JYOTHYLABNSEQ3 FY23January 27, 2023

Jyothy Labs Limited

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Management on call

M. R. Jyothy

MANAGING DIRECTOR, JYOTHY LABS LIMITED

Sanjay Agarwal

CFO, JYOTHY LABS LIMITED

Manoj Menon

ICICI SECURITIES

Key numbers — 26 extracted

13.7%

cution and as you may have already seen our results, we have reported a healthy revenue growth of 13.7% and EBITDA grew by 37.9. On a two-year as well as on a three-year CAGR basis, our revenues have

2.1%

uble-digit growth for the 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 our business ex-HI ou

16.7%

gories have grown by double digit except HI. If we analyze our business ex-HI our value growth is 16.7% and a volume growth of 3.9%, so overall decent set of numbers. On the business front, we continue

3.9%

igit except HI. If we analyze our business ex-HI our value growth is 16.7% and a volume growth of 3.9%, so overall decent set of numbers. On the business front, we continue to see the headwinds of inp

rs,

, dish wash and personal care category is stable. For HI in which Q3 is one of the smallest quarters, sales got impacted due to seasonal trends in our core markets of North and East of India and indus

160 bps

as we see the EBITDA margin for us for this quarter is 13.8, there is a sequential improvement by 160 bps as at September quarter, we were at 12.2% and also last year same time, our EBITDA margin was 11.

12.2%

quarter is 13.8, there is a sequential improvement by 160 bps as at September quarter, we were at 12.2% and also last year same time, our EBITDA margin was 11.3%, so there is an improvement of 250 bps,

11.3%

bps as at September quarter, we were at 12.2% and also last year same time, our EBITDA margin was 11.3%, so there is an improvement of 250 bps, so overall positive trend. On break-up of the other incom

250 bps

at 12.2% and also last year same time, our EBITDA margin was 11.3%, so there is an improvement of 250 bps, so overall positive trend. On break-up of the other income side, it includes Rs. 9.5 crores pert

Rs. 9.5 crore

rovement of 250 bps, so overall positive trend. On break-up of the other income side, it includes Rs. 9.5 crores pertaining to sale of land during this quarter. We move onto the key category performances. Ou

26%

ng this quarter. We move onto the key category performances. Our fabric care is doing well with 26% growth this quarter. Our lead brands, Ujala and Henko have been doing good growth. As you know,

14%

growth on a pan India basis. This quarter, on Exo bar, our pan India market share has reached at 14%, so that is very encouraging. On the HI segment, the coil category itself degrew by 12% and for u

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Guidance — 18 items

Sanjay Agarwal

opening

“We will be discussing our performance for the quarter ended December 31st, 2022 with all of you and as Manoj said we will follow it with the Q&A after the opening remarks.”

Sanjay Agarwal

opening

“On a two-year as well as on a three-year CAGR basis, our revenues have grown by 13.3 and 13.4 respectively, so a good double-digit growth for the last few quarters.”

Sanjay Agarwal

opening

“On the HI segment, the coil category itself degrew by 12% and for us as I said earlier Q3 is a smaller quarter and we have been holding our market shares well, so we remained positive on this category and we are hopeful that in the next year onwards, things are more positive for this category.”

Sanjay Agarwal

opening

“Going forward, with the union budget around the corner, we are optimist that it will 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.”

Gaurav Jogani

“Sir, my next question is with regards to the depreciation expense, so if we see on the standalone basis, the depreciation expense has actually halved even on a 9-month basis and even on the quarter as well and even we are seeing some decline on the console basis also, so if you can help us out how we can build in this depreciation expenses going ahead, any guidance on this will be helpful?”

Sanjay Agarwal

“Yes, on the consolidated basis that is right and even in the quarter what we have for the standalone in December quarter will be the same trend going forward as well.”

Sanjay Agarwal

“We expect margin expansion assuming that the raw material prices remain where they are today and the softening continues, yes, definitely there should be sequential improvement in the margins, but we cannot quantify at this point of time.”

