Jyothy Labs Limited (532926) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Jyothy Labs conference call for an update on Prill and Fa brand hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ashutosh Joytiraditya from ICICI Securities. Thank you, and over to you, sir.

Thank you, Sagar. hello, and good evening, everyone present on the call. On behalf of ICIC Securities, welcome you on this update call by Jyothy Labs. I would like to thank the management to give this opportunity of hosting the call. From the management, we have Jyothi ma'am, the CMD; and Mr. Pawan Agarwal, the CFO I now hand the call over to Jyothi ma'am for her opening remarks. Thank you. .

Thank you. Good evening, everyone. Thank you for joining us today. This call addresses the developments relating to Relenza, 2 brands that have been part of Joti Lab's portfolio for nearly 15 years under brand license agreements with Henkel. Before we proceed, 1 point must be placed on record, the company has initiated the dispute resolution process under the agreement. There are therefore areas where we will remain measured in what we see. We will not comment on claim amounts, valuation estimates, timing of any outcome or probability of success. These matters will follow the contractual and legal process. The purpose of this call is to provide investors with business context, what happened, how the transition is being managed and how we see the path ahead. In 2011, Jyothy Labs acquired Henkel's India consumer business through a composite transaction, covering brands, assets and operations. As part of this arrangement, certain brands became fully owned by duties, GaN suggest Margo, Nimotaste, Turin and Teck are fully owned. Mr. Wei and Henko continue under perpetual license arrangements with no royalty obligations, Trian for operated under fixed-term brand license agreements with Henkel, with royalties and defined exit provisions. Over the last 15 years, Jyothy Labs invested significantly behind these businesses in distribution, manufacturing, trade relationships, channel presence and consumer franchise creation. Prill in particular, became an important brand in the Dishwash Liquids segment under our Qs. Henkel has communicated that it will not renew the Prill brand licenses following the end of the license term on 31st May 2026. Jyothy Labs respects this division as instructed by Henkel from 1st June 2026. Jyothy Labs has stopped manufacturing, marketing, selling and distribution of Pril and Fa. The company will follow the exit process in line with the provisions of the agreement. For several months, Jyothy Labs and Henkel were engaged in the active discussions covering revised commercial terms, operational alternatives and business continuity options. These discussions concluded without a mutually acceptable framework for continuation. We have now evaluated all our available options and are pursuing legal remedies to assert our contractual rights on the exit and transition mechanism. Jyothy Labs is not disputing Henkel's ownership of the Pril and Fa brands. The question is, what follows from nonrenewal under the agreement. The agreement contains an exit framework, including a defined contractual process for transition and valuation matters. Among them, a mechanism for determination of consideration linked to the business linked to the business momentum and goodwill created during the license period. Commercial discussions were pursued over several months, but did not result in mutually acceptable resolution. The company has, therefore, initiated arbitration at the Singapore International arbitration center to protect its contractual rights and the interest of its stakeholders. This is the agreed dispute resolution process under the contract and the company will pursue it accordingly. Separately, operational matters, including inventory, receivables, trade schemes and channel settlements are being managed as part of the normal transition planning. At this stage, the company does not expect any material residual exposure of -- from such items. Pril has been an important contributor within the dish wash liquid segment. There will therefore be a near-term impact on revenue mix and margins during the transition phase. Within the dish wash portfolio, Pril has historically been the anchor brand in liquids while Exo has been the stronger franchise in bars. Exo dish wash liquid has been part of the company's portfolio since 2005, 2006 and is now being scaled up with renewed focus and investment. The company's objective is to step in Exo as a broader Dishwash franchise across formats. Manufacturing facilities are multiproduct and flexible allowing capacity redeployment across liquids and other growth categories. The company does not expect material stranded manufacturing exposure arising solely from this transition. The contribution of far to the company's overall business has remained limited. Its exit does not materially alter the company's operating fundamentals. Henko and Mr. White arrangements are structurally different. They are held under perpetual license with no royalty obligation and do not carry the same fixed-term renewal provisions that existed for Pril. The company recognizes that FY 2027 will be a transition year for dish wash liquids. Near-term margin softness is expected during this phase. However, the medium and long-term fundamentals of the business remain intact, supported by the company's diversified portfolio across Fabric and Home Care and Personal Care. Its established distribution network, manufacturing capabilities and execution strength built over several decades. Jyothy Labs remains committed to transferring communication, disciplined execution and long-term value creation for its stakeholders. Further updates will be made as and when required in accordance with applicable law and regulatory requirements. We'll now take questions.

