it is, looks like that's going to remain a big category since you can take it while you're traveling and all those becomes very important. Everybody will have one sanitizer in their pocket is what the expectation is, and that market is going to grow. Also, the hand wash segment as well was not as big. It was more, I think, in the South, because again, South, like all know, is more hygiene conscious. Now that would also explode in a bigger way. So we are seeing these kind of categories growing, while we can't put any number to it, but that's going to explode.

Would you put Household Insecticide also under the hygiene definition?

Yes. Absolutely, Manoj. Absolutely, Manoj, because Household Insecticides, the season has been very good, and it is extended by about 3, 4 weeks. That's one positive. The second one is more important is that nobody wants to go to the hospital because of the COVID. Whether you get the fever, whether you get the cold or you get the body ache, nobody wants to go to the hospital. For that, they are really, really worried about the mosquitoes. They're not taking it lightly now. So the investments in the Household Insecticides has gone up at every household for one reason that no point going to the doctors because they're scared about the COVID. So that is by default we got -- like that HI has got the much-needed respect now from the market.

The next question from the line of Amit Sinha from Macquarie.

Firstly, is it possible to share segment-wise trends of last 2 months, April and May? The reason for asking this is basically, you were highlighting that couple of the segments have done extremely well, including HI. So just wanted to understand what has been the trend in the last 2 months for segment wise, yes.

Amit, so for the last 2 months, obviously, for the first 15 days, there was a lockdown, and it was difficult for the goods to reach to the retailer. But the offtakes have been high on Household Insecticides because that was a clear peak season. So HI has done well. Similarly, Dishwash, cleanliness has become very important and lot more people are -- because of our antibacterial dishwash brand, Exo has done pretty well. Similarly, in Personal Care, Margo has been doing well in the last 2 months. So across brands, we have seen a good growth in all 4 categories in which we are present. We have seen a decent growth coming back.

So there is no differentiation in terms of the growth rate ex post wash? So rest of the categories are doing equally...

Absolutely right. Absolutely right, Amit.

The thing is that 85% of the business are absolutely fine. That 15%, what Jyothy said, that is the only thing which we'll get it back. Other than that 85% comes under the real essential and health and hygiene.

Sure. Sure. Secondly, sir, is it possible to get some sense on secondary sales trend for you in the last 2 months again?

Secondary is much better than the primary.

Okay. Okay. And lastly, I think, an extension of the earlier question. Especially for the soaps category, are you seeing -- I mean I understand hand wash and sanitizers would have done phenomenally well in the last 2 months. But soaps as a category, has it seen surge in demand much higher compared to what it has been growing in the last few years?

Yes. So we have Margo under soaps here. And yes, it was a slow start in the beginning. But since the summers are in here and usually we do well in the summers, and that's been on trend the way it has been. But -- yes. So it's the same like all the seasons that have been, maybe slightly muted, but still, it's a good enough sales that are happening on Margo.

The next question is from the line of Tejash Shah from Spark Capital.

Just a couple of questions from my side. So in the recovery phase of April, May, how has the rural growth been versus urban?

Tejash, so rural has been -- today, it is easier. It is again dependent on certain city to city. Like Mumbai had some challenges. Chennai may have some challenges. Surat and Indore may have some challenges. Otherwise, urban is doing fine. There's obviously certain red zones and containment areas, which are in challenge. While in the rural market, it has been much easier to get the goods across. But what we see now, going forward, I think, the whole game changer can be the rural distribution and the rural demand. Given the government push or government support to the rural market, we may see the rural growth also coming back.

So as of now, whatever rural recovery we are reading about in media and all, it is relative to urban not doing well. So you are not seeing -- so rural Y-o-Y would not -- has it picked up?

Yes, yes. Rural is now doing better.

Relative to last year, not just urban?

Yes, that's right.

Okay. Second, how has been the recovery in GT, urban and online, different channels?

So GT has been doing fine. As we speak now, 85% to 90% of the distributors are back. GT is doing better. Modern trade and CSD, as we said before, their stores are -- 50% to 60% of their stores are open. So there, things are now picking up. I think in the month of June, you will find most of them again coming back. And e-commerce is a small base, but they are doing fine. And as we speak now, things are picking up pretty well.