M. R. Jyothy

“we will be growing the personal care portfolio.”

M. R. Jyothy

“Right now, we will not be able to comment on that, but yes, plans are there and we will be growing each of that segments which we have.”

Sanjay Agarwal

“For this quarter, we haven't taken any meaningful price increase across the brands and going forward lot will depend on how the competitive intensity is there and how the raw material prices are there and then accordingly we will have to take the call.”

Risks & concerns — 6 flagged

The rural demand has been impacted more due to inflation issues and hence more cautious however, given the strong potential, we continue to focus on the rural franchise and the numbers have been encouraging.

— Sanjay Agarwal

Few of the raw material prices have softened, but some of the key inputs like you have 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 13.8, there is a sequential improvement by 160 bps as at September quarter, we were at 12.2% and also last year same time, our EBITDA margin was 11.3%, so there is an improvement of 250 bps, so overall positive trend.

— Sanjay Agarwal

Sir, my next question is with regards to the depreciation expense, so if we see on the standalone basis, the depreciation expense has actually halved even on a 9-month basis and even on the quarter as well and even we are seeing some decline on the console basis also, so if you can help us out how we can build in this depreciation expenses going ahead, any guidance on this will be helpful?

— Gaurav Jogani

And sir, just last final question from my end, on the raw material side, while you highlighted that the naphtha and soda as 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 remains where we are today?

— Gaurav Jogani

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 the use of hand washer, sanitizers, all of these healthcare segments did grow well and illegal incense sticks manufacturers definitely going out.

— M. R. Jyothy

No, so I would say that rather that we have been maintaining 50 bps here and there doesn’t make a huge this thing in our category, we are by far the market leaders in the post wash segment and there is no concern as such.

— M. R. Jyothy

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Q&A — 10 exchanges

Sir, 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 could help us break this between what could be kind of volume growth that you are seeing and what could be the pricing growth here. how do you see the growth being driven in this segment?

Sanjay Agarwal

Gaurav, thank you for your question. Broadly, fabric care we have seen double-digit volume growth and the balance is on the price. in fabric care we have multiple brands and having brands at different price point, so overall we see good traction for us and from numbers perspective definitely should have double digit growth in fabric care in the next few quarters as well. Sir, my next question is with regards to the depreciation expense, so if we see on the standalone basis, the depreciation expense has actually halved even on a 9-month basis and even on the quarter as well and even we are seei

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

Sanjay Agarwal

So, both the categories have been doing well, general trade and modern trade. We had challenges during COVID time in MT, but as we speak both of them are doing well. What could be the split? 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. 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 it is a small portion of our portfolio where it is a big proportion

Could you comment on the market share or how is the performance on premium detergent side, especially Henko, are you growing ahead of category on both volume and pricing terms, that is one and the second is, Ujala IDD, again there were plans to take it outside Kerala more into Tamil Nadu and West Bengal, so how is that panning out?

M. R. Jyothy

Yes, so we have been doing really well on Henko and both Ujala IDD. Ujala IDD right now is in Kerala, Tamil Nadu and West Bengal. West Bengal that way is at very nascent stage while we have increased our market shares in Ujala IDD in Kerala while Henko as a premium listing, we have seen volume and value growths as well. We have also launched liquid detergents under both these brands and initial feedback has been very good and has been doing well. If I ask differently, is it growing ahead of your overall category growth or that is an unfair question to ask right now? Yes, liquids are because we

Congratulations for 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 held you especially in distribution and second, how you see distribution footprint accelerating going forward in next couple of years from here on?

Sanjay Agarwal

As you know, we have touched around a million retail outlets on a direct basis and our Ujala fabric whitener is available in 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 in a more cost effective basis because you are anyway there across India with 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, that is what our philosophy has been and d

Within the fabric care segment, what would be the contribution on let us say salience of mid price brands like Mr. White and More Light now compared to pre-COVID level?

