Conference Call with Jyothy Labs Management and Analysts on Q4FY20 and Full Year Earnings Performance and Outlook. Listen to the full earnings transcript.
Call Participants: Ms. M. R. Jyothy - Managing Director, Mr. Ullas Kamath - Joint Managing Director, Mr. Sanjay Agarwal - Chief Financial Officer
Introductory remarks from Sanjay Agarwal
Good evening everyone! Before we talk about the results and the grand performance for the quarter gone by, let me first briefly update you on the current business scenario. Till March 2020 for the preceding quarter, the economy was facing a slowdown in which urban growth for the FMCG industry was stable while the rural growth was weak or declining. In addition to this, we all got impacted by the sudden nationwide lockdown due to the onset of global pandemic Covid-19.
Before March 20, 2020, we saw disruption of operations which brought all our factory and sales operations to a standstill. Since the majority of our product portfolio comprises essential goods, it is a strong rise to win for us. Although, categories in which we operate, detergents, dishwash, household insecticide and soaps are used in daily household consumptions.
Hence, since mid-April when restrictions were partially lifted, we resumed our operations and with the resilience and agility of our sales staff, who despite all constraints delivered a positive growth in April and May 2020. So, as we stand today, our manufacturing operations are back to 80% of the pre-Covid production levels. All state depo are open, the general trade business barring a few containment zones are coming back to normal. There are some canteen store departments and modern trade stores which are not fully operational yet; we expect them to normalise soon.
During this Covid-19 phase, we have been quite agile in terms of product launches and distribution strategy. Quickly recognizing and acknowledging the demand of the consumers and the need of the hour, we launched ‘margo hand sanitizer’ which is infused with neem extracts and it saw an immediate surge in demand.
Keeping in mind the safety of our salesforce and enhancing the speed of orders and delivery, we also launched a mobile application ‘DISTIMAN’ which facilitated direct orders from retailers to distributors. Also, to supplement and boost our direct reach to consumers, we partnered with alternate distribution companies like Udaan and last mile delivery partners like Dunzo, Zomato and Swiggy. During this lockdown phase, we have done focus media activities specially on Exo and Maxo when the honourable Prime Minister addressed the nation and also during the telecast of Ramayan and Mahabharat on Doordarshan.
Given the challenges, we immediately redesigned our short term priority for the business in three key areas. The first one being product portfolio - We decided to leverage our core essential household brands like Ujala, Exo, Pril, Henko, Margo and Maxo which constitute 85-90% of our product portfolio.
More focus was given to the middle class India at rural markets as there are fewer disruptions than urban India. Second is consumer trends - we are seeing an increased demand for low unit tax of Rs 5 and Rs 10 across all brands. Hence, we have ramped up our manufacturing and distribution for these.
As you all know, there is also an escalated importance on safety, health and hygiene so we have renewed our focus on essential hygiene portfolios. Third is distribution - bearing in mind the stress of the economy, we are strictly adhering to the business hygiene by ensuring no additional credit and focussing on secondary sales. As you all know, this is very important and these times will ensure healthy consistent growth in the future for us and help in gaining market share for our brand.
Due to the sudden halt in primary sales from March 20 for Q4FY20, net sales were down by 23.8% while gross margins have been flat at 45%. You will note that the EBITDA for the quarter declined to 10.3% from 15.8%. As employee cost is fixed in nature, we produced 80% of our production in our own manufacturing plant at Jyothy Labs and the salesforce is our own. Therefore, both sales and manufacturing teams are on their own payrolls. Advertising expenses for fully committed in anticipation of summer season which is peak for soaps and household infectants business. So, both these adversely impacted our EBITDA by 5.3% in this quarter.
If we look at full year, due to decline in sales in the last quarter, our full year revenues had declined by 5.6% while the gross margins have remained in the range of 47% and EBITDA around 15%. Had it not been for the sudden impact of Covid-19, our business was tracking primary sales growth of 5% till March 20.
We were expecting to close the quarter with mid single digit growth. Our portfolio in household insecticides have been impacted greatly because generally in the last fortnight of March, our trade partners stock HI products anticipating the onset of high mosquito infestation season from April and also increase their stock of soaps anticipating a higher demand with the arrival of summer season. Sales of both of these products got adversely affected due to the nationwide lockdown. We have seen positive growth in sales in the month of April and May, despite all the logistical challenges and restrictions on sales team movement in most parts of India.