Jyothy Labs Ltd

NSE:JYOTHYLAB

Earnings Call Transcript 2023-Q3

[Operator]

Ladies and gentlemen, good day, and welcome to the Jyothy Labs Q3 FY '23 Results Conference Call, hosted by ICICI Securities Limited.

[Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Karan Bhuwania from ICICI Securities. Thank you, and over to you, sir.

[Manoj Menon, analyst]

Hi, everyone. This is Manoj Menon representing ICICI Securities. It's a wonderful good morning, good afternoon, good evening to you, depending on the part of the world you are joining this call from. It's at the outset, it's our absolute pleasure to host the 3Q FY '23 results conference call of Jyothy Labs.

The company is represented by Ms. Amar Jyothy, Managing Director; and Mr. Sanjay Agarwal, the CFO. After the initial opening remarks and the presentation by the management team, we will open up the floor for Q&A. Thank you. Over to Sanjay, please.

[Sanjay Agarwal, executive]

Hi. Thank you, Manoj, and very good afternoon to all of you, and we welcome you to the conference call of Jyothy Labs. We'll be discussing our performance for the quarter ended December 31, 2022, with all of you. And as Manoj said, we'll follow it with the Q&A after the opening remarks.

So friends, overall a decent quarter. We have been continuously focusing on execution. And as you may have already seen in our results, we have reported a healthy revenue growth of 13.7% and then EBITDA grew by 37.9%. On a 2-year and as well as on a 3-year CAGR basis, our revenues have grown by 13.3% and 13.4%, respectively. So a good double-digit growth for last few quarters.

If you look at the volume growth for the quarter was 2.1%. Each of our categories have grown by double-digit except HI. If we analyze the business ex-HI, our value growth is 16.7% and a volume growth of 3.9%. So overall, decent set of numbers.

On business front, we continue to see the headwinds of input price inflation. And therefore, in this environment, our focus is -- remains to focus on the top line growth with balancing the margins. Lower unit packs continue to gain acceptance and are selling strong in the rural markets. We continue to focus on our potential of rural India and accelerate our overall growth through distribution drives category penetration strategy, digitization and premiumization.

Both urban and rural continues to do well. The rural demand has been impacted more due to inflation issues and they are more cautious than the urban consumers. How given the strong potential, we continue to focus on our rural franchise and the numbers have been encouraging.

With regards to the specific commentary on channel performance, there's a stable growth across all channels now and that's also being aided by our expanded distribution platform. Our constant endeavor is to fulfill the consumer needs and consistently gain market share across brand categories, which is helping us in building scale and growth for the future.

Regarding our different business categories, the demand for detergent dishwash and Personal Care category is stable. For HI, which is -- Q3 is one of the smaller quarters, sales got impacted due to seasonal trends in our core markets of north and east of India and industry issues of illegal incense sticks.

On margin front, there has been a sequential improvement in margins. Few of the raw material prices have softened, but some of the key inputs like you have your LABSA and soda ash, the prices have still remained high and which is keeping pressure on margins. However, as we see the EBITDA margin for us for this quarter is 13.38%, there is a sequential improvement by 160 bps. At September quarter, we were at 12.2%. And also last year, same time, our EBITDA margin was 11.3%. So there's an improvement of 250 bps.

So overall, a positive trend, both on the housekeeping from the small breakup. On the other income side, we -- it includes INR 9.5 crores pertaining to sale of land during this quarter.

We move on to the key category performances. Our Fabric Care is doing well with 26% growth this quarter. Our lead brands, Ujala and Henko have been doing a good growth. As you know, both in Ujala and Henko, we folded into liquid detergents that's doing well. And our geography extension of Ujala Crisp & Shine is also doing well.

Similarly on the mid-price detergent brands, Mr. White and MoreLight, they have witnessed good demand. And as -- like the earlier quarters, the momentum continues there. So we're on a good performance in the Fabric Care. Similarly, in the Dishwash category, both Exo and Pril continue to do well. We see both large packs in urban consumers and smaller packs in rural India, rural markets offering good value, superior value to the consumers. So both doing well.

