Jyothy Labs Limited (532926) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Jyothy Labs Q1 FY '27 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. Aniket Kamble from ICICI Securities. Thank you, and over to you, sir.

Thank you, Yousuf. Hi. It's an absolute pleasure from ICICI Securities to host the Q1 FY '27 earnings call for Jyothy Labs. From the management, we have Ms. Jyothy, Chairperson and Managing Director; and Mr. Pawan Agarwal, CFO. I now hand over the call to Jyothy ma'am for her opening remarks. Thank you, and over to you, ma'am.

Good afternoon, everyone, and a warm welcome to the Q1 FY '27 earnings of Jyothy Labs Limited. Our financial results and investor presentation are available on our website and the stock exchanges. I trust you have had the opportunity to review them. Let me begin with the broader operating environment. Rural demand stayed relatively resilient, while urban markets after showing signs of recovery in the second half of FY '26 remained subdued during the quarter. Higher household expenses, continued pressure on discretionary spends, and cautious consumer sentiment affected urban consumption. Across the sector, companies are balancing commodity inflation through calibrated pricing, premiumization, innovation, mix improvement, and sharper pack price architecture, while protecting consumer affordability. We are, therefore, cautiously optimistic on the demand with growth expected to be driven by a balanced combination of volume expansion, selective pricing, premiumization and new product scale up rather than the price increases alone. During the quarter, crude oil and crude-linked derivatives remained highly volatile. The West Asia conflict kept global energy markets unsettled. This affected input costs, packaging materials, and the supply chain planning. While the recent moderation in crude prices is encouraging, we remain watchful of geopolitical developments and their lagged impact on cost and margins. Our immediate priority was to ensure continuity in production, supply and sales, and we largely achieved that objective. However, the price increases taken towards the end of March and in April were not sufficient to offset the unusually high raw material and packing cost inflation. In addition, the company did not have any material benefit of lower-priced older inventory in the Q1. With a large part of our business coming from Fabric Care and Home Care, where crude-linked inputs play an important role, margins were significantly impacted during the quarter. In our assessment, raw material and packaging costs are unlikely to correct immediately even if crude prices remain moderate, as higher cost purchases and contracted inventories will continue to flow through Q2. Any benefit from lower crude-linked inputs is likely to be visible only gradually and more meaningfully from October, provided commodity prices remain stable. Margin recovery is therefore expected to be progressive and closely linked to top line growth. That said, we believe the current margin pressure is largely transitory and near-term in nature. As commodity prices stabilize and volumes improve, operating leverage should support margin recovery over the coming quarters. For FY '27, excluding the Pril business, we expect double-digit revenue growth. EBITDA margins are likely to remain under pressure during the year due to elevated crude-linked input costs, though H2 should be substantially better than H1, subject to demand momentum and commodity price stability. We are focused on cost optimization, supply chain efficiencies, procurement excellence, value engineering, and selective pricing actions to restore profitability without compromising competitiveness or market share. On channels, GT growth was muted largely due to urban lower demand. However, all other channels put together delivered impressive growth. Modern trade and e-commerce and quick commerce continued their strong momentum and remain among our fastest-growing channels. A&P spends has been moderated over the past few quarters due to input cost inflation. Going forward, we intend to step-up investments in advertising and brand building to support long-term sustainable growth. From Q1 FY '27, we have aligned our segment reporting with the way management reviews the business and allocates resources in accordance with the Ind AS 108. We will now report performance under 3 segments, which is Fabric Care, Home Care, and Personal Care. Fabric Care will continue to be reported separately given its scale and strategic importance. Home Care brings together our key in-home consumption categories, while Personal Care reflects the growth opportunity in that portfolio. We believe this revised structure gives investors a clearer and more meaningful view of how we manage the business, allocate capital, drive innovation and pursue long-term growth. Comparative numbers have been restated for consistency. Fabric Care maintained its strong momentum, delivering over 14% value growth and 10% volume growth during the quarter. Detergent powders and bar grew in double digits, while liquid detergents continued their high-growth journey across Henko, Ujala, Mr. White, and Morelight. Home Care grew by 2.4% year-on-year, excluding Pril sales. Within Home Care, the Dishwash portfolio was impacted by the Pril exit effective 31st May 2026. However, the newly launched bioenzyme-based Exo Liquid has made encouraging progress despite being at an early stage of scale-up and channel expansion. The broader Exo franchise includes bars, powders, liquids, and scrubbers grew in mid- to high single-digits in value terms and double digit in volume terms. In household insecticides, the extended summer and delayed rainfall affected category performance in Q1. We have launched the Maxo incense sticks in July, to address the growing concern around unsafe and unapproved local agarbathies. Maxo incense sticks is a safe and effective government-approved solution and further strengthens the Maxo portfolio. Personal Care performance remained subdued during the quarter, impacted by price increases and transient supply chain disruptions. We remain confident of a recovery trajectory and expect the segment to deliver stronger performance in the coming quarters. That said, input cost pressures are beginning to emerge with key raw materials, especially soap noodles witnessing price increases from June onwards. We will closely monitor whether this trend proves temporary or signals a more sustained inflationary cycle. Let me now cover the financial performance. Excluding Pril and FA, revenue grew by 8.1% in value terms and 5.3% in volume terms on a year-on-year basis. Gross margin stood at 38.5%, down by 950 basis points year-on-year, impacted by abnormally high input cost inflation and lower realizations. Employee cost was 11.4% of revenue compared to 11.5% in the same quarter last year. A&P spend was 6.5% compared to 10.8% in the same quarter last year. Other expenses were 12.2% of revenue compared to 12.1% in the same quarter last year. EBITDA margin stood at 8.4%, down about 820 basis points year-on-year, which is flowing through the gross margin. Overall, the industry outlook remains cautiously optimistic. Inflation, commodity volatility, and heightened competition are likely to keep operating conditions challenging over the next couple of quarters. At the same time, premiumization, growth in new age channels, continued innovation, new launches, and disciplined cost management should support sustainable long-term growth. We'll continue to follow a balanced pricing strategy while preserving affordability. Pricing decisions will remain calibrated, taking into account commodity cost movements, competitive intensity, and consumer demand elasticity. Our priorities for FY '27 are clear: scale recent NPDs, maintain a strong innovation pipeline, improve general trade productivity, sustain volume growth despite price increases, and invest in brands in a calibrated manner. We remain optimistic about FY '27 while staying watchful of the external environment. Before I close, I would like to thank our teams for their commitment, our trade and distribution partners for their support, and our investors for their continued trust. With that, I conclude my opening remarks. We'll now be happy to take your questions. Thank you.

