Q1 2027 Jyothy Labs Ltd Earnings Call
Speaker #4: Ladies and gentlemen, good day and welcome to the Jyothy Labs Q1 FY27 earnings conference call, hosted by ICICI Securities. As a reminder, all participant lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes.
Speaker #4: Should you need assistance during the conference call, please signal an operator by pressing star, then zero, on a touch-tone phone. Please note that this conference is being recorded.
Speaker #4: I now hand the conference over to Mr. Aniket Kamble from ICICI Securities. Thank you, and over to you, sir.
Speaker #5: Thank you, Yusuf. Hi, it's an absolute pleasure on behalf of ICICI Securities to host the Q1 FY27 earnings call for Jyothy Labs. From the management, we have Ms. Jyothy, Chairperson and Managing Director.
Speaker #5: And Mr. Pawan Agarwal, CFO. I now hand over the call to Jyothy ma'am for her opening remarks. Thank you, and over to you, ma'am.
Speaker #6: Good afternoon, everyone, and a warm welcome to the Q1 FY27 earnings call of Jyothy Labs Limited. Our financial results and investor presentation are available on our website and the stock exchange.
Speaker #6: I trust you have had the opportunity to review them. Let me begin with the broader operating environment. Rural demand stayed relatively resilient, while urban markets, after showing signs of recovery in the second half of FY26, remained subdued during the quarter.
Speaker #6: Higher household expenses continued to pressure discretionary spends, and cautious consumer sentiment affected urban consumption. Across the sector, companies are balancing commodity inflation through calibrated pricing, premiumization, innovation, mix improvement, and sharper pack price architecture.
Speaker #6: While protecting consumer affordability, we are therefore cautiously optimistic on the demand, with growth expected to be driven by a balanced combination of volume expansion, selective pricing, premiumization, and new product scale-up, rather than price increases alone.
Speaker #6: During the quarter, crude oil and crude-linked derivatives remained highly volatile. The West Asia conflict kept global energy markets unsettled. This affected input costs, packaging materials, and supply chain planning.
Speaker #6: While the recent moderation in crude prices is encouraging, we remain watchful of geopolitical developments and their lagged impact on costs and margins. Our immediate priority was to ensure continuity in production, supply, and sales, and we largely achieved that objective.
Speaker #6: However, the price increases taken towards the end of March and in April were not sufficient to offset the unusually high raw material and packing cost inflation.
Speaker #6: In addition, the company did not have any material benefit from lower-priced older inventory in Q1. With a large part of our business coming from fabric care and home care, where crude-linked inputs play an important role, margins were significantly impacted during the quarter.
Speaker #6: In our assessment, raw material and packaging costs are unlikely to correct immediately, even if crude prices remain moderate, as higher-cost purchases and contracted inventories will continue to flow through Q2.
Speaker #6: Any benefit from lower crude-linked inputs is likely to be visible only gradually, and more meaningfully from October, provided commodity prices remain stable. Margin recovery is therefore expected to be progressive and closely linked to top-line growth.
Speaker #6: That said, we believe the current margin pressure is largely transitory and near-term in nature. As commodity prices stabilize and volumes improve, operating leverage should support margin recovery over the coming quarters.
Speaker #6: For FY27, excluding the PRIL business, we expect double-digit revenue growth. EBITDA margins are likely to remain under pressure during the year due to elevated crude-linked input costs.
Speaker #6: Though H2 should be substantially better than H1, subject to demand momentum and commodity price stability. We are focused on cost optimization, supply chain efficiencies, procurement excellence, value engineering, and selective pricing actions to restore profitability without compromising competitiveness or market share.
Speaker #6: On channels, GT growth was muted largely due to lower urban demand. However, all other channels, put together, delivered impressive growth. Modern trade, e-commerce, and quick commerce continued their strong momentum and remain among our fastest growing channels.
Speaker #6: ANP spends had been moderated over the past few quarters due to input cost inflation. Going forward, we intend to step up investments in advertising and brand building to support long-term sustainable growth.
Speaker #6: From Q1 FY27, we have aligned our segment reporting with the way management reviews the business and allocates resources, in accordance with Ind AS 108.
Speaker #6: We will now report performance under three segments: Fabricare, Home Care, and Personal Care. Fabricare will continue to be reported separately, given its scale and strategic importance.
Speaker #6: Home care brings together our key in-home consumption categories, while personal care reflects the growth opportunity in that portfolio. We believe this revised structure gives investors a clearer and more meaningful view of how we manage the business, allocate capital, drive innovation, and pursue long-term growth.