And lastly, we have a decent land bank, and we are waiting for right time for a while now to liquidate and create cash out of it. Now looking at macro environment to the consensus view that land market or the real estate market won't recover in the near future. So any rethoughts on that? Or do you still hold on to that view?

We still hold on to that because we always wanted the right time, but now it is really bad time now. And at least till 2021, I don't think that anybody will venture into buying any real estate. So we are not desperate. We are holding on to that. But in case like, if we get a buyer, we are always there to sell. But otherwise, in 2021, we'll be very, very cautious in capital expenditure also, at the same time, like if I get a buyer, we'll be more than happy, but not a desperate seller.

One bookkeeping. What is -- what is the ETR for next 2 years?

About 15.1%, 15%, you can take it. Correct, Sanjay?

Yes. Correct. Yes, that's right. We continue to be in the MAT and 15% is the right number.

The next question is from the line of Abneesh Roy from Edelweiss.

Sir, my first question is on the Dishwash. So March is not exactly a peak month in the sense Dishwash is a more consistent usage. So a 21% dip there is much sharper than the volume dip seen by any stable company as a overall. Plus there is a 70 bps drop in the category of future Pril liquid. So could you explain both of these things? Why such a sharp decline? And why 70 bps loss? 70 bps loss on a 16% market share is quite huge. So why this is happening?

Abneesh, this is Ullas Kamath here. See, historically, if you see last 3 years of average, if you see, the last, like 10 days of sale is between INR 150 crores to INR 200 crores what we have done. And that's a cycle in which the company is working. And always it is so because pre -- like HI season, our stock, if you see in December, we start building up the stock, and most of it will go to the market in the last, like 10, 15 days. That's number one. And number two is that Margo. So again, that goes to the market in the last 10, 15 days because of the summer. Now if you quantify this, the percentage-wise, while it looks 23.8% like a big drop when you see the quarter. But when we analyze the last 3 years also, like we are fine, we are comfortable. But going forward, the percentage has to come down because a lot of corrections we are doing is between the primary and the secondary. Now the second is that market share loss. What you're seeing, it is of December like '19 to December '18. So the last quarter market share data, data we don't have. Whatever market share data we have shown in the presentation, it is up to December 2019. And for the current year, we are yet to get the quarter number. That we'll get only after 30th of June, maybe by July 20th we'll get that number. So when you see our secondary, when you see the market, which we track every salesman sales through sales force automation and also the secondary sales, it has done much, much, much better, internal sales. But however, the market share data only when we get it by July we know where do we stand, but there's no worry as far as market share data of Dishwash is concerned.

My second question is when we speak to other consumer companies, they say, in crisis time, consumer goes to the leader brand because of the trust factor. Now except Ujala, in rest of the categories, you are not the leader. And when I see the data also, in Dishwash, 21% decline; HI, 35% decline; and soaps, again, 35% decline. So it tallies also. So would you say that's happening? And in Q1, again, this will come out when we compare your numbers to the leaders in each space, again, this can happen?

