Jyothy Laboratories 2020 Annual Report Takeaways!

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Jyothy Labs Q1FY21 results –

Jyothy Labs Q1FY21 Shareholding pattern –

Concall Takeaways –

The Great Indian Consumption Story and the trends shaping it!

About Jyothy Labs

Jyothy Labs Limited was founded in 1983 by Mr. M. P. Ramachandran in Thrissur, Kerala. With a humble beginning as a single-unit, single-product manufacturing company, the Company has grown significantly to become a leading FMCG player with a pan-India presence and several household brands. They have 27 state-of-the-art plants across 23 locations and an extensive distribution network of 0.86 million outlets directly reachable, through which it serves and delights millions of Indians every day.

It has a wide basket of products marketed under six power brands that cater to diverse household requirements – Ujala and Henko in the fabric care, Exo, and Pril in the dishwash segment, Maxo in the household insecticides, and Margo in the personal care.

In August 2008, they forayed into a synergistic laundry services segment with the launch of Fabricspa in Bengaluru and currently operate 150 outlets across India.

Year that went by

  • Revenues (based on consolidated financial) for the year declined by 5.6% to Rs 1,711 Crore.
  • Gross Margin improved to 47.4% from 46.5%.
  • Operating EBITDA stood at 14.7%  (Rs 251.1 Crore) as compared to 15.5% (Rs 281.1 Crore) in the previous year.
  • Profit After Tax stood at Rs 162.6 Crore as compared to Rs 197.6 Crore in the previous year.
  • The decline is largely attributable to loss of sales in the month of March 2020 on account of sudden lockdown due to COVID-19.

All the Brands of Jyothy Labs –

Their Power Brands

Differentiated Products

New Launches

Margo: Margo, one of the Power Brands, saw the launch of Margo Facewash with authentic neem leaves, Margo natural antibacterial handwash with the authentic anti-germ properties of neem and Margo Sanitizer with alcohol and infused neem extracts. The facewash, coming in paste form is a product differentiator and first-of-its-kind in India, as all the other neem face washes in the market are gel-based.

Margo Handwash and Margo Sanitizer were rolled out just as the demand for hand cleansing products was peaking in India in view of the medical advisory to combat the novel coronavirus. As with the Margo range, they are both enhanced with neem, a unique proposition which no other comparable products have.

T-Shine: In their household products range, they introduced a lavender variant of T-Shine Toilet Specialist.  It has the distinguishing characteristic of being the only toilet cleaner in the market with 100% Organic Compounds.

Exo Dishwash Super Gel: It is a thick concentrated dishwash option.

Branding and Media

  • Focussed marketing initiatives like exclusive tie-ups with electronic chains for providing Henko Matic samples to washing machine buyers and co-sponsoring with KBC (Ningalkum Aakam Kodishwaran – 2020) in  Kerala led to higher consumer activation.
  • To consolidate the leadership position of Ujala IDD Detergent in Kerala, a new television commercial was launched featuring the brand ambassador Manju Warrier.
  • Also digitally promoting our Power Brands on various social media networks.
  • Social media influencers were also brought on board to reach out to youngsters who mainly consume digital content and are likely to notice online promotion more than television commercials.

Distribution

  • Revamping distribution strategy, with easier goods movement following the implementation of GST.
  • Information technology, infrastructure, manpower, all are being used to augment distribution, encompassing areas where they are present and where they are yet to establish a presence.
  • Their transformed distribution strategy includes accessing as wide a consumer base as possible through tie-ups with major e-commerce platforms. They have been seeing notable success in this effort for the past year.
  • During the year, keeping in mind the safety of consumers and delivering products at their home, they have partnered alternate distribution partners that have been well received.
  • Going forward, their E-commerce activity is likely to increase. They are in talks with partners and have an able team to take it forward.

Quick Facts –

  • The average age of the new leadership team is just over 37 years; it is a young, dynamic team. The succession comes with fresh thinking which is reminiscent of their beginning from the grassroots in 1983 with a strong focus on innovation and delivering differentiated products.
  • Ramped-up focus on essential and hygiene products to service the rising demand for safety.
  • Understanding that a large share of Indian demographics is middle-class and below with lower affordability, they have ramped up manufacturing and distribution of small unit packs.
  • Tied-up with alternate distribution channels as lockdown necessitated consumers to have doorstep delivery of products for safety purposes.
  • To ensure that they have the right stock-keeping units, they have increased the frequency of interaction with the distributors and retail outlets.
  • Launched several smaller size packaging to ensure the affordability of products.
  • Multiple campaigns and brand activation initiatives were carried out to enhance the visibility  of products.