Speaker #6: Comparative numbers have been restated for consistency. Fabricare maintained its strong momentum, delivering over 14% value growth and 10% volume growth during the quarter. Detergent powders and bars grew in double digits, while liquid detergents continued their high-growth journey across Henko, Ujala, Mr. White, and more.
Speaker #6: Home Care grew by 2.4% year-on-year, excluding Pril sales. Within Home Care, the dishwash portfolio was impacted by the Pril exit effective 31st May 2026; however, the newly launched bioenzyme-based Exo liquid has made encouraging progress despite being at an early stage of scale-up.
Speaker #6: And channel expansion. The broader Exo franchise, which includes bars, powders, liquids, and scrubbers, grew in mid- to high-single digits in value terms and double digits in volume terms.
Speaker #6: In household insecticides, the extended summer and delayed rainfall affected category performance in Q1. We have launched the Maxo incense sticks in July, to address the growing concern around unsafe and unapproved local agarbatis.
Speaker #6: Maxo incense stick is a safe and effective government-approved solution and further strengthens the Maxo portfolio. Personal care performance remains subdued during the quarter, impacted by price increases and transient supply chain disruptions.
Speaker #6: We remain confident of a recovery trajectory and expect the segment to deliver stronger performance in the coming quarters. That said, input cost pressures are beginning to emerge, with key raw materials, especially soap noodles, witnessing price increases from June onwards.
Speaker #6: We will closely monitor whether this trend proves temporary or signals a more sustained inflationary cycle. Let me now cover the financial performance. Excluding PRIL and FA, revenue grew by 8.1% in value terms and 5.3% in volume terms on a year-on-year basis.
Speaker #6: Margins stood at 38.5%, down by 950 basis points year-on-year, impacted by abnormally high input cost inflation and lower realizations. Employee cost was 11.4% of revenue, compared to 11.5% in the same quarter last year.
Speaker #6: ANP spend was 6.5%, compared to 7.8% in the same quarter last year. Other expenses were 12.2% of revenue, compared to 12.1% in the same quarter last year.
Speaker #6: EBITDA margins stood at 8.4%, down about 820 basis points year-on-year, which is flowing through to the gross margin. Overall, the industry outlook remains cautiously optimistic. Inflation, commodity volatility, and heightened competition are likely to keep operating conditions challenging over the next couple of quarters.
Speaker #6: At the same time, premiumization, growth in new-age channels, continued innovation, new launches, and disciplined cost management should support sustainable long-term growth. We will continue to follow a balanced pricing strategy while preserving affordability.
Speaker #6: Pricing decisions will remain calibrated, taking into account commodity cost movements, competitive intensity, and consumer demand elasticity. Our priorities for FY27 are clear: scale recent NPDs, maintain a strong innovation pipeline, improve general trade productivity, sustain volume growth despite price increases, and invest in brands in a calibrated manner.
Speaker #6: We remain optimistic about FY27, while staying watchful of the external environment. Before I close, I would like to thank our teams for their commitment, our trade and distribution partners for their support, and our investors for their continued trust.
Speaker #6: With that, I conclude my opening remarks. We will now be happy to take your questions. Thank you.
Speaker #1: Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star one on their telephone.
Speaker #1: If you wish to withdraw yourself from the question queue, you may press star and two. Participants are requested to use a handset while asking a question.
Speaker #1: Ladies and gentlemen, we'll wait for a moment while the question queue assembles. The first question is from the line of Satish Deshmukh from IIFL Capital. Please go ahead.
Speaker #3: Hi, this is Percy Panthaki here. My first question is: What is the total price increase that you have taken since the start of the war till now?
Speaker #3: So overall, about 4% you can say—4, 4.5%—out of that, 3% has flown through quarter one, and the remaining will be visible in quarter two.
Speaker #3: So what is the reason that our price increases are so much on the lower side given that our portfolio is actually the most exposed to crude amongst the peers?
Speaker #3: If we see HLS 5% price increase flowing in Q1, GCPL also has 5% price increase flowing in in Q1. Yet we are at 3%.
Speaker #3: So, can we not take more price increases?
Speaker #2: So Percy, this is a resultant of some competitive action also, in certain SKUs. And we are at par with what the competition is, and hence in spite of taking these corrections, this is how it is.
Speaker #2: So if you see, in most of the brands where we are present, SKU to SKU level is matched with competition.
