Jyothy Labs Limited (532926) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Jyothy Labs Q1 FY '25 Conference Call hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Karan Bhuwania from ICICI Securities. Thank you, and over to you, sir.

Good afternoon, everyone. It's our pleasure at ICICI to host Q1 FY '25 results conference call of Jyothy Labs. From the management, we have Ms. M.R Jyothy, Chairperson and Managing Director; and Mr. Sanjay Agarwal, Chief Financial Officer. I'll add over the call to the management for the opening remarks, post which we open for Q&A.

Thank you, Karan and good afternoon, everyone. I welcome you all to the conference call of Jyothy Labs to discuss the financial performance of quarter 1 FY '25. The results and investor presentations are available on our -- on the stock exchange and on our company's website. I hope everyone had a chance to look at it. Overall, there's been a healthy consistent operational performance with rise in market share for each of our brands. The year has started on a positive note with revenues growing by 8% in value terms and 10.8% in volume. On a 2-year and 3-year CAGR basis, it works out to 11.5% and 12.2%. The gap in value and volume growth is primarily due to increase in grammages and select SKU price cuts. On EBITDA margin, for the quarter, we stood at 18% versus 17.1% for the same period last year, increased by 13.7%, and our net profit grew by 5.7%. Last year same quarter, we had a gain from one-off sale of property of INR 9.6 crores in other income. Hence, the net profit when you see is not strictly comparable at the PAT level. So I mean, overall, if you see, we have delivered higher revenue growth in the last few years versus the industry. And this is coupled with increasing operating margins and a debt-free balance sheet and a healthy cash position, which is empowering our or will also empower our future growth. And we'll continue to focus on our rural growth or rural market, which is giving us a sustainable advantage. Our consumer franchise is getting stronger every quarter, and we have been able to strengthen our market share across all our brands. For this quarter, all of the segments have reported positive growth. In terms of key category performance, Fabric Care is doing well, it increased by 8.8% in this quarter while post-wash, Ujala fabric whitener, and Ujala Crisp & Shine has delivered consistent growth now. Our main watch brand, detergent brand, Henko, Ujala, IDD, Mr. White, MoreLight, they all have also accelerated growth across all channels. In our post-wash portfolio, Ujala Supreme, we've launched the Multimedia campaign nationwide with the brand ambassador Taapsee Pannu. And to brand presence in Ujala Crisp & Shine, we've been running campaigns featuring Superstar Nayanthara in key Southern markets. In addition to a liquid detergent portfolio of Ujala and Henko, we have also introduced in MoreLight, liquid detergent in 5-liter bulk pack. And there is an intense competition across the detergent or the Fabric Care portfolio, but we have expanded our distribution. Lot of ground level activities and our product differentiation is helping us driving this growth in our Fabric Care portfolio. We are focusing on the premium segment and also on the value offerings. And the objective of the strategy is to build scale across the different categories. In Dishwash category, both Exo and Pril continue to do well with 7.1% growth for this quarter. Both the brand, Exo and Pril -- we've been investing aggressively across outdoor media and out-of-home apart from the conventional medium. This has also boosted our growth and all our brands are considered in a preferred choice among the consumers in the utensil cleaning category. In the interest of time, I mean, you would have seen our investor presentation, which captures several campaigns we are running on conventional media and digital platforms. So I'll skip that. In the Household Insecticide side segment, our sales increased by 2% in this quarter. The category has witnessed recovery. However, this quarter, again, the business was impacted because of extreme summer in North and East of India, which are our core focus markets. And we're -- I mean we are focused on growing our saliency in our Liquid Vaporizer with campaign featuring Super Star Karina Kapoor, wherein we have a unique feature -- automatic feature of our machine, which is unique in the category. And hence, the focus is to grow the share in the business. Finally, our Personal Care segment, which is primarily the Margo franchise. It has registered a good growth of 10.9% for this quarter. As you know, the new base Margo portfolio is preferred by the consumers for its authenticity and several ongoing initiatives. We've been involved using influencers and social media in key markets to raise awareness and encourage trials, targeting the youth primarily. In summary, we continue to focus on volume-led growth and achieve higher scale of business operation. We have delivered or consistently delivered double-digit revenue growth for the last few years, and we'll strive to build scale with relentless execution and grow our brands market share. We believe the efforts taken to strengthen our distribution, investment behind brands and innovation. On an annual basis, we aim to have double-digit sales growth, primarily led by volume. Also on the margin front, we should be able to hold on or do better than our historical EBITDA margin of 16% to 17% on an annual basis. We continue to focus on introduction of relevant innovation and expanding our sales and distribution network. In addition, we are leveraging on the modern trade and e-commerce channel, which is poised for higher growth. With this, I'll finish my opening remarks, and we're happy to answer any questions or clarifications you may have. Thank you.

