Jyothy Labs eyes buys, says will close a deal by May

Jyothy Laboratories recently announced a joint venture with the Defence Research and Development Organization (DRDO) to produce mosquito repellants. Kamath revealed that the company will be paying royalty only for the first five years. The company is expected to make about Rs 50 crore to Rs 60 crore from this new product.

In an interview with CNBC-TV18, K Ulhas Kamath, Deputy MD, Jyothy Labs spoke about the company's acquisition plans and the way forward. Below is a verbatim transcript. Also watch the accompanying video. Q: Your stock is repeatedly surrounded by possible acquisition moves. Is there anything you are looking to pick up, Henkel was looking at selling some of its assets in India as well. You have your new laundry business, which you are working to expand. On either of these are there any expansion moves, are there any acquisition moves? A: We always look for acquisitions and we have made a couple of targets, a couple of times and we are working on it. I will not be able to give you the timeline but we are working very hard in closing an acquisition as quickly as possible. That is the reason why we have raised the money in the past through a QIP, but we are working on it. As far as the laundry business is concerned, to expand that business, we have tied up with a private equity firm to go for expansions in Delhi, Mumbai, Chennai and Hyderabad and we have tied up for a Rs 100 crore investment by private equity in a subsidiary called Jyothy Fabricare Services Ltd. So other than that, the company is working hard to grow the topline as well as bottomline. Q: Another reason for interacting with you was this rise in crude prices and how it is going to affect raw materials. Your margins have already come down in the last quarter to about 11.9% versus 13.7% year-on-year (YoY), how much do you think this raw material increases will impact your margins. Have you been able to take any price hikes to counter it? A: It is affected for every company, which are in the same space of FMCG business. So for us as of now it is about 2% on EBITDA margin. We have already taken the hit and we have not increased any of the retail prices looking at the market scenario. Going forward, we will have to wait and watch how the competitors are working and definitely we need to pass that on ultimately to the consumer if the raw material prices do not come down. Crude prices do not come down around USD 80 per barrel. Then we are left with no option than increase the retail price effective from April. Q: In your Q3 numbers, although overall sales grew up especially for soaps and detergents. The homecare segment saw a fall in terms of revenues. How do you see it panning out in Q4 and what was the reason for that slight trimming of growth? A: Homecare consists of mosquito repellent and also dishwash items especially in mosquito repellent. It is not a season, and when compared to the same period, this time we had an extended winter and that is a seasonal product, which we are into. Right now, we are doing better and we had also taken some of the schemes of the market. So there was resistance, and we took a hit on the topline because of decreased sales promotions. One of the ways to maintaining profitability is either by increasing the retail price or reduce the sales promotion scheme and we opted for the latter one and for that we have to sacrifice the sales to the extent of 6%, we got hit on the topline but it is only a temporary one. But as of now, the season has picked up, we are in the season of mosquitoes now and doing well. Q: You have now restored the trade margin or the sales expenses? A: No, we are not restored. Q: So you expect that your sales will continue to suffer or you will be able to make up what is the lost ground? A: No, whatever we have lost, we will not be able to make up because it is a seasonal business and it is a mosquito repellent business and we will not be able to make up and during the current year as far as homecare is concerned, they are happy if we are flat, we try to do that, atleast maintaining what we have done in the last year but because we have taken out the trade promotion scheme, that will add upto my profitability. So that is a good thing on that. So going forward, it will help us even when we are not able to increase the retail price, the only way we can keep the profitability is by reducing some of the trade promotion, this is what we have done. Q: What about that product that you licensed from the DRDO, from the Defense authorities, you said that when we last spoke about mosquito repellent which works in outdoor locations and that the Indian army has used it, are you close to commercializing it, when do you think it will be launched and what money are you expecting in FY12? A: We launched it on February 14 officially in Delhi and right now it is available in most of the metros and government orders are getting in and commercial launch has already been done on Valentine