No, sir. Leader is decided by the consumer not by anybody else. The consumer decide who's the leader whom he wants. And during the lockdown when you're locked down, I'm locked down, everybody is locked down, we have also gone to the store and we have picked up whatever is available in the marketplace. When people have 1 kilo, they have gone for 2 kilos. People have the money, they have gone for 5 kilos also. And it is a very, very difficult situation during pandemic. And Margo is 100-year-old, the leader or no leader. Like Ujala is 35-year-old, whereas Margo is 100-year-old. Henko is 30-year-old. So there is nothing that in our portfolio which will say that like we are followers or we are non-leaders. We are leader in our own category in our own state or the state we are doing extremely well. There's no doubt in my mind. The problem during the lockdown was the kind of sale what we have done with our portfolio as HI and the Personal Care in the last 10 days was the differentiator and nothing else. And if I'm plus 5% as of 20th of March and that means that if I had continued at the same rate, I'll have been plus 5% or 6% by 31st March. That's the way how we built up our stock. So there's a way -- that's how we've had the stock in the warehouses. That's what sold in the month of April and May. So to that extent, our planning was fine. Our secondary was much more than the primary. And on December call, I remember that we were telling that we want to reduce the pipeline stock, which we did that. We took the correction in December, and that has helped us a lot. And what we were not able to sell, we were able to sell in the month of April because that's how the planning was there, the sales planning was done. So there is -- if you see the market, if you see the way how we have done and, at least, from our point of view, we could do whatever the best we can, including the launching sanitizer and also the Margo Hand Wash. As of now, the production is a problem for us in sanitizer and Margo Hand Wash and not the demand as such. And this 10 days cannot define or redefine leader or non-leader. I am certain about it. There is just 10 days what will happen. And another thing is that if the lockdown were to open on April 1, trust me, INR 150 crore the sale what you have lost, it will have been in the marketplace by 10th of April. Because there's no credit sales. In the GT, we never had any credit sales. Even today, there's no credit sales in GT, general trade. So if 31st March, if it had gone up, that lockdown is open and 1st of April, trust me, 10th of April, INR 150 crores will have been in the marketplace. Otherwise -- alternatively, if the lockdown has started from 1st of April, which I wish they will have, then I will have got my number right. So to that extent, absolutely, no worry, no concern from our point of view.

The next question is from the line of Aviral Jain from SG India.

I had 2 questions. One was the decline in sales in March. Like a lot of people have asked this question. But since there is more salience towards southern states, and Kerala, I believe, went into lockdown on March 15 versus the nationwide lockdown, which was announced on March 23. Is that something to do with more pronounced drop in sales? Is it...

Not really. Maybe it will have impacted maybe a 1% or 2%. For us, the difficulty was in Delhi region much more because they had a lot of difficulties during the -- like in the second, third week, we started seeing the difficulties in Delhi, that region, northern region. But overall, if you see, this impact was not that much because of Kerala. Because Kerala did pretty well.

Okay. My second question was on -- Sanjay mentioned that you're targeting 15% to 16% EBITDA margin for this year. Now if -- and there are certain assumptions I'm making here. Since Post Wash could get impacted for the rest of the year because as Jyothy also submitted that people are not going out as much and it's a product which you would use once you're going out and it is more discretionary in nature, and I'm assuming since we have huge pricing power because of 80%, 85% market share and even on Crisp & Shine, there is no competing product out there in the marketplace. So the -- generally, the gross margins would be much higher and hence -- and even the advertising above the line, below the line would arguably be lesser on that Post Wash category. So how would you make up -- if my assumptions are true in terms of gross margin and EBITDA margin, do you still -- if the Post Wash category does not grow or kind of reports a significant decline this year? And then if you could just take me through the EBITDA bridge or you can touch the Post Wash category has gross margin and EBITDA margin in line with these?

Yes. So Aviral, you are right. We'll have to do at this point of time some crystal gazing because we'll have to see how Post Wash comes back in the next month or so, if you're looking at very short for this quarter or if you're looking at for the full year. Full year, yes, Post Wash will again come back. As we said, we are the market leader, both in Ujala Fabric Whitener and Crisp & Shine. So we should be back on that. There will be certain components of the entire gross margin and EBITDA, which we'll have to see, and we are aligning ourselves for that. So yes, there will be certain costs RM/PM benefit, which we will get. There may be some Post Wash sales, which we'll see in very short period going up and down. However, from the cost part of it, there are certain measures which we are taking. And maybe some of those will help us, some of the media spends. We'll have to see how the demand comes back and how the lockdown opens and how people are able to go back to the market. So putting all these things together, as of now, we think we will be able to be in the guided range of 15% to 16%. So it will be a mixture of a lot of things, but all our efforts are there to get to that number.

Sure. So basically, [indiscernible] it's a more -- much more profitable category compared to the entire company as I feel, right?

Yes, absolutely. So we are all aligned. We are all focused to bring back both the profitable and not -- the company average gross margin brands.

