Jyothy Labs Limited (532926) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Jyothy Labs Q4 FY '24 Earnings Conference Call hosted by ICICI Securities. [Operator Instructions] Please note that this conference has been recorded. I now hand the conference over to Mr. Manoj Menon from ICICI Securities. Thank you, and over to you, sir.

Hi, everyone. As always, at ICICI Securities, it's our absolute pleasure to host the management of Jyothy Labs for the results conference call. The company is represented by Ms. M.R. Jyothy, Chairperson and Managing Director; and Mr. Sanjay Agarwal, Chief Financial Officer. Before I hand over the mike to the management for the opening remarks and further Q&A proceedings, I want to congratulate M.R. Jyothy for the reappointment and also as the designation as the Chairperson and M.D.

Thank you, Manoj, and good afternoon, everyone. We all welcome you to the conference call of Jyothy Labs. We'll be discussing our performance for the company for March quarter and for the full year ended March 31, 2024, with all of you followed by a question-and-answer session. So a quick snapshot of the results. I'm sure all of you must have had a glance of it. We have delivered a top line growth of 7% for the March quarter and 10.9% for the full year FY '24. In terms of the volume growth, volume growth for the quarter is 7.2%, and for the full year is 9%. We continue to deliver healthy performance with double-digit revenue growth for this year and 2-year -- and also on a 2-year and a 3-year CAGR basis. EBITDA margin for the year stands at 17.4% versus 12.7% for the previous year. Also, our net profit for the year has grown by 54% and stands at INR 369 crores, our highest yearly profit. So good profitability and performance. For the quarter as well as for the year, we have increased our A&P spend significantly by 30%, and we believe that this constant investment in our business is giving us the strength to service our consumers and provide a sustainable growth for years to come. So that's a key pillar, which we want to keep investing for the future. Similarly, at the balance sheet level, 2 key metrics. Our working capital is at 5 days versus 13 days last year, which demonstrates an efficient operations and also cash and bank balance at INR 618 crores. So a strong balance sheet will help substantially in our future growth. And Board has also proposed a dividend of -- a final dividend of INR 3.5 per share, which is subject to the approval of the shareholders. Talking about other qualitative factors. During the year, we have been focusing on enhancing our direct distribution reach. So now we have surpassed -- we were at 1.1 outlets till last year. We have -- the other is reach now is at 1.2 million retail outlets. We've been focusing on new launches. So prominent ones have been on the liquid side, liquid detergent and Margo neem Naturals during the year. Also increasing our engagement with consumers thereby strengthening our core business. And as we move along, our focus has been and will be towards more digital acceleration, which will further enhance our sales productivity and consumer engagements. In terms of category performance, Fabric Care is doing well with 10% growth this quarter and for the full year, it's 12.6%. We continue -- continue to witness healthy growth in our Fabric Care portfolio and also keeping a sharp focus on delivering value in the main watch detergent brands. There's also a good traction in our liquid detergent category and a key liquid detergent brand, Henko and Ujala, both have shown good growth. Similarly, our expanded distribution is helping us in faster growth and expansion across all product lines, including our mid-price detergent brand, which is MoreLight and Mr. White. Our Dishwash category, that sales have increased by 6% for the quarter and for the full year, it's grown by 8.3%. We continue to enhance the brand equity of both Exo and Pril by driving LUPs, doing more digital awareness, ground activations. Given the untapped potential of this category, we have done some SKU mix realignments as well based on the consumer feedback and cognitive actions. So hence, very positive to strive for higher growth -- higher growth in future as well. In HI segment, our sales have been -- there's a decline by 9.8% for the quarter. However, the full year, it's a flat growth. And the reason for this particular quarter decline has been primarily because of seasonality impact. And in our core markets of North and East of India, there's been an extended winter season. So that had given this decline. But as we know -- as you all know, our efforts have been more driven towards a liquid portfolio, and we have a superstar Kareena Kapoor, and we are trying to focus on a key market, emphasizing the unique automatic feature of our Maxo machine, which will drive the long-term success for our category and for the Maxo brand. Finally, for -- our Personal Care sales have increased by 18% for the quarter and 21% for the full year. Our Neem-based Margo soap with its natural benefit proposition has been delivering a robust performance, both our base variant and the new variants, which we have launched are doing well. And with the higher growth in our Personal Care portfolio, it's a very positive outcome for us as it enhances the premium or the higher margin products in our overall portfolio at the company level. So with that, just to summarize, we'll continue to focus on volume-led top line growth, considering our growth aspirations, we'll endeavor to have higher allocation of our resources towards brand building initiatives and also expand -- continue to expand our direct reach distribution with the aid of technology. For FY '24, '25, we are expecting healthy growth. And one of the things which have been slightly an issue was on the rural market. So we see now there's a gradual improvement or pickup in the rural market and the slowdown seems to be now bottoming out. So hence, overall, macro looks positive. We'll also be focusing on gaining our market share across categories. So this will enable us to build a higher scale for our business. With this, I finished my opening remarks. We are happy to answer any questions or clarifications you may have. Thank you.