Management view on Disruption

“Disruption is always uncertain. What makes a difference is how we manage it – whether we are doing the disruption or have been disrupted. An organization should welcome disruptive practices, and not shy away from it. To be disruptive, we have to be extremely attentive to global trends and needs. This is evident in our agile response during the COVID-19 pandemic times in terms of product and distribution strategy which I mentioned earlier.  At Jyothy Labs, we excel in manufacturing, sales and distribution, and brand-building. We have now complemented these by taking a technology leap.  If disruption happens anywhere, our technology will help us capture that. Our new-generation leaders welcome disruptive technology and are ready to fully utilize it to take our operations and sales to the next level.”

Jyothy Labs Transformation

“On one hand, we are expanding our premium range to cater to the rising aspirations of the urban populace and on the other, we are coming up with more value-for-money products and smaller packaging for price-conscious rural consumers. We are focussing on and ramping up production of essential and hygienic products in our portfolio keeping in mind their growing need for health and hygiene as the nation fights against COVID-19 pandemic. We are investing in new-age technologies and data analytics to enhance productivity of sales, manufacturing, and other operations to empower our people, and to unleash the power of data. We are expanding physical distribution as well as building new-age partnerships to reach consumers through the channel they prefer and also ensure last-mile delivery.”

“Most importantly, the rising leadership at Jyothy Labs belongs to the same generation as the millennial Indian consumers whom we want to serve and keep with us for life. With our new-age thinking aligned with that of the new-age Indian consumers, we are well-positioned for the next decade of growth.”

Performance Highlights –

Value Creation Thought Process

Stakeholder Management

Transformation at the company

“Jyothy Labs enters the new decade prepared to embrace transformation and get future-ready. We are achieving this through a new echelon of young, agile leaders attuned to the demands of the millennial consumer base; across the board digitization; increased retail reach via E-commerce platforms; and robotics-powered manufacturing for highly cost-efficient operations; and an extremely streamlined value chain management system to maintain our cost leadership. They are driving fresh thinking to enable Jyothy Labs to win in the coming decade.”

They have successfully implemented the Sales Force Automation (SFA) application to automate sales workflow and effectively manage the sales force. It facilitates employees in keeping track of the shops visited, current and historical orders, the business generated, place attendance, and manage new leads. They can also track their daily targets and achievements. Whereas, the sales manager and the HR department can track sales force performance and reward high performers. It is helping drive the productivity of our sales personnel and enhances engagement with them.

They have invested in Compliance Management Software Tool (CMST), a robust technology platform that facilitates compliance, governance program and remains updated with regulatory requirements. It is enabling legal compliance tracking and reminder systems, timely updates, centralizing documentation as well as consolidating multijurisdictional and cross-functional view of compliance status and control mechanism.

They have implemented the Distributor Management System (DMS) which is helping them to seamlessly manage the distribution activity involving retail order tracking, product despatch and delivery, and payments. With over 6,100+ distributors in their ecosystem, DMS has resulted in enhanced distribution efficiency by enabling real-time data pertaining to all activity.

They have also implemented freight management system which has facilitated automating freight movement from factories to depots and depots to distributors. The process involves selecting transporter through a systematic bidding process for smooth management. At plants, robots are being used for product packaging which has not only improved the quality of packaging but also reduced costs.

New Technologies

During the year, they have focussed on Robotic Process Automation (RPA) for mundane and repetitive tasks that do not require human intelligence. E.g., Bots have been deployed for creating Master data in the DMS which is reducing process time and ensuring high accuracy.

During 2019-20, they piloted IoT technology at one of their plants for collecting real-time production information across multiple lines and all stages of production. This data was analyzed and helped improve Overall Equipment Efficiency (OEE).

Waste and Plastic Management

  • Continually innovating to improve product packaging such as Multi-layered plastic (MLP), mono layer plastic, laminates, etc.
  • Working together with partners towards innovative solutions to combat the challenge of plastic waste. They have partnered with several vendors to collect, segregate, and safely dispose of plastic waste to the waste disposal facility. They are also continuously exploring ways to stop using MLP.
  • During the year, they introduced IML PP (in mould layer polypropylene) container for Exo Round which is 100% recyclable.
  • Further, they have eliminated the usage of printed PVC sleeve, transparent tamper evident top PVC sleeve, and paper top label from our earlier packaging. This has resulted in 200 TPA (tonnes per annum) reduction in sleeves and 60 TPA of virgin paper label (without release paper).
  • They have also reduced the weight of liquid vaporizer bottle, translating into an annual savings of 18 tonnes of PET material.
  • Initiated installing rooftop solar panels across factories to reduce fossil fuel consumption.
  • Installed best-in-class effluent and sewage treatment plant across manufacturing units, the treated water from which is used for gardening and in toilets.
  • Rainwater harvesting is done across all facilities to conserve natural resources and is enabling them to meet a significant part of their manufacturing plants’ water needs.

Board of Directors/Management Team

Industry Overview

Fast-moving consumer goods (FMCG) is the 4th largest sector in India after services, industrial, and agriculture. Moderate inflation, rising urbanization, increasing private consumption, premiumization, and supportive government schemes have driven the industry’s growth from USD 31.6 billion in 2011 to USD 52.75 billion in  FY 2017-18.

India’s FMCG sector is classified into three broad categories, namely Food and Beverages (F&B), Healthcare, and Household and Personal Care (HPC). HPC segment accounts for the largest share at 50% of total FMCG sales, followed by the Healthcare segment at 31% and F&B at 19%.

In terms of market segmentation, rural accounts for a sizeable 36% of the total FMCG market. Valued at USD 23.6 billion in FY 2017-18, it is projected to grow to become USD 220 billion by 2025 in the backdrop of pro-farmer government schemes and direct cash transfer benefits with a consequent enhancement in rural disposable incomes and higher demand for consumption.

The traditional general trade still dominates India’s FMCG markets and contributes around 90% of the total sales. Though, in recent times, modern trade channels are evolving fast and outpacing their traditional counterparts. According to the Nielsen India estimates, the share of E-commerce in FMCG sales stood at 2% in 2019, up from 0.5% in 2016. It is estimated to command 5% of the total FMCG market by 2022.

Industry Performance Review, FY 2019-20

Indian FMCG sector grew by 9.7% in value terms in 2019, as against 13.5% growth registered in 2018. The lower growth was on account of a demand slump in both rural and urban markets. Erratic monsoon lowered farm incomes, and increasing rural unemployment stagnated rural wages further.

These factors, in combination with NBFC troubles, lowered spending capacity of the rural population. Amidst the subdued economy, a slump in sales of food and HPC items, especially discretionary items continued in the rural segment.

The industry sales in the fourth quarter of FY 2019-20 were significantly impacted further due to disrupted supply chains, ceased manufacturing plants, and logistical constraints as the government imposed stringent lockdown in a battle to arrest the spread of the Coronavirus

Key shifts Indian FMCG industry is expected to undergo

1. Elites and affluent together would command 48% of total FMCG consumption, doubling their share from 24% today.

2. Indian consumers show higher trading-up behavior as can be seen from premiumization across categories over the last five years.

3. Tier 2, 3, 4 cities (around 600 in number) would be the next source of growth for products in addition to being the new drivers of overall consumption increase.

4. The emergence of new models such as modern trade will continue to weigh on the conventional model of partner management while categories amenable to e-commerce will witness rapid growth due to COVID-19 impact.

5. Accelerated adoption of alternative distribution channels such as Udaan and last-mile delivery partners such as Zomato and Dunzo will facilitate the growth of direct-to-consumer distribution model.

6. Growth in the rural consumption demand is set to revive due to reverse migration of ~40 million internal migrants post nationwide lockdown.

7.  Essential hygiene segment to witness significant boost with health and safety emerging as a top priority of consumers due to the onstage of COVID-

Key Trends in India’s FMCG Market

  • Rural market to enhance FMCG growth
  • Advancement in logistics
  • Market share shift from unorganized to organized
  • Revolution in the digitization of India and e-commerce
  • Increasing per capita consumption
  • Premiumisation
  • Growing demand for organic products
  • Health and Hygiene segment to support the industry’s growth
  • Atmanirbhar Bharat and Vocal for Local

Key enablers for the growth in the FMCG Industry

  • Government stimulus to boost economic activity
  • Government’s growth impetus to revive rural consumption
  • Rapidly growing workforce to provide significant growth headroom
  • Rising disposable incomes and aspirational levels
  • Increasing penetration of E-Commerce facilitating further growth

Industry Outlook

As per the CRISIL report, the FMCG sector is expected to witness a 2-3% revenue decline in FY 2020-21 on account of both supply and demand shock induced by COVID-19 pandemic.

Different kinds of risks and their mitigation techniques

Fabric Care Segment Key highlights and Outlook

Dish Wash Segment Key highlights and Outlook

Household Insecticides Segment Key highlights and Outlook

Personal Care Segment Key highlights and Outlook

Laundry Services Segment Key highlights and Outlook

Balance Sheet

Profit & Loss

Cash Flow

  • The Cash flow from operations in 2019 was Rs 301.51 Cr, in 2020 it was Rs 171.5 Cr.
  • The company generated a Free Cash flow (FCF) of Rs 261.6 Cr in FY2019. It generated an FCF of Rs 129.5 Cr in FY2020.

More Annual report takeaways here.

Disclaimer

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