Thank you very much. We will now begin with a question-and-answer session. [Operator Instructions] Your first question comes from the line of Vishal Gutka with ASK Investment Managers.

Just 2 questions. If you can just elaborate what was the revenue size of rent in average approximately INR 3 crores? And what action, if you can give more ganetexactly what are you trying to do to mitigate the impact? I understand it's going to be transitionally bank. But in the next 12, 24 months, by what time period could recover that revenue definitely 1 way through pushing expo liquids, that is the thing. And second question is why Paul was not a brand, how Henko and Mr. White has placed for nature right at the high. Why Pril was played into that kind of thing. Logically, we ever see these kind of agreements of generally the brand that was perfect. So why this kind of agreement was there first or prill. And if you can elaborate any kind of consume you highlighted that I will be stepping all the more details of the bid as to what exactly happened, but was a royalty rate was different given that 2% royalty rate was there and maybe the Aware higher royalty rate or whatever was the issue.

Thanks, Vishal. So let me answer your second question first. Pril and Fa, as Jyothi explained in her opening remarks, had a different arrangement. It was a fixed term license arrangement with defined exit provisions. So it kind of mirrored the perpetual license picture because the brand had seamlessly renewed twice over the last 10 years. . Henko had in these years, never indicated any intention to withdraw recall these 2 brands. And operationally and for practical purposes, the Pill brand behaves like a long-term asset or brand in our portfolio like other brands. Given this long renewal history, absence of any recall signals from their side and the strategic partnership context, we had no basis to treat these 2 brands very differently. So I think this was the context of Pril and Fa brand. As far as strategy part is concerned, Jyothi, what you would be like to...

So Vishal, so it also is that you asked a question why -- it was not treated like Henko and Mr. White is because Henko and Mr. White is not there in other geographies globally. While Pril is the -- they Henko do operate in the other countries, right, by themselves. So hence, this was always a renewable kind of a contract. So that is -- that answers your right question...

And renewal happens every -- after every 5 years because I think Pawan highlighted it in the past decade, 2 time period renew the agreement. So this renewal was for every 5 years million. .

It was auto renewal, Vishal. Every 5 years, auto renewal used to happen. Yes, yes. So going forward, our focus now will be on Exo. Exo like I said in the opening speech, we always had Exo in the liquid category. From 2005, 2006, we had launched Exo. Exo, as such as a brand was operational from 2001, started with bars. Then in 2005, '06, we had launched the liquid, and we were growing as a brand. That's when Henkel happened in 2011. And from then on, we felt that since we have Pril in our portfolio, we'll focus on liquids in the -- under Pril and we'll focus -- make Exo as a bar -- focus on the bar segment. Now that this is there, we will focus now -- we'll bring back our renewed focus and attention on building Exo. And as a complete brand. So that's where the future growth will come from.

And by what period we should expect to recover the recoup revenue? Maybe in next 2, 3 years, shall we expect Expo should be in a position to recover whatever the loss because of them?

See, yes, that we cannot comment on that. But yes, our efforts are there that we sooner make that happen. Having said that, we are also trying to grow all of our other brands and see that the impact is minimized overall. And some will come through Exo and the other -- our other brands will also grow. We also have a few NPDs in the pipeline, which we will try and see that covers up the gap that is there created. Having said that, that is first on the overall revenue thing that will -- that we are trying to achieve. And while for Exo, we will be building it, it will take its time, but our efforts are there to make that brand stronger as we go.

Okay. Madam, if you can just comment what is the revenue size of Pril broader numbers, I don't know the exact numbers, but broadly, if you can tell us what is the broadly revenue size of Pril?

It's about 7%, 8% of our company's total revenue.

Got it. Broadly INR 225 crores to INR 240 crores. That is a broader number that we have.

