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 Kamle from ICICI Securities. Thank you, and over to you, sir.
Speaker #5: Thank you, Yusuf. Hi, it's an absolute pleasure for ICICI Securities to host the Q1 FY27 earnings call for Jyothy Labs. From the management, we have Ms. Jyothi, Chairperson and Managing Director.
Speaker #5: And Mr. Pawan Agarwal, CFO. I now hand over the call to Jyothinand for her opening remarks. Thank you, and over to you, ma'am.
Speaker #2: 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 on the stock exchanges.
Speaker #2: 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 #2: Higher household expenses, continued pressure on 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 #2: 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 #2: 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 #2: 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 #2: 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 #2: 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 #2: 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, any benefit from lower crude-linked inputs is likely to be visible only gradually, and more meaningfully from October.
Speaker #2: Provided commodity prices remain stable, margin recovery is therefore expected to be progressive and closely linked to top-line growth. That said, we believe the current margin pressure is largely transitory and near-term in nature.
Speaker #2: As commodity prices stabilize and volumes improve, operating leverage should support margin recovery over the coming quarters. For FY27, excluding the Quill business, we expect double-digit revenue growth.
Speaker #2: EBITDA margins are likely to remain under pressure during the year due to elevated crude-linked input costs, though H2 should be substantially better than H1.
Speaker #2: 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 #2: On channels, GT growth was muted, largely due to urban lower 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 #2: 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 #2: 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 #2: We will now report performance under three segments, which are Fabricare, Home Care, and Personal Care. Fabricare will continue to be reported separately, given its scale and strategic importance.
Speaker #2: 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 #2: 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.
Speaker #2: Across Henco, Ujala, Mr. White, and Moorlight, 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 31 May 2026.
Speaker #2: However, the newly launched bioenzyme-based Exo liquid has made encouraging progress, despite being at an early stage of scale-up 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 #2: In household insecticides, the extended summer and delayed rainfall affected category performance in Q1. We have launched the Maxo Instant Sticks in July, to address the growing concern around unsafe and unapproved local agarbatis.
Speaker #2: Maxo Instant 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 #2: 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 #2: 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 FAR, revenue grew by 8.1% in value terms and 5.3% in volume terms on a year-on-year basis.
Speaker #2: 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 #2: 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 #2: EBITDA margins stood at 8.4%, down about 820 basis points year-on-year, which is slowing through 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 #2: 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'll continue to follow a balanced pricing strategy while preserving affordability.
Speaker #2: 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 #2: 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 #2: 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 and 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 Suresh Deshmukh from IIFL Capital. Please go ahead.
Speaker #3: Hi, this is Percy Pankati here. My first question is: what is the total price increase that you have taken since the start of the war till now?
Speaker #2: So overall, about 4%, you can say 4 to 4.5%, out of that, 3% has flown through Quarter 1, and the remaining will be visible in Quarter 2.
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 among the peers?
Speaker #3: If we see HUL’s 5% price increase flowing in Q1, GCPL also has a 5% price increase flowing in Q1. Yet we are at 3%.
Speaker #3: So, can we not take more price increases?
Speaker #2: So, Percy, this is a result of some competitive action also, in certain SKUs. 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 that we are there, SKU to SKU level is matched with competition.
Speaker #3: Can you elaborate whether this competitive activity is more intense in dishwash or in detergent? And also, within these two segments, in which subsegment is it more prominent?
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 has 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, and that's why you would see that little bit of degrowth in that sense.
Speaker #2: But volume-wise, we have seen good growth. It's only from a value perspective.
Speaker #3: And also, Percy, if you look at it, when I said around 4 to 4.5% total, it's a blended increase. So, in segments such as personal care, the price increase is roughly 9 to 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 #3: I'm just trying to understand, this gap between the cost inflation versus the pricing taken, that gap is most in, is it in liquid detergents, is it in dishwash, is it in mass market powder detergents?
Speaker #3: Which part of the business do you see the unrecovered inflation impacting the most?
Speaker #2: You can see the segment margin, so you will be able to see it. Fabricare and Home Care, which is 90% of our business, 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 the future margin trajectory, assuming the crude price remains roughly where it is, do we see margins being suppressed until then, and only crude price deflation can result in a 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 or 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, but a large portion of that is linked to crude prices.
