Jyothy Labs working on new ways to beat slowdown blues

Abhishek Law Kolkata | Updated on February 09, 2020 Published on February 09, 2020

Ullas Kamath, Joint MD, Jyothy Laboratories

As demand weakness persists in rural markets, home-grown FMCG company, Jyothy Labs, explores options to beat slowdown blues.

While inventory management (reduction of stock) across select channels is one such initiative it has already taken, the company is looking at a possibility of banks financing trade channels. This comes, even as the Mumbai-based entity has revised its growth forecast to “mid-single digits” for FY20.

According to Ullas Kamath, Joint MD, Jyothy Labs, the decision to reduce inventory pipeline across select channels were taken around November-end and was implemented from December onwards. This means, that as against a previous scenario where some distributors would stock close to 30 days (or four weeks) of inventory count, distributors are now stocking around 15 days (or two weeks) of inventory. Secondary sales are being tracked directly by the company. The move is aimed at curtailing possible payment defaults in trade channels.

“We have not faced any payment defaults so far. But, the inventory reduction and management was a temporary step to tide over demand slump specifically in the rural markets. There is not much room to reduce stocks further as then it could lead to loss in market share. We have not lost any market share, so far,” he told BusinessLine.

Financing and payments

Smaller value packs for rural markets and premium offerings targeting urban markets — where demand slowdown is not so pronounced — has been an ongoing strategy for Jyothy Labs.

Plans are afoot to initiate discussions with banks for financing trade channels. Under the arrangement, banks will provide finances to channel partners against a letter of comfort issued by the company. These discussions, however, are likely to happen in FY-21 (next fiscal). Working capital constraint in