The next question comes from the line of Harit Kapoor with Investec.

Yes. So just 2 or 3 questions. One was from a pricing standpoint, wouldn't Ekso the liquid be not at a similar price range as Pril and instead. So -- and apart from Exo, would you need another kind of premium liquid brand to kind of offset what's happened with Pril? That's one. Second question was on do we model 2 months for this year on Pril sales or even May would be a kind of weakish month? Or do we model 2.5 months? I mean you said June 1. So is it strictly a 2-month modeling or there is inventory in the system that we should model a little higher in terms of revenue from Pril for this year? And third is if you look at distribution, Prin was -- had a good share in modern trade e-commerce because of its premium nature. Do you lose a little bit of this distribution strength in alternate channels? Or were you already populated with your premium detergents and other products. So that is not much of a concern at all. So those are my 3 questions. I might have one more. I'll come back. So...

So you asked about pricing. Yes, Pril was at a premium. Now when -- in terms of -- from an Exo pricing point of view, it is at par with the market leader, okay? So that's where the pricing is. Pril was always at a premium when it came in the market, and it always maintained that. So that is on the pricing bit. On distribution, yes, Pril did have a kind of strong presence in MT as well as all the Tier 1 and metros listing, but XO is a stronger brand, and we have our confidence on XO to build the brand as well. It's much larger in size and the equity is also quite strong. So that's how we are trying to build on XO in the future. So we will -- as a bar has a good enough and strong enough presence in modern trade as well and also in GT, we will try and see that this brand grows in the liquid segment as well. And your other question?

Yes. My other question was on the ongoing year. Do you need another brand, yes? Yes. My other question was that do you need a premium brand kind of to offset the trim impact despite.

Not really high rate. The thing is we will -- see, the premiumization that came in because the brand was like that, right, when it came to India, so we maintain that thing. But do we need a premium brand, frankly, in a condition like this in a market like this? And if you see India is think people -- there are fewer papers for premium brands. And it is generally the mid -- see, we are not -- Exo is not at a lower end. It is at a good price point and it is a direct competition to the market leader. So now it's about why do you need a premium brand is the question, right? You will also have to create a premium brand, you have to spend more there also in the same segment. As long as we have good enough differentiation in the brand, which we have -- we have an enzymatic liquid, which currently -- that is how we have differentiated with Pril and the performance is quite strong. So that is where we have a good positioning and listing, and we'll be investing on that. Do we need a premium brand? Frankly, no. I think with the brand, with a pricing like this, we'll be able to reach much wider and across the country much better in a better way, where premium liquids don't give you that kind of reach. So that will be offset in the other way.

Got it. And just a couple of more follow-ups if possible. I think one was did the agreement with Henko kind of restrict you from increase the marketing spend or spending more on Exo even when Pril was around, was that kind of a asset understanding that you didn't -- that you couldn't dramatically build that up? Or was it just the fact that you already have a liquid brand, you have to kind of also look at the way your advertising spend works across brands and you are just positioning it that way? And -- that's one. And the second question was on when do you expect this arbitration exercise to kind of complete to understand what the valuation or what the consideration implications could be, any broad time line while we can't hold you to it, and we also wouldn't know. But any kind of broad time line that you would have to kind of suggest 3 months, 6 months, 9 months?

Okay. So Harit, on the first point, we chose to go to the market in dish wash segment with Exo as our bar segment, and Pril in the liquids segment. Both were completely distinct strategy chosen by us. Nothing was dictated upon us by anybody. So in that sense, all the decisions that we took with respect to Exo brand and Pril brand, they were our decision, and there were no specific direction on the restriction, directions, et cetera, contractually between the 2 sites on treatment of pill or our spend on to, et cetera. . As far as the Second question is concerned, as Judy has already put a claimer at the opening in her opening remarks, it is very difficult to comment or speculate on legal outcome, timing, when will it happen, how much time it's going to take -- this is the first time that we have knocked the doors of Singapore International Arbitration court. So the court will take its course and we will present our point of view through our lawyers before the court is all I can tell you at this stage.

