Jyothy Labs Limited (JYOTHYLAB.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Jyothy Labs Q2 FY '26 Earnings Call hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Dhiraj Mistry from ICICI Securities.

Yes. Good evening, all, and thank you, everyone, for joining this call. First of all, I would like to thank management of Jyothy Labs to give this opportunity to host this call. From the management, we have with us Madam Jyothy with us; and Mr. Pawan Agarwal, CFO. Over to you, ma'am, for your opening commentary.

Thank you. Good evening, everyone. Thank you for joining us for Jyothy Labs Q2 FY '26 earnings call. Our financial results and investor presentation are available on our website and the stock exchanges, and I hope you have had the opportunity to go through them. The operating environment in Q2 was mixed. While the quarter started on a positive note, the GST rate revision announced by the government in September 2025 caused some disruptions in the marketplace. As a result, growth in the September quarter was nearly flat as the distribution network adjusted to the new GST structure. However, the early demand signals are encouraging as we have begun quarter 3. During the quarter, the government implemented a revised GST rate structure for several daily essential categories. For Jyothy Labs, this included key products within our Personal Care portfolio, such as toilet soaps and toothpaste, which together account for around 11% of our business. The benefit of lower GST has been fully passed on to the consumers through revised pricing and the change remains cost neutral for the company. This transition led to temporary disruption across trade channels as distributors and retailers adjusted to the new rate structure and refreshed inventory with revised prices. We continue to believe that a broad-based consumption recovery is underway, aided by supportive fiscal measures, tax rationalization and stable macroeconomic conditions. We expect the demand environment to strengthen gradually through the second half of the year. Across channels, general trade remained subdued, while modern trade, e-commerce and quick commerce maintained double-digit growth, led by strong performance in Fabric Care and Dishwash. Let me now turn to the performance of our key segments. In Fabric Care, both Main Wash and Post Wash delivered an encouraging performance. Value growth was 6.1% and volume growth was in high-single-digits. Liquids more than doubled year-on-year, driven by strong performance from Henko, Ujala, MoreLight and Mr. White. Detergent powders and bars maintained their momentum. New launches made in the past few months have been well received and are delivering sales in line with expectations. We also introduced Dr. Wool, expanding Jyothy Labs Fabric Care portfolio into a premium niche and strengthening its presence in special garment care. The Dishwash segment volumes grew 3.4% despite a 3.8% value decline, driven by price corrections and grammage offers on bars. Liquid continued to outperform bars. The performance of Personal Care segment was impacted by the GST transition in September. We expect the segment to normalize and return to growth in H2. In Household Insecticides, the growth remained muted as we continue to focus on profitability improvement over the next 4 to 6 quarters. New product formats such as Maxo Aerosols and Anti-Mosquito Racquets are showing early traction. The medium-term focus remains on driving efficiency and turning around the category. In summary, despite short-term disruptions from the GST transition, our fundamentals remained strong. Rural demand trends are encouraging, premium segments are expanding and modern trade and digital channels continue to gain share. We remain confident of delivering steady broad-based growth in the second half of FY '26. Now coming to our financial performance. Revenue from operations for Q2 stood at INR 736 crores, reflecting value growth of 0.4% and volume growth of 2.8% year-on-year. The difference between value and volume growth was primarily due to MRP reductions, higher grammage and promotional price offs in select categories. Gross margin for the quarter was 48.1%, lower by 210 basis points year-on-year, mainly due to input cost pressure and price reduction and consumer offers in select categories. Sequentially, however, gross margin was protected despite lowering of prices in certain categories. Also, commodity prices saw some signs of stability during the quarter. Employee costs increased by around 5% year-on-year and were maintained at 11.5% of revenue on a sequential basis. Advertisement and promotion spends were at 8.4% of revenue, marginally higher than the same period last year. With expectations of a better sales trajectory, we made a calibrated increase in brand and trade investments during the quarter. Other expenses remained range-bound at around 12% of revenue, supported by cost discipline and operational efficiencies despite subdued market demand. Despite input costs and volume pressures, EBITDA margin was maintained at 16.1%, in line with our earlier guidance. We expect EBITDA margin to remain in the range of 16% to 17% in the second half, assuming commodity prices remain stable and demand continues to improve. Operating EBITDA for Q2 stood at INR 118 crores and PAT was at INR 88 crores. For the half year ended 30th September, 2025, revenue from operations was a little over INR 1,487 crores, representing 1% value growth and 3.2% volume growth. Fabric Care and Dishwash segment delivered mid-to-high single-digit volume growth during the period. Gross margin for H1 stood at 48% compared to 50.8% in H1 last year, while operating EBITDA margin was 16.3% against 18.4% in the previous year. The effective tax rate for the half year ended was 25% compared to 24.2% of FY '25 and is expected to remain in the range of 24% to 25% for FY '26. Net working capital stood at 22 days as of 30 September, 2025 compared to 19 days as of 31 March, 2025. The temporary increase in working capital was due to a shift in channel mix with a larger share of business now coming from modern trade, e-commerce and quick commerce, where credit cycles are longer than in general trade. We expect net working capital to normalize around 18 to 20 days in the medium term. Net cash generation from operations improved to INR 196.5 crores compared to INR 188.9 crores last year. With a strong cash balance of INR 801 crores and 0 debt, the company remains well positioned to fund growth and invest in innovation. We remain cautiously optimistic about a gradual improvement in demand and further stability in commodity prices. Our focus remains on profitable and organic growth, strengthening core categories, invest in innovation and scaling up new product launches. I would like to take this opportunity to thank our teams for their continued commitment, our trade and distribution partners for their support and our investors for their trust and engagement. We appreciate your time today and look forward to your questions. Thank you.