Sanjay Agarwal

We don’t want to say pre-COVID level, but both of them have been growing well. So, both More Light and Mr. White were there as part of our portfolio earlier also and as we speak now, yes they are growing on a lower base at a faster growth, so higher double digit is what we are seeing both in More Light and Mr. White. And are we focusing these brands in any particular markets or particular geography? No, it is more on the pan India distributed brands.

Last time you had given the numbers, I think North and West was 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 for the company overall, is that doing better and secondly, what are we doing to kind of bulk of distribution there, so that we can go faster where we are underrepresented?

Sanjay Agarwal

We have seen 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 four 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, both North and West, yes, it gives us lot more opportunity for us and as time passes by our distribution become much st

So, in HI category can you highlight what is the salience of liquid compressor as of today 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 part of profitability in that particular segment if you can answer those two kindly?

Sanjay Agarwal

Karan, we have spoken in the past about some of the seasonal issues we have seen in North and East which are our core market, so things are improving and therefore going forward this quarter is going to be an important season for us. Also, we have seen illegal incense sticks impact on the coil category. So, going forward, yes, as you said our focus is more on the liquid side of it, which is around 35% of our portfolio. So, we would 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 behaves and we a

Two quick ones, one on the insecticides category while I heard the seasonality comment, but if we look at the longer term in the trajectory for you and as well as for the other player, is it fair to say that it is just not the seasonality, there is something else is also playing out because as I recall during COVID times, there was this regaining of share from incense sticks and post that we have not really heard about what is really happening to incense sticks, etc., is there something underlying which is actually playing out apart from just the seasonality at a category level and being one o

M. R. Jyothy

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 the use of hand washer, sanitizers, all of these healthcare segments did grow well and illegal incense sticks manufacturers definitely going out. Now that things have cleared and all have come back, yes, that is one category the legal incense sticks has been growing. So, yes, one is that and then the seasonal impact that has actually impacted. Both of these have impact

Just wanted to understand sir, if I look at your gross margins Q-o-Q, we are seeing quite a lot of improvement there and I am looking at your standalone numbers, so just wanted to understand in spite of the revenue degrowth Q-o-Q you are seeing 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 the product mix change has also led to this improvement in gross margins?

Sanjay Agarwal

Shreyans, it is primarily because of the softening of the raw materials which aids us in the gross margin and in the past as we know that the margin decline had happened primarily because of the raw material prices going sharply up, so as things are moderating out we have 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 is getting us back to our earlier gross margin level, so we are hopeful in future we should be back to our earlier EBITDA margin profile of 15-16%. So, yes, just wanted to c

Thank you everyone and we appreciate you all for asking us 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 I-Sec team. Thank you everyone.

Management

Speaking time

Sanjay Agarwal

Moderator

M. R. Jyothy

Naysar Parikh

Gaurav Jogani

Sajjan Jain

Shreyans J

Manoj Menon

Karan Bhuwania

Aviral Jain

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Opening remarks

Manoj Menon

Hi everyone. This is Manoj Menon representing ICICI Securities. It is a wonderful good morning, good afternoon, good evening to you depending on the part of the world you are joining this call from. At I-Sec, it is our absolute pleasure to host the 3Q FY23 Results Conference Call of Jyothy Labs. The company is represented by Ms. M. R. 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.

Sanjay Agarwal

Thank you Manoj and very good afternoon to all of you. we welcome you to the conference call of Jyothy Labs. We will be discussing our performance for the quarter ended December 31st, 2022 with all of you and as Manoj said we will 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 our results, we have reported a healthy revenue growth of 13.7% and EBITDA grew by 37.9. On a two-year as well as on a three-year CAGR basis, our revenues have grown by 13.3 and 13.4 respectively, so a good double-digit growth for the 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 our business ex-HI our value growth is 16.7% and a volume growth of 3.9%, so overall decent set of numbers. On the business front, we continue to see the headwinds of input price inflation and therefore in this

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