Shining through

The strategy of foraying into new segments as well as expanding existing portfolio is paying off well and driving growth for Jyothy Laboratories

Jyothy Laboratories’ recent tie up with DRDO to exclusively manufacture and market a multi-insect repellent is in line with its strategy to shift focus from the traditional fabric whitener business and expand into other fast growing segments. The company is also looking to introduce new products in existing categories, to further de-risk its business model. The national rollout of Exo (dishwashing category) and move to introduce aerosols and sprays under Maxo (mosquito repellent) brand will help the company expand its non-Ujala portfolio. Likewise, its foray into the fabric care services sector through organised laundry also holds steam.

De-risking, but Ujala still shining
Jyothy traversed for a long time as a single-product company with Ujala (fabric whitener), which is currently the leader (72 per cent in market share) with brands like ‘Ujala Supreme’, ‘Ujala Washing Powder’ and ‘Stiff & Shine’. However, the product profile now is getting diversified. The share of Ujala-branded products in the overall revenues has slowly reduced over the years to a little less than half as brands like Exo and Maxo are taking over.
 

THE GLOW GETS BRIGHTER
in Rs crore	FY08	FY09 * 9MTH	FY10E	FY11E
Net sales	375.3	352.3	540.8	645.2
EBITDA (%)	16.8	14.4	18.2	19.0
Net profit	46.2	40.1	74.7	89.7
EPS (Rs)	6.3	7.4	10.3	12.4
P/E (x)	-	23.7	16.9	14.1
E: Analysts estimates * EPS and PE  are based on annualised 9 months figures

Meanwhile, even as the overall business is doing well, the company would consider introducing products like stain removers, conditioners and liquid detergents under the Ujala brand to sustain growth momentum. It intends to introduce new brand extensions to take advantage of Ujala’s brand image and large distributor network (about 3,000 distributors). In terms of brand extensions, the company envisages a national campaign for ‘Stiff & Shine’, going ahead. Besides, focus on ‘More light’ brand could help counter the competition in the low-priced fabric whitener category in markets like Bihar, UP and Orissa. Furthermore, it intends to launch powdered whitener in the next few quarters, which could help the company to have products across the fabric care segment. Overall, the Ujala-branded fabric care segment is expected to grow at around 20-25 per cent annually going forward with products like ‘Stiff & Shine’ leading the way.

Exo & Maxo effect
Apart from Ujala, Maxo is another popular brand in Jyothy’s portfolio. It is the third largest mosquito repellent brand in the country with about 22 per cent market share. The share of coil-based products vis-à-vis aerosols and sprays is higher, at 90 per cent of its overall portfolio, against the industry average of 60 per cent in favour of coils.

However, the company is already working on improving its product mix within the mosquito repellent segment, in favour of aerosols and sprays, which command higher profit margins. This should see margins improve in this business, going ahead.

In February 2010, Jyothy signed an agreement with government-owned Defence Research and Development Organisation for exclusive global marketing rights of the latter’s mosquito repellent product. The product will be launched in cream, lotion and spray formats and is estimated to be 4-5 times effective than its competitors. The company estimates the market opportunity at Rs 100-200 crore in two years (FY11-13), and expects Rs 30-40 crore revenues in 2010-11 with gross margin of over 50 per cent.

In the dishwashing segment, Exo contributes around 19 per cent to the topline. Besides Exo Dishwash bar, the company’s portfolio also includes Exo liquid (dishwashing liquid detergent) and Exo Saffa (dishwashing scrubber). While it is present in states like UP, Delhi, Maharashtra, the company is planning for a national roll-out (liquid and Saffa) in a phased manner.

The national roll-out would help the business grow at 45-50 per cent in the next two years and its contribution to the overall sales to touch 21 per cent by 2010-11.

Organised wash foray
Jyothy forayed into the laundry business with the acquisition of Snoways, a Bangalore-based laundry company, in March 2009. Since then, the company expanded from 8 outlets to 30 Snoways outlets catering to both institutional and retail clients.

In the institutional segment, the company serves clients in the hotels, airlines including Royal Orchid, ITC –Fortune, Lufthansa, Jet, etc. In the retail category, it offers premium services under the Fabric Spa and economy services under the Snoways brand.

Jyothy Fabricare, a 75 per cent subsidiary through which the laundry business is undertaken, washed around 20,000 pieces a day with about 85 per cent of volumes coming from institutional clients where margins are lower. Even though the retail segment’s contribution to laundry segment is small, its margins are much higher. Going forward, the company plans to focus more on the retail premium and economy category. Overall, while this business is in the nascent stage, expect its share to grow to over 5 per cent in the next 1-2 years.

Conclusion
Jyothy’s topline and bottomline grew at an average annual rate of 7 per cent and 10 per cent, respectively in the last five years. The period coincided when the company was growing out of the shadows of Ujala and extending its product profile to Maxo and Exo. In the next two years, sales and net profit are expected to grow faster with EBITDA margins of about 18-19 per cent. Expect a larger share of Maxo and Exo in the overall portfolio, going ahead. Fabric care business operates primarily from Bangalore, and expects the operations to break-even in 2010-11. Post 2010-11, plans are afoot to expand in to cities like Pune, Hyderabad and Chennai.

Jyothy is virtually debt-free with cash worth about Rs 100 crore, suggestive of a healthy balance sheet, which could come in handy with expansion plans on.

At Rs 173, the stock trades at 14 times its estimated 2010-11 earnings and can deliver 15-20 per cent returns in a year’s time.