Speaker #3: And can you elaborate if this competitive activity is more intense in dishwash or is it more in detergent? And also, in which subsegment among these two?
Speaker #2: See, it is broadly there. So I won't be able to comment on that, but largely it is SKU-wise price reductions that have happened. And as we speak, when you compare last year the same quarter, the MRPs of some brands that we have, they were at a higher MRPs, right?
Speaker #2: So, when you compare that value versus this year, it wouldn't suffice. I mean, it is no match to last year's same. That's why you would see that little bit of degrowth in that sense. But, volume-wise, we have good growth.
Speaker #2: It's only from a value perspective.
Speaker #3: And also, Percy, if you look at it, when I said around 4–4.5% total, it's a blended increase. So in segments such as personal care, the price increase is roughly 9–10%.
Speaker #3: You know, we have gone up to 9–10%. And in other business segments, 4–5% price increases have been taken. So, as Jyothy mentioned correctly, it is a function of category, brand, SKUs, and depending upon that, the pricing decisions have been taken.
Speaker #2: Right.
Speaker #3: I'm just trying to understand this gap between cost inflation versus the pricing taken. Is that gap the most in liquid detergents?
Speaker #3: Is it in dishwash? Is it in mass market powder detergents? Which part of the business do you see the unrecovered inflation impacting the most?
Speaker #2: You can see the segment margin, so you'll be able to see it. Fabricare and home care, which is 90% of our business—this is where the input price increase was abnormally high, and it impacted us.
Speaker #2: And we have taken the necessary price increases, keeping the market realities in mind.
Speaker #3: So, is there any problem in giving a little more granular view? Because the prices of all the competition are in the public domain, so it would really help us to get a better understanding.
Speaker #2: Fabricare was closer to 5% on a portfolio basis, but dishwash was competitive.
Speaker #3: Understood. Understood, sir. Secondly, just on future margin trajectory, assuming the crude price remains roughly where it is, do we see margins being suppressed till then, and only crude price deflation can result in decent margin expansion?
Speaker #3: Or do we have some other plan to bring the margins back?
Speaker #2: Of course, there are a number of factors which will play out in the coming quarters, but we cannot ignore the market and the external environment reality.
Speaker #2: The way crude has been behaving over the last four or five months, it's anybody's guess. Keeping that factor in mind, I think our goal is to swing back to the historical margin levels.
Speaker #2: But a large portion of that is linked to crude prices. While a number of actions are already in place and will build on that to improve margins.
Speaker #3: Got it, sir. And lastly, any comments on the EXO liquid portfolio? How is that ramping up?
Speaker #2: So Percy, it’s only been three or four months since we launched it. And from a launch perspective, it has performed reasonably well, as per expectations.
Speaker #2: So, so far, we'll be able to probably give you more on this thing maybe by the end of the year.
Speaker #3: Got it. Thank you very much.
Speaker #2: Thank you, Percy.
Speaker #3: Thank you. Next question is from the line of Rishabh Shah from Jugal Rock PMS. Please go ahead.
Speaker #4: Yeah, hi. Thanks for the opportunity. My question was on the— you mentioned in the business update call that you provided me with a premium brand, and in a market like India, there are few takers for premium brands.
Speaker #4: So my question was, don't you think that the entire game in India is about premiumization, and each and every player is making premium products for the market?
Speaker #4: So, I just wanted your thought process on it. And the second part of the same question would be: looking at the product portfolio, Enco is the brand we can recall in the premium category.
Speaker #4: So, rest all the categories which we see, there are no premium products as compared to our competitors. In the new product developments, do we have any?
Speaker #4: You have one question, broken into two parts.
Speaker #2: Yeah. So Rishabh, when I said that, I said it in a certain context. When I'm saying where you see premiumization and all of that, it is more from a personal care or you would see it largely in high-involvement categories.
Speaker #2: Whereas in home care categories, if you see, or if you have studied the market, even if there are premium products, what is happening is, it is never operating at its original MRP price, right?
Speaker #2: There is a significant reduction in MRP reductions that are happening throughout. Even premium SKUs, or even competition for that matter, all the premium brands are at a discount today.
Speaker #2: So that's why I said, in a market like this, can you continue that premium momentum at the same price that you intended to launch it?
Speaker #2: It doesn't happen, right? When there is lower consumption happening, there is this premiumization taking a hit—basically, discounting of things. Competition is introducing very cheap products in the market, and hence you have to take certain calls.
