 "Power brands light the way for Jyothy Labs")
A bigger net doesn't always get the best catch at sea. Jyothy Laboratories (Jyothy) learnt it the hard away as it tried to turn around loss-making operations of Henkel India, which it acquired from its German parent in 2011.
The combined entity became one the most diversified players with over a dozen brands spread across four non-food FMCG categories. In its bread and butter fabric care segment, Jyothy became a challenger to category giants Hindustan Unilever (HUL) and Procter & Gamble with Henko detergent; in personal care it competed with HUL, Godrej Consumer, Reckitt Benckiser, Wipro and ITC; in utensil care Jyothy's Exo was up against the might of HUL, Godrej and Dabur; and in home insecticides Maxo challenged the dominance of Godrej Consumer, Reckitt Benckiser and S C Johnson.
While analysts saw Jyothy as one the fastest-growing companies in the Rs 1.2 lakh-crore FMCG industry, the ground reality proved otherwise as its strength turned out to be a weakness when pitted against the financial might of category leaders.
The Mumbai-headquartered company is the market leader in just one category, fabric whiteners; its Ujala has over 70 per cent share. However, it is a small category with sales of around Rs 300 crore. The surplus cash-flow from Ujala is inadequate to support newer entrants in the portfolio. Jyothy remains a minnow with net sales of Rs 1,260 crore and net profit of Rs 105 crore in 2013-14.
In comparison, HUL reported Rs 28,000 crore revenues and Rs 3,800 crore net profits last fiscal. Even second-tier players, Godrej Consumer and Dabur, are much bigger than Jyothy.
Clutch of power brands
This has forced a rethink at Ujala House, its headquarters. "We realised that it needs a minimum ad spend of Rs 10 crore to make a brand visible and more if you want to increase recall. We just didn't have resources to support all brands in our portfolio," says K Ullas Kamath, the joint-managing director.
"The company has a limited ad budget and it's better to invest in brands that can be scaled-up easily," says a senior analyst at IDFC Securities. The brokerage has a buy rating on the stock given its potential to grow faster than the industry in next three years.
Experts say that it was spreading itself thin. "A company of Jyothy's size cannot support too many brands. It's best to focus resources on fewer brands rather than risk getting lost in the crowd," says Harish Bijoor, CEO of Harish Bijoor Consults. He says that going deeper into a category sustains profitability.
All of Jyothy's advertising are now targeted at its six power brands - Ujala (fabric whitener and washing power), Maxo (mosquito coils & liquids), Exo (utensil cleaner), Henko (detergent and bar), Pril (kitchen liquid and bar) and Margo (soaps and face wash). Out of these, the first three are Jyothy's own and the rest from Henkel's stable. Kamath says, "All our power brands are profitable now and have crossed revenues of Rs 100 crore. All of them can fund their own growth and don't need to be cross-subsidised."
Jyothy's ad spends will reflect this too. Last fiscal, |it increased its ad spends by 65 per cent to Rs 135 crore, accounting for 10.7 per cent of revenues, against 8 per cent a year ago. Going forward the company plans to spend 11-12 per cent of revenues on brand promotions.
The strategy has tasted some early success. Exo dish bar has now become Jyothy's biggest brand with revenues of Rs 350 crore (on annualised basis), ahead of Ujala and is now a clear number two behind HUL's Vim. In all, power brands account for 90 per cent of revenues, up from 83 per cent a year ago.
However, Jyothy has no plans to discontinue the smaller brands, saying that most of them are regional. However, they will not be supported by marketing spends. These include Super Check detergents, Neem toothpaste, Mr White detergents, Fa range of personal care products, Jeeva ayurvedic soap and Maya agarbattis. It has kept the window open to upgrade these to power brands if there is traction.
However, an FMCG analyst on the condition of anonymity, says, "There has been a slowdown in consumer spends, especially in rural areas. We would be happy if Jyothy manages 15-16 per cent topline growth in current fiscal." But Kamath says the slowdown is restricted to discretionary items and not staples. "We are a small player in most categories. Slowdown will hit market leaders the most; we can still grow through conversions by providing better value to consumers."