And we, I mean, continue to invest in both the brands of Exo and Pril and which has accelerated the growth on a pan-India basis. This quarter, on Exo bar, our pan-India market share has reached now at 14%, so that's very encouraging. On the HI segment, the coil category itself grew by 12% for us. So not for us, but the category grew by 12%.

And for us, as I earlier said, Q3 is a smaller quarter. And our market share, we have been holding our market share as well. So we remain positive on this category. And we are hopeful that in the next year onwards, things are more positive for this category as well.

Finally, on Personal Care, which is primarily our Margo-based franchise, a new base Margo franchise that's also delivered a double-digit growth. So that's doing well.

So in summary, we'll continue to focus on volume-led growth, what we have been focusing in the past and try towards gaining market share for all our brands. Going forward, I mean with the union budget around the corner, we are optimist that we offer more avenues for consumption to increase. And we believe that volume will gradually grow from here on. And sequentially, we should see improvement in margins, and we continue to focus on our journey to deliver a revenue double-digit growth.

So with this, I finish my opening remarks. We are happy to answer any questions or clarifications you may have. Thank you.

[Operator]

[Operator Instructions] The first question is from the line of Gaurav Jogani from Axis Capital.

[Gaurav Jogani, analyst]

Congrats on the good set of numbers. My first question is with regards to the Fabric Care segment. That has continued to grow well about 20% over the past 2 to 3 quarters. So if you can help us break this between what could be kind of a volume growth that you are seeing? And what could be the pricing growth here? And going ahead, as the price advertises, how do you see the growth being driven in the segment?

[Sanjay Agarwal, executive]

Yes. So Gaurav, thank you for your question. Broadly, Fabric Care, we have seen double-digit volume growth and the balance is on the price. And we are in this Fabric Care with multiple brands and having brands at different price points. Overall, we see good traction for us. And from numbers perspective, definitely should have a double-digit growth in Fabric Care in the next few quarters as well.

[Gaurav Jogani, analyst]

Sure. Sir, my next question is with regard to the depreciation expense. So if we see on a stand-alone basis, the depreciation expense is actually halved even on a 9-month basis and even for the quarter as well. And even we are seeing some decline on the consolidated basis also. So if you can help us out how we can build in the depreciation expenses going ahead? Any guidance on this will be helpful.

[Sanjay Agarwal, executive]

Also, whatever that, if you look at the consol, the numbers or the depreciation and amortization expense broadly remains the same or in line with the business. On stand-alone, in previous years, we used to have a trademark, which got amortized and we did not have any impact on the consolidated numbers.

[Gaurav Jogani, analyst]

Sure. So sir, basically, the run rate that we are seeing, basically, could we see the similar trends in the quarters going ahead?

[Sanjay Agarwal, executive]

Yes, yes. On the consolidated basis, that's right. And even in the quarter, what we have for the stand-alone, what we have on December will be the same trend going forward as well.

[Gaurav Jogani, analyst]

Sure. And sir, just last final question for me. On the raw material side, while you highlighted that the LABSA and soda ash both of them continue to remain inflationary. But most of the other RMs have seen significant decline on a YTD basis. And this is also seen on your Q-o-Q margin improvement as well. So going ahead, do you still believe there is further scope of margin expansion given that the raw material prices remain where we are today?

[Sanjay Agarwal, executive]

Yes. So we expect this should be assuming that the raw material prices remain where they are today and the softening continues, yes, definitely, there should be a sequential improvement in the margins. But we cannot quantify at this point of time.

[Operator]

[Operator Instructions] The next question is from the line of [ Naysar Parikh ] from [ Native Capital ].

[Unknown Analyst]

Can you please give a split between your channels, especially GT/MT and what has been the growth this quarter in both of that?

[Sanjay Agarwal, executive]

So both the categories have been doing well, general trade and modern trade. I mean, we had all these challenges during the COVID time. But as we speak, both of them are doing well.

[Unknown Analyst]

What would be the split?

[Sanjay Agarwal, executive]

So broadly, we have around 80% of our business is general trade and the balance is institutional business, which is modern trade e-commerce, CSD and others.