Speaker #2: So hence, that comment came in from that angle and not from a premium product, as such. And also, from a large—this thing, if you see, majority of India, it is the lower prices that still capture the market.
Speaker #2: It's anything to do with lower price you bring, there are takers for it. Premiumization takes its time. So that is the context in which I said what I did about premiumization.
Speaker #2: But having said that, for us, in the SKUs that we are operating, or where we are at a slight kind of premium, there we are seeing that kind of— but is we 100% market towards premiumization?
Speaker #2: No, I hope you got the context in what I said.
Speaker #3: Yeah. And the second part, the product portfolio part?
Speaker #2: Yeah. Could you repeat that?
Speaker #3: So, like in a product portfolio, Enco is the one which we can recall as a premium brand. And there are no—yeah, yeah. Yeah, yeah.
Speaker #3: So, in the premium category, yes, across all categories that we see, there are no premium products like the Enco which we have, as compared to the competitors.
Speaker #3: So, in terms of new product developments, do we have any?
Speaker #2: See, currently, yes, you're right. In Enco, we have a premium portfolio. In dishwash, we earlier had Pril, but that also doesn't mean that EXO is a mass thing.
Speaker #2: EXO right now operates at what the competition is. And we are right now sitting at the topmost end of the price ladder there. And within EXO also, you have a premium offering in a dishwash bar as the 500 gram SKU, wherein the product the price that you pay at that one time is higher compared to a 10 rupee or a 5 rupee bar.
Speaker #2: So for us, that again is a good enough ratio. There, we have within that, from a premium SKU versus the lower unit pack.
Speaker #2: So, in every product that has these kinds of things, if you see, liquid detergents as such used to be premium compared to powders a few years back.
Speaker #2: That was the state of the market. Whereas, with a lot of trials and a lot of competition coming in, now liquid detergents are lower than the powders in terms of pricing.
Speaker #2: And both in terms of margin, be it even a premium liquid. So, premium always depends on a certain context, is what you need to understand.
Speaker #3: Okay. And my second question is that we have seen an improvement in the working capital space. How sustainable is this in terms of giving credit to the distributors?
Speaker #3: We know that Jyothy is one of the best, like you are one of the best in working capital in the industry. So, could you please let us know some points on how Jyothy is able to achieve that?
Speaker #3: And what are the things that Jyothy is doing differently than the competition? Although the competitors have stronger balance sheets—stronger than us.
Speaker #4: So, I can't comment on the competitor section, but all I can tell you is that our focus has always been on the hygiene of the business.
Speaker #4: We sell products, especially in general trade, on an advanced payment basis. A significant portion of our general trade business operates on an advanced payment basis.
Speaker #4: Even with modern trade, e-commerce, and quick commerce, the payment terms we have agreed upon with our channel partners are comparable. So in that sense, the hygiene of the business is always paid attention to.
Speaker #4: And the distributor-level stock is also maintained at 15 to 20 days. So, these are the fundamental levers that we apply in order to run the business.
Speaker #3: Okay. And last question is, the royalty payments which you are doing, which are done now—since they would be saved, where do you think you would use the money?
Speaker #3: Would it be in advertisements more, like moving the royalty to customers, to the EXO customers? Or will it be in the R&D side of the business?
Speaker #4: Anyway, it's a small amount. The royalty amount is not a very significant amount in the P&L over a year. And there is no one-to-one correlation between saving a line item and its application.
Speaker #4: So, of course, the overall cost-saving initiatives are going on in the company, and we are investing in innovation and product development. All these things are happening in parallel.
Speaker #3: Okay. Thank you.
Speaker #1: Thank you. Next question is from the line of Vishal Gutka from ASK Investment Managers. Please go ahead.
Speaker #4: Yeah. Hi team, a couple of questions for my side. So ma'am, the first question was on the Pril and EXO plan. Pril is not to be seen in the market.
Speaker #4: As per the terms of the agreement, there is a cooling-off period. Once they can come into the market—if you can clarify—and if they come, that could be some dent to their numbers.
Speaker #4: If they, in case there is, what do you call it, some cooling-off period, is there? Second question is on the Instant Fix that you launched.
Speaker #4: I think thousand parts of the country. So, what's happening on the broader color for pricing? What is the broader strategy you are targeting over there on the instant fix on the mosquito side?
Speaker #4: And the third question was on the M&A front. I think we have decent cash. I think we have been evaluating opportunities. One of the deals recently got done, where I think ETK sold a couple of brands to Wipro.
