Will Jyothy Labs' big plans wash?

While the spotlight today may be on Jyothy Labs' recent acquisition of Henkel AG's Indian business, the company has been quietly expanding its laundry business (Jyothy Fabricare Services Ltd) through acquisitions and expects to become profitable by 2012. Giving the business plan for the next four years, Ulhas Kamath, Managing Director, Jyothy Labs, says, “Today we are valuing the laundry business at Rs 400 crore after getting private equity funding of Rs 100 crore.''

With a mix of retail and institutional clients, making money off the laundry business seems imminent, on the strength of institutional rather than retail sales. It will not be easy for the FMCG company to succeed in an untested category such as organised laundry where the target audience is still small and retail customers will continue to be price-conscious.

In a recent presentation to analysts, the company outlined fairly ambitious projections. Losses of Rs 2.76 crore are seen for 2011-12. But profit projections for 2012-13 stand at Rs 7.18 crore, in 2013 at Rs 29.50 crore and by 2014-25, profits expected are Rs 74.59 crore. Gross margins are also expected to improve significantly from the current 58 per cent to reach 64 per cent by 2014-15. At the same time manpower costs, washing expenses and other overheads are expected to escalate. However, projections from service income (top line) are for the current Rs 57 crore to reach Rs 349.78 crore by 2014-15.

While acquiring profitable laundry companies may help drive margins in the retail business, today the bulk of its revenue continues to come from the institutional business at its greenfield plant in Bangalore which can process 30,000 garments or 10 tonnes per day. Spread over two acres of land at Apparel Park in Bangalore, it has a built-up area of 45,000 sq. ft.

Some key institutional clients include Royal Orchid and ITC-Fortune hotels and airlines such as Lufthansa, Air France, Singapore Airlines and Jet Airways. It has got a trial project from Indian Railways for 12 trains' bedrolls, won tenders under the BOOT (build own operate and transfer) system for Mumbai Central worth Rs 100 crore for 12 tonnes per day and for Southern Railways (Chennai) worth Rs 92 crore for 10 tonnes per day, over a period of 15 years. According to Kamath, “The Railways on an annual basis spends Rs 1,500 crore on washing bedrolls and has started outsourcing. We have given the Railways a proposal to put up laundries within railway stations which will stop the laundry from going outside the stations.'' Recently, JFSL was also the official laundry partner for the Commonwealth Games.

According to Sagarika Mukerjee, Research Analyst at SBI Cap Securities, “It will be the institutional business which will drive the business. Currently the run rate is picking up with almost 34,000 pieces per month with an average ticket size of Rs 300 per piece. It is not a capital-intensive business for the company and the running costs are mostly that of staff and electricity. The retail business is being driven by inorganic growth as it has acquired companies which are already profitable.''

The business model comprises two broad categories. One is the retail model where the premium services would be offered under the brand of ‘Fabric Spa' aimed at high-end convenience seekers. The economy services would be offered through ‘Snoways', a chain of laundries acquired for this purpose, in Bangalore.

The second category is the institutional segment where the company is tapping hotels, serviced apartments, paying guest accommodation, hostels and airlines. “While the retail segment gives us good margins, the institutional segment will generate volumes and add to our brand credibility,” says Kamath.

JFSL has undertaken a pilot project with the Taj Vivanta in Bangalore to offer laundry services. It will supply the manpower while the hotel would provide the infrastructure. The business model is based on the laundry company charging 30 per cent on the cost of washing the garments. “We would be looking at extending it to other properties of the Taj Vivanta,” adds Kamath.

At Fabric Spa, JSFL is also running shop-in-shop formats at retail chains such as Nilgiris and has also tied up with clubs such as the Bangalore Club and Coimbatore Club in the South. “The company would own all the outlets in the top six cities while in the tier-II cities we would run the business through franchises,” added Kamath. The laundry company has taken its services beyond Bangalore, to Delhi and Mumbai primarily through acquisition of smaller laundry chains.

For instance, in April this year, the company decided to acquire Akash Dry Cleaners in Mumbai which has four retail outlets and is a profitable venture with a turnover of Rs 8 crore. It also has real estate comprising one acre of land in MIDC (Maharashtra Industrial Corporation) in Navi Mumbai with a processing plant of 6-tonne capacity. It has also acquired Diamond Fabric with its Wardrobe brand of 62 retail outlets across Delhi, Gurgaon, Faridabad and Ghaziabad with a turnover of Rs 9.5 crore with a processing plant of eight-tonne capacity.

Currently the biggest chunk of its laundry business continues to come from Bangalore (Rs 25 crore), followed by Delhi (Rs 15 crore) and Mumbai (Rs 8 crore).

“The present demand for laundry services comprising people who are already outsourcing their laundry is estimated to be Rs 5,200 crore. The additional demand that can arise out of people who are currently doing laundry at home for lack of a better option is estimated to be an additional Rs 1,300-Rs 2,600 crore,” says Kamath.

In fact, the entry of international chains like Presto and 5aSec indicates the category is also growing at the premium end. As Suresh Bhatia, Managing Director, 5aSec India, claims, “We started by servicing celebrities but now we find middle-income families from places like Chhattisgarh who are willing to courier their garments. We are trying to build scale by having more outlets.”

With more players, the organised laundry segment is poised to grow. Jyothy's promoters are going all out to effect a break-even as soon as possible, but it will be institutional sales primarily which will hold the key to sustaining the business in the long term.

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