[Unknown Analyst]

Okay. Got it. And my second question is on the Personal Care portfolio. And strategically, are we looking at enhancing it or any -- adding more brands to it or increasing it because as of now obviously, there is a small portion of our portfolio, but it is a big proportion in the market in terms of share. So what is our thoughts and strategy on the Personal Care portfolio?

[Moothedath Jyothy, executive]

Yes. So we'll be growing the Personal Care portfolio. As of now we have few plans for the future. Right now we'll not be able to comment on that. But yes, plans are there, and we'll be growing each of that segment which we have.

[Unknown Analyst]

Okay. Got it. And just one last question is on the Fabric Care margins, right? Can you just comment on the price increase? What was the price -- do you have any price increase in this quarter and anything that we'll see in future? And how would that flow into margins, please?

[Sanjay Agarwal, executive]

So for this quarter, we haven't taken any meaningful prices across the brands. And going forward, it will depend on -- a lot will depend on how the competitive intensity is there and how the raw material prices are there. And then accordingly, we'll have to take a call.

[Operator]

We have the next question from Aviral Jain from Siguler Guff.

[Aviral Jain, analyst]

Sanjay, could you comment on the market share or how is the performance in premium detergent side, especially Henko? Are you growing either category on both volume and pricing terms? That's one. And the second is Ujala IDD. I mean, there were plans to take it outside the Kerala, more into Tamil Nadu and regions, so how is that panning out?

[Moothedath Jyothy, executive]

Yes. So we've been doing really well on Henko and both Ujala IDD. Ujala IDD right now is in Kerala, Tamil Nadu and West Bengal. West Bengal is actually is at a very nascent stage while we have increased our market share from Ujala IDD in Kerala while Henko as a premium listing as we have seen volume and value growth as well. We have also launched the liquid detergents in both these -- under both these brands. And they are also initially -- I mean, the feedback has been very good and has been doing well.

[Aviral Jain, analyst]

If I ask differently, is it growing ahead of your overall category growth? Or that's an unfair question to ask right now?

[Moothedath Jyothy, executive]

Yes, liquids are because it has been -- I mean, we have launched it since last 1, 1.5 years. So if you see comparatively, the market is also growing. The category is growing and we are also growing along with that. And powders, while both powders, yes, compared to category internally, yes, we are growing.

[Operator]

[Operator Instructions] The next question is from the line of Sachin Jain, an individual investor.

[Unknown Attendee]

Congratulations for a good set of numbers. My question is largely on distribution. Basically, if you can give more qualitative color on how last couple of years, it has helped you expand distribution? And second, how you see distribution footprint accelerating going forward in the next couple of years from here on?

[Sanjay Agarwal, executive]

Yes, Sachin. So as you know, we touch around a million retail outlets on a direct basis and on Ujala fabric whitener we have 3 million outlets. So we have a decent distribution footprint across India. Now there are ways and means in which you will do your expansion of distribution on a more cost-effective basis because we are anywhere there across India with a fairly good footprint. So our focus is more on improving or increasing the productivity of the distribution, what we currently have and obviously using technology and other means to get there.

So I think that's what our philosophy has been and we have been increasing the -- increasing outlets. Focus on increasing the outlets and adding more outlets to the 1 million retail outlets has been our focus and making more productive [indiscernible] and increasing the productivity of [indiscernible] that's more our focus on the distribution side of it.

[Unknown Attendee]

So productivity would also mean that you may be more aggressive in new launches, productive?

[Moothedath Jyothy, executive]

It -- so if there is one particular sales there is selling, say, 2 lines or 3 lines, it's basically increasing more SKUs and more -- so the same retail outlet will have more of our SKUs. We have a lot of brands, so there is a focus growth in every SKU that way. So yes, so if your average is around 3, the intent is to go to 4 or 5 on the retail. Depends on each geography, the...

[Unknown Attendee]

And what kind of direct reach you want to take it to, say, next couple of years, distribution reach from one unit to what is the expiration?