Sure. Just one watch out as a shareholder from our standpoint because of what we'll have to [indiscernible] higher profitable category may get impacted a lot more for the entire year?

Yes. Also Aviral, at some stages, certain brands where there were certain demand-led trade schemes, which were there, there have been some realignment on that. So lot of factors which will come in and give the profits, which we have been used to seeing or used to delivering in the past.

The next question is from the line of Kaustubh Pawaskar from Sharekhan.

My question is on these lower-unit pack. In the initial comments, Sanjay, you mentioned that lower-unit packs are getting higher demand. So can we say that because of it, there would be change in the mix in quarter 1 or quarters ahead because lower-unit pack sales would be on a higher side?

Kaustubh, if you are addressing on the margin side of it, margins, it won't be that impact on it because lower-unit pack generally do not have any trade schemes and promos on it. So at the company level, we will still be able to manage good margin. And if low-unit packs are going in some of the markets where it just becomes as an entry strategy for us, so they are helping us. There's been a good 15% to 20% increase in those low-unit packs in those relevant markets. So actually it's helping us in building our market share also for long term.

So what is the current contribution from LUP to the overall revenue?

See, it depends on each brand to brand. But if you want a number for the whole company, you can take it as around 25% on.

Okay. My second question is on the toilet cleaner, T-Shine. Considering the hygiene categories getting a higher demand, would it be not prudent enough to launch T-Shine national wide? Maybe at least in 4, 5 states and gradually inching up to pan-India level?

Yes. So T-Shine, while we have it in Kerala as of now, and it requires a lot of investments, right now, our strategy would be to go immediately to the next Southern states. And we also have a T-Shine floor cleaner, which we have already taken it to the other states as well in the current quarter.

Ad spend would be on the Dishwashing space. Along with the hygiene importance, I believe that there is a lot of in-house consumption which is happening currently because most of the people are staying at home and the food has been prepared because out-of-home consumption is absolutely not there. So considering that, some of the categories like Dishwashing or toilet cleaners or for that matter, even detergents, I think those categories would see better growth if you have a normalized business environment. Is it a right understanding?

Yes. Yes. Correct. So we are witnessing those growths in our portfolio as well.

Okay. So I think Dishwashing segment would see a better growth in quarters ahead?

Yes. Definitely. And our Exo is pitched on antibacterial. It is all the more hygiene conscious bar since. It was the first antibacterial Dishwash bar in the country since 2000, and it's doing really well. Yes.

Great. And one last one. What is your direct reach currently, in terms of distribution?

Yes. So our Ujala Fabric Whitener is available in around 3 million retail outlets. And our direct reach is around 8.5 lakh retail outlets.

The next question is from the line of Keshav Garg from Counter Investments.

Sir, in the December quarter, promoter shareholding fell from 67% to around 62%. So what's the reason for promoters exiting?

Promoters have -- they had pledged on the share, which you all have seen in the earlier quarterly numbers. And the promoters sold 4% stake to reduce their pledge against the shares. So to that extent, the reduction is there.

Okay, sir. And sir, are there any further plans to also exit or it's done? And what's the remaining pledge?

Yes. As of now, the outstanding is about INR 60-odd crore. It is equivalent to 1-year of dividend in the promoters' hand. So there's no further dilution or selling will happen. It is just that we wanted to reduce that existing pledge, which we did it. And as of now, what we have is INR 60 crores of debt, which is equivalent to 1-year of dividend. So we are comfortable with that.

Sir, in our -- sir, our Household Insecticides and laundry service together, we have employed INR 206 crores. And sir, this -- both these divisions are making losses. So it is pulling down our return on capital. Sir, so when do you foresee these 2 divisions turning around? And especially the laundry division this past 3 years top line and losses are constant. So what the strategy would be?