[Operator Instructions] First question is from the line of Vishal Gutka from HDFC Securities.

Yes. Congrats on a good set of numbers. I have three questions. First, with regards to detergent, as of now what is the share of liquid within overall pie. All I know that it's a little bit on lower side. And what are you doing to increase the share that one of your competitor is planning to launch value for many liquid detergents. So any plans of launching -- giving more value to customers where launching at a disruptive price point? Second question is on the soaps. So margins for the soap category has come off in a significant manner. I believe that you're investing to drive sales given it [indiscernible]. By when you expect the margins to normalize in the soaps category? And a third question on the DMS, Distributor Management System. In the presentation, you highlighted that you have installed new DMS. Can you please throw some light what is exactly what the new DMS is all about?

So yes -- so the liquid detergent for us, yes, it's a small contribution, but the category is growing, and it's on both the brands that is Henko and Ujala, both have been accepted very well. Henko is on the premium side, Ujala is more on the mid -- mid-premium value for money brand. And both are doing well, good acceptance in modern trade, e-com and also in the general trade. So -- so far, doing well. Yes, it's a small percentage for now, but we see in the coming future that the category is growing well and which will also, in turn, grow well for us. Now value for money, you asked in terms of competition, well, you will see something in the future. And we'll be very price competitive in both be it in any segment and the policy of the product will be much ahead of what the competition is because we always believe in delighting the consumers for the money they pay in whichever the segment that is. So that's on liquid detergents. On Margo, yes, we had a variant launch last year. We had introduced 3 new variants, and we had to drive a lot of investments behind establishing those variants. And if you see the Personal Care, for us Margo as well as [indiscernible] has done really well and [indiscernible] the days and the variants have done well, and we have invested behind both the brands I mean both the segments. So that is why you see a bit of margin compression there. But otherwise, will do well on the Personal Care as such. DMS, yes, we had [ Ada ], which is a different Distribution Management System, we have shifted to [indiscernible], which is a little more accepted in the industry and implementing that has been done in the previous year. And this year, we'll reap benefits of implementing that. It's much more robust as a system. So we'll see much more benefits coming out of that.

Great. Just last one question from my side. On the NPD, I think last 2, 3 years, having a lull period for NPD, apart from creation of few detergent brands that we have. So any plans of launching new NPDs in FY '24 and newer categories into '25?

Yes. We have a few in pipeline, but you'll come to know as and when we launch it. It will be too early to say right now, but we do have many NPDs lined up.

The next question is from the line of Manoj Menon from ICICI Securities.

Sorry, I had muted it. Sorry for that. Yes, so two clarifications from my side. One on the ad spend increase, which is quite pleasing to see, but some granularity if you can offer in terms of how much of this is actually for NPD and, let's say, building something for the future. But how much of this is, let's say, a relative competitive intensity share of market related aspects. So that's one.

Yes. So Manoj, when you say new launches, we definitely want to back it by investment. So if it is a new launch, we would end up spending a little more than the regular asset. And the rest of them is on a continuous regular investments that happen. I can't put a number right now for you. But any launch will have the more intensity. And we don't want to play the share of voice game there. We would want to back it by consistent investment. We have many brands to support, and we have more celebrities on most of the brands that we have, where we believe that the visibility and with a good reason to buy, I think that will be better for our brands for now.

Fairly clear. On the second aspect is on the distribution expansion. I did hear the commentary about the numeric distribution expansion aspect. But some more color in terms of -- let's say, because you have been on this journey over the last few years and [indiscernible] learning with [indiscernible] kind of supported this one, which one possibly hasn't. And more importantly, for those outlets which you would have reached for the first time in the last, let's say, 12 or 24 months, what is the incremental possibility of line selling with selling, et cetera, which you see? And any quantification which you can provide either the past or the future?

See, Manoj, I don't want to quantify anything. Yes, we started the journey a couple of years back, and we'll continue the journey. So it's not -- it's an ongoing thing. You would like to recruit more retail outlets into this thing. And when we recruit, it doesn't mean that immediately you get the thing. We start with the brands that are what do you say, help us get entry into those new outlets, which starts from an LUP and it depends on the kind of market where we are -- also, if it is rural, it's a different thing altogether. So the approach is different depending on the market. But we see that these new outlets will become the going forward. This will start generating more and more revenue for us.

Fair enough. Maybe one small clarification. If let's say, the contribution to your overall volume throughput from the distribution vertical or rather, let's say, the [ digital ] vector, if x right, in FY '24. Would it be x or 1.1 or 0.9x, how do we think about that, let's say, for the next 2, 3 years?

Come again?

I suppose, let's say, your overall growth of x let's say [indiscernible] the distribution vector, he has given you a certain rate of growth. Do you think that similar rates of growth are possible for the next 2 years also?

