Hope to maintain 15% EBITDA margin going ahead: Jyothy Labs

A: In the last three quarters, we have been giving around 25 percent top line growth and very healthy EBITDA numbers between 14-15 percent. This is mainly because of the new management team that we have brought in and the synergy affect of Henkel integration and also new geographies that have entered now and mix of rural, urban, modern and traditional shops. Overall improvement in all the segments has given us these brilliant results at 27 percent top line growth and I am sure it will continue in the coming quarters as well.

Anuj: While on year-on-year basis there is some pressure on margins, sequentially they have improved and are inline with your guidance. Now that the synergies are part of the base effect, where will the delta in margins in the future come from?

A: Our EBITDA margin will be between 14-15 percent and advertisement spends will be 10-12 percent which is in-line and we will spend little more in coming quarters but it will not be more than 12 percent. Delta, which is coming for incremental sales and in the areas which were not present in the past and delta is coming in from the modern trade, it is coming from CST canteen stores which were not present in the past, because of Henkel we are now one of the biggest players in the CST canteen stores.

The synergy effect that we got from integrating both the businesses together is a huge delta that we are getting, wherein, the only variable expenditure is completely on advertising and rest is all fixed. So whatever we do has to come straightaway to the bottom-line. This is how 63 percent growth in profit after tax is mainly because once you have spend 10-12 percent in advertisement, rest all has to go straightaway into profit after tax. Going forward, I expect 15 percent, we should be able to achieve our EBITDA number very comfortably. I don't think above that we will spend the money, more on advertisement to build a brand.

Sumaira: Traditionally, your southern markets have been stronger for the company but lately there are some concerns arising that the contribution from the southern markets has been consistently falling. Are you witnessing any loss in market share?

A: Actually, south is not coming down but growth is coming from north because we are growing across the region. But the entire focus in the last year with the new management team coming in is that we are extremely strong in the south but why can't we replicate that in the rest of the country. The focus is absolutely in the east and the north where we are doing extremely well and so, the growth is coming more from rest of south India.

It is now 53-47 percent in favour of north. It used to be mirror image in the past 53 percent and 47 percent in favour of south. To that extent, the swing of about 6-7 percent has gone mainly because of our focus in rest of south India. Over a period of time we should be 60-40 percent, that is next year our target is 40 percent should be from south India and 60 percent from rest of south India. And finally, 70-30 percent in favour of rest of India.

Sumaira: You have also spoken about the cost rationalisations in the past like reduction in your staff or management rejigs and that has helped your overall margins. Is that exercise now complete or is there more upside left from here?

A: Whatever we have spoken, we had in our mind 8-10 percent of efficiency in our margin basis of which we have already gained about 6 percent. Another 2-3 percent we can gain that is mainly because of supply chain management we are working on, and manufacturing consolidation which we are doing now. I might get an efficiency of 2-3 percent in coming year, probably part of it will invest back in advertisement and 1-2 percent will add to my EBITDA. But there is still scope within the organisation to get an efficiency of 2-3 percent.

Anuj: Of this 2-3 percent EBITDA, will some of it be deployed back into the business by higher ad-spends or do we see this 2-3 percent also flowing into the bottom-line?

A: In the gross margin I want to retain around 50 percent, anything over and above, I will throw back into ad and as of now 10-12 percent is what we have kept in our business plan. Up to 12 percent, I will invest the money and any cost reduction if I get here and there probably I can put it back more on ad. EBITDA margin, I want to retain 15 percent in the next year. So there are three parameters, one is top line growth of 25 percent, gross margin at 50 percent and EBITDA at 15 percent and minimum ad spend of 10-12 percent and anything above that. We are happy if we are able to retain EBITDA 15 percent and this is what the new management team is delivering. People are in place, products are in place, business plans in place and young team of 16 people and the top will start delivering 25 percent growth.