Okay. And sorry, just 1 last clarification is that, what you're saying is it doesn't affect your overall distribution, right? I mean, even right now, I know you will be building up Exo and Pril, et cetera, but on the liquid side, it doesn't really affect you can -- you won't see a 1 quarter or so impact on other brands, 1 or 2 quarter impact on other brands because April got out of MT or Pril got out of and some kind of discussion, there is no carry forward impact on distribution or any of the other brands. That's the right way to think about it, right, on distribution.

So as far as distribution muscle is concerned and our relationship with distribution that is not dependent on 1 particular brand, which is Pril. Okay. So we have a plethora of brands and our go-to-market strategy is done the whole basket. As far as the implication is concerned, and I think in the earlier question, you were talking about modeling aspect, et cetera. So we mentioned clearly that we did not continue with manufacturing, selling and distribution of Pril and Fa with effect from first June. As far as April and May months are concerned, yes, the manufacturing sales distribution were happening at its normal course. And I think until about the third week of May, we were doing primaries and thereafter the secondary and tertiary were happening. And we did not -- we are not having enough exposure on account of inventory whether it is raw material, et cetera, as far as Pril and Fa brands are concerned as of 31st of May 2026.

Your next question comes from the line of Manoj Menon from ICICI Securities.

I will actually restrict my questions for clarications only to be a futuristic U.S. business strategy because I think it's fairly appropriate to ask about something which is subsidy and to that extent, I appreciate that you're doing this call. Look, I think I only want to understand from dish wash strategy, Jyothi, that let's say, you have, let's say, pilot capital and you're allocating certain money behind exported of money behind Pril. And obviously, you had certain outcomes as well. . Now that as I understand, has, let's say, detente markets, et cetera. So at least in my mind, there's not much doubt or clarification be saying that can so let's say, fill the gap from Pril from your point of view. But it is still now that you have certain capital freed up, let's say, the money is spending on till, let's say, attest. Is it -- are you now thinking about categories beyond resorts also, for example? -- why the strip to pay that tax goes and then you need a like-for-like replacement within the same category. That's question number one. Are we thinking in that direction? Point number two, does it also mean that you might be looking at inorganic also with a little bit, I would say agency versus the part.

Yes. So Manoj, if I understood your question is you're saying that whether do we need to compensate through an exoliquid? Or there are other categories that we are interested? Are we going to be there? So the question is, the answer is that, yes, we have a few NPDs in pipeline, which you will see obviously coming up. Those will be there, like I said in the earlier question also that there are a few -- we are trying to negate the gap that is going to be created by this exit, okay, through all our other brands and the newer NPDs that are going to come up. But do we need a liquid in a dishes segment? Yes, we do need because we earlier had it, and we have kind of kept it aside. We focused more on this brand for this segment. And for EXO, we be concentrated on the buyer segment. Now that, that area is open for us to be completely focused on that. And since the margins are also better there, we definitely would like to take that forward. And EXO is the best brand that can be taken forward. If -- it stands on an antibacterial platform. It is an enzymatic liquid that we have brought in the market, both in bars -- it's the first enzymatic bar in the country. So there are a lot of good things happening on the brand. We have brought in innovation and we keep bringing in innovation always. So it is -- I mean, the right thing to happen in a way that Exo has launched its liquid -- relaunch rather in the liquid format in the 25th year of the brand. So while what Exo has to do what 1 has to do. There are other brands also that are coming up in the next few quarters where you will see the intent is that we try and minimize the gap and also build for the future. In terms of inorganic, yes...

Yes. So as far as the inorganic growth opportunities are concerned, Manoj, as you are aware, the company has been looking at various opportunities. simply because Pril and Fa have departed, wouldn't put us enough a situation where we will take any decision. So our fundamental approach to inorganic growth opportunities remain the same. And we are on a constant lookout for a right fit and -- yes. I mean so whenever it happens, we'll announce it to the Street.

And just to reclarify what you spoke in the opening remarks, except for these 2 brands, all the other Henko brands are subsidiary?

Correct.

Your next question comes from the line of Umang Shah with Banyan Tree Advisors.

My first question was will Henko be running this brand post taking it back or would they be selling it to somebody else? .