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

Congrats on excellent set of numbers. 3 questions from my side. First one, MoreLight liquid detergent. I think that has been launched at a disruptive price point of INR 70 per liter in selected [indiscernible] outlets. I just wanted to understand what is the margin profile? Any quality [ flavor ] would be helpful? Will you sell somewhere near to the company-level margins? And how is the brand doing? I believe it's launched towards the end of the quarter. It might be early, but whatever trends you can give on that? Second question on the Personal Care front. The growth has moderated to 11%, right. Last year, we saw around 20% growth rate for the segment as a whole. So what are the plans to revise? And the new variants that you had launched in Margo, I think 1 year has passed by. So any flavor on that, what is happening, how things are shifting about or that will be very helpful. Third question on capital allocation front. So cash is approximately INR 60 crores -- and on other side, the dividend payout has gone down from 60%, 35% now. The last 3 years average dividend payout was 60%, it has come down to 35% in 24. So how are we thinking about capitalization going forward? Thank you. Those are the questions from my side.

Yes. So on MoreLight...

Yes. So on MoreLight, yes, we have launched a liquid detergent. And this is -- if you see this, the liquid detergent [ as a ] market, that segment has been doing well, and we see a lot of players come in there. and our wish is to be there for every consumer. And right from the premium end to a price where it is affordable for the customers. In a situation like that we are in today, where the consumer demand is [ muted ]. So we want to entice the consumer, we want to give them value, and we want them to also try our liquid detergents. And that's the main reason to launch that at that price point. While margins, I won't be able to share right now -- so that's the intent that more and more consumers come into the liquid detergent for it. On Personal Care, double-digit growth is a fairly good growth that is there. and our brands continue to do well in a market like this. And the new variants are also on an average doing well. So that's on Personal Care.

And Vishal, on the utilization of cash, as per the Board decided capital allocation strategy, yes, dividend is one way to reward the shareholders. And currently, we have been conserving cash for any future opportunity, which we may consider. So right now, we are in a cash conservation mode for any future opportunities.

The next question is from the line of Percy from IIFL.

Congrats on a very good set of numbers. I just wanted to understand a little bit of the flavor of your growth. Is it coming mainly? I mean, is it -- is your state makes changing? Is it that you are very weak in some states and -- now the growth in those states is significantly higher than the national average. Is that the source of growth? Or is it that, you're getting this kind of growth uniformly across geographies?

So Percy, it's across the board. I think the results of our distribution expansion is paying off and states which have been doing well, they are doing further better with the higher A&P spend, which we are doing and markets where we were less strong or whatever [ dominative ], where the several [indiscernible] spends, which we've been doing has been helping us. So no, I wouldn't call out any particular state, which is doing much better than the rest. I think it's a mix of everything. Also, the modern trade and e-commerce business has been doing well. So that's something which is also driving the growth.

So geographic market states over the -- sorry, market shares over the last 3 years or so have not changed much in wherever the market shares are low, they remain at that same level and wherever they are high, they also remain. I mean, there's no sort of case to -- I mean, there's no on-the-ground evidence to suggest that wherever the market share was low, the increase there has been higher than what you have normally seen in terms of market share growth?

See, we have seen market share growth across our segments this quarter. And in fact, are in most of the geographies. So [indiscernible] nothing is Exo, while we have been a very -- [ fought ] strong in terms of Exo. East is an example where some very low single-digits, we are into double-digits. So we are gaining market share across the country, and we'll continue to focus on our distribution. We'll continue to offer better quality products compared to the rest. And that's purely where we are doing...

Correct, correct. So that is exactly what I was hinting towards that like you are in Exo, your Eastern region growth is higher than the southern region growth, right? Because you were under-indexed in East. So that kind of story is playing out in other categories also.

Yes. Yes. It is a mix yes. It's a distribution and brand investments that we are continuously doing and it's yielding us better results.

Okay. Second question is on gross margin. this quarter, I think nobody else has taken a price cut this quarter. I mean, last quarter, you had a 0% pricing, this quarter, you have a minus 3%, even [indiscernible] there is a slight difference in the pricing but not to the extent of 300 basis points. So what is happening there? And secondly, related to this, despite such a sharp price cut in 1 quarter, Q-o-Q as well as Y-o-Y your gross margins have improved. So what is the source of that margin expansion?

So Percy, see, gross margins is dependent on, in our case, on the product mix, certain scale benefits you get and the operating efficiencies or efficiencies in the business operations also drive the gross margin. So -- and again, the price cuts, which you're referring to, they have been done in -- across the portfolio for us in the Dishwash or mostly Dishwash, than in Fabric Care and Personal Care. So if you look at the weather -- I mean, at this level of RMPM prices, we'll be comfortable with the gross margin range of 49% to 50%.