Speaker #4: It was at, what do you call, decent valuation it got sold. Just wanted to check with you, did we validate that deal? And what was the constraint from our side in case we validated the deal?
Speaker #4: And overall perspective on M&A—thank you.
Speaker #2: So your first question, Vishal, on Pril cool off, etc., so as the as Henkel decided to recall the brand, the and they decided not to renew the agreement.
Speaker #2: So, we did not manufacture, distribute, or sell the product beyond the 31st of May. There is no specific clause which requires them to wait for a certain period.
Speaker #2: But the matter is before the court, and hence, we would not be able to comment beyond this. Now, Jyothy would like to address Maxo—over to the team.
Speaker #5: Yeah. So, Vishal, on Maxo, we...
Speaker #2: We have priced as per competition, and I think we are the second organized player in this category. As you all know, this market has been growing, and yes, we are the last ones to come in.
Speaker #2: But I think we've come with an even stronger product, and consumers will gain in the end of the day. So we have a very good, winning product with us.
Speaker #2: And we hope to create that. The absence of an instant fix was kind of also affecting us in a way, and the product has come in at the right time.
Speaker #2: And priced at par with competition. So that is on Maxo. On M&A, yeah.
Speaker #4: On the specific point that you made about the TTK business, yes, we had looked at the business. But of the four divisions of the business, two of them were not aligned to our business strategy.
Speaker #4: And there was significant overlap in the remaining two, so we did not take it forward.
Speaker #1: Okay. But there are just only two brands, that is Good Home and Eva. I don't know what was proposed earlier, but what they were told is they sold two brands to Wipro.
Speaker #1: So, on an overall perspective on M&A, I think you have been evaluating, but if you can provide more color, what's happening on that M&A front?
Speaker #2: No, Vishal. We are looking at assets. As I keep telling you on every call, we keep on looking at assets, and we are looking very aggressively.
Speaker #2: But again, the filters that we apply are very stringent, and they have to be aligned with the company's overall growth strategy. So, just for the sake of acquiring assets, we are not into that business.
Speaker #2: So, at an opportune time, hopefully you will get to hear from us.
Speaker #4: Got it. Got it.
Speaker #1: And now, with Pril being out of the system, by when should we expect the double-digit revenue growth to come? There has definitely been some amount of pricing which you have taken.
Speaker #1: But a better balance of volume and price—by which quarter, or maybe by next year, should we expect double-digit revenue growth to come by for Jyothy?
Speaker #2: See, our endeavor is to deliver double-digit revenue growth from the current quarter itself. This is what we are aiming for. But, of course, a three to four percent price increase will be sitting over there.
Speaker #2: So high single-digit is the volume growth that we are expecting through the year. And Jyothy also mentioned in her speech that for the year, FY27, excluding Pril and Fa, we expect double-digit growth.
Speaker #1: Okay. Okay. But if I have to include Pril and Fa, then the revenue reported number will be far lower, right? It would be what they will fire around.
Speaker #2: Yes. Yes.
Speaker #1: Okay, okay. Great. Wishing you all the best. Thank you.
Speaker #2: Thanks, Vishal.
Speaker #1: Yeah. Thank you. The next question is from the line of Sonal from Present Capital. Please go ahead.
Speaker #3: Hi, this is Sonal Minas. I hope I'm audible. Yes, go ahead. Sure. Thanks for taking my question. I wanted to understand a bit of context regarding your growth across the channels, specifically modern trade, quick commerce, and general trade.
Speaker #3: Has general trade degrown year on year? If you remove the two brands which are discontinued, and in quick commerce, what are we seeing in terms of competitive positioning of our brands?
Speaker #3: That will be helpful.
Speaker #2: So, Sonal, in general trade, we are doing reasonably okay. But overall, looking at the urban demand situation, there was some pressure. Excluding Pril and Fa, we are on the positive side.
Speaker #2: In general trade, as far as quick commerce and e-commerce, etc., are concerned, both these channels continue to be among our fastest-growing channels, as Jyothy mentioned in our opening.
Speaker #2: And they are becoming increasingly important for category development, consumer acquisition, and premium product adoption. While home care categories are not growing at the same pace as food and grocery on these platforms, as per our understanding, we continue to see healthy growth across our portfolio.
Speaker #2: On e-commerce and quick commerce, our focus is on channel-specific assortment, premium packs, better visibility, and improving consumer engagement. So this is what we are seeing on e-commerce and quick commerce.