Speaker #2: 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 done reasonably well, as per expectations.
Speaker #2: So far, we’ll probably be able to give you more on this 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 business update call, you mentioned why you need a premium brand, and that in a market like India, there are few takers for a premium brand.
Speaker #4: So my question was, do you think that the entire game in India is about premiumization, and that each and every player is making premium products for the market?
Speaker #4: So just wanted your thought process on it. And the second part of the same question would be, looking at a product portfolio, Henco is the brand we can recall for in a premium category.
Speaker #4: So, the rest of the categories that we see are more premium products as compared to our core portfolio. In terms of new product developments, do we have any?
Speaker #4: 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's more from personal care or—you would see it largely in high-involvement categories.
Speaker #2: Whereas in home care categories, if you see or 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: 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 said 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.
Speaker #2: But is the 100% market moving towards premiumization? 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, Henko is the one which we can recall as a premium brand. And there are no...
Speaker #2: Yeah, continue.
Speaker #3: Yeah, yeah, yeah. So, in the premium category, yes, in all categories, if we see, there are no premium products like the Henco which we have, as compared to the competitors.
Speaker #3: So, like, in the new product developments, do we have any?
Speaker #2: See, currently, yes, you're right. In Henko, 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 that we have within that, from a premium SKU versus the lower unit pack.
Speaker #2: So in every product where there are 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 at lower than the powders in terms of now in terms of pricing and both in terms of margin, be it even a premium liquid.
Speaker #2: So, 'premium' always depends on a certain context—that's what you need to understand.
Speaker #3: Okay. And a 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, like, 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 do that, and what are those things that Jyothy is doing differently than the competition?
Speaker #3: Although, like, the competitors have stronger balance sheets—strength—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 advance payment basis. A significant portion of our general trade business is on an advance payment basis.
Speaker #4: Even with modern trade, e-commerce, and quick commerce, the payment terms—whatever payment terms we have agreed 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, a last question is about the royalty payments which you were 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 oil-fill customers to the, like, 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 the line item saving and its application.
Speaker #4: So, of course, the overall cost-saving initiatives are going on in the company, and we are investing behind innovation and product development. All these things are happening in parallel.
Speaker #3: Okay, thank you. Thank you. Next question is from the line of Vishal Gutka from ASK Investment Managers. Please go ahead.
Speaker #4: Yeah. Hi, team. I have a couple of questions from my side. My first question is on the Pril and EXO brands. Pril is not to be seen in the market.
Speaker #4: So, as per the terms of the agreement, there is a pooling 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 their ETF says, what do you call, some pooling of period is there. Second question is on the internships that you launched in, I think, southern part of the country.
Speaker #4: So, what's happening on the broader front for pricing? What is the broader strategy you are targeting over there on the internships on the mosquito side?
Speaker #4: And the third question was on the M&A front. I think we have decent cash. We have been evaluating opportunities. Recently, one of the deals got done where I think TTK 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 evaluate the deal, and what was the constraint from our side in case we did evaluate the deal?
Speaker #4: And overall perspective on M&A. Thank you.
Speaker #2: So your first question, Vishal, on Pril pull-off, etc. So, as Henkel decided to recall the brand, 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, as far as Jyothy, I would like to address Max over to the team.
Speaker #2: Yeah. So Vishal, on Maxo, we have priced as per competition, and I think we are the second organized player in this category. And as you and all know, this market has been growing.
Speaker #2: And yes, we are the last ones to come in. But I think we've come with an even stronger product. And consumers will gain in the end of the day.
Speaker #2: So we have a very good winning product with us, and we hope to create— the absence of incense sticks was also kind of affecting us in a way.
Speaker #2: And the product has come in at the right time and is priced at par with the competition. So, that is on Maxo. On M&A, on the specific point that you...
Speaker #4: Raised about 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 #3: Okay. So they have just sold two brands. That is Good Home and Eva. I don't know what are the proposed earlier, but what they have sold is they have sold two brands to Wipro.
Speaker #3: So, 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 at them 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. And now Pril has been out of the system. By when should we expect the double-digit revenue growth to come in? Definitely, there is some amount of pricing which you have taken.
Speaker #4: But 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: 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 there as well.
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 FAA, we expect double-digit growth.
