>JYOTHY LABORATORIES LIMITED: Perfect Synergies between Jyothy Lab and Henkel India

Jyothy Lab is among the few companies in the FMCG space which has immense potential for long-term profitability growth. Post Henkel India acquisition Jyothy Lab’ dependence on ‘Ujala Supreme’ will reduce substantially and the management will have numerous options to drive its business growth. 


■ Henkel India strengthened Jyothy Lab’ positioning in the FMCG space 
Jyothy Lab was having only 3 brands and was largely absent in many FMCG segments (primarily in premium segment). Most of Henkel’s brands (7 in total) are positioned at the premium end and provide an entry point into the main stream FMCG home care segment. The acquisition fulfils Jyothy Lab's primary aim of de-risking its portfolio, which relies in a big way on a single brand, Ujala Supreme fabric whitener, which contributes ~32% to its turnover. 


■ Perfect Synergies between Jyothy Lab and Henkel India
 In the last few years, Jyothy Lab has tried diversifying into detergents, dishwash and mosquito repellents, but competition in these categories has made the going tough. With a product portfolio close to its own, Henkel India fits perfectly with Jyothy Lab's ambitious growth plans. Jyothy Lab also intends to bring down manufacturing costs by using the respective distribution strengths of both the companies. 


■ Well diversified Distribution reach Jyothy Lab expanded product portfolio would benefit the company by providing balanced presence in rural and urban areas, as its ratio of rural and urban presence is 75:25 and that of Henkel India is 30:70. The combined portfolio would be positive as it will create perfect synergies. Jyothy Lab’ strong rural presence and Henkel India’ strong urban distribution reach will complement each other in the combined entity. 


■ Turnaround strategy in place for Henkel India 
The turnaround strategy of Henkel India has resulted margin improvement during 3QFY12. A 5% increase in product prices, and a sharp drop in advertising and promotion spends were two key reasons for the improvement in sales and profitability.


■ Brand specific initiatives in place for Henkel products Henko 
Champion will be repositioned as a premium brand without any freebies. A 10-20% price hike for Henko is also on the agenda to increase profits. Priority will be Henko Champion and Mr White which are the largest contributors to Henkel's business. Jyothy Fabricare Services Ltd – good prospects for organised laundry business in India 


■ Jyothy Fabricare Services Ltd. (JFSL) – a 75% subsidiary - entered organized laundry business in the year 2009. JFSL caters to 2 broad categories – Institutional and Retail. Under Institutional category the company currently services ~65 clients that include hotels, serviced apartments, hostels and airlines. Currently, the biggest chunk of JFSL’ laundry business continues to come from Bangalore, followed by Delhi and Mumbai. The gross margin for JFSL’ laundry business currently stood at ~68%; however JSFL continues to record losses and management expects to turn it profitable by FY14E.


RISH TRADER