The combined entity became one the most diversified players with over a dozen brands spread across four non-food FMCG categories. In its bread and butter fabric care segment, Jyothy became a challenger to category giants Hindustan Unilever (HUL) and Procter & Gamble with Henko detergent; in personal care it competed with HUL, Godrej Consumer, Reckitt Benckiser, Wipro and ITC; in utensil care Jyothy's Exo was up against the might of HUL, Godrej and Dabur; and in home insecticides Maxo challenged the dominance of Godrej Consumer, Reckitt Benckiser and S C Johnson.
While analysts saw Jyothy as one the fastest-growing companies in the Rs 1.2 lakh-crore FMCG industry, the ground reality proved otherwise as its strength turned out to be a weakness when pitted against the financial might of category leaders.
The Mumbai-headquartered company is the market leader in just one category, fabric whiteners; its Ujala has over 70 per cent share. However, it is a small category with sales of around Rs 300 crore. The surplus cash-flow from Ujala is inadequate to support newer entrants in the portfolio. Jyothy remains a minnow with net sales of Rs 1,260 crore and net profit of Rs 105 crore in 2013-14.
In comparison, HUL reported Rs 28,000 crore revenues and Rs 3,800 crore net profits last fiscal. Even second-tier players, Godrej Consumer and Dabur, are much bigger than Jyothy.
Clutch of power brands
This has forced a rethink at Ujala House, its headquarters. "We realised that it needs a minimum ad spend of Rs 10 crore to make a brand visible and more if you want to increase recall. We just didn't have resources to support all brands in our portfolio," says K Ullas Kamath, the joint-managing director.
"The company has a limited ad budget and it's better to invest in brands that can be scaled-up easily," says a senior analyst at IDFC Securities. The brokerage has a buy rating on the stock given its potential to grow faster than the industry in next three years.
Experts say that it was spreading itself thin. "A company of Jyothy's size cannot support too many brands. It's best to focus resources on fewer brands rather than risk getting lost in the crowd," says Harish Bijoor, CEO of Harish Bijoor Consults. He says that going deeper into a category sustains profitability.
All of Jyothy's advertising are now targeted at its six power brands - Ujala (fabric whitener and washing power), Maxo (mosquito coils & liquids), Exo (utensil cleaner), Henko (detergent and bar), Pril (kitchen liquid and bar) and Margo (soaps and face wash). Out of these, the first three are Jyothy's own and the rest from Henkel's stable. Kamath says, "All our power brands are profitable now and have crossed revenues of Rs 100 crore. All of them can fund their own growth and don't need to be cross-subsidised."
Jyothy's ad spends will reflect this too. Last fiscal, |it increased its ad spends by 65 per cent to Rs 135 crore, accounting for 10.7 per cent of revenues, against 8 per cent a year ago. Going forward the company plans to spend 11-12 per cent of revenues on brand promotions.
The strategy has tasted some early success. Exo dish bar has now become Jyothy's biggest brand with revenues of Rs 350 crore (on annualised basis), ahead of Ujala and is now a clear number two behind HUL's Vim. In all, power brands account for 90 per cent of revenues, up from 83 per cent a year ago.
However, Jyothy has no plans to discontinue the smaller brands, saying that most of them are regional. However, they will not be supported by marketing spends. These include Super Check detergents, Neem toothpaste, Mr White detergents, Fa range of personal care products, Jeeva ayurvedic soap and Maya agarbattis. It has kept the window open to upgrade these to power brands if there is traction.
However, an FMCG analyst on the condition of anonymity, says, "There has been a slowdown in consumer spends, especially in rural areas. We would be happy if Jyothy manages 15-16 per cent topline growth in current fiscal." But Kamath says the slowdown is restricted to discretionary items and not staples. "We are a small player in most categories. Slowdown will hit market leaders the most; we can still grow through conversions by providing better value to consumers."