Speaker #4: Okay, okay. But if I have to include Pril and FAA, then the revenue reported number will be far lower, right? It would be, what do you call, around...
Speaker #2: Yes. Yes.
Speaker #4: Okay, okay. Great. Vishal, all the best to you. Thank you.
Speaker #2: Thanks, Vishal.
Speaker #4: Yeah.
Speaker #3: Thank you. Next question is from the line of Sonal from Present Capital. Please go ahead.
Speaker #5: Hi, this is Sonal Minas. I hope I'm audible.
Speaker #3: Yes, please go ahead.
Speaker #5: Yes, go ahead. Sure. Thanks for taking my question. I wanted to understand some bit of context regarding your growth across the channels, specifically modern trade, quick commerce, and general trade.
Speaker #5: 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 the competitive positioning of our brands?
Speaker #5: That would 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 FAA, 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.
Speaker #2: We continue to see healthy growth across our portfolio on e-commerce and quick commerce, and our focus is on channel-specific assortment, premium packs, better visibility, and improving consumer engagement.
Speaker #2: So, this is what we are seeing on e-commerce and quick commerce, and we expect this to continue at a good pace in the coming quarters.
Speaker #5: Got it. So, this double ticking on this Home Care category for modern trade and quick commerce—are there some product gaps? Are there some pricing gaps?
Speaker #5: Are there some glaring gaps which we're seeing, vis-à-vis, let's say, some other brands which are doing better? In particular?
Speaker #2: Overall, our e-commerce, quick commerce, we are also growing in the range of 25% to 30%. So broadly, I think we are present across formats, across SKUs.
Speaker #2: I do not see material gaps over there with respect to our competitors.
Speaker #5: Got it. All right. Thank you. I'll fall back a little bit. Thank you.
Speaker #2: Thank you.
Speaker #3: 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, wherein management is aspiring for double-digit growth ex-Pril and FAA. So, if we see the second half, wherein the relative base is high, how is management seeing the growth trajectory for that part of the business? Is it likely to accelerate ahead?
Speaker #2: So the growth aspirations that we have are across segments. Fabric care 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. So, I think all the 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 dishwasher—sorry.
Speaker #3: 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, that 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, we are highlighting that a 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 crude, how crude behaves.
Speaker #2: Having said that, the sharp margin contraction witnessed in Q1 is primarily 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 remaining 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 the inventory and procurement cycle.
Speaker #2: So, I 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 #3: Thank you. The next question is from the line of Nithin Shaktir from Green Capital Single Family Office. Please go ahead.
Speaker #5: Hi, good afternoon. This is Nithin Shaktir from the Green Capital Single Family Office. I also note that it's been a tough quarter for the company, along with the licensing agreement also not being there.
Speaker #5: So I would still say congratulations to the management because you've paid almost ₹120–130 crore of extra cost of materials consumed. So people don't realize that it's still been a good performance irrespective of that.
Speaker #5: My question is more in terms of whether this is an opportunity for the brand to look into territories where, probably, we could join some other people's party, as Jyothy rightly said.
Speaker #5: Why can't we look into the development of beauty and cosmetics, health and hygiene, oral care, baby care, pet care, hair care, and skin care? And what is the progress on that from the company's front in terms of new product development?
Speaker #5: Just wanted to understand that.
Speaker #2: Hi, Nithin, and thank you very much for your appreciation. 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 quietly 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 as well, are on the way. So that's what we are looking forward to.
Speaker #2: And we are ambitiously and progressively working on that. 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'll be joining others also in their parties.
Speaker #5: Great, that's wonderful to hear, Jyothy ma'am. One more thing I wanted to touch base upon: Is there a way or a strategy that, at some point in time over different quarters, we can look at certain products which are not so heavily dependent on petroleum and crude oil derivative chemicals? Some of the new D2C consumer brands are working on biodegradable, coconut-derived surfactants and plant-based options.
Speaker #5: 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 you it looks like you kind of already know and you're preempting already. We are also on that kind of a journey where we like I said, we won't 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, Nithin.
Speaker #5: Great. That's wonderful to hear that the management is cognizant of the market realities now, and I wish you all the best. I think we should go from a space of undervaluation to overvaluation soon on the stock price as well.
