Jyothy Laboratories Products Distributorship
About: Founded in 1983, Jyothy Laboratories Ltd is a pan India play FMCG company. It is the largest player in the fabric whitener space with a market share of 80%. The company’s business divisions are Fabric Care, Personal care, air care, Household Insecticide, Utensil Cleaners, Toilet cleaners and Laundry services.
Since its inception, the company has focused on research and development, product designing and superior customer service. It has 19 manufacturing units and has a distribution network comprising of 1,400 stockists and 4,000 sub stockists.
Company Overview : A FMCG company with presence in the fabric care, household insecticide, surface cleaning, personal care and air care segments.
Promoted by Mr. M.P. Ramachandran in 1983 : Mr. Ramachandran has over 37 years of experience in production, sales and management.
Leadership through Key Brands: Ujala: #1 in Fabric Care: 71.1 % all-India market share by value and 57 % by volume for September 2010
Maxo: 23.2 % all-India market share by value and 25.3 % by volume for September 2010
Exo: 22.5 % South India market share by value and 20.1 % by volume for September 2010
Extensive Distribution Network:
Available in ~ 2.7 mn outlets in India as of March 31, 2010 (Source: A.C. Nielson).
Sales staff of over 1,800 people servicing approx. 3,500 distributors.
Field staff have a direct reach of ~ 1 million outlets.
Strong presence in both rural and urban markets.
Manufacturing:
28 manufacturing facilities in 16 locations across India – some of these are tax efficient units.
Jyothy Laboratories Limited Distribution ( Distributors / Distributorship ):
Distribution
In keeping with
objective of reaching out to every Indian household, Jyothy Laboratories
Limited have ensured that its brands touch the daily lives of people across the
country.
This objective is translated on the ground through the formidable distribution network of Jyothy Laboratories Limited covering even far flung hamlets that dot the remotest corners of this vast nation.
This objective is translated on the ground through the formidable distribution network of Jyothy Laboratories Limited covering even far flung hamlets that dot the remotest corners of this vast nation.
Jyothy
Laboratories Limited acts on a clear understanding of the consumer and the
market that it serves. Quite naturally, its distribution strategy is attuned to
the dynamics of catering to different types of markets in diverse locations.
Thus, there is a high level of customization of the distribution channel
depending on the nature of the market and the specific geography that it
operates in.
The deep insights
garnered from the grassroots, focused sales & marketing strategies and
persistent efforts have resulted in higher penetration, increased sales and
delighted customers. A large field force with over 1500 sales personnel and a
network of over 3500 distributors ensure a direct reach of over 2 million
retail outlets and an indirect reach of over 2.7 million retail outlets.
Around 400 of its 5,000
employees have been around for at least 15 years. Some of the 5,000
employees—termed the “suicide squad” because of their effectiveness —have the
responsibility of directly managing retailers, around a million of them
Jyothy Laboratories Ltd.’s Strategy
Jyothy Laboratories Ltd.
(JLL) strategy uses diamond framework. JLL is an Indian FMCG company
which offers products in household segment. JLL was founded in year 1983 by M P
Ramachandran. He started JLL by selling a single product UJALA, a liquid fabric
whitener. Later company launched fabric care products under brand Ujala
and household insecticides under brand 'Maxo'. JLL Laboratories had since grown
from a corpus of INR 40,000 to a company with a turnover of over INR 400
crores.
Company has seen many
developments in a short span of time. In March 2011, JLL bought a stake of
50.9% in Henkel India a subsidiary of Henkel AG in a cash deal of Rs 60.73
Crores. With this acquisition JLL Laboratories has now access to a diversified
product portfolio of Henkel which includes detergents and hair care products. JLL
now stands in the league of big FMCG firms like HUL, ITC, Godrej Consumers and
Emami. JLL has also started a new venture to provide laundry services to
diversify the risk from products to services.
JLL’s strategy fits in five elements
of diamond framework.
Arena
Management of the company should know
where they want to see their company in future, in which segments/arena the
company should be in after some years. JLL started from fabric whitener
but today it manufactures and distributes brands across product categories as
diverse as Fabric Care, Household Insecticide, Utensil Cleaners, Fragrances,
Personal Care. Its strategy is to constantly innovate brands, tap high growth
categories, reach untapped markets and explore untapped segments. The company has
also made its presence in other markets like Bangladesh and Sri Lanka with
local partners.
