Jyothy Labs Set To Hike Product Prices To Regain Margins

Jyothy Labs Ltd. plans to hike prices across its product portfolio in the coming quarters to boost operating margin to pre-Covid levels amid rising raw material prices.

“If we take a 3% price hike, that's good enough for us, which we will probably take in the coming quarters, depending on where raw material prices go,” Ullas Kamath, joint managing director of the Mumbai-headquartered consumer goods maker, told BloombergQuint in an interview.

The maker of Ujala fabric whitener and Henko detergent said it has been able to increase prices to the extent of 5% across categories and cut operating costs by 2% to counter the 10% overall rise in raw material prices in the last one year.

Kamath said raw input costs have softened in the last seven to 10 days, after rising for about a year. And the company is in a position to hedge against rising prices only for the next three to five months. “If that (falling costs) continues, then probably we’ll resort to taking only about 2% increase in overall sales price.” But if the quantum of decline is 5%, then the price hikes won’t be needed, he said.

The company’s operating margin contracted to 12% in the quarter ended June compared with 14.3% in the preceding quarter. Revenue grew 6% sequentially to Rs 525.4 crore—at a time when that of its larger peer Hindustan Unilever Ltd. contracted 1.8% during the period. Jyothy Labs’ profit rose 36% quarter-on-quarter to Rs 39.5 crore on the back of an exceptional item amounting to Rs 23.5 crore.

If a price hike becomes inevitable, then it would start with the higher-priced stock-keeping units, according to Kamath. A 7-10% increase in larger SKUs will compensate for cost escalation in lower-priced SKUs, he said.

Rising Rural Penetration

The company’s revenue from its dishwashing segment grew 12.8% sequentially, while the fabric wash segment remained flat.

Sales of the company’s smaller SKUs have risen as more people started sampling its products. The segment contributes 35% to total sales, he said, as rural markets opened after pandemic-related restrictions.

“On Rs 5-10 price point packs, they (rural consumers) sample our products and if they like it, then they go for higher SKUs,” Kamath said. “So, to that extent we’re extremely happy that the acceptance of all our brands in rural has been much more than ever before.”

Demand in rural markets has been growing more than by about a third than in urban areas, Kamath said, with the hinterland accounting for 40% of business. A tenth of its revenue comes from modern trade, comprising hypermarkets and supermarkets, with 5% from generated by online sales. Jyothy Labs is witnessing a migration from modern trade to e-commerce, but expects both the channels to co-exist.

Watch the full interview here: