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Jyothy Laboratories - Diversification on cards

Jun 24, 2009

Jyothy Laboratories (JLL) had held an analyst meet recently to discuss the company’s performance during FY09. The management also discussed the future plans of the company. Here are the key takeaways from the same. About the company
JLL, promoted by Mr. M P Ramachandran was started in 1983. The company has held its presence within the fabric care, household insecticide surface cleaning, personal care and air care segments of the Indian market. It owns famous brands like Ujala, Maxo, Exo and Jeeva among others. Started as a single product company (Ujala), ithas over the years has now diversified into other segments. It has 21 operating facilities across 14 locations. Its products are available in ~ 2.9 m outlets in India as of March 31, 2009 (2.8 m for March 2008) (Source: A.C. Nielson).

FY09 performance
The company has changed its accounting year from June to March as of FY09. Hence the results are for 9 months and are not like to like comparable. The sales for the full year (9 months, June 08 to March 09) have declined 6% YoY. However, compared to March 08, the sales have grown by robust 27% YoY. The operating margins stood at 14% YoY. On the bottomline, it has declined 24% YoY; however, a 13% increase is seen as compared to March 08.

On the segmental performance, the fabric care sector which contributes 39% of the revenues, reported a 13% YoY growth. The mosquito repellent division grew by 31% YoY, while the dishwashing segment saw an increase of 99% YoY. The growth in the dishwashing segment came on account of brand extension and increased geographical coverage. It now contributes 17% to the total revenues, up from 11% last year.

Ujala continued to be the market leader in the fabric whitener segment with a market share of 73.5% in April 2009. The company extended Ujala washing powder to other southern states (present only in Kerala earlier) during the year. Maxo too reported an increase in market share to 22.8% for April (20% last year). It extended its Exo brand. The company now has dishwashing liquid detergent and dishwashing scrubber Exo Safai.

Over the next couple of years, the company is looking at brand extensions and a national rollout of its brands. The value for money proposition and rural presence would help its growth. Also the company has no major capex requirement. This would help the company to focus more on key activities like brand building and enhancing distribution network. The management expects 15% YoY growth in its revenues next year.

New venture - Laundry service
JLL has entered the laundry segment. Under its wholly owned laundry subsidiary, Jyothy Fabric-care Service Ltd (JFSL), it has created three separate businesses -- institutional sales division that services hotels and airlines; Snow Ways, which is a mass-segment laundry chain, and a premium laundry chain under brand Fabric Spa.

  • JFSL: catering to the institutional segment, it already has 48 clients and washes approximately 16,000 pieces every day.

  • Snow Ways: JLL acquired an existing chain of laundry in Bangalore called Snow Ways. It opened additional 16 outlets taking the total retail outlets to 24. It washes 2000 pieces a day.

  • Fabric Spa: It will be launched in August 2009. The company is looking at opening Fabric Spa in Bangalore with 20 stores in this financial year. JLL has done a total investment of Rs 350 m. The firm has bought two acres of land in Avenue Park near Bangalore, where it is constructing a 60,000 sqft building to carry out the washes, completed by July this year.

Though currently in Bangalore, the company would go to Kolkata, Chennai and Pune in 2011 and later as put by the management “wash everybody’s clothes”. It plans to have 20 premium and 30 economy outlets over the next couple of years. Globally laundry is a big business, whilst in India it is currently carried on by the unorganised players. On account of changing lifestyles across India, the company expects strong growth.

Going forward
At the current price of Rs 105, the stock is trading at 19.8 times its FY09 earnings. The company is taking steps to reduce its dependence on Ujala and increasing its geographical presence too. With its products available at cheaper rates than other big FMCG companies, the company expects the volume growth to be robust. Also with stronger focus on rural and economy areas, it would stand to gain. While the laundry segment currently contributes a miniscule amount as just 5 month old, the company is very bullish on the segment. It expects the margins to improve on account of the new venture.

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