JLL is diversifying into services by starting the business of laundry
care. Laundry business model consists of two categories. One is the retail
model under brand ‘Fabric Spa' which provides premium services and other
category under the brand ‘Snoways’ which provides the economy services.
The arenas discussed above, can be
seen in company’s vision statement “Develop innovative
brands, tap high growth categories, reach untapped markets and explore untapped
segments to meet the day-to-day requirements of every Indian household”.
Vehicle
After deciding the arenas the company
should decide how they can reach there. JLL engages in organic and inorganic
expansion.
Market Expansion
Its sales grew at a CAGR of 18% while
its profit grew at a CAGR of 13% over the past three years. It has formed a
joint venture with Kallol Bangladesh Limited to manufacture and market Ujala
and Maxo in line with the strategy of tapping new markets.
Acquisition
It has acquired a stake of 50.9% in loss making Henkel India a subsidiary of
Henkel AG in a cash deal of Rs 60.73 Crores. With this acquisition JLL has now
access to a diversified product portfolio which includes detergents and hair
care. JLL now stands in the league of big FMCG firms like ITC, Godrej Consumers
and Emami.
This acquisition will help JLL to
reduce its dependence on one or two products. Also company will be able
to access the premium category market with the help of Henkel’s premium brands
like Fa, Mr. White.
JLL would like to create reciprocal
synergies by working closely and customizing the resources of Henkel India. JLL
has one of the most extensive distribution networks in rural and semi urban
markets whereas Henkel has strong presence in urban markets. JLL has 2.7
million outlets with approximately 3500 distributors. Henkel India on other
hand has 740 distributors with a total reach of 0.7 million outlets in urban
markets. Thus both of them are perfect complement to each other.
Differentiators
Company beats its competitors by providing
important differentiators. JLL has launched its Ayurvedic soap Jeeva which
talks about 27 ingredients. It was able to make its presence despite the
presence of other brands like Medimix, which was positioned as a curative
soap. In Mosquito repellent segment they differentiated by launching Red
Giant, the largest-sized distributed coil in India, to carve out a niche in the
market. Moreover, they have developed new packaging with distinct brand
identity to promote mosquito coils. Also they acquired multi-insect repellent
technology from DRDO known as DEPA technology
utilized by the defence personnel. Company differentiate itself from
competitors through these strengths:
·
Well-known brand identity
·
Local presence and wide distribution reach
·
Focus on the rural markets
·
Product Development Capabilities and Ability to
Launch New Products
·
Leveraging established brands
·
Increase focus on supermarket and hypermarket sales
·
Pursue selective acquisitions
·
Grow laundry and fabric care services
Increased product line width
Staging
It can be defined as the speed and sequence with
which the company is taking decision in order to implement the strategy
successfully. JLL started from one product Ujala from one state (Kerala)
and after that it launched it in other state (Tamil Nadu) and later launched
the product in whole country. When the Ujala brand became an established brand
in whole India JLL diversified into other segments. It launched new products
Maxo and Exo in Household and utensil care segments. The management realized
that in order to survive it has to diversify into other segments especially
into premium segments as disposable income of average Indian will increase in
coming years. Secondly, 95% of revenue was coming from three products. In order
to combat these threats company followed these strategies:
Acquisition
JLL decide to buy Henkel India which has innovative
products, good distribution network in urban market which complements JLL’s
distribution network.
Joint Ventures
JLL expanded in other market like Srilanka and
Bangladesh through Joint ventures with local firms.
Services
JLL decided to move into services by starting a new
venture in laundry care services.
Now we can analyse JLL’s growth since its
beginning. In the above diagram we can see various stages of JLL’s growth.
Stage A: It started from single product in 1983 and
became a well-established brand in few years.
Stage B: It launched Maxo and Exo in Household
and utensil care segments
Stage C: It acquired Henkel India to diversify its
portfolio and leverage the distribution network of Henkel in urban markets.
JLL’s changed strategy can be confirmed by its new
target. JLL founder and chairman M.P. Ramachandran, has set a target of more
than tripling the revenue of the combined entity to Rs. 5,000 crore
in four years from the Rs. 1,100 crore in the year ended March 2011,
which could give it a place among the top four consumer goods companies in
Asia’s third-largest economy.
Economic Logic
Extensive distribution network in rural network
especially in south India gives JLL an edge over competitors. JLL was able to
hike the price of products whenever there was rise in input material costs.
Company has always paid attention towards achieving economies of scale. It
started from acquiring its supplier, it acquired Tata chemical’s plant which
used to provide it raw material. It always launched a product in a phased
manner for example it first launch in Kerala, then Tamil Nadu and then in whole
nation. This strategy saves a lot of money for them and they have become
experts in doing that.
Strong
Synergies, Nationalization Strategy
ü Synergies to play out in FY13
The acquisition of Henkel
India in 1QFY12 has given Jyothy a range of fabric-care brands across price
points and geographies (urban and rural, north and south India). The merger of
distribution networks (with a mere 10% overlap), synergies in raw material and
media sourcing, consolidated brand-building, and the creation of new brands are
expected to drive revenue and margins in the next 3-4 quarters.
ü Strong strategy in place to unlock brand potential
Jyothy is leveraging its
key Ujala brand with a strong sub-segmentation strategy. Further, the company
plans to launch regional brands such as Maxo, Exo & Margo on a national
scale, by leveraging its new pan-India distribution network. It also plans
lower freebies, price hikes and re-launches.
ü Sale of assets to reduce debt burden
High balance sheet debt
is a major concern for Jyothy. The company plans to sell land at Ambatur and
Karaikal (Tamil Nadu) in 1HFY13 for ~`2bn, to substantially reduce its interest
cost burden. It also has the option of selling its Kolkata property.
ü Change in estimates
Company reduces FY13 earnings
estimates by 22% but expects higher profit margins due to less competition from
HUL & P&G as the price war tapers off. It estimates 14% revenue growth
in FY14.
Road Ahead
Detergents to turn profitable
On acquiring Henkel India,
Jyothy Labs obtained a complete range of fabric-care brands across geographical
areas and price points. The sub-segmentation strategy (involving key brand
Ujala) and measures such as lower freebies, price hikes and re-launches are
likely to unlock brand potential. We expect profit margins to expand as a
result of lower competitive pressure from HUL and P&G following the end of
the detergent war, as higher raw material prices have resulted in reduced media
spend and price hikes.
A complete portfolio in detergents
Following the Henkel India
acquisition and the restructuring of its portfolio, Jyothy now has a complete
range of detergents across price points and geographical areas. This includes
the premium Henko Stain Champion and Ujala Technobright, the mid-market Chek
and Ujala, and low-end Ujala detergents and Mr White. The company leads the
market in the liquid blue (fabric whitener) segment with its major brand Ujala.
In addition, it has developed a range of other fabric whiteners around Ujala.
The company’s (consolidated)
distribution network covers the nation. Ujala is a strong brand in south India.
Henko and Chek are stronger in the northern and eastern parts. Mr. White has
good brand recall in Kerala. This complete range should help the company
compete at various price steps.
Complete Range of Detergents
Improved utilization of media spend to create strong
brands
Jyothy Labs has been
insistently investing in Ujala Technobright detergents (via ad spend and
inducting celebrities as Sachin Tendulkar) to create the new brand. Henkel
India too had been investing and building its three detergent brands: Henko,
Mr. White and Chek. Since both the companies had smaller distribution networks
and lower penetration, such media spend was not optimized. However, with a wider
rollout of products through the combined distribution networks, Company expects
better utilization of media spend and improved pricing power for its brands.
Unlocking brand strength to drive revenues and earnings
Jyothy plans to unlock
brand strength by reducing freebies and discounts, and increasing prices where
possible. It has reduced the offers on detergents initiated by Henkel.
Key Drivers to unlock value from detergent brands
Developing an array of products around Ujala
The company’s flagship
brand is still Ujala, the market leader in liquid blue. Apart from this, the
company has introduced detergents, fabric whiteners and fabric conditioners. It
plans to introduce more products and variants under Ujala, in order to leverage
its strong brand equity to successfully launch other products. This
sub-segmentation strategy under the Ujala brand should also help reduce
dependence on a single Ujala product and would make price hikes easier to
implement.
Ujala Sub-segmentation Strategy
Detergent price war less fierce now
The detergents wars have
mellowed in the past 2-3 quarters. P&G reported losses of `3.3bn, equal to
profits accumulated in the six years prior to FY11. Lower profitability for all
detergent manufacturers has resulted in reducing media spend and hiking prices.
Higher raw material costs have pushed detergent players to reduce media spend
and hike prices in order to cover costs. The lower media spend and price hikes
by competition should allow smaller players such as Jyothy Labs to enjoy better
profitability
Price hikes in last six
months by detergent manufacturers
Higher raw material prices may spoil the party
Major raw material prices
of Linear Alkyl Benzene (LAB) – a crude oil derivative used as the key raw
material for detergents – and packaging material continue to trend higher. The
~20% rupee depreciation is likely to result in raw material prices moving
further northward. Company expects the impact of higher raw material prices to
affect 2HFY12 results.
Major raw material prices
on an upward swing
Synergies in distribution and sourcing
With the settlement of
employee compensation following the closure of Henkel’s Karaikal factory,
Company expects the merger of distribution networks, synergies in raw material
and media sourcing, consolidated brand-building activities and creation of new
brands to drive Jyothy Lab’s revenue and margins in the next 3-4 quarters.
Merger of distribution networks to drive revenue
Being a south-India-focused
company, Jyothy has a robust distribution network in the south. Its brands
enjoy strong recall in Kerala and in rural India. In contrast, Henkel’s brands
have stronger recall in urban India and witness vigorous off-take through
modern trade outlets. Henkel has a strong distribution network in the southern
and eastern parts of India.
Together, the companies
reach 4m retail outlets. The overlap of distribution networks is just around
10%. We believe the merger of distribution networks will give substantial power
to Jyothy, making it easier to launch products and increasing the company’s
bargaining power with distributors. We also expect the rationalization of
distribution margins to result in higher profitability margins.
Merger of distribution network
Utilization of media spend to improve
Jyothy and Henkel had been
competing in detergents and dishwashing segments, increasing ad spend to gain
market share. Jyothy aggressively pushed Ujala detergents in Kerala against
Henkel’s Mr. White detergent. Going forward, the (consolidated) media spend
would be optimized to gain market share from other detergent manufacturers
rather than from each other.
Creation of national brands could unlock value
From its current portfolio
of strong regional brands, Jyothy plans to create several national brands. The
brands to be rolled out nationally include Maxo coils, Neem oral care products
and Exo dish wash. These brands enjoy strong recall in their present areas of
operations. The company plans to launch these products through a broader
distribution network, which would support the creation of national brands.
The company intends to
unlock the value of some of the brands at an attractive price after the
national launch. The national rollout of its brands is expected to result in
higher valuations.
Strategy to Create National
Brands
New management to handle merged business
Jyothy Labs, a family-run
business, plans to induct a professional management team to handle the newly
merged business. The new management is to consist of a new CEO and three
‘category’ managers for fabric-care, laundry-care and personal-care. The
company also plans to induct a new head for the supply chain, while the
dish-wash segment is to be managed by the chairman, M.P. Ramachandran. The role
of the new management would be crucial post the acquisition of Henkel, as most
consumer companies now have separate heads for each product category, in order
to focus on consumer preferences.
New Management Structure
Sale of assets to create value
The company is in the
process of selling the excess land on Henkel’s balance sheet. It hopes to sell
two acres at Ambatur (for `500m) and 17 acres at Karaikal (for `1.5bn) in
1HFY13. It also has saleable land at Kolkata that is valued at ~`250m. The
shift of production from Karaikal to Uttaranchal is expected to result in
fiscal benefits (excise duty) and lower production costs.
Company expects the
consolidated entity to enjoy tax breaks due to Henkel’s accumulated losses. Company
expects effective tax rates for the consolidated entity to be around the
minimum alternate tax (MAT) level over the next 4-5 years. Jyothy as a
standalone entity will continue to remain at the MAT level in FY12 and FY13.
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