[Operator Instructions] First question is from the line of Satish Deshmukh from IIFL Capital.

This is Percy Panthaki here. My first question is what is the total price increases that you have taken since the start of the war till now?

So overall, about 4%, you can say, 4%, 4.5% -- out of that, 3% has flown through quarter 1 and the remaining will be visible in quarter 2.

So what is the reason that our price increases are so much on the lower side given that our portfolio is actually the most exposed to crude amongst the peers. If we see HUL has 5% price increase flowing in, in Q1, GCPL also has 5% price increase flowing in, in Q1, yet we are at 3%. So can we not take more price increases?

So Percy, this is a resultant of some competitive action also in certain SKUs. And we are at par with what the competition is. And hence, in spite of taking these corrections, this is how it is. So if you see in most of the brands that we are there, SKU to SKU level is matched with competition.

And can you elaborate this competitive activity is more sort of intense? Is it in dishwash? Or is it more in detergent, and also in which subsegment among these two?

See, it is broadly there. So I won't be able to comment on that. But largely, it is SKU-wise price reductions that has happened. And as we speak, when you compare last year, the same quarter, the MRPs of some brands that we have, they were at a higher MRPs, right? So when you compare that value versus this year that it wouldn't suffice. I mean, it is no match to last year's since. That's why you would see that little bit of degrowth in the sense. But volume-wise, we have a good growth. It's only from a value perspective.

And also, Percy, if you look at it, when I said around 4%, 4.5% total, it's a blended increase. So in segments such as Personal Care, the price increase is roughly 9% to 10%. We have gone up to 9%, 10%. And in other business segments, 4% to 5% price increases have been taken. So as Jyothy mentioned correctly, it is a function of category brand SKUs and depending upon that, the pricing decisions have been taken.