[Operator Instructions] The first question comes from the line of Rushabh Shah from BugleRock PMS.

First question was we had launched a new beauty soap Jovia. So I had just a question on that. Our previous soap brand Margo was not as successful as we were expecting. So what is your thought process on this new brand? How big can we make Jovia as a brand?

See, Margo Neem Naturals is the one that you're talking about, and it is doing reasonably well. Now as we see in Q3, we can see good enough improvements in the brand and in Personal Care. So Jovia and Margo both put together are delivering for us from Q3 onwards. Yes, the first half was muted. But going forward, both of these brands will start delivering.

Okay. So by when can we expect to have a significant contribution from these brands? Right from the next year onwards or from the second half of this year?

See, Personal Care for us in the first half was muted. Going forward, yes, it should come. Jovia as a brand is a new brand. So it will take its time, but it's doing fairly well.

And moreover, we have actually made good investment behind Margo franchisee in terms of advertisement spend in this quarter. And those investments are also going to yield good dividend going forward. So both Original Neem and Neem Natural are likely to perform better as we go forward.

Okay. Yes. So my next question was what -- in terms of some product category, we have not been as much successful on the national level in some of the product categories. So we have remained in a comfort zone in the southern markets. So what are your future plans to make the product a national brand and let's say expand more in the other non-South region of India? I mean, which products of your portfolio can make it?

So actually, the comment that you made that our brands are focused or concentrated in Southern India only is not entirely correct because our revenues from Southern India has come down from 40%-odd to 33% over the past few years. So we are expanding our product portfolio to pan-India basis. So that's point number one. Point number two, there are many brands. You can take Exo, you can take Pril, you can take Margo, you can take -- Ujala also now is expanding and going upwards. So there are many brands which are pan-India. And it would be unfair to categorize us as a Southern India-based company and all the brands focused on Southern India.