Umang, thanks for the question. But we will not be able to comment on Henko's strategy, what they are going to do about it. We can only talk about what we are -- how we are going to handle this situation. .

Okay, okay. And from our understanding, this was teas a 2-player market to a large extent, then there were some private labels. Do you with bill going back to Handan, do you do you is 1 more player on a natural basis coming in this segment?

One more player as a Pril coming back on saying that...

No, no, not Pril, new brand, not Pril.

New brand? I really don't know about any other brand, but our focus will be on Exo, Umang. So the thing is now for the first time, we'll be able to concentrate completely on this brand, on our own brand, and that's where our interest is. And see competition has come and gone. Even in the bar segment. it's again largely a 2-player market between the market leader and us, and then there are other players as well. And there are a few known this was liquids also from organized players. -- but they are not that big as of now. And that's how the market is constructed right now. So whoever comes also, it will be 1 more competition. So that's it. So but our focus will be on Extohow we have built the bar, we'll be continuously focusing on how to build the liquid segment as well.

Right, right. Ma'am, Correct correct me if my understanding is wrong, Exo was having very high market share in certain geographies, right? It did not have an all-India footprint. So in that context, the set of distributors that you will have for growing this brand would be different, right? .

No, no, who said, Exo has good -- very good market share in some of the states, but it's a pan-India brand. .

Okay, okay. Sure. And just last clarification. But the contention -- the bone of contention that we have with Henkel and that's what we are advocating for is the purchase consideration that they are -- you are -- we are supposed to receive because of the investment that we made in pill over the years, right? That is 1 figure that we are getting into litigation. Is that the right understanding? .

Not exactly. It's a slightly complicated case. The core issue is the proper treatment of end-of-term consequences under the license agreement framework, including the business transfer of Planar brand valuation, consideration, associated transition matters, et cetera. So it's a combination of issues. .

Next follow-up question comes from Vishal Gutka with ASK Investment Managers.

Yes, ma'am, can you just elaborate on what's happening on liquid, I think a couple of months back, your launch. So if you can just give a glance actually on the performance, how has been the performance so far. Dual impact -- are growing much faster. What is happening? I understand it's a very short period till launch, but distribution gap is yet to be cured in what -- how many outlets is it present as of now. Any qualitative comments will be really helpful. .

Okay. So Vishal, I won't be able to comment on that the distribution and this thing for the right reasons, right? So from the tenant we have launched, we have seen, frankly, a very good welcome from the distributors, from the market, from consumers as well. and I hope that continues. Our effort is only to first place and then build on the brand completely invest on the brand. And that will happen. It's just -- it's not even a quarter completely. So to it will be jumping into that way too early. I think we should wait for some time to actually see so as a bar has always been a success story for us. And we build that. It's our #1 brand in that sense. So the same -- we want to replicate on liquid, I would say. So we just have to be a bit patient. And yes, that is what we'll build. We can't hurry up in listing and consumers will take their time to know that there is a liquid in the Exo and all of that warm up to that. While we are trying all grand activities as well. But I think we have to give that some time.

And NPDs that you're talking across categories or cost definitely launching, but this was many more NPD plant or across categories.

It is across categories, Vishal.

Your next question comes from the line of Sid with IIFL Capital.

What I wanted to ask is that as per the exit agreement with an should they choose to sort of take back the brand with them. How is the purchase consideration on how is rather the compensation structure is it structured as a sales multiple? Is it structured as an EBITDA multiple? Or is it some predecided lump sum amount if it is a sales or EBITDA multiple, is it of benchmark to India FMCG or benchmark to a global FMCG, some kind of contours as to what the agreement actually is, that would be helpful. .

Are, thanks for the question. See some of the examples that you took while posing the question, I don't think those -- those are explicitly mentioned in the agreement. However, as I said and as Jyothi also said, we would refrain from commenting on any of the aspects related to contract strategy, et cetera, for obvious reasons is the matter is before CIAC. So we would request you to kindly bear with us till the time number is decided.

Thank you. Ladies and gentlemen, we will take this as a last question for today. On behalf of ICICI Securities, that concludes this conference call. Thank you, everyone, for joining us, and you may now disconnect your lines.

Thank you.