Speaker #2: And we expect this to continue at a good pace in the coming quarters.
Speaker #3: Does it suggest double-ticking on this home care category for modern trade and quick commerce? Are there some product gaps? Are there some pricing gaps?
Speaker #3: Are there some glaring gaps which we're seeing in us vis-à-vis, let's say, some other brands which are doing better? In particular?
Speaker #2: Overall, our e-commerce and quick commerce are also growing in the range of 25 to 30 percent. So, broadly, I think we are present across formats and across SKUs.
Speaker #2: I do not see material gaps over there vis-à-vis competitors.
Speaker #3: Got it. All right. Thank you, and I'll fall back in the queue. Thank you.
Speaker #2: Thank you.
Speaker #1: Thank you. Next question is from the line of Ronak Shah from Equire Securities. Please go ahead.
Speaker #4: What opportunity? My first question is on the pipeline front, where management is aspiring for double-digit growth ex-Pril and Fa. So, if we see the second half, where the relative base is high, how is management seeing the growth trajectory that this part of the business is likely to exhibit going ahead?
Speaker #2: So, the growth aspirations that we have are across segments. Fabricare continues to deliver good growth for us, and given the strong product portfolio across formats and across channels, I think the growth momentum will continue.
Speaker #2: We do not see any material reason for growth to slow down unless there are some external events which are beyond our control. As far as personal care is concerned, we saw good growth in Q4.
Speaker #2: Of course, quarter one is likely subdued because of the pent-up demand, etc., and also substantial price increases that we have taken—10 percent. But slowly, I think quarter two onwards, even personal care will join the party.
Speaker #2: The dishwasher is something where we have launched EXO, so it will scale up. I think all three segments will perform reasonably well.
Speaker #2: And that gives us hope that we will deliver double-digit growth in FY27, especially in the second half of the year.
Speaker #4: Got it. Secondly, on the dish, sorry.
Speaker #1: Yes, please go ahead.
Speaker #4: Yeah. Secondly, on the dishwash front, wherein one of the largest players is also likely to introduce a dishwash product into a certain market, how are we confident in tackling that front?
Speaker #2: So, we will see at that point in time, Ronak. Right now, we'll see what we have to do, and more people are welcome to the party.
Speaker #4: Understood. Secondly, on the margin front, where we are highlighting that the larger part of the inflation is going to flow or the higher MRP inventory is likely to flow into the second quarter.
Speaker #4: So net-net, from the FY27 perspective, though we understand the geopolitical uncertainties are there, how is management aspiring to see operating margins play out from the near term to the mid-term?
Speaker #2: As I mentioned, our goal is to go back to the historical margin levels, of course subject to external conditions. But in the near term, as Jyothy mentioned in her remarks, our margin recovery is expected to be gradual rather than immediate in Q2 or Q3.
Speaker #2: The pace of improvement will depend on commodity trends, demand recovery, and the effectiveness of pricing actions. So that is how we are seeing, or we are anticipating, that H2 of the current year should be better than H1 on both growth and profitability metrics.
Speaker #4: So sir, from the pricing front, can we expect that Q2 can be a bottom-out story from the overall margin front, or can we see more pressure compared to the first quarter?
Speaker #2: See, again, given the volatility in crude prices—and crude is very important for us as an input material—a large portion of the margin recovery is linked to how crude behaves.
Speaker #2: Having said that, the sharp margin contraction witnessed in Q1 primarily is related to the impact of raw material inflation flowing through the P&L.
Speaker #2: While pricing actions are still catching up with input costs, commodity prices, although they remain volatile, have shown relatively encouraging recent trends in crude. That said, the benefit of lower crude prices typically reaches our cost base with a lag because of inventory and procurement cycles.
Speaker #2: So, can't tell you exactly that this is the bottom, but it is not going to be materially lower than what we have reported for Q1.
Speaker #2: And we are working towards improving the margins progressively.
Speaker #4: Understood. Understood. That's it from my side. Thank you, sir.
Speaker #2: Thank you.
Speaker #1: Thank you. Next question is from the line of Nitin Shaktir from Green Capital, Single Family Office. Please go ahead.
Speaker #4: Hi, good afternoon. This is Nitin Shaktir from Green Capital, Single Family Office. And also, I do note that it's been a tough quarter for the company, along with the licensing agreement also not being there.
Speaker #4: So I would still say congratulations to the management because you've paid almost ₹120–130 crore of extra cost of materials consumed. People don't realize that it's still been a good performance irrespective of that.