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

3 questions from my side. First question is on the aspiration for revenue growth for second half FY '27. This is in the context that competitive intensity has gone up across segments and actually also is very aggressive across categories. So what are your thoughts on that? Secondly, new launches, a couple of new launches we have made, first is on the wool second is Ujala Young & Fresh. So are we expecting to enter more categories because second half has already started, you're yet to see launches. So what is the overall new product launch calendar? And third question on the M&A front, now almost INR 800 crores book, right? So what is the thought process? What is the constraint that is hindering us from making acquisitions?

Yes, Vishal. So second half, yes, it is a very competitive market. But since there are a lot of positive indicators that are there and also going by what our October sales has been, it looks positive. So I can only comment that we are aiming to be back like how we were in the past. So we are trying to do all that it takes for building our brands and making it grow volume-wise double-digits, okay? At least by exit of this year, we should aim at double-digit volume growth.

Sorry to interrupt. Value and volume should be similar or there should be a gap in value and volume growth?

There will be a gap, Vishal, because we have been maintaining that given the market scenario and the average realization being lower. So there will be a gap. And this gap would be different for different categories. But on an overall basis, there will be 2%, 2.5% gap.

Okay, okay. Got it, sir. Go ahead.

Yes. And NPDs, Dr. Wool, what you mentioned is a very recent launch. It is a specialized garment care, especially for your winter clothes and your delicate fabrics. It has just launched and it has been well received. It will be mostly selling especially in the winter months. But that was -- there was a gap there in the offerings, and hence, we have introduced that. Young & Fresh, yes, we had introduced it early on in this year. It is a fabric conditioner, and it has been also been received reasonably well. So yes, going forward, these are the other 2 brands that will be contributing in the Fabric Care category. A few more NPDs will be there, which you will come to know when we launch it. But there are a couple of them in the pipeline.

It will be launched in F '26 only or you are planning to postpone to F '27?

No. So you will see more launches in this year itself. Of course, there will be some lined up for next year. And on the third question on M&A opportunities and the cash balance. So as we have mentioned in the earlier calls also that we are actively looking for the right assets, and we have explored a few of them. And we are in talks with a few of the assets -- a few of the businesses. So as and when it materializes, it will be made known to the streets.

The next question is from the line of Nitin Shakdher from Green Capital Single Family Office.

My name is Nitin Shakdher. I'm from the Green Capital Single Family Office. My question is more as an investor rather than an analyst. If I look at the categories which the company obviously legacy businesses are in, there are a couple of new brands and upstarts, which are coming in low volume, but maybe differentiated products. Now we just spoke about M&A and the acquisition. But just wanted to get a flavor of the aggressiveness of the management in terms of trying to take over categories from newer players, let's say, like Koparo Clean and all that. And just wanted to get a sense of how the company is envisaging growth one through organic and inorganic means because it's obviously sometimes easier or less expensive to take over a brand rather than build a brand from scratch, at least in terms of the premiumization strategy. Just a little flavor on that would be nice.

So thanks, Nitin, for this question. It's a classical debate of make or buy. And as I mentioned, we are looking at assets which actually complement us and the adjacent categories and which -- the asset which we are able to leverage on our strengths. So it will be a combination of all these factors. And we believe that we have huge runway available in terms of our existing categories for organic growth. So in terms of future growth, it will be a combination of both organic and inorganic.

Yes. I mean, I understand that. But what I was coming to was that more in terms of slightly higher growth than the category of the market, which is consistent and Jyothy Labs for the many 10, 15 years has been on consistent growth categories, but how does the brand take the leap forward and not risk newer competition coming in and eating margins? Just it's a classic case of an investor trying to decode the long-term runway of a company, not so much in terms of analysis or percentages and quarterly margins that the company very well knows. So just sort of a discussion on that.

Yes. So Nitin, the only way to build any brand for us, yes, quarter-wise is not something that even we are focused. We are more here for the long term. And that's why you see consistent investment, be it ad spends, be it innovations and the kind of R&D that pipeline that we have developed and some of the launches that you will see in the coming years is something that we are already preparing. And we -- to say that we actually don't need an acquisition in that sense. We have enough to grow organically with our current brands and the pipeline that we have. But having said that, to fast track growth and to have even more aggressive this thing is where the acquisitions will help. But yes, we have a few things lined up with differentiated offerings, and that should be able to do the fair contribution to the -- in the coming years. So that's what we are expecting, and let's see where it takes us.