Yes. Strategy is like laundry business is high CapEx. And also now in COVID, our experience is very bad because the retail driven and where we do have business with railways and railways are not running and people are sitting at home, so they are not wearing like good clothes to the office. There's no weddings are happening, and there's no travel is happening. So it is absolutely, like it has affected the laundry business and which is obvious because the reason which I told you. Now company had taken a decision in the past that we don't invest any more CapEx in JFSL. And we also look for a partner if we get one strategic partner. And it is -- we are the largest launderer in the country, and we were the pioneers. We have been in the business for the last 12 years. A lot of money has gone into the business, and we don't want to exit the business as desperate. We have built a beautiful business and Fabric Spa brand is the biggest brand in the country, which we do about INR 40 crores of business in service sector. And out of it, 75% comes from Bangalore alone. So we see some hope there. We are looking for some strategic like a partner there because you need huge money to take it all India. All I can say is that we are okay to -- like to work with somebody in that business. But from the JLL perspective, there won't be any further investment. But if any good candidate comes and they want to like take the business forward, JLL will look at that. This is all what we can say at this point in time.

Okay, sir. And also, sir, why aren't we writing down our goodwill of INR 783 crores? So why aren't we basically depreciating or amortizing it?

Yes. So the goodwill, it all pertains to the goodwill what was accounted at the time of purchase of Henkel business. And we all know the Henkel business what we have purchased at that point of time and the value which has got generated now. So every year, from accounting perspective, there is a goodwill impairment test, which is done. And the value of what is there is far, far more on, what the goodwill is on the books. So there is no need for any goodwill to write-off.

Sir, basically, from the Henkel stable, only the Pril, sir, is doing well and Fa, sir, there is just no trace of that if you go in any mall or anywhere. It's hardly ever it seems to be there.

So Pril, [indiscernible] the Pril and Fa which is other 2 brands where we continue to pay royalty to Henkel because these are their global brands. But other than that, Margo has done phenomenally well. When we bought it, the turnover was INR 40 crores, INR 50 crores, now it's almost a INR 200-crore brand. Similarly for Pril and Mr. White and Henko itself. So all the brands have done phenomenally well. And Fa is our conscious call because a very crowded space, and we want to focus on other brands. So rest all bands have done pretty well from the time we bought it from Henkel.

Sir, so maybe Fa we can try shower gel, exclusively shower gel brand since it sounds like a high-end foreign brand. So maybe...

We'll take your input, sir. We'll work on that post -- like at an appropriate time. Because Fa is -- the formulations are managed by Henkel and we do not have complete liberty as we have in other brands. So to that extent, they need to approve on that. But I'll take your suggestion. Good suggestion. We'll consider that.

The next question is from the line of Abhijeet Kundu from Antique Stockbroking.

My first question was on Ujala Fabric Whitener, as it was very high -- if forms a large chunk of your overall profitability. Now if you are saying that there is a slight decline or if there is a moderation in Ujala Fabric whitener, would that loss hurt the overall profitability during the year? I understand that crude prices have fallen quite a bit and that would help, but still this volatility -- what's your view on that?

Yes. Ujala Fabric Whitener, obviously, the company started its journey with Ujala Fabric Whitener. But as we stand today, it's been only 12% to 14% of our total top line. So a lot of other brands are there, and they also have pretty decent -- good margins. So we're not so much concerned about 1 particular brand going up and down. And that's the beauty of our entire portfolio. We've got a fairly good mix of brands in different categories and having good gross margins.

Okay. And secondly, in the initial period, I mean, in the lockdown as well and in the current lockdown, rural markets have not much impacted. And what we understood was that, in rural markets, people were moving around as well. So Ujala Fabric Whitener should not have been substantially impacted. So I believe the impact may not be much in terms of sales, right?

Yes. That's right.

In April and May. I mean, the way it has laid out to be is like Ujala Fabric Whitener may get impacted then.

No, no, no. I think let's just clarify this point. What we said was because -- there was some diverse -- dissection, which was done, 80%, 85% of our product portfolios are essentials. And that means every day, you go and you take a bath and you wash your utensils. And therefore, you need all of them. Only if it's in the Post Wash category, which is for us Ujala Fabric Whitener and Crisp & Shine, since -- for a month or 2, people were staying at home, yes, there could be some drop in sales. But now, again, it's coming back, people are again back to work in most parts of India. And as you said, rural market were affected lesser. And therefore, the Ujala Fabric Whitener is doing -- has been doing well there as well.