Speaker #4: My question is more in terms of whether this is an opportunity for the brand to look into territories where, as Jyothy rightly said, we could probably join some other people's party.
Speaker #4: Why can't we look into development of beauty and cosmetics, health and hygiene, oral care, baby care, pet care, hair care, and skin care? And what is the development on that from the company's front in terms of new product development?
Speaker #4: Just wanted to understand that.
Speaker #2: Hi, Nitin, and thank you very much for your appreciation. And on the question that you have asked, we are working on that front too.
Speaker #2: And probably you'll get to hear some good news in that area as well. Like we had mentioned, we won't sit quiet and be at the receiving end of what's happening.
Speaker #2: We will be creating more products, and more products that are better in terms of margin are well on the way. So that's what we are looking forward to.
Speaker #2: And we are ambitiously and progressively working on that, and our teams are really ready. Right now, I won't be able to tell you what, where, or when.
Speaker #2: But rest assured that we will also be joining others in their parties.
Speaker #4: Great, that's wonderful to hear, Jyothya. And one more thing I wanted to touch base on— is there a way or a strategy that, at some point in time over different quarters, we can look at certain products that are not so heavily dependent on petroleum, and new D2C consumer brands based on biodegradable, coconut-derived surfactants or plant-based ingredients?
Speaker #4: I do understand that's not a core business, but is there a way to try to control the external environment by changing the principles of ingredients somehow, in terms of research and development?
Speaker #2: Again, I think it looks like you kind of already know, and you're preempting already. We are also on that kind of a journey where, like I said, it's only a matter of time.
Speaker #2: We are not sitting here and going to just take things as they come. We, as a company and as a team, are working on all those parameters because it's a very big lesson learned.
Speaker #2: And we've paid a huge price for that. So yes, there are a lot of projects that we are working on, Nitin.
Speaker #4: Great, that's wonderful to hear that the management is cognizant of the market realities now. I wish you all the best, and I think we should move from a space of undervaluation to overvaluation soon on the stock price as well.
Speaker #4: Thank you.
Speaker #2: Thank you so much.
Speaker #1: Thank you. Next question is from the line of Lokesh Kumar G, an individual investor. Please go ahead.
Speaker #3: Yeah. Am I audible?
Speaker #2: Yes, you are.
Speaker #1: Yes, please proceed.
Speaker #3: Yeah, okay. Thank you so much for the opportunity. So, my first question—I mean, I have a follow-up question on the gross margin level.
Speaker #3: So, I know that you have explained in detail that it is a geopolitical lead and then inflation-led. So the primary question is that we are almost about 10% down on the gross margin level, from 48 to 38.
Speaker #3: So it indicates that we are due, as we are due to take about a 10% price hike on our product. So this seems to be very structural, because no other FMCG company—or generally, it happens only with a commodity type of business, not with an FMCG company.
Speaker #3: So, there seems to be some structural issue. Are we not having enough pricing power to increase our products by at least 5% to arrest the drop in gross margin?
Speaker #3: Is our product not competitive enough? How do you see this? Down the line, we were at about 18%, and now we are down to EBITDA of 8%.
Speaker #3: So, how do you see the next two to three years panning out? How likely or how confident—what is giving you the confidence—to go back to the 18% or 20% EBITDA margin, let's say, two years down the line?
Speaker #3: So, what is the broader strategy as a company? You have, on a long-term, steady-state basis, said we will not get into these kinds of situations again.
Speaker #3: So, even if commodity prices increase or decrease, we should ideally have the ability to increase our product price so that our EBITDA margin is not hit as much.
Speaker #3: So, can you explain all that?
Speaker #2: Thanks for the question.
Speaker #4: So, first of all, ours is not a commodity business. The input price increase which has impacted us is to the tune of 30 to 35 percent, which has never happened in the recent memory of the company.
Speaker #4: Ninety percent of our business is linked to crude oil prices, and crude oil has swung from around $60–$65 to upwards of $100.
Speaker #4: This kind of increase has never been witnessed by the industry. A combination of all these factors has caused a 9% impact out of that.
Speaker #4: If you see the raw material impact itself would be about 15, 16 percent. And we have taken some 3% price increase. And also 3, 4 percent efficiencies and mix and that is how the impact has been contained at 9, 9 and a half percent.
Speaker #4: Having said that, we understand that the heavy dependence on crude-linked material is a risk. Accordingly, we have been working on this for the last one and a half years.
