Jyothy Labs has quite carried out indiscretions that few companies deep South are known to carry out. First, an entry into commercial laundry was an unthinkable decision to finance which the company came out with a QIP at Rs 275 per share last December. Second, they went ahead and acquired loss making Henkel at Rs 40 per share in the process acquired debt of Rs 460 crore. Third, this Rs 460 crore has been raised through 90 day commercial paper putting the company under immense financial duress of revolving this money every quarter. That is borrowing short to Buy long. Fourthyl, this borrowing 4600 Bonds of Rs 10,00,000 each will cost Rs 46 crore per annum to Jyothy Labs converting marginal FH12 profits to zero by middle of FY13. Finally, the added marketing costs of pushing it's own and Henkel's brands in India and the story is a total disaster. Or so it seems.
After its merger with Henkel, Jyothy Labs has been losing money on its key brands like Ujala and Maxo. It now has the onus of bringing these brands on track before it shifts focus to the newly-acquired Henkel brands by next year.
"We have to make money on brands like Maxo and Ujala. Raw material costs have affected the profitability of these brands. We have decided to hike ad spends behind these brands and have also increased retail prices by 7 per cent in the past quarter,'' said Mr Ulhas Kamath, Deputy Managing Director, Jyothy Labs.
In fact, there has been de-growth in net sales in the fabric care category at 7 per cent with brands like Ujala Whitener, Ujala Stiff Shine and Ujala TechnoBright. In the mosquito repellent category (Maxo brand) too there has only been marginal growth in net sales, at 5 per cent.
Apart from effecting price increases, hiking ad spends is being seen as a way to achieve profitability. "The management has taken a decision to increase ad spends behind these brands. It is imperative that we should spend money behind brand building," Mr Kamath pointed out. Last season, Maxo spent Rs 4 crore exclusively on co-promoting the Salman Khan blockbuster Bodyguard. "All this time, Jyothy has been depending heavily on the Maxo brand to get top line growth. But now we want it to make money as well. The campaign with the movie Bodyguard has worked well and the investments behind this association has paid off. We expect Maxo to become profitable by March 2012," he said. Besides, extending the Maxo brand beyond coils into the vaporisers and aerosols categories has also helped improve the margins for the brand.
As for the flagship brand Ujala, the association with Sachin Tendulkar as the brand ambassador for Ujala TechnoBright is expected to pay off as the contract will extend up to March 2012. "Since Ujala is our mother brand, we expect this brand association to rub off on the entire brand franchise," Mr Kamath said.
Last quarter Jyothy Labs' ad spend was Rs 3.6 crore for Exo, Rs 3.81 crore for Ujala and Rs 5.29 crore for Maxo.
Jyothy Labs will start rejuvenating the Henkel franchise next year (Jan 2012) for seven brands, such as Henko, Pril, Fa and Mr White. "We will also effect retail price increases when we re-launch the Henkel brands next year and have called for ad pitches. Currently, the ad expenditure is about 5-6 per cent of our sales but we may increase it to 16 per cent going forward," Mr Kamath said..
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