40% of your sales are from the rural market. How has the slowdown impacted your business?
Urban market which is 60% of our business is doing extremely well. Rural market is not doing as much as we expected, it is probably a shade lower than the urban growth that we are witnessing.
How come there is more stress in the rural market?
40% of our business comes from rural India and if I say that urban for us is growing at about 10-11% and rural at about 6-7% and growth, then obviously rural market is not growing as much as urban market. that is what I am trying to explain. Some of the rural market in the south and east have recovered very fast. North east is doing extremely well, but having said that north, west and some part of centre rural market are yet to recover.
Your peers have seen some recovery in H1 but you continue to be under pressure. What are the critical factors at play and how is this impacting growth?
In the first half (H1), we have grown almost 8% in volume terms. Last quarter, it was at 9% and we hope that the second half should be more or less in line with last quarter. But in some of the places with extreme rains and floods like Bihar, part of the UP and part of Bengal, the offtake is not as much. Also, the festive season has done very well for the urban market, but not so well in some of the pockets of rural India. In northern India, because of pollution related issues, there is some kind of resistance in the market. But these are things in the past. Hopefully, we should recover in the coming months. I am confident the second half of 2019-2020 will be far better than the first half.
You are saying that because of pollution there is problem in the rural market. How does that add up?
The sentiments are bad and we cannot push our sales people to be in a marketplace for 8 to 10 hours in this kind of polluted air. We are telling them to take care of their health and to that extent, it does affect us. We are asking our sales boys to take care of their health first.
"Jyothi Labs growth has been 2-3 percentage points higher than the industry. Our CAGR for the last 10 years is around 12%. Only the expectations out of our company is definitely much more than what we are delivering."
I cannot say it is a jackpot but according to Nielsen reports, this spurious agarbatti business has been there in the last three years and in 2018, it was a Rs 720-crore business. Now the Government of India has restricted the import of illegal incense sticks from August 5. At this point, if somebody wants to import it, they will need to take permission. From August 5th onwards, we do not see any import of such illegal pesticides-laced incense sticks. There will be 4-5 of us organised players in this Rs 720-crore business.
In the third quarter, what kind of market share of this Rs 720-crore pie, do you hope to garner?
This season, they will likely have some pipeline stocks and we are not expecting much in the current quarter, but in the March quarter, we should be able to get at least 5-10% of this business and following year (April 2020 to March 2021), we expect to have 20% market share in coils. If we work harder, probably, we will be able to get a little more than that.
There was a promoter stake sale to a clutch of mutual funds. Is anything on the promoters side still left for unwinding? How exactly are promoters looking to completely reduce their debt?
I think 5% of the company’s stake is still under pledge for the promoters. Before March, I want the promoters to be completely debt free. A transition is happening and new leadership is coming in. The promoter who had started the business by investing Rs 5,000 in 1984 is stepping down. We want him to be debt-free in all respects. The entire money from pledged shares had gone into the company. So, it has given him sufficient wealth creation for that investment and by March 31,st he should be debt free in all respects
What will be the promoter holding finally then?
Post that, it will be 63.5%.
And you intend to keep it that way or would the promoter again take it back to 75%?
We cannot say that but at this point in time, the intent is to attain debt-free status by 31st of March and post that, it will depend on the business conditions. Any promoter would be interested in going back to 75% holding but that is their call.
You have good brands, which you have managed to build against the global giants. your base is not large but why is your growth not substantially higher despite a low base? I have spoken to analysts and shareholders and they are saying Jyothy Labs is a great company but the growth is not there? How would you defend this?
Our growth has been 2-3 percentage points higher than the industry. Our CAGR for the last 10 years is around 12%. Only the expectations out of our company is definitely much more than what we are delivering. We are working towards that and in fact in the beginning of the year, we felt that we need to invest in a couple of more percentage points, but then this slowdown affected us a little bit. During a slowdown period, whatever money you spend on advertisement, may not get that much yield as we want it to. We felt that we will defer it for some more time. Having said that we are aware of this fact and we are at a lower base. Other than Ujala and Margo, rest of the products are at a small base with a 10-15% market share. We will work hard to get that in the coming years for sure.
Once this debt is behind us by 31st of March 2020, Jyothy Labs and the promoters will be debt-free. I think you will see the new life coming in in a big way in the coming years. And at the same time if this slowdown is also behind us in the next year. All the more, we will put up effort towards that direction.
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