Expect 14-15% EBITDA margins for FY14: Jyothy Labs

Ullas Kamath, Joint Managing Director, Jyothy Laboratories relies in aggression to succeed in FMCG business. The company is aiming to achieve sales growth of 20-25 percent in FY14 and EBIDTA margin of 14-15 percent, Kamath told CNBC-TV18.

Also read: Morgan Stanley sells 8.48 lakh shares of Jyothy Lab

Below is the verbatim transcript of his interview on CNBC-TV18

Q: According to brokerage report, Jyothy management has said that FY14 would be an year of increased aggression. Could you tell us what this increased aggression would translate into sales?

A: Infact we have been giving the guidance of 20-25 percent top line growth and that is what we are looking at for 2014. Aggression that the management was talking about is that if you need to be in FMCG business you need to be aggressive. We have got a fantastic management team, people are in place, product is in place and integration is complete in all respect. Good cash flows are coming in so we just want to go out and do our best.

Q: Your full year margins for FY13 were 11.7 percent which was much better than the previous years 9.2 percent but this year the report says that you will do margins of 14-15 percent that is a 50% jump in margins. How will you deliver that?

A: Infact we have improved efficiencies in trade margins that we got about 6 percent. Now we have a new manufacturing head and with new strategy in place, we have got about 2 percent efficiency there. So, overall the efficiencies that we have got in couple of quarters that is December and March quarter was about 10 percent; of that 5 percent we are ploughing back into the additional advertisement. Instead of 6 percent advertisement budget in the past, we are now going with 10-12 percent on that.

Therefore, with all these things EBITDA margin should be between 14-15 percent for the current year and as of now we are in line with that. If one looks at the March quarter except for one-off items, we are already there with about 15 percent EBITDA margin.

Q: What about advertising cost, would that also be part of this aggression because in case that happens then that will have slight negative impact on the margins?

A: We have taken 10-12 percent as advertisement cost and after that our EBITDA margin should be 15 percent. Efficiencies have come in because  we have changed our distribution margin, we have changed our retail margin and there are efficiencies in procurement too. We also increased the retail price is most of our products between 8-10 percent in the last two quarters. That has yielded us the 15 percent EBITDA margin. So we are comfortable with the ad budget of 10-12 percent.

Q:  Do you have elbow room for further price hikes and expansion of margins because of that in this year?

A: As of now we don't have to increase any retail prices but the way the dollar is going and if the industry, and our competition in detergent powder increase prices then we will also be increasing. At this point in time, Jyothy Labs is not in a position to increase the retail price. We are able to manage our EBITDA margin with the rupee at 60 against dollar.