Jyothy Labs: The complete value chain

The company has steadily built brands in the competitive FMCG segment, but managing growth will be the key.

This mid-segment fast moving consumer goods (FMCG) company, Jyothy Laboratories, has developed a unique expertise and presence in the market place. With just Rs 600 crore revenues, it has built expertise over the entire value chain — from research to packaging & distribution. This has seen revenues grow 66 per cent in FY10, with net earnings witnessing a similar rise. Operating margins, at 19 per cent, are better than industry leaders like Hindustan Unilever. This is largely because Jyothi Labs has invested in developing all the facilities in-house.

The company’s 3,500 distributors and reach to 2.9 million retail outlets is the third-largest in India. The strategy of keeping all key operations in-house has added four-five per cent to profit margins, apart from safeguarding its research, say analysts at Sbicap Securities. A three per cent cost savings came by just reducing the weight per bottle of Ujala Supreme (its marquee brand) from 18 gm to eight gm. With 72 per cent market share, Ujala is the market leader in the whitener segment and contributes around 40 per cent to revenues. Its other leading brand, Maxo, which was launched in 2000, now commands a 24 per cent market share in the competitive mosquito coil market. In the past three years, the brand has grown at a compounded annual growth rate of around 26 per cent, the best in the segment. The company will now extend the brand to aerosols and vaporisers. Its surface cleaner, Exo, is also in for extensions and increased volume thrust.

The company’s plans are ambitious. However, as it expands into a larger product portfolio, margins are expected to be under pressure, as new products are expected to have lower margins until they stabilise in the market. Moreover, its strategy to have a number of manufacturing facilities could hamper the return-on-capital employed, said analysts. Also, as the product portfolio widens, the pressure on advertisement spends will rise from the current seven-eight per cent of sales to double digits. The factor to watch out for will be the management’s ability to manage growth.