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| Q&A: K Ullas Kamath, MD, Jyothy Laboratories | | 'Henkel's top line will grow 25% this calendar year' |
| Priya Kansara Pandya / Mumbai Jul 06, 2011, 00:03 IST |
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 K Ullas Kamath, managing director, Jyothy Laboratories, talks to Priya Kansara Pandya about various concerns regarding its acquisition of Henkel and says he is confident that financial year 2012-13 will form a base for the company’s robust future. Edited excerpts:
Most analysts have downgraded earnings estimates and target price due to medium-term pressures. Also, your growth targets, margins and time line to revive Henkel’s sales are seen as aggressive. Your comments?
Analysts’ concerns about our Henkel acquisition are genuine. However, the pain will be only for the short term, say about six months. Most of Henkel’s brands (seven in total) are positioned at the premium end and provide an entry point into the main stream fast moving consumer goods (FMCG) home care segment. In today’s context, premium positioning in the minds of consumers is very expensive and time consuming, may be three-five years. Jyothy Henkel will now join other main league players in the FMCG business in India.
Our focus in the short term is how to realise maximum value of its premium brands by working on getting the synergies in both companies’ diverse manufacturing facilities and distribution network. We also intend to strengthen Henkel’s brands.
Because of these efforts and expected cost savings, we are confident of a top line growth of 25 per cent and a 10 per cent operating profit margin for Henkel (with its premium pricing compared to Jyothy) in calendar year 2010-11 from a negative four per cent in calendar year 2009-10. We will gradually bring it to Jyothy’s level of 18 per cent by the fourth year.
When can we expect positive results from the acquisition?
We are aggressive in achieving our targets for Henkel in the first year itself. We are expanding our existing management bandwidth to handle a larger set of 10 brands. We plan to have four category heads, namely fabric care, surface cleaning, personal care and household insecticide. Each category will have its own brand portfolio. The consolidation will take six months to a year. From next April, we will be ready with our new management bandwidth and integration. Consequently, we plan to merge both the companies by March 2012 and bring all the businesses under Jyothy. Financial year 2012-13 will form a base for robust growth in future.
What will be the merged entity’s revenue mix? What is your future strategy?
While Jyothy is more rural-oriented with sales mix being 65:35 in favour of rural and urban, Henkel is more urban centric with a ratio of 75:25. In 2012-13, the sales mix of the merged entity will be 50:50 for rural and urban. However, it will be skewed more in favour of rural thereafter, as that’s our strategy since 70 per cent of India’s 1.2 billion population live in rural areas and there is immense scope to improve availability of products. We plan to take Henkel to rural areas as both the markets only provide volume difference.
How do you plan to counter competition in the detergents business?
We don’t want to be in the market share game and will not compromise on price for growth. We want to grow profitably by leveraging on our scattered manufacturing facilities and strong distribution. The company has not been affected by the same strategy even during the price wars between MNC giants due to our brand recall. In Kerala, we have increased the price while others have reduced it.
When and how do you plan to retire the entire debt?
We intend to be completely debt-free by 2012-13-end. Besides internal accruals of roughly Rs 150 crore, we plan to monetise some unproductive assets, which could fetch Rs 150- Rs 200 crore. The balance amount will be arranged through fresh issue of shares to entities including private equity. However, that will happen only in the second half of 2012.
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