[Sanjay Agarwal, executive]

So again, obviously, there are internal ambitions. And as I said, 1 million today is a decent number for us on the turnover what we are doing. And we don't want to put a number, but we want, as I said, only making more cost-effective and including the productivity from the existing network.

[Unknown Attendee]

So that would also mean, Sanjay, maybe double-digit growth, maybe we can assume a structural growth of double-digit looking at the kind of work you've done on distribution and productivity. So what kind of growth you guys are building in?

[Sanjay Agarwal, executive]

Yes, in the current challenges and everything, what we are seeing, I think we have definitely will target to have a double-digit growth.

[Operator]

The next question is from the line of Harsh Shah from Incred.

[Harsh Shah, analyst]

Within the Fabric Care segment, what would be the contribution of mid-price and like Mr. White and MoreLight now as compared to pre-COVID levels, sir?

[Sanjay Agarwal, executive]

Sorry, Harsh, could you just repeat your question?

[Harsh Shah, analyst]

Yes. So within the Fabric Care segment, what would be the contribution or, let's say, salience of mid-priced brands like Mr. White and MoreLight now compared to pre-COVID level?

[Sanjay Agarwal, executive]

So I don't want to say pre-COVID level, but both of them have been growing well. So both MoreLight and Mr. White was there as part of our portfolio earlier also. And as we speak now, they are growing on a lower base at a faster growth. So higher double-digit is what we are seeing both in MoreLight and Mr. White.

[Harsh Shah, analyst]

Okay. And are we focusing these brands in any particular markets or particular geography?

[Sanjay Agarwal, executive]

No, it's more on a pan-India distributed brands.

[Operator]

[Operator Instructions] We have the next question from the line of [ Naysar Parikh ] from [ Native Capital ].

[Unknown Analyst]

Yes. Last time, you'd given the numbers that in north and west is around 30% of revenues, which for the industry would be upwards of 50%. So I just wanted to understand what is the growth for the north and west region? Is it higher than the sort of company overall? Is that doing better? And secondly, what are we doing to kind of bulk up distribution there that we can grow faster where we are underrepresented?

[Sanjay Agarwal, executive]

We are seeing a good growth across India, whether it is south or north or west. There are certain pockets of strength what we have in south, in some brands and in some brands, we are strong in north and west as well. So it will depend on the strategy for that particular brand. And as you know, we have 4 categories and within that, also multiple brands in which we are operating.

So it depends on each year to year where the focus of the marketing and the management team have. So -- but both north and west, yes, it gives us a lot more opportunity for us. And as time passes by, our distribution become much stronger across India and these markets as well. We'll see a growth across India. So there's nothing specific that we'll only focus on north and west. We have some pockets of strength in east, some brands and some very strong brands that are there in south and -- I mean, rather than losing them, we'd rather capitalize on our strength there.

[Unknown Analyst]

But just on the distribution side, which is obviously best in all the big markets and some of your competition obviously very big there, in terms of either the team strength or something, so you can give any numbers on metrics? Are we doing anything different? Are we trying to ensure that the market share that we have is obviously much lower than the market share we have in south and east. So how do we kind of increase our market share in those regions?

[Moothedath Jyothy, executive]

So we've been consistently investing on our brands. And again, it's hard work, it's distribution that finally will also help. So both brand-building and distribution will go hand in hand and that's the strategy, common strategy, but yes, it's pretty -- a lot of hard work and that will keep continuing. And from where we were to where we are now, we've been growing in all these geographies.

[Operator]

[Operator Instructions] We have the next question from the line of Karan Bhuwania from ICICI Securities.

[Karan Bhuwania, analyst]

So in HI category, can you highlight what are the salience of liquid vaporiser as [indiscernible]. You have been focusing on the Maxo Liquid Vaporiser for some time now. So what has been the trajectory and improvement in the mix? And what is the path to profitability in that particular segment that we can have classified?

[Sanjay Agarwal, executive]

Yes, Karan, so we have spoken in the past about some of the seasonal issues we have seen in north and east, which are a core market. And so things are improving. And therefore, going forward, this quarter is going to be an important season for us. And what -- we have also seen some illegal incense sticks impact on the coil sector -- coil category. So going forward, yes, as you've said, our focus is more to -- on the liquid side of it, which is around 35% of our portfolio.

