Jyothy Labs expects 25% sales growth in FY14

Soaps and detergent maker Jyothy Laboratories expects its topline to rise 25 percent year-on-year in FY2014, as it expands into new geographies and products, K Ullas Kamath, Joint MD, said on Friday.

It is also hoping to hit 18 percent EBITDA (earnings before interest, taxes, depreciation and amortization) margin next year, helped by the premium product portfolio of Henkel India, Kamath told CNBC-TV18.

Jyothy had announced plans to merge Henkel AG's Indian arm with itself in June 2012.

The maker of Ujala washing powder had on Thursday reported a third quarter net profit of Rs 26 crore, down 10 percent year-on-year as finance costs surged on the back of debt taken to acquire Henkel India.

Its net sales rose 23 percent to Rs 204 crore in Oct-Dec.

Jyothy Labs shares were up about 0.9 percent at Rs 147 on NSE in morning trade.

Below is the edited transcript of his interview to CNBC-TV18

Q: How much is the jump that you have seen in the interest cost to about Rs 17.2 crore this quarter and the reason behind that?

A: The interest is what we have borrowed the money to buy Henkel. It has been there in our balance sheet for the last one and half years. However, compared to the last quarter that was as nonconvertible debentures, it had gone into our reserves.

However, in this current year because there is a loan we have taken from Axis Bank it has hit our P&L. This interest cost of Rs 17 crore has depressed our profit but post integration with Henkel the sales have gone up by 23 percent for nine months.

We are up by 33 percent sale, EBITDA has improved drastically to 17.9 percent which is in line with the industry. Overall the management is happy but now we need to see how we can make the net profit better.

Q: In your conference call with analysts you guided for a sales growth of 25 percent year on year for FY14. What this sales growth is predicated on and from which segment are you expecting a bigger growth driver to come in?

A: In 2013-14 because a new management team is in place we have conservatively taken 25 percent growth is what we want to achieve. That is basically because of geography expansion in Henkel business. Most of their products are in south or east based.

So, that will be a geographic expansion going across the country. We are also seeing some product extensions and some innovations are coming in. So, overall we are seeing 25 percent top line growth. For nine months we are already up by 33 percent.

So going forward in the next year 25 percent is being very conservative. Also there is lot of synergy affect which we are getting in now because of Henkel acquisition. It should be able to give us better numbers and profit margins which is what we are expecting about 25 percent growth in the next year.

Q: What kind of an operating profit margin target are you working with by the time FY14 closes up because of the synergy benefits that you will get with Henkel?

A: We want to be around 18 percent as far as operating margin is concerned. Now we need to invest money into advertising. We are targeting about 10-12 percent of our revenue to go into advertising expenditure. All the synergy effect what we are getting will be pulled back into advertisement.

So that there will be a healthy growth on the top line and we will be maintaining EBITDA margin at about 18 percent in the coming year.

Q: What kind of a monthly or quarterly run rate in terms of ad expenses are you looking at?

A: We have budgeted for about Rs 140 crore in the next year. The run rate will be equal in all the four quarters.