I'm just trying to understand this gap between the cost inflation versus the pricing taken that gap is most in -- is it in liquid detergents? Is it in dishwash? Is it in mass market powder detergents? Which part of the business do you see the unrecovered inflation impact the most?

You can see the segment margin. So you'll be able to see it -- Fabric Care and Home Care, which is 90% of our business. This is where the input price increase was abnormally high, and it impacted us. And we have taken the necessary price increases, keeping the market realities in mind.

Sir, any problem in giving a little more granular view because the prices of all the competition is in public domain. So it would really help us to get a better understanding.

Fabric Care was closer to 5% on a portfolio basis, but Dishwash was competitive.

Understood. Understood, sir. Secondly, just on future margin trajectory, assuming if the crude price remains roughly where it is, do we see margins being suppressed till then and only the crude price deflation can result in sort of a decent margin expansion? Or do we have some other plan to bring the margins back?

Of course, there are a number of factors which would play out in the coming quarters, but we cannot ignore the market or the external environment reality. The way crude has been behaving over the last 4, 5 months, it's anybody's guess. Keeping that factor in mind, I think our goal is to swing back to the historical margin levels, but a large portion of that is linked to crude prices, while a number of actions are already in place, and we'll build on that to improve margins.

Got it, sir. And lastly, any comments on the Exo liquid portfolio? How is that ramping up?

So Percy, we have -- it's only been 3, 4 months that we have launched it. And from a launch perspective, it has done reasonably what as per expectation. So far, so we'll be able to probably give you more this thing -- maybe end of the year.

Next question is from the line of Rushabh Shah from Buglerock PMS.

My question was on the -- you mentioned that in the business update call that why do you need a premium brand in a market like India, there are a few takers of premium brand. So my question was do you think that the entire game in India is of premiumization and each and every player is making premium products for the market. So just wanted your thought process on it. And the second part of the same question would be looking at our product portfolio, Henko is the brand we can recall for a premium category segment. So rest all the categories we sees in premium products compared to our competitor the new product developments, do we have any? One question broken into 2 parts.

Yes. So Rushabh, when I said that, I said in a certain context, when I'm saying -- where you see premiumization and all of that is more from a Personal Care or you would see largely in high involvement categories, whereas in home care categories, if you see or you have studied the market, even if there are premium products, what is happening is any -- it is never operating as its original MRP price, right? It -- there is a significant reduction in MRP reductions that are happening throughout, be it even premium SKUs or any -- even competition for that matter, all the premium brands are at a discount today. So that's why I said in a market like this, can you continue that premium momentum in the same price that you intended to launch it, it doesn't happen, right? When there is a lower consumption happening, there is this premiumization taking a hit basically discounting of things, competition introducing very cheap products in the market and hence, you have to take certain calls. So hence, that comment came in from that angle and not from a premium product as such. And also from a large -- this thing, if you see, majority of India, it is the lower prices that still captures the market. It's anything to do with lower price you bring. There are takers for it. Premiumization takes its time. So that is the context in which -- in what I said about premiumization. But having said that, for us in the SKUs that we are operating or we are at a slight kind of premium, there we are seeing that kind of. But is the 100% market towards premiumization -- no. I hope you got the context in what I said.

Yes. And the second part, the product portfolio part?

Yes. Could you repeat that?

So like in our product portfolio, Henko is the one which we can recall as a premium brand. And there are no...

Yes. Yes. Yes, continue.

Yes. So in the premium category, all categories which we see there are no premium products like the Henko, which we have as compared to the competitors. So like in the new product developments, do we have any?

See -- currently, yes, you're right, in Henko, we have a premium portfolio. In Dishwash, we earlier had Pril, but that also doesn't mean that Exo is a mass -- this thing. Exo right now operates at what the competition is, and we are right now sitting at the top most end of the price ladder there. And within Exo also, you have a premium offering in the dishwash bar as the 500-gram SKU, wherein the price that you pay at that one time is higher compared to a INR 10 or INR 5 bar. So for us, that again is a good enough ratio that where we have within that from a premium SKU versus the lower unit pack. So in every product that there are these kind of things, if you see liquid detergents as such, used to be premium compared to powders a few years back. That was the state of the market, whereas with a lot of trials and a lot of competition coming in, now liquid detergents are at lower than the powders in terms of -- now in terms of pricing and both in terms of margin, be it even a premium liquid. So premium always depends on a certain context is what you need to understand.

