《Jyothy Laboratories’ Henkel acquisition pays off in 2 years》：
In 2011, when Jyothy Laboratories, which makes soaps, detergents, fabric whiteners and home insecticides, announced that it’s acquiring stake in loss-making HenkelIndia, its stock tanked almost 20%. Every equity research outfit thought it was a crazy thing to do and put a ‘Sell’ recommendation on it.
Henkel India’s revenues were Rs 400 crore and it was making a loss of Rs 600 crore, while Jyothy’s revenues were at Rs 600 crore and its profit after tax, Rs 74 core. “The whole world was negative about this acquisition except me and my chairman,” recalls Ullas Kamat, joint managing director of Jyothy Labs.
“Without looking at the company’s profit and loss statement, we asked ourselves if we could generate 14-15% operating margins on their products. The answer was yes. They had 7 strong brands which had survived for more than 25 years, but were just not managed well. Henkel India’s operating margins were at -4.4% then,” says Kamat.
Their optimism wasn’t misplaced, and in less than two years of acquisition, the company turned around Henkel India. “We realised that Henkel was spending too much on ads, and its sales were more geared towards urban India. At the same time, our strength was in rural areas. This all-India brand recognition made it easy for us to take Henkel’s products to the rural markets,” explains Kamat.
Moreover, Jyothy Labs trimmed Henkel’s staff strength to 50 from 475. Many of them retired voluntarily as they were expats and didn’t want to work for an Indian company. Jyothy also roped in Raghunandan S, current CEO of Jyothy and ex-Reckitt India head, and more than 200 people from big consumer companies, including HUL, Dabur, P&G, Cadbury, Marico and Paras.
“I give a lot of credit to Raghunandan for the turnaround,” says Kamat. “He helped us improve the entire working capital cycle. Our distributor margin is down to 6% from 8% earlier. He improved our procurement and saved on costs.”
All this helped the company achieve 8% efficiency, which means on a top line of Rs 1,200 crore, it saved almost Rs 100 crore. This helped it improve profitability and at the same time allowed high ad spends. In the last two years, it has almost doubled its ad spends from 5-6% of sales to 10% now.
The result is also reflected in numbers. In the first nine months of FY14, Jyothy’s sales were up 24% at Rs 925 crore, and profit after tax 139% at Rs 77 crore, year-on-year. The company’s stock has outperformed theBSE FMCG Index by 30% in the past six months. Going forward, Jyothy Labs is confident of delivering strong growth. “We will grow our top line by at least 25%, and bottom line by 35-40% over the next couple of years,” says Kamat, adding, “We are hungry to deliver.”
On Thursday, Jyothy Labs stocks slipped a tad to close at Rs 207.20 on BSE from its previous close of Rs 207.25.
Confident than ever before, the company is looking at more acquisitions. “We are already talking to a few regional companies and are comfortable with an acquisition of around Rs 500 crore. You can expect an announcement in the June quarter.” But this time, we won’t be diluting our equity – it will be mostly funded through internal accruals and debt, Kamat adds.
《Jyothy Laboratories’ Henkel acquisition pays off in 2 years》：
In 2011, when Jyothy Laboratories, which makes soaps, detergents, fabric whiteners and home insecticides, announced that it’s acquiring stake in loss-making HenkelIndia, its stock tanked almost 20%. Every equity research outfit thought it was a crazy thing to do and put a ‘Sell’ recommendation on it.
Henkel India’s revenues were Rs 400 crore and it was making a loss of Rs 600 crore, while Jyothy’s revenues were at Rs 600 crore and its profit after tax, Rs 74 core. “The whole world was negative about this acquisition except me and my chairman,” recalls Ullas Kamat, joint managing director of Jyothy Labs.
“Without looking at the company’s profit and loss statement, we asked ourselves if we could generate 14-15% operating margins on their products. The answer was yes. They had 7 strong brands which had survived for more than 25 years, but were just not managed well. Henkel India’s operating margins were at -4.4% then,” says Kamat.
Their optimism wasn’t misplaced, and in less than two years of acquisition, the company turned around Henkel India. “We realised that Henkel was spending too much on ads, and its sales were more geared towards urban India. At the same time, our strength was in rural areas. This all-India brand recognition made it easy for us to take Henkel’s products to the rural markets,” explains Kamat.
Moreover, Jyothy Labs trimmed Henkel’s staff strength to 50 from 475. Many of them retired voluntarily as they were expats and didn’t want to work for an Indian company. Jyothy also roped in Raghunandan S, current CEO of Jyothy and ex-Reckitt India head, and more than 200 people from big consumer companies, including HUL, Dabur, P&G, Cadbury, Marico and Paras.
“I give a lot of credit to Raghunandan for the turnaround,” says Kamat. “He helped us improve the entire working capital cycle. Our distributor margin is down to 6% from 8% earlier. He improved our procurement and saved on costs.”
All this helped the company achieve 8% efficiency, which means on a top line of Rs 1,200 crore, it saved almost Rs 100 crore. This helped it improve profitability and at the same time allowed high ad spends. In the last two years, it has almost doubled its ad spends from 5-6% of sales to 10% now.
The result is also reflected in numbers. In the first nine months of FY14, Jyothy’s sales were up 24% at Rs 925 crore, and profit after tax 139% at Rs 77 crore, year-on-year. The company’s stock has outperformed theBSE FMCG Index by 30% in the past six months. Going forward, Jyothy Labs is confident of delivering strong growth. “We will grow our top line by at least 25%, and bottom line by 35-40% over the next couple of years,” says Kamat, adding, “We are hungry to deliver.”
On Thursday, Jyothy Labs stocks slipped a tad to close at Rs 207.20 on BSE from its previous close of Rs 207.25.
Confident than ever before, the company is looking at more acquisitions. “We are already talking to a few regional companies and are comfortable with an acquisition of around Rs 500 crore. You can expect an announcement in the June quarter.” But this time, we won’t be diluting our equity – it will be mostly funded through internal accruals and debt, Kamat adds.