And Kerala has seen a very fast recovery in all the states. I believe you have a good amount of exposure to Kerala as a state. So that would have also helped you -- in April and May that must have helped you a lot, right?

Yes. That's right, sir.

The next question is from the line of [ Sajal Kapoor ], individual investor.

So first question is, so the 10 days of disruption in the quarter, which had 90 days, volumes declined by 22%, revenue is down 34%. I mean I can't get my head around it, to be perfectly honest. Please, can you help me out in digesting the divergence?

Yes. Sir, we all -- it's not only you or me or I think all of us know that the operations were suddenly disrupted. We already spoke about Household Insecticides, we do additional INR 100 crores in the quarter. The only reason being the season of mosquitoes come in only in the month of April, May. And therefore, the trade buys it in the last fortnight of March, and they are able to sell it all over India. So the operations were totally disrupted and the transportation was halted. And because of the part of our product portfolio was affected much more. And therefore, we had these -- at the cutoff date of March 31, the impact is there. But as we said, immediately once the lockdown was announced, I mean, we proactively sought clearances and permissions for our operations to resume and our sales force was to be back on ground. And we played on our strengths since then. Manufacturing was in our control, so we got back on manufacturing, sales teams. Again, our distribution model is unique, wherein we have our own sales force on our payroll versus people who are dependent on distributor sales force. And the last, the strength of our own product portfolio, which is more essentials, more hygiene products. So with all these committed and -- our committed and resilient sales team, I would say, and the entire team, we are doing a good job on the ground.

Okay. Okay. On the -- second one on the cash flow statement. So yes, the PBT is down Y-o-Y, and that has taken some hit. So our net cash is INR 170 crores against INR 300 crores. But the biggest contributor there, I see, is the INR 77 crores swing in the payables. Can you just help us out, please?

Yes. Yes. So sir, cash flows, again, it is -- again, the cash flow statement is cut as on a particular date. If for the last 10, 15 days, we were not able to sell x amount of quantity, the inventories have gone up and we could not purchase anything in the last 15 days. The purchases were down. The inventory levels were down. All I can assure you is, as we stand today on 31st of May, the cash flow has been pretty good. And we will represent the balance sheet at the next cutoff date, you'll find that the healthy cash flows what we have got has brought down whatever concerns you're seeing on that cutoff date. And in certain cases, we also paid to our suppliers to support for the COVID loss because a lot of our supplies to whom we have long relationships, even though the due dates were beyond April, we were upfront and paid them so that 31st of March, they could pay their salaries. And these are all the activities or all the support what we did. We were the first one to get the supplies back from those vendors when our production started in April and May. So a couple of things you do when you're running a business to support our business partners.

No, I think, that's a valid point. I was expecting that sort of -- because it looked like prepayment has been because the payables have jumped sharply. And I think it's a good gesture to keep your suppliers in good shape because then you can just quickly bounce back, which I think is reassuring. So just one last thing very quickly. And your -- so majority of sale is GT, which is cash and carry, good for cash flows. On the MT and CSD, we are only doing a smaller part of the business. So what kind of explains the working capital debt that is the short-term debt that is about INR 200 crores? And that seems to be sticky Y-o-Y. So what are we doing about it? Because majority of our business is all cash and carry, right?

Yes, sir. Sir, 20% of our business is institutional. When I say institutional, there is a combination of modern trade and CSD. Now modern trade has a credit period, and historically, they have been in the range of 20 to 30 days. And CSD business, they have been historically in 60 days, but nowadays, it's stretched a little longer. So it's primarily the institutional business for which we can't do much in cutting down. There's a policy for them, but we do get all our money. We haven't had any write-offs or any issues from any of these modern trade or CSD sales.

