FY 2018-19 has been a challenging year for us at Jagatjit Industries Limited. Despitemany obstacles what stood out was our ability to forge ahead and remain steadfastworking on our business model and strategies for long-term sustainable growth.
When I took over the reins of the Company three years ago it was going through adifficult phase bogged down by legacy issues huge workforce and outdated systems. In thepast three years we have rationalised our workforce and optimised the efficiency of ouroperations. The outdated labour laws have made our progress sluggish but every year we getcloser to the target optimum level of workforce.
As part of our restructuring exercise we examined each part of the organisation tomake it leaner and fitter. We rationalised our personnel and moved out of states andchannels that were not profitable thus downsising our operations. Our goal was to existin profitable states with brands that made sense to achieve operational efficiency and abreakeven/positive EBITDA. In the current year we have achieved this.
Some of the external and internal challenges we faced this year and continue to face:
GST: Implementation of GST significantly affected the growth / work of the Company aswe do not get input credits and the cost impact is around 7% to 9%.
Cost Increases: The Government's initiative to blend ethanol (made from grain apartfrom molasses) with auto fuel has led to severe shortage of grain ENA the key rawmaterial for the spirits industry. This in turn led to high price escalation. The otherinput materials which were also adversely impacted by price increases were Glass bottlesPet bottles and CC boxes. All in all margins were reduced significantly since liquorpricing is Government controlled in most states and we were not able to pass these costescalations on to the consumers.
In our malted milk food business there was a similar fait accompli. We saw costincreases due to increase in minimum selling price (MSP) on grains (barley / wheat /millets) rice husk etc. Once again we were unable to pass on the increase to ourcustomers.
Interest Rate Increase: Last year in an effort to reduce the interest rate burden onthe Company we moved our debt from KKR to Indiabulls. This measure was intended toincrease our working capital giving us resources for marketing and capex. The IL&FScrisis severely dampned these plans. We were subjected to increases in interest rates to alevel which was even higher than KKR. The time effort and monies that were invested inmoving from one lender to another to accrue benefit was all dissipated.
Working Capital / Capex: The expected relief on working capital resources did not come.Working Capital was stretched and restricted making it difficult to invest in necessarycapex to further automate for higher efficiencies. The limitations of working capital alsoprevented us from investing significantly on marketing efforts to support our existingbrands and delayed new brand launches in the premium segment.
Managing Franchisees: Though the Jagatjit team has had to acquire new skill sets todevelop and manage new partners they have done so fairly and seamlessly interrupted onlyby the occasional hiccup. Yes it has taken a little longer than initially anticipatedbut some of these partnerships have already flourished while others are yet to showpotential. The learning here is that though we have been absent from some markets forclose to a year we still had partners/supporters wanting to take our brands on franchisebasis reinforcing the power of our brands equity" which still remains verystrong.
Brand Portfolio Mix: The heritage and legacy of Jagatjit has always been mass brandswhere the basic tenet is high volume and low margins. In an industry where we do notcontrol our selling prices and are subject to various cost escalations these margins getcompletely eroded. One of our strategic initiatives as part of our long-term growth is tomove towards premiumisation so as to try to hedge ourselves from such situations. Withthis endeavour we have relaunched Royal Pride Whisky in the segment of Blenders Pride andwe are about to relaunch King Henry VIII Scotch Whisky in the segment of Teacher's and 100Pipers. We are also launching a premium brandy by the end of the year.
Labour: We are still striving to optimise our workforce. Increase in wages has onceagain impacted our costs adversely.
our financial performance
Given a tough operating environment and the challenges we faced as cited above ourtotal revenue for the year stood at Rs. 30387 Lacs compared to Rs. 56710 Lacs in theprevious year. Our net loss stood at Rs. 6627 Lacs as compared to a net loss of Rs.7433 Lacs in the previous year.
Jagatjit has always been on the forefront of change and innovation. In keeping withthat ethos and with a view to our future we have invested with Lost Spirits TechnologiesUSA a company that has developed technology to accelerate the ageing process of Spirits.
Our objective is to use this technology to reduce the dependence on imports and theprohibitive costs associated with barrel aging. This is a significant strategy for ourfuture to remain sustainable designed to strengthen the Company and create long-termvalue for our shareholders and stakeholders across the value chain. With this technologywe will strive towards world-class aged and matured alcoholic spirits which will beMade in India" not just for Jagatjit products but to offer this benefit to thewhole industry. This in turn will open up yet another powerful revenue stream forJagatjit. We are hoping to set up this facility at Hamira in the coming year.
We at Jagatjit remain resilient. Our focus on innovation and renovation across brandsis delivering results. We have been able to successfully attract consumers through newvariants with attractive packaging. We are also premiumising our product portfolio andlaunching new brands in the Whisky and Brandy categories.
In the past we remained absent in three of the largest alcoholic beverage markets inthe country i.e. Uttar Pradesh Karnataka and Maharashtra. This year we will enterMaharashtra. The contract is already being tied up and we are hopeful of our entry inUttar Pradesh as well.
As stated earlier we are solidifying our brands with a value-driven approach tostrengthen the business. We are ensuring that our product mix becomes better and our focusis on the higher margins in the premium category. We remain committed to serve theconsumers' growing appetite for premium products across spirit categories at affordableprices. Our Lost Spirits investment may also help in this direction in future.
In the Food Business we are confident that the GSK Consumer Healthcare Limited andHindustan Uniliver Limited merger will increase the overall health food portfolio volumesand therefore the supply of malted milk food intermediates to GSK will rise. For thispurpose we are planning to enhance capacity in order to cater to the increased demand.
As I look ahead I am quite positive and optimistic towards the changes that areunderway. We have been proactive and strategic in the steps we have taken and all stepsare in the right direction. Moreover my confidence in our iconic brand Aristocrat PremiumWhisky remains undeterred. Legacy brands in a number of consumer-facing industries havebecome successful post upgrades in their offering.
I believe that Aristocrat Premium Whisky will lead Jagatjit Industries back to aprominent position. Along with Aristocrat Premium our other portfolio changes will ensurea profitable promising & healthy future for Jagatjit.
I would like to express gratitude to our stakeholders customers vendors and employeesfor their continued support for creating long-term value and shaping the performance ofthe Company.
We strongly believe that the best is yet to come!
With Best Wishes
Roshini Sanah Jaiswal
Chief Restructuring Officer