And finally, on EBITDA margin, you have done about 18% EBITDA margin this quarter. And every quarter sort of you're doing slightly better than what we expect. So are you being a little conservative in terms of your guidance? And what is the reason that this 18% margin will not sustain going ahead, if at all?

So Percy. Now is just the beginning -- I mean, the first quarter of the year. And as I mentioned, that the RMPM prices are also volatile. We have seen how things have shaped out in the last 3 years. And our stated objective has been that we want to invest more behind the brands. We want to keep expanding the distribution because that's where there's a lot of scope for us. So -- and hence, we want -- we're comfortable with 16% and 17% range. Yes, this quarter it's 18%. But as we move along, I think we'll be able to guide you much better.

The next question is from Shirish Pardeshi from Centrum Booking.

Sanjay, I have a basic question. In the Fabric Care post-wash, I think we have been talking and getting more penetration in the liquid side. But even our powder detergent is also very strong. So will you be able to give me some color what is the growth we have expected? Or what is the growth we have delivered on powder and liquid specifically in this quarter?

So as you know, Shirish, liquid is on a smaller base, and it's growing faster. So the growth rates are going to be much faster while powder category is much stable category. So I think I can just offer you that the base numbers are less on liquid so growth is much higher. I think I would just leave it there. The fact that we launched Ujala Liquid and Henko Liquid now with MoreLight large pack 5-liter, demonstrates that the liquid as a category is doing -- it's good for the country, good for the consumers that they're using a better quality product. So yes, we are also focusing on that and trying to get to the consumers to use a better quality product.

Let me step back and ask me a little different question. If the industry is right because you guys have given a product at a very competitive price. So is -- do you think that there is a bottom of the pyramid, which is there is a fast shift and there is a price propensity which will bring in more customers to the category? Is that the thinking is -- there?

We couldn't hear you properly, Shirish. Could you repeat the question?

So I'm saying we have launched 5-liter pack and I think at a very price competitive range. So what I wanted to understand is the industry structure is changing much faster that every customer is now trying to look at and trying to experiment the liquid.

Yes. So we see this more -- the Liquid Detergent adoption more from South, which is a market which responds to such -- in the new age, the people are more experimentative in that sense. They also have money to invest and all that. So you see this more in the South than modern trade e-com and then in the metros. So yes, we want -- and like I said, that many players have come in and like you see that in powder detergents, there are various segments. The liquid detergent is also kind of mirroring or you're seeing that kind of growth and price points at different levels.

Second, on Margo, I think historically, Margo is a very strong brand in the East. But over the last 1.5, 2 years, we have expanded in this franchise. And -- we've also complemented with the adjacencies. So maybe in non-East market, which are the segments or which are the subsegments you are seeing a stronger growth on the Margo franchise?

So it's not just East for us. Margo has been delivering, if you see in the last 4, 5 years across the other states as well. It's not just East for us. Margo is growing stronger day by day.

And the last question, I mean, I did understand what Sanjay gave the explanation on the margin front. But the question here is that are we left because what we also gather is that if rural comes back and this is what both the syndicated data agencies are saying, Cantor we heard in the morning, they are saying that the rural growth will be much faster. So does that mean that the price increases can come a little faster instead of second half, maybe end of second quarter?

So we -- I don't think we are looking at any price increases for now, whether it is now or in the H2, at least for now. So current focus is volume growth. And at these price levels, I think we are having decent margins to invest in the business and have -- reward to the shareholders as well.

No, the reason I'm asking, you've done a good fantastic job delivering double-digit volume growth. So this volume growth will continue in the second half also. That's my question. I mean it's too early to talk about, but if the rural growth comes back, we can build on that.

So I think Shirish, for now. I think what we can only see, between the quarter, things will vary. And -- so on a yearly basis in how we would aim at least from the external perspective, and it will change over quarters. I mean over different quarters. But the aim is to continue the same momentum, which we -- out of double-digit volume rate growth for the annual basis. and which will vary in different quarters.

[Operator Instructions] The next question is from Abneesh Roy from Nuvama.

Yes. My first question is on the HI business. So essentially, the market leader has come out with a disruptive product, would you be concerned on that? Because the efficacy claim is much higher. And second, if there is high rain, is that again not adverse for mosquitoes population and -- so Q2 also, the growth could be weak for the entire sector because of very high range, which is happening?

So on HI, see, we are very focused on our LV and we believe that we have a great product with us. We have an innovation with us. And we have a tried and tested molecule with us. The very reason that we have gained market share is proof of all of that. And yes, we are very confident on our product and we don't have much concerns with what happens elsewhere. And on the question on rains, yes, anything in extreme is bad, so with the high heat, high summer, high winters and anything that has to do with higher amount of rain, yes, the mosquitoes will get washed away. So let's see, hopefully, we should be able to still grow the market, especially in the HI segment. Yes, that's it.

