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(^) Outlook BUSINESS / (^) 22 December 2017
tributed to the logistics costs incurred owing to its
single manufacturing unit at Puducherry. Secondly,
for a brand to be successful, one has to relate to the
regional community and culture, have ears to the
ground and decision making needs to be quick. Hen-
kel’s bosses made the cardinal mistake of centralising
decision making in Germany for the Indian business,
resulting in a huge communication and cultural gap
with the target consumers as well as their own em-
ployees at the ground level.
The passion, agility and responsiveness of JLL re-
sulted in a turnaround for the Henkel brand basket
within fi ve years, which the German major could not
do in 20 years. JLL, which had one powerful brand
‘Ujala’, successfully nurtured fi ve more power brands,
Henko, Pril and Margo, which it took over from Hen-
ko, as well as its own in-house brands, Maxo and Exo.
JLL’s topline grew manifold by around 2. 7 x (from

626 crore in FY 11 to # 1 , 682 crore in FY 17 ) over the

past six years with bottomline outpacing it with 3. 1 x
growth. Currently, the brand basket is growing close
to 10 % annually, but specifi c brands have had a spec-
tacular run, of late. Margo, a neem-based soap brand
launched by the erstwhile Calcutta Chemicals in
1920 , has been resurrected with a stupendous growth
of 58 % in the latest quarter. Another product, which
may witness a similar revival, is Neem Toothpaste.
This also proves that Patanjali’s aggression has had a
positive rub-off on competitors having similar prod-
ucts in the herbal arena.
JLL spends around 9 % of its revenue on advertising
and sales promotion, in line with the FMCG giants.
Every new campaign has had an incremental eff ect –
a recent campaign on Ujala IDD Detergent helped it
grow by 20 %. A new campaign is now planned for the
fl agship product Ujala Supreme in the current quar-
ter which should provide a fresh impetus.
NOTHING TO LOSE, MORE TO GAIN
Coming to the question of Henko refusal’s to exer-
cise the option to buy into JLL, or was it the refusal
of JLL management to bend backwards for the inter-
national giant? Whatever be the case it has probably
disappointed opportunistic investors who were await-
ing for an open off er, but I wonder why it should de-
ter a long-term value investor? With the deal, Hen-
kel would have brought in the benefi ts of research
& development, and technology but in the bargain
it may have shackled the Indian management, thus
destroying the ethos on which its success was built
upon. JLL today is free to pursue other partnerships
as well to buy out brands. Meanwhile, it continues
to pursue a non-exclusive partnership with Henkel,
which, on the other hand, doesn’t have much of a
choice in the Indian market, but for continuing with
its licensing arrangement with JLL – a “once bitten
twice shy” syndrome.
Now, I expect JLL, with the experience of resurrect-
ing Henkel brands and the consequent confi dence in
repeating such success stories, will aggressively try
to expand its product portfolio to further improve
the effi ciency of its distribution network. The balance
sheet, too, can support such a move especially with
healthy operating cash fl ow. The cash fl ow from oper-
ating activities, as of FY 17 , stood at # 163 crore.
Coming to the recent fi nancial performance, simi-
lar to other FMCG players, JLL, too, was impacted by
an inventory scale-down before GST and the restock-
ing commenced during the latest quarter. Canteen
stores department sales, which too were disrupted,
is now slowly getting back on track. Despite these
constraints, JLL displayed a strong performance in
the recent quarter. Its net profi t rose 47 % YoY to # 429
crore, while operating margin improved 195 basis
points to 16. 5 %. The only negative aspect is the tax
breaks the company enjoys which may cease to pro-
vide much cushion in future. At current levels, the
stock quotes at 29 x estimated FY 19 earnings, which
may be surpassed with a new found aggression, post-
Henkel’s pullback. Given JLL’s operating margin of
over 16 %, a generous dividend payout ratio, and the
fact that FMCG sector is expected to grow at 15 %
CAGR, I would recommend adding Jyothy Labs to
your portfolio. b
The author has an interest in the stock and has
also recommended it to his clients
CY17 RETURN 14%
net profit# 204 cr
ttm p/e (x) 34
roce 16%