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Jyothy Labs: Jyothy Labs may hike prices again in select SKUs: Ullas Kamath

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We have taken a 3% hit on the gross margin. Over time, it will normalise. If not, then we are left with no option but to take another price hike in the second half of this year, says Ullas Kamath, Joint MD,

I want to start by asking about the current demand trends. Post the Second Covid Wave, is there a focus on smaller SKUs?
The June quarter has been very good for us. It showed 21.7% sales growth. There was Rs 525 crore of sales during the quarter ended June 30. Fabric care, which is 35% of our business has grown by 27.5%; dish wash which is 36% of our business has grown by 22%; household insecticides (15% of our business) has grown by 12.7% and personal care, which is 13% of our business has grown by 13.5%.

Overall, the quarter has done very well despite the Second Covid Wave, which disrupted our business here and there but overall we are in line with our expectations and we are happy with the way we have delivered the numbers. However, the cost of input of goods has gone up drastically for the entire industry we have been seeing it for the last two, three quarters now. We had to sacrifice about 3% of our gross margin and at the same we have increased our budget almost to double.

What is the outlook going forward on the raw material side and of course on margins? Are the levels sustainable?
The raw material pressure has been there for almost a year now and we thought that it will come down but it has not so far. But a little bit of softening has happened in the last week or two. For us, overall raw material costs are about 10% of our sales. Raw material prices have gone up, out of which we were able to take about 5%. We will be able to realise more by increasing the retail price in select schemes and at the same time reducing our trade promotion. Another 2% we got in operational efficiency because when you are growing at 20%, then naturally you get some scale advantage. So we took a 3% hit on the gross margin. Over time, it will normalise. If not, then we are left with no option but to take another price hike in the second half of this year.

You have already taken price hikes. Will you be able to take more price hikes without affecting demand?
If we take another 3% hike, we are back to our normal margin structure. Out of that, we have already taken over a percentage increase in July itself. For a consumer 1-2% does not matter. A Rs 100 product costs Rs 101 or Rs 102. Having said that, we will take a calibrated approach and only in select SKUs. We will not take it on all the SKUs and not on all the brands.

For example, on 30% of our products have smaller SKUs like Rs 5, Rs 10, Rs 20. There you can’t hike prices from Rs 5 to Rs 6 or Rs 10 to Rs 11. There we adjust a little bit in the grammage but otherwise most of the time we take the price hike in the bigger SKUs like Rs 100, Rs 200. Overall if we take about 3% price hike, our margins will be back to pre Covid levels.

The fabric care segment saw a very strong performance in the quarter gone by. Do you see that improving further or will it be at these levels and consolidate for the next few quarters?
27.5% growth in the quarter is definitely because the malls have opened and CSD canteens are operating fine. Ecommerce is doing extremely well and definitely we will be able to see good double digit growth in the coming quarters also. But this 27.5% is actually on a higher base because last year same time we did well in fabric care also. So to that extent, 27.5% growth every quarter may not be sustainable but a very good high double digit growth can be seen in the coming quarters and as we speak, the momentum is still very robust.

The HI segment has sustained a double digit growth despite a 2.5 times growth in the base quarter. Is this growth mainly because of seasonality or would you say that this is the new normal for this particular segment?
It is a combination of both. One is that people do not want to fall sick and allow mosquitoes to breed as that will lead to Malaria, Dengue and Chikungunya. People are taking a lot of preventive measures and to that extent, it is a new normal. Also, the season was very good last year as well as the current year. So we are able to get the momentum both from seasonality point of view and also in view of people using more coils and liquids.

The difference between the first wave and the second wave of the Covid-19 pandemic is that the second wave affected the rural segment much more. What are the trends you are picking up as far as rural demand is concerned?
We are seeing very good demand from the rural areas — much better than urban demand. This demand we have seen, from government investment in the rural sector from April 2020 post the lockdown and that momentum is continuing. As of now, rural is doing a shade better than urban growth.

Also 35% of our products are going in the smaller SKUs and this is primarily because of the demand from rural areas. New people are using our products and our market share is improving in all the brands. This should continue in the coming quarters as well because the government is committed to doubling the income of the farmers. If that happens, then consumption should be much more than what we are seeing presently.

You just said that the market share has improved across brands, could you quantify that for us?
Ujala is at an all time high at 82.6% and Exo has gained 1% market share to 12.5%; Pril has increased 17.4%. In Maxo, we are a strong number two in coils at 22.9% market share. So, all the brands have gained market share in the last quarters and that is heartening to note and added to the top line growth. That has helped us to believe the consumption story in India.

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