Expect 25% growth in standalone profit in FY13: Jyothy Labs

FMCG firm Jyothy Laboratories' net profit rose by 25.67% to Rs 17.62 crore for the first quarter ended June 30, 2012. The company had posted a net profit of Rs 14.02 crore during the same period of previous fiscal.

In an interview to CNBC-TV18, K Ullas Kamath, deputy managing director, Jyothy Laboratories says, he expects the company to grow standalone top-line and bottom-line by 25% for the entire year. Below is the edited transcript of his interview on CNBC-TV18. Q: Can you take us through how the margin picture panned out? What are you seeing for the rest of the year, both in terms of sales and margins? A: It is one of the good quarters with 70% growth in the sales and 26% in the net profit, despite putting almost double the investment in advertisement. So, going forward, on a standalone, we should be able to grow top-line and bottom-line by 25% for the entire year. You will see a lot of advertisement spend in the current year because we are building the brands now, Jyothy and Henkel as well. EBITDA margins have improved when compared to the earlier period. Going forward, we will see atleast 2-3% increase in the EBITDA margin as well. Going forward, volume growth will be about 25-30% in the quarters to come. Q: Rainfall has not surprised positively this time. It’s been weak so far. Some of your products do rely on rural demand and monsoons going well. Do you see any kind of an impact, if monsoons don’t pick up? How much of a demand hit could you take, if that happens? A: As of now, we are not seeing any impact. In the results, we will be able to see that. But monsoon is definitely a big determining factor for us in rural India, especially in our mosquitoes’ repellent business. It is directly impacted by rains. If there is difficult period, it will affect our mosquitoes’ repellent business, could be about 5-10%. We have encountered such situation in the past. But other products, Ujala and Exo, we don’t see much difficulties there. But in mosquitoes’ repellent business, I expect 5-10% reduction, if the monsoon is being bad in the current year. Q: By when do you expect the operational synergies with Henkel to show up in the numbers? Could it be in three-four months? A: It should be starting from October quarter, but full flesh synergies you get it in the last quarter. In March 2013, you should be able to see the full synergies. We just started integration. It is giving us good results both on the top-line and the bottom-line. March should be the quarter to look forward. Q: You were speaking repeatedly about higher ad spends. Do you have an amount in mind? A: Historically, Jyothy is to spend 6-7% of the sales turnover on advertisement. But now with the new CEO coming in, a lot of changes are happening brand building activity. We are planning to spend upto 10% of our sales revenue towards advertisement, taking from 7% or 10%. We are targeting Rs 860 crore for the current year sales and 10% of that will go towards advertisement. Q: You guided for 25% for Jyothy, does that include Henkel? A: No. Henkel, on standalone, should be growing much more than that. My guidance is only for Jyothy. Henkel, we are targeting between Rs 550-600 crore, if all goes well. But, as of now, our growth rate in Henkel is about 25%. Q: Your gross margins were down, perhaps due to product mix and also raw material costs have not been very benign. Crude has been inching up again. If crude continues to inch higher, do you think you will be able to take a price hike or will you let it impact margins a bit and not let demand suffer at this point? A: Our gross margins have come down because of the sales mix, not because of the crude price. Whenever we sell more of mosquitoes repellent, our EBITDA margins are lower. So, that will get taken care of in the coming quarters. But if the crude price goes up and if everybody increase the price then we will also increase the price. But otherwise we are happy with the kind of margin what we have now, probably here and there we will have to workout on a different sales promotion schemes to reduce our expense or increase the gross margin. Otherwise, we don’t have any intention of increasing our retail prices in the near future.