Speaker #5: Thank you.
Speaker #2: Thank you so much.
Speaker #3: Thank you. Next question is from the line of Lokesh Kumar G, an individual investor. Please go ahead.
Speaker #4: Yeah. Am I audible?
Speaker #2: Yes, you are.
Speaker #3: Yes, please proceed.
Speaker #4: 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 #4: So, I know that you have explained it in detail—that it is a geopolitical-led and then inflation-led issue. So, the primary question is that we are almost about 10% down on the gross margin level, from 48% to 38%.
Speaker #4: So it indicates that we are due—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, it generally happens only with a commodity type of business, not to an FMCG company.
Speaker #4: So there seems to be some structural issue. Are we not having enough pricing power to increase our products by at least 5% to address our dropping gross margin?
Speaker #4: Is our product not competitive enough? How do you see this? Previously, we were about 18%, and now we're down to EBITDA of 8%.
Speaker #4: So, how do you see the next two to three years panning out? How likely or how confident are you, and 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 #4: So, what is the broader strategy, as the company, you have—if you have—on a long-term, steady-state basis? We will not get into these kind of situations again.
Speaker #4: So, even though 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 #4: So, can you explain all of that?
Speaker #2: Thanks for the question. 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 #2: About 90% of our business is linked to crude oil prices, and crude oil has swung from, whatever, $60–$65 to upwards of $100.
Speaker #2: 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 #2: 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 #2: Having said that, we understand that the heavy dependence on crude-linked material is a risk. Accordingly, we have been working on it for the last one and a half years.
Speaker #2: There is a lot of work happening in diversification and reducing the dependence on crude-linked raw materials. Our innovation enables us to scale up new products, and so on.
Speaker #2: This gives us confidence that the margin recovery should happen once 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.
Speaker #2: If the external environment calms down a little bit.
Speaker #4: 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 #4: So that is a major question because the external environment or crude prices don't seem to be, I mean, softening at all. 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. And also, one thing to be noted is, when you keep increasing prices, you also need the consumers to buy your products.
Speaker #2: If everybody keeps increasing prices the way it is, the demand and the consumption will also come down. So it is a complex thing about all of these.
Speaker #2: The moment JLL brings in or launches a competitive, a good product, there is enough big competition who bring down their prices. Okay. That is the biggest thing that you need to keep a note on.
Speaker #2: So that's the long and short answer to your question.
Speaker #4: 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 us, where we operate, have at least maintained or been able to take a calibrated price hike and have been able to protect the margin to some extent.
Speaker #4: So nobody else except Jyothy has taken this kind of hit. So that is the main, yeah.
Speaker #2: 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. So if you see, 90% home care has a direct relation to crude prices.
Speaker #2: And hence, you see the difference, right? So, and like I've said in the past, we are on the journey of increasing personal care and bringing in other products also—high-margin products also.
Speaker #2: And you will see those changes in the future. But currently, as we are structured, we are into home care 90%, and that’s why that has a direct impact.
Speaker #2: Now, when you talk about pricing, pricing is competitive. Most of our products are at par with the competition, so there is no dilution there.
Speaker #2: Okay, so I hope that answers. Yeah.
Speaker #4: Thanks. Thanks for the clarification. And may I know what is the net cash balance available now? Free cash balance available now?
Speaker #2: About 850 crore.
Speaker #4: Okay. All right. Thank you so much. That's it from my end.
Speaker #2: Thank you.
Speaker #1: Thank you. Next question is from the line of Darshit Vora from Assetsee Mehta Institutional Equities. Please go ahead.
Speaker #3: Yeah. Hello. Am I on?
Speaker #1: Yes. Please go ahead.
Speaker #3: 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 #3: So I just wanted— I have two parts to discuss. 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 consumers?
Speaker #3: So, for example, GCBL 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 have a much better product when we have compared it to other products.
Speaker #2: So that is—that's the, what do you say, confidence with which I said it. And it is a perfume product. It is a government-approved product.
Speaker #2: And our incense sticks accent two minutes immediately. So that is the confidence with which I said that ours is a better product.
Speaker #2: Yeah.
Speaker #3: 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—using different methods. But right now, it's too early to tell you.
Speaker #3: All right. All right. Thank you. That will be all.
Speaker #4: 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.