Yes, it should be. We also have new product launches. We have [ slowly ] existing retail that we have grown. Those become a pipeline for us for the future, new set of launches, new set of -- see, Manoj you also know that some of the brands for us has some regional in a certain geography. There some of the brands. But these things that we are doing is for from a future perspective as well. So where we nurture these retail outlets, those outlets will become tomorrow's business for us. So for us the current and the new will happen parallelly. So I hope I'm clear on that.

The next question is from the line of Rishi Kothari from Pi Square Investments.

I wanted to know what exactly are we doing in terms of [indiscernible] detergent or more competitive in terms of the, let's say, dealer or any specific store digital products? How we are different from the [indiscernible] part data that we are providing to our competitors compared to competitors?

Sir, unfortunately, the line is bad, and we can't hear understand anything, whatever you have asked for. Would you like to just join again by dialing up.

Am I audible now?

This is little better, yes.

Yes, I just wanted to get some clarity on the [ specific ] product that you are dealing right now. So [indiscernible] is focused on the Tier 2, Tier 3 segment, right, if I'm not wrong?

You're talking about liquid detergents?

Yes, yes, yes.

Yes, liquid detergent for us is more, I would say, not Tier 1, Tier 2, but more modern trade, more urban and more so much out specific as a market, that's broadly our take on liquid detergents. It's more growing in the south and more in the urban areas.

Okay. So in terms of competitors, as we saw in some of the competitors that are big players in the market right now, they're also shifting from powder detergent to the liquid within [indiscernible]. So what exactly value addition you are providing for a customer in terms of -- or in terms of dealers that you are giving them product in terms of margins or something that disperse your product compared to any competitor?

See, our products are well-known brand names. It is -- if you see the competition whatever you're talking about, if there are new launches, they take time to establish unless they really cut margins, they can't. So the thing is we have good brands [indiscernible] is a very well-known brand since many years. So we have introduced liquid detergents under Ujala, which people know the quality that Ujala offers. People know the quality what Henko offers. Henko is on the premium end. So once you use our product, you will come to know what is the difference between us and the competition. And we are very competitive when in terms of -- I mean we are very competitive in the market. So once people use it, we also back it by investment. So once the consumer uses, they stay on with us. So it's the quality also that is helping our brand because we need to have repeat purchases, right? So it's definitely the quality.

Okay. So in terms of the product mix or in terms of the new product that we are trying to launch in the market, so how much CapEx are you expecting for next 2 to 3 years, you can have some ballpark figure?

Did you ask for CapEx?

Yes, CapEx. Yes.

So that won't be anything significant in terms of the new product launches. It will be more on the media spend, which we need to do for the new product launches.

Okay. So in terms of renovation part, are we looking at CapEx?

Yes, that normal CapEx will be to the tune of INR 40 crores to INR 50 crores per year.

The next question is from the line of Gaurav Jogani from Axis Capital.

My first question is with regards to the Dishwashing segment. Now if you look at for the last couple of quarters, the growth rate has really come down there into, I would say, high single digit or thereabouts. And previously, it used to grow at high doubles. I would not say high, but grow double digits. So what has really happened for the growth to slow down in the last couple of quarters?

Yes. So on Dishwash, see, over the last 4 years, we've been on double-digit growth and the basis have also gone up. But if you see from a market share, we have been holding on to market share. We are growing in line with the category. So they are as per what the category is doing, we are there in a bar and the liquid and that will continue. So we have 2 strong brands there. We are the #2 brands in the country, both Exo and Pril. And we are confident that it will continue to grow. For example, East, I think -- south we were anyway dominant. But East was a market where our market shares were in low single digits. Today they are in good double-digit market share. So that shows us the growth and that this our confidence on both the brands.

One thing on category, do you think after the high in base and all people were using a lot of this and where you know and that is where the category growth has slowed down and the rates that we are seeing right now are more sustainable ones?

No. So the category growth are healthy, sir. So that will -- that is as of now, the category growth, both on liquid and bars are healthy, and that will continue. Hopefully, that will continue. We are very much prepared to get those growth on our brands as well.

Okay. And my second and next question is with regards to the margins grid. We had enjoyed good margin during the deflationary cycle over the last year. But now with the raw material prices kind of stabilizing, what will be your outlook towards the margins going ahead?

So sir, while as you said, yes, commodity prices have been volatile, however we'll target to have our EBITDA in the range of 16% to 17% for the full year.

Perfect. And sir...

Having the media spend, the way we have been doing it in the past.

Okay. And just on a bit of the pricing bit, we have seen competition taking price cuts, especially in the detergent segment as we [indiscernible]. So any pricing action from your end that you're emphasizing because given that your volume and value growth in equal better, it seems that you have not taken any price cut?

That will be -- I mean that's regular in nature. I think anything significant which needs to be worried about. But due to competitive action, if there is any price cuts or which we need to take, we'll definitely do that to remain competitive and drive the volume growth. But nothing significant there in any of the categories in which we are present now.

The last question with regards to the tax rate. If you look at it, the tax rate for this year is around [indiscernible] 23% mark. So what will be the taxable guidance for the next couple of years?