Just adding to that, because we operate from our own factories, our money will get blocked by the time when you take the raw material, then the work in progress and then the finished stock, and then only we realize the money. Even though 80% is a GT, the money we get is on the day when we supply. We don't give the credit, but we get the money when we deliver the goods on the same day. Against the RTGS, we raise the invoice. But cash-to-cash when you see there because we operate from our own factories, and we generally keep 15 days of stock, another 15 days in transit, another 10, 12 days in the factory, and then the warehouse we keep about 7, 8 days. Together that will come as like a big investment, and -- which is what we are managing. And because of that, like on 31st of March, whatever the stock we had, we were able to quickly release it in the marketplace from our warehouse. So the moment we got the permission from the authorities, we were the first to go to the market to opening their warehouse because across the state, our warehouses did have finished goods. And that was as a stock as of 31st of March 2020.

The next question is from the line of Shirish Pardeshi from Centrum Capital.

I have a question for Jyothy and Ullas. Last time when we met, we said that our ambition is to grow 10%. And we said that we are going to up spend on the advertising and all. I'm not per se looking from the guidance perspective, but in the current circumstances, what ambition the management will look at for next 3 to 4 quarter?

First I'll answer my bit, then Jyothy will answer. From my side, like this is a great opportunity we got now, and I really see opportunities right there. Some of our things have worked very, very perfect because the distributors whom we are dealing with, they were the first to go to the market. We are also the first to open the warehouses. Factories, we've opened the Guwahati factory as early as April 10 with the permission. So one is that, a lot of -- like we got the positive the way how we have been doing it. And also, the recoveries in month of April and May is the highest because every buyer who's standing in the round or in the square in front of a retail outlet, there is no credit given by the retailer. So retailers was not given credit; distributor, we never give the credit. So a couple of things, which, as I told you that what you have learned is that, the way how we are doing the business is the best to do during the crisis. The second one is that we considered our salespeople as the frontline warriors. And there was a war room setup under leadership of Jyothy, and she was talking to everybody on a daily basis at ASM level. That made them to feel that, okay, somebody is watching and somebody wants us to sell and that we did it, and that's how April and May has been positive. And lastly, now we feel that like our 10% growth is definitely in a good time. It will have been much more, but this is a time we need to work very hard. At this point in time, we are not able to put a number to that, but our confidence has been absolutely like much, much more than what it was before, especially the way how our supply chain team has worked, sales team has worked, our marketing team has worked. And beyond that, if a company can launch in 21 days a Margo sanitizer sitting at home, that says it all. So from my side, definitely, we do our best, and we are confident about it. Jyothy, you need to say something?

Yes. Yes. So going by the guidance, sir, if it were really good times, then that would hold true. But we are seeing positive results so far. So past is gone. And the hygiene -- and we are in the hygiene category, so that should help us. Also the -- we are focusing on the vocal-for-local initiative as well. So those things should give us that extra impetus. And good things will happen, sir.

Yes. Just a follow-up on that, Jyothy, now you're almost there, and you know you're taking shots. What category personally excites you? HI, Post wash, Pre Wash?

Well, that way, it's the Dishwash. HI is also doing well for us. While I'm excited about all categories, frankly, I've been involved in this since last 15 years. And for me, each and every brand is very important. And we are seeing a good demand on hand wash and things like that on our Personal Care, Margo as well. So for me, frankly, all of these are very, very close to my heart, and they all will do well.

All right. Just last question on HI. Would you be able to share FY '20, what is the category growth? And if you can spread liquid versus MAT versus coil?

The category growth was somewhere around 10%, 11% on this thing. But on coil, it is very low single digits.

And electric?

Yes. Electric is what I said, around 9% to...

10%?

9% to 10%, yes.

Okay. And lowest is coil?

Yes.

And what percentage coil now commands?

Sorry?

What percentage coil commands in the overall HI?

For?

Total for industry.

Yes. They are almost equal, sir. 50% to 70% in the portfolio for us. And for the industry it is 50%, yes.

As there are no further questions, I now hand the conference over to the management for closing comments.

Thank you, everyone, for your patient hearing, and it is almost 1 hour 15 minutes. Thanks for all your questions. And in case if you have any follow-up questions, Sanjay is always available. His telephone number is there on the presentation. And thank you very much for listening to our earnings presentation. Thank you, all.

Thank you. On behalf of ICICI Securities, that concludes the conference. Thank you for joining this conference call, and you may now disconnect your lines.