The next question is from the line of Umang Shah from Banyan Tree Advisors.

Ma'am, I wanted to confirm the first thing was only our Personal Care portfolio is affected by the GST, right? Everything else, there is no change.

Yes.

Okay. Would it be possible to quantify the GST impact? I mean, if things were normal, what would have been our growth?

No, it's difficult to put a number behind this, but there was a general disruption in terms of channel. The order uptake was significantly dropped. And in fact, at the Kirana store level, they had tax paid stock. So they were reluctant to place order until their tax paid stock inventory gets liquidated. And then similarly, the distributors were also -- they slowed down their orders. So overall, Personal Care was largely affected because of the GST reduction. In other categories also, although they were not covered by GST, but there was a lot of confusion and chaos in the channel. So the safest thing that they could do is to stop buying and wait for the final situation to get clearer by 22 September. So as a result, as Jyothy mentioned in her opening remarks, this was affected. The business was affected in September.

Got it. Got it. So although the category affected was only 11%, but because the same distributor has a lot of confusion with respect to other things also, there was destocking across the segments, not just Personal Care?

That's correct.

Got it. Second question was with respect to making the Home Insecticides segment profitable. So for last -- for more than 3 years, I think the illegal incense sticks have been causing a big damage both to the consumers and to the sector as a whole. At that time, we were -- our understanding was that once there is some action on these, we would get back with our coils and then we were also focusing on liquid vaporizer. Now we are saying that we would want to focus more on profit. So just wanted to understand what is the -- how would you want to go about it? And as per your internal working, when is the breakeven apparent?

So in HI segment, our stated position is that we are focused on turning around this segment. And we are not intending to lose more money behind coils, and that's a conscious call we have taken. We are focusing our energies, investments on liquid vaporizer, and we have also launched new products, Maxo Aerosol and Anti-Mosquito Racquet. See, all these categories are profitable categories and they are doing good for us. Of course, it's going to take time. And we have indicated that it may take another 4 to 6 quarters for this category -- this segment to turn profitable. So that's the time it will take in our assessment.

Got it. Got it. Sure. And just last question, if I can squeeze in. We have relied on having brand ambassadors for all of our products. And that also is -- that makes a lot of sense because we have a rural-focused distribution of products also. Just wanted to pick your brain on in last 1 year, have we done a different kind of an activation through social media or something? And how have been the results? And going forward, how would you allocate your spend towards digital?

Yes. So Umang, we have been investing behind digital medium. While TV is also important for us being an FMCG company, but we are increasingly also shifting our budgets towards digital and rural markets also. So if you see some of our products, it depends on the brands that -- and what priorities we have and which regions what focus we need to do, and we take those calls accordingly. But the digital spends definitely have increased from what it used to be.

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

So just on this volume growth bit, Pawan, you mentioned there is a disruption and it's not only in soap, it kind of filters out across because of the distributor behavior. But most companies are calling out like a 2%, 3% type of a disruption in terms of the growth. Would our number also be in that same ballpark? I just want to understand real volume growth to get a sense of how to bid is a gradual improvement into H2. So that's the first question.

So Harit, as I mentioned, for us, it is very difficult to put a number on the GST disruption. But overall, Personal Care saw -- took the biggest brunt in terms of GST. And in other categories also, there was some impact, but the bigger issue was on Personal Care.

And this Personal Care margin bit, which is second question. If you look at last quarter, it was a flattish revenue growth, it used to do a double-digit EBIT. With a deceleration minus 4%, is the operating deleverage so high that the margin moves as it does? And should this margin move back to normalized level in quarter 3 as the normalized growth starts to resurface?