One follow-up on the market share gain. So if I see 3 years and 4 years, you have a dip in terms of CAGR. And if I see the market leaders' Q1 update, -- that also suggests that their HI is also very similar in terms of Y-o-Y, almost flattish, which is in your case also almost flattish, low single-digit. So where is the market share gain coming from? Would it be from the #2, #3 player because it's a 4, 5 player market only, right? Who are you gaining from?

Sir, we wouldn't want to comment on that. And the thing is, the same process that we have gained market share. We have gained 300 bps compared to last quarter, and that's good enough and a good direction for us. to show that our efforts are working. That's where I can comment.

Last question would be on body wash. So essentially, there again the market leader is doing a disruption. The brands in which they are doing Lux, Lifeboy may not be competing necessarily with Margo. But just want to understand, I'm sure, being a soap manufacturer, -- how impactful do you think such a disruption is in the past also, it has been, right, but TFM and leather being less. Do you see customers asking for such products? Because if they ask, I think, in Margo also, is there a use case for doing that in Margo.

While it's a good suggestion. We'll look into it. We don't have much to comment on that segment right now.

But till now there's no impact because of the market leaders disruption, right? Too early for that?

Yes, yes. I think we are growing well on our brand. So that's what we're [ focused on ].

The next question is from the line of Dhiraj Mistry from Antique.

Congrats on good set of numbers. So I have 1 question regarding Personal Care category. So if I look at FY '20 numbers, you were making somewhere around 20% plus EBITDA -- EBIT margin, and over the last 5 to 6 quarters, there has been quite a few volatility in their EBIT margin in Personal care. so how do we see that going ahead? That's where the EBIT margin -- as a company, where do we look at EBIT margin to settle down?

So see, over last 3, 4 years, as you know, the brand has been doing well and the key call raw material is palm oil you know how the palm oil prices are so volatile. -- and it's an imported product. So therefore, not a freight cost going up and down and now right now, freight cost being going up has also impacted. So the margins are dependent on the palm oil prices which we have been updating every quarter when the prices are going up and all of that. Now also last year or so, we have launched 3 new variants in it. And we have seen the success of those variants. Obviously, we had to do higher A&P to launch that. As you know, we had brand ambassador, Rashi Khanna there, which has really done wonders. So this quarter also and in the last 2 quarters, we have seen higher A&P and it will vary across quarters, but the margins are intact, being the Personal Care or Margo as a franchise. So that's not a concern. You want to grow the franchise much better. That's the [indiscernible]

Yes. And second question in [indiscernible] category, that we have done a few launches. What would the contribution of new products in Personal Care and also from the overall company's perspective?

Sir, the launches were done last year, about we are currently happy or satisfied is that there are repeat purchases and gives us a lot more confidence in our new -- or further initiatives of doing innovation and new launches. So the numbers -- my apologies, I will not be able to speak specifics between what the green Margo soaps and what the new variants are, the split. -- but all of them are doing well, and that gives us a lot of confidence for the future.

Got it. Got it. And sir, can you give -- last question from end. Can you give some color on the growth in terms of rural market versus urban market? And also in terms of region that east and south compared to West and something like that?

So I think for us, all markets are doing well. Rural market was a concern for a lot of us. But things are now started to looking up. And the union budget also gives a lot of focus on job creation. And so that is helping, especially now with the monsoons coming on track. That will also help in the rural growth. We, as a company, have products which do well in rural markets and our distribution has also expanded in the last few years in the rural. So we are quite confident that with the growth or pickup in the rural demand, we will be able to capture that.

But was it higher compared to urban market during the quarter?

No, no. There's nothing like that, it's been higher. It's just that the challenges which we were seeing has now been [ let out ]. And going forward, we can be more optimistic on the rural demand.

The next question is from Gaurav Jogani from Axis Capital.

So I have a couple of bookkeeping questions. So what is on the other expenses. If you look at the other expenses, it has gone up by around 22%-odd. So is there any one-off in that? Or that's a steady state other expenses that we can expect going ahead as well?

No, sir. It's very much in line with the overall sales increase and overall expense increases. It varies -- I mean, again, it can move between one quarter here and there. But very much in line, there are no one-offs in the other expenses.

So sir, likewise on the depreciation [ that also ], depreciation both on a Y-o-Y and a Q-on-Q basis has seen a sharp turn. So because we don't have any [indiscernible] CapEx also. So what is this in regards to.

The overall CapEx, we believe should be in the range around INR 50 crores to INR 60 crores for the full year. And depreciation also has been in line with that.

The next question is from the line of Nihal Mahesh Jham from Ambit.