Speaker #4: There is a lot of work which is happening in diversification and reducing the dependence on crude-linked raw material. And our innovation gives us scaling up of innovation, new products, etc.
Speaker #4: This gives us confidence that the margin recovery should happen once the raw material prices or crude oil cool off. So I do not see a major concern in terms of going back to the historical levels if the external environment calms down a little bit.
Speaker #3: Okay. Let's assume that the external environment remains the same for the next one year. So, I mean, do we have the ability to increase the price and then recover back to the margin?
Speaker #3: So that is the major question, because the external environment or crude prices don't seem to be softening at all, at least any time soon. So, in that kind of situation, what would be your reaction?
Speaker #2: So, Lokesh, the thing is, you calling it a commodity is completely wrong. We are a very good brand—a house of brands, in the sense that we have good market shares.
Speaker #2: And for your information, what behaves as commodities is competition. The moment we enter categories, and the moment we launch, there is competition that reduces prices.
Speaker #2: And that's where the commoditization happens. So to give you a proper—this thing is, in some of our recent launches, competition has taken the prices down.
Speaker #2: So it is up to you to kind of decide who is actually a commodity. Okay. Also, one thing to be noted is, when you keep increasing prices, you also need the consumer to buy your products.
Speaker #2: If everybody keeps increasing prices the way it is, the demand and consumption will also come down. So, it is a complex thing about all of these.
Speaker #2: Right? The moment JLL brings in or launches a competitive, a good product, there is enough big competition who brings down their prices. Okay.
Speaker #2: That is the biggest thing that you need to keep note of. So that's the long and short answer to your question.
Speaker #3: Okay, so ma'am, I completely understand your point. There should be some sort of calibrated price increases, right? Because every other company in the same space as we operate has at least maintained or been able to take a calibrated price hike and been able to protect the margin to some extent.
Speaker #3: So nobody else except Jyothy has taken this kind of hit. So that is the main thing. Yeah.
Speaker #2: Is that right? Yeah, yeah. You're right, because for us, 90% is home care, right? The companies that you're talking about have other categories as well.
Speaker #2: So, if you see, 90% of home care has a direct relation to crude prices, and hence, you see the difference, right? Like I've said in the past, we are on the journey of increasing personal care.
Speaker #2: And bringing in other products—also high-margin products. And you will see those changes in the future. But currently, as we are structured, we are into home care—90%.
Speaker #2: And that's why that has a direct impact. Now, when you talk about pricing, pricing is competitive. Most of our products are at par with the competition.
Speaker #2: So there is no dilution there, okay? So, I hope that answers. Yeah.
Speaker #3: Thanks. Thanks for the clarification. And Shalina, what is the net cash balance available now? Free cash balance available now?
Speaker #4: About 850 crore.
Speaker #3: Okay, all right. Thank you so much. That's it from my end.
Speaker #4: Thank you.
Speaker #1: Thank you. Next question is from the line of Darshit Vora from Asit C. Mehta Institutional Equities. Please go ahead.
Speaker #4: Yeah. Hello. Am I on?
Speaker #1: Yes, please go ahead.
Speaker #4: Yeah, thank you for the opportunity. I just wanted to follow up on what you said earlier—that the intrinsic of ours is a better product.
Speaker #4: So, I just wanted—I have two parts to this question. One is: how is it a better product when compared to the competition? And the second part is: how are we communicating this to the consumer?
Speaker #4: So, for example, GCPL has this R&F molecule that they worked on, and they're putting that through other differentiators. So, what kind of proposition do we have or are we working on to create a difference in the minds of the consumers that our product is better than the competition?
Speaker #2: Yeah, Darshit, why I said it's a better product is because we have a trusted molecule there, and it's a very stable molecule. Our lab results have shown that we are a much better product when we have compared with other products.
Speaker #2: So that is the... that's the, what do you say, confidence with which I said. And it is a perfume product. It is a government-approved product.
Speaker #2: And our incense sticks act in two minutes, immediately. So that is the confidence with which I said that ours is a better product.
Speaker #2: Yeah.
Speaker #4: And how are we communicating this to the consumer?
Speaker #2: Yeah. Communication will happen because as and when the product reaches everywhere, we will start our communication as well—different methods. But right now, it's too early to tell you.
Speaker #4: All right. All right. Thank you. That will be all.
Speaker #3: Thank you.
Speaker #1: Thank you. Ladies and gentlemen, we will take this as the last question for the day. On behalf of ICICI Securities, that concludes this conference.
