Stock Analysis, IPO, Mutual Funds, Bonds & More

There is a feel-good factor post GST: Ullas Kamath, Jyothy Laboratories

It is far,far better now for FMCG in the post GST era, says the Jt MD of Jyothy Laboratories.

ET Now|
Jan 01, 2018, 12.12 PM IST
K Ullas Kamath, Joint MD, Jyothy Lab
In the entire rural market and villages with up to 10,000 population, we have put our distributors; vehicles and they are reaching the market directly
In an interview with ET Now, Ullas Kamath, Jt MD, Jyothy Laboratories, says the sales are doing well and after a long time, they are seeing the double digit growth.

Edited excerpts:

You were amongst the first companies to flag off that the demand concerns are going away and threads of recovery are visible in the rural market. Why are you sounding optimistic about the rural recovery?
The fact that the sales are doing well and after a long time, we are seeing the double digit growth. This is post GST and especially from end September and early October we are able to see that growth. While wholesale was an initial hiccup for everybody, we were able to recover from there also. Some pockets here and there will always have teething problems but we can manage that. This is the same thing we had in demonetisation period also but it is far,far better now for FMCG in the post GST era.

Wholesales have played a huge role for old brands like Ujala which was one of the reasons that Ujala Supreme saw a huge decline as well in the second quarter. Are you looking to decrease your dependence on wholesale going forward?
Yes absolutely because what we have done is in the entire rural market and villages with up to 10,000 population, we have put our distributors; vehicles and they are reaching the market directly. One cannot wait indefinitely for wholesale to comeback and that is one of the reasons why we are able to get our sales back and also wholesalers were watching how things are turning. Now they know that it is not as difficult as they used to think in the past and that has also helped us.

An emerging business model has come in into the wholesale markets. Some youngsters have come into the market place and are doing like much, much better than what we initially thought especially in north and eastern markets. It is back to normal now almost.

How much of the demand do you think could be pure GST adjustment? As of now, it may look like demand but this could be just restocking?
No restocking cannot happen over a period of four to five months because in FMCG, most of the times wholesalers do not keep more than a week’s stock at a time and maximum maybe 15 days. Distributors will keep about a week or ten days’ stocks because that is the way how the FMCG always works. Also, it is a cash and carry and there is no credit. I would think that probably about 2-3% could be restocking but otherwise 8% to 10% of the volume is real growth what we are seeing in the market place.

Will demand sustain or is it largely because of lower prices that demand is coming back?
If you look at the last five-six years, FMCGs always used to be GDP plus 5-6% by volume. In the last three-four years, that was not the case be but now it is becoming more normal and GDP plus 4-5% should be the volume growth and also the GST benefit what we have passed on to the market whether it is the retailer, the wholesaler or the distributor.

Everybody is happy about it and one of the reason why volumes are growing is because of passing of the benefit to the consumer and the reduction of the prices has made people think that is good for the consumer and that was the intent of the government and it has also paid off in getting the volumes back.

And what about the CSD channel, have things normalised there completely?
Not completely but they started procuring the goods not in the way in which they used to do in the past but slowly they are getting back to normal.

You were confident of achieving that 14% to 15% revenue growth in the third quarter. What are the factors that have made you so confident about achieving these growth numbers?
All the brands are doing well and our distribution is in place and we have always worked very hard to reach remotest of the villages in the country and that is paying off very well and generally there is a feel-good factor post GST. First, there was panic for about three-four months and thereafter the feel good factor was there. Some of the emerging business models we are able to see it now and wholesales are consolidating and buying in large quantity and they are then redistributing and all these things are good for the FMCG sector and we are happy about it. I am confident because it is not just a month or two, we are being seeing this uptrend for the last four-five months.

We understand that the Henkel deal date has now lapsed. Is there any possibility of a future collaboration or is it complete curtains down on that deal?
Absolutely. I cannot say it is completely curtain down because in business everything is possible for mutual benefit. We are always open and that option agreement is behind us and that gives us an opportunity to explore any other possibilities the market plays. At the same time, we have been having great relationship with them for the last six-seven years now. They are extremely happy and we are continuing with their brands Pril and Fa on royalty basis. That relationship is still there. We are fine as long as it is mutually beneficial for both the organisations. So, it is not completely called off but option agreement is behind us now.

Also Read

Jyothy Labs expects to be debt free by March 2021: Ullas Kamath

Jyothy Labs H2 will be far better than H1: Ullas Kamath

We are growing in double-digits since last six months: Ullas Kamath, Jyothi Labs

Our internal growth target is 10%-12%: Ullas Kamath, Jyothy Laboratories

Add Your Comments
Commenting feature is disabled in your country/region.

Other useful Links

Copyright © 2020 Bennett, Coleman & Co. Ltd. All rights reserved. For reprint rights: Times Syndication Service