So we'd rather focus on expanding that. And the good thing is, as we speak, our market shares are holding up. So we will wait for this quarter how the season behave. And we are hopeful that we will see a turnaround in this category as well.

[Karan Bhuwania, analyst]

Secondly, you have been highlighting that LUPs have been selling good [indiscernible]. So as we now focused more on LUPs we launch against which pack to take it to the global consumers and anything specifically you're doing in rural markets to drive faster growth?

[Moothedath Jyothy, executive]

Yes. So LUPs have been growing for us in double-digits. And so if you see with the current situation, that's where it is that makes sense for consumers, especially in the rural. So both our INR 5 and INR 10 packs have been doing well. We've also introduced, like you said, the bridge pack at INR 20 since many of the other MRPs have gone up. The INR 20 pack has also come in, in most segments. And we are seeing pretty much good impact there as well.

[Karan Bhuwania, analyst]

Will you be able to share what is contribution of value, please, now to your portfolio?

[Sanjay Agarwal, executive]

See, for the company overall, the INR 5, INR 10 and the LUPs account around 30%, 35% of our total business.

[Operator]

We have the next question from the line of Manoj Menon from ICICI Securities.

[Manoj Menon, analyst]

So I did -- I have 2 quick ones. So one on the insecticides category, while I heard the seasonality comment, but as we look at the long-term trajectory for you and as well as for the other players, is it fair to say that is it just not the seasonality, there something else is also playing out because as I recall, during COVID times, there was this regaining of share from incent gigs and post-value till you heard about what's really happening to incent gigs, et cetera. Is there something underlying which is actually playing out apart from just the seasonality at a category level?

And being the -- one of the large players, definitely in one of the parts of India, it definitely have sort of a tailwind stroke headwind for you, right?

[Moothedath Jyothy, executive]

See, during COVID, like you said, yes, we did see good growth happen in this category. It was also the impact of COVID, I would say people wanted to avoid going to hospitals or things like that. So that kind of thing we did see were -- I mean, the use of hand-washes, sanitizers, all of these health care segments did grow well. And the incent gigs and all those illegal manufacturers definitely going out there and keeping their brands which we didn't impact us more then.

Now that things have cleared and all have come back, yes, that's one category. The illegal incent gigs has been growing. So yes, one is that and then the seasonal impact that has actually impacted, both of these have impacted the entire category.

[Manoj Menon, analyst]

Understood. Secondly, top down, when I look at the next, let's say, 3, 5, 7 years, for Jyothy Labs, if you could call out, let's say, what could be those 3 or 4 incremental drivers? So example when I look at it today, it's probably less appreciated that dishwash, for example, is the largest category for you, which was the result of, let's say, a lot of painstaking efforts you have done much earlier. Secondly, currently, the mid-segment detergent basically extending the brand into other markets, et cetera. So if you could talk about things like, let's say, liquid detergent, what are you finding in terms of consumer behavior and more importantly, acceptance of your brands, which is a premiumization driver for you?

Secondly, with some more granular color in terms of the ramp-up plans for Crisp & Shine or any other things, which are the 3, 4 things which could potentially be those big drivers of incremental growth for you?

[Moothedath Jyothy, executive]

Yes. So for us, as Post Wash -- so if you see Fabric Care and Post Wash are detergents, and the newly launched liquid detergents, all of them have been doing well. Crisp & Shine, it's a category that it requires a lot of education. So we will be going each -- one by one, each market. It won't be an all-India thing all of a sudden. There are these Post Wash using markets, especially in that category and we would want to go and invest behind and educate consumers on that.

But we've seen good growth post-COVID, that was one which has got impacted, both the Post Washes have got impacted and now they are coming back and have almost come back. So we are seeing good -- we'll be seeing good growth happen there. In the liquid detergents, yes, we see that shift happening from, I mean, with the consumers, the categories are growing in very high double-digits.

