In an interview to CNBC-TV18, K Ullas Kamath, joint managing director & chief financial officer, Jyothy Laboratories, shares his views on the company's likely performance in Q3 and the impact the Chennai floods will have on the same.
Below is the verbatim transcript of K Ullas Kamath’s interview with Nigel D’souza and Reema Tendulkar on CNBC-TV18.
Nigel: could you give us a couple of details? Have things improved in this third quarter – we are almost at the end of it – in comparison to the second quarter and also, could you also tell us about the intensifying competition in the dishwash segment? There has been a lot of movement in terms of grammage, promotional items, how are things stacked up?
A: As far as the third quarter is concerned, it is in line with our expectation, it should be there between 10-12 percent volume growth in line with expectation what you had given in the past guidance and as far as scenario is concerned, overall in the country, it is looking much better than the quarter one and two and non-south is doing extremely well for everybody so also for us. Barring Chennai city, which all of us have witnessed otherwise overall in the country looks a shade better than the last quarter.
Reema: So, volume growth about 10-12 percent in the December quarter. What about your margins, because that showed a very healthy improvement in the prior quarter. Can we see an improvement in margins considering as my colleague was just saying that there is talk about increased competition from the likes of Vim, so is the company also upping its advertising and promotional (A&P) spend?
A: In fact, everybody has increased their advertisement spends. We have also increased our advertisement spend. Because of the lower input material cost, we got a 6.5 percent point benefit in earnings before interest, taxes, depreciation and amortisation (EBITDA). Out of that about three percent, we have passed on to the consumer by way of sales promotion and increased additional spend, but still we will be retaining our increased EBITDA about 15-15.5 percent for the quarter and for the year end also of March, 2016.
So, we are in line with our thinking and also the competition has always been there, will be there and sales promotion, advertisement and the freebies and joint promotions, all the things are happening in the market place. It is fun to be in such a position because everybody is spending, the category will grow and the consumption should go up.
Reema: Just to clarify, Q3 margins around 15-15.5 percent?
A: Yes.
Nigel: That is a big improvement then from what we saw in the second quarter because we have margins of sub-13 percent. So, close to around 200 basis point jump is what we could see. That is fairly impressive. Also getting back to that question on Chennai, what kind of an exposure do you have to Chennai because of the floods?
A: In fact, it is less than 2 percent as far as Chennai is concerned if you see all-India basis, but we are making up in Tamil Nadu. So, overall, it will not affect directly, that is the point to be noted.
Reema: Considering that the volume growth expectations are pretty good, you have upped your advertising and marketing expenditure, have you improved your market share in any of your key categories like Ujala, Prill, all your power brands? Any improvement that you have seen in the last three months?
A: In fact, for the last one year we have improved market share in all the brands where we are present, both power and non-power brands. And right from Ujala till Pril we have increased our market share. It is because of the advertising spend what we have done and better market penetration. So, overall, the growth has come because of the market share what we have gained from the competition in the last one year.
Nigel: In your household insecticides business, it is not too large, but as you said, your market share has been improving even over there. However, I think that is margin dilutive. Though you expect growth to come over there, revenues could come in from there, but will that put some pressure on margins going ahead? And also, could you tell us how has the market share shaped up? I believe you have jumped a couple of positions over there as well.
A: We have jumped a position there as you rightly said. We are number one in the East as far as the coils are concerned. And overall, we have come to third position in the country in household insecticide business as such. So, our liquid business is doing very well and some of the new innovations which is coming to the market place in the coming quarter should help us to garner more market share, but we have been very aggressive in that space and garnering the market share. And the margins have improved because the liquids are doing very well. So, margin profile there is far superior in the coil business. So, overall healthy improvement in the margins also in mosquito repellent business for us in the current year.
Reema: On a blended basis, is there any way to track what your overall market share would be and how much has improved on a blended basis?
A: I would say that the market share must have gone up about by 200 basis points. As far as Ujala is concerned, it has gone from 74 to 76 percent, but overall, if you say about 200 basis points for all the products put together.
Nigel: There has been so much talk about the goods and services tax (GST), will it get passed, will it not? Now, we have the draft proposal at least which is with us. Did you have a look at it, because I was just reading a note where they say it could have a negative impact if in fact the draft GST is followed. Could you give us what is your reading of this situation?
A: From my understanding and also the experts with whom we are dealing, as far as GST implementation is concerned, for a company like ours, it should get a benefit of about 2-2.5 percent benefit in EBITDA. And, mainly it is coming one from the tax and the second one from the savings in the logistics cost and savings in the other redistribution costs. So, ease of doing business is the biggest thing what we are seeing from GST because a company like Jyothy, we operate from 17 locations in manufacturing with 37 factories. So, it helps us a lot to improve a lot of costs related with redistribution.
Reema: Very quickly, have you cut prices in any of your key brands and if yes, by how much?
A: We have not cut price on any of the brands and we are just put some promotions here and there next to about 1-2 percent, but otherwise cutting any of the retail price, we have not done in the current year.
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