Okay. My second question is that we have seen an improvement in the working capital space. How sustainable is this in terms of giving credit to the distributors? We know that Jyothy is like one of the best -- you have one of the best working capital in the industry. So could you please let us know some point how Jyothy like is able to do that? And what are those things that Jyothy is doing differently than the competition although like the competitors have stronger balance sheet strength than us?

So I can't comment on the competitors' action, but all I can tell you is that our focus has always been on the hygiene of the business. We sell products, especially in general trade, we sell products on advanced payment basis. A significant portion of our general trade business is on advanced payment basis. Even with modern trade, e-commerce, quick commerce, the payment terms are -- whatever payment terms we have agreed with our channel partners are comparable. So in that sense, the hygiene of the business is always paid attention to. And the distributor level stock is also maintained at 15 to 20 days. So that is -- these are the fundamental levers that we apply in order to run the business.

And last question is the royalty payments which you were doing, which are done now since they would be saved, where do you think would you use the money? Will it be in advertisements more like moving the customers to the, like, Exo customers or it will be in the R&D side of the business?

Anyway, it's a small amount. The royalty amount is not a very significant amount in the P&L over a year. And there is no one-to-one co-relationship between saving -- line item saving and its application. So of course, the overall cost saving initiatives are going on in the company, and we are investing behind innovation and product development. All these things are happening parallelly.

Next question is from the line of Vishal Gutka from ASK Investment Managers.

A couple of questions from my side question on my side. Ma'am one question on the Pril and Exo brand. So Pril is not to be seen in the market. As per the terms of the agreement, there is a cooling off period, post they can come into market, if you can clarify. And if they come, there could be some dent in your numbers, if they in case face -- what do you call -- some cooling off period is there. Second question is on the incense stick that you launched in, I think, southern part of the country. So what's happening on the broader color for pricing? What is the broader strategy you are targeting out over there on the incense stick on the mosquito side? And third question was on the M&A front. I think we have decent cash. I think we have been evaluating opportunity. So one of the deals recently got done, where I think TTK sold couple of brands to WIPRO, referred as what they call decent valuation it got sold. Just wanted to check from you, did we validate the deals, and what was the conflict -- in case it didn't get validated, and overall perspective on M&A?

So your first question, Vishal, on Pril cool off, et cetera. So as Henkel decided to recall the brand and they decided not to renew the agreement. So we did not manufacture, distribute, sell product beyond 31st April. There is no specific clause which requires them to wait for a certain period, but the matter is before the court. And hence, we would not be able to comment beyond this. Now as far as -- Jyothy, you would like to address Maxo agarbatti?

Yes. So Vishal, on Maxo, we have priced as per competition. And I think we are the second organized player in this category. And as you know and all know that this market has been growing. And yes, we are the last ones to come in, but I think we've come with an even stronger product and consumers will gain in end of the day. So we have a very good winning product with us, and we hope to create -- the absence of incense sticks was kind of also affecting us in a way. And the product has come in at the right time and priced at par with competition. So that is on Maxo. On M&A...

On the specific point that you raised about TTK business, yes, we had looked at the business, but the 4 divisions of the business, 2 of them were not aligned to our business strategy, and there were a significant overlap in the remaining 2. So we did not take it forward.

Okay. But sir, they sold 2 brands, that is Home and Eva. I don't know what the proportion earlier, but what they have sold is they have sold 2 brands to Wipro. So an overall perspective on M&A, I think you've been evaluating, but if you can provide more color what's happening with that M&A front?

No, Vishal, we are looking at assets, as I keep telling you in every call that we keep on looking at assets, and we are looking at very aggressively. But again, the filters that we apply, they are very stringent, and it has to be aligned with company's overall growth strategy. So just for the sake of acquiring assets, we are not into that business. So at an opportune time, hopefully, you will get to hear from us.

And now out of the system, by when we should expect double-digit revenue growth to come by? Definitely some amount of price we have taken, but a better balance of volume and price by which quarter or maybe by next year, we expect double-digit revenue growth to come by for Jyothy?