So -- and obviously, when a trusted brand launches and obviously, the mix is working for us, the price, the quality of the offering is also working for us. So that also coupled with the category growing that is going to give us that kind of growth in the coming future. And in detergents as powders, we have brands at every segment, the premium, the mid-segment and the mass-segment. And in times like these, the lower end also has grown.

So if you see, for us, all of these brands have been firing this year. In fact, last few quarters, it has been doing well. And all of these will be contributing to the overall growth.

[Operator]

[Operator Instructions] The next question is from the line of [ Shreyansh Jay ] from [ Swan Investments ].

[Unknown Analyst]

Just wanted to understand, sir, if I look at your gross margins Q-o-Q, you've seen quite a lot of improvement there. I'm looking at stand-alone number. So just wanted to understand, in spite of the revenue degrowth Q-o-Q, you've seen strong improvement in gross margins. And you also mentioned that LUPs are selling more. So just wanted to understand, is it only because of RM, or do you think a product mix change has also led to this improvement in gross margin?

[Sanjay Agarwal, executive]

So [ Shreyansh ], it's primarily because of the softening of the raw materials, which aids us in the gross margin. And in the past, as we know, the margin decline had happened primarily because of the raw material prices going sharply up. So as things are moderating out, we've got that benefit in the gross margin levels. And the price increases which we have taken in the past is also helping us in that.

So multiple factors which getting us back to our earlier gross margin levels, so we have still big part in that process. And hopefully, in the future, we should be back to our earlier margin profile of EBITDA margin profile of 15%, 16%.

[Unknown Analyst]

So yes, I just wanted to check back on that. Earlier, we used to do about 15%, 16% odd levels of EBITDA margin. So what do you think strategy-wise you guys have to do to get back? Or do you think the current run rate and the way we're doing our business and the things that we're doing on the ground will help us to get to those margins eventually in a year or 2? How do you guys look at this?

[Sanjay Agarwal, executive]

Yes. So if you see how sequentially things have been improving, so we hope that the same trajectory will continue and which will be a mix of softening of raw material prices, some of the price increases which we have taken, I think all of these things put together in times to come, we should be back to our earlier margin profile.

[Unknown Analyst]

Okay. And sir, just fundamentally, I wanted to understand what is actually happening in the Fabric Care segment? Because I think you've grown well. And our competitor has done really well in this kind of segment. So we've seen demand softness across the board, but this is 1 category where we are not seeing softness. So just fundamentally wanted to understand, is there anything that's happening underneath that we're not being able to understand? What you would say?

[Moothedath Jyothy, executive]

Yes. So we'll speak about us. And the thing is, like I said in the earlier -- the thing also that for us, the Post Wash -- so Fabric Care is the Post Wash, the Main Wash and the newly launched liquid detergents. And we've seen -- and the thing is we are there at each and every price point that their price segment that's there in the market.

And all of them have been doing well, also coupled with the distribution reach and all of that. So that's about it in that we've been investing on these brands as well. And we have also gained market share. So -- yes, yes, that's it.

[Unknown Analyst]

Okay. And just last bit, I just wanted to understand your market share numbers. When I look at Ujala Supreme market share numbers, we are at 83.6%, also 84.1% in the March quarter. So anything to look into that, 50 bps we've lost market share here and in home insecticides also, I think we've lost about 50% -- 50 bps of market share. So...

[Moothedath Jyothy, executive]

No. So I would say that rather that we've been maintaining 50 bps here and there doesn't make a huge this thing in our category. We are, by far, the market leader in the Post Wash segment. And yes, there's no concern as such.

[Operator]

Ladies and gentlemen, that was our last question for today. I would now like to hand the conference over to the management for closing comments.

[Sanjay Agarwal, executive]

Yes. Thank you, everyone, and we appreciate you all asking those questions and having a good discussion. We look forward for your comments and any questions you have, please reach out to us as well as to ISEC team and look forward to meeting with all of you as and when any questions you have. And thank you, everyone.

[Operator]

Thank you. On behalf of ICICI Securities, that concludes this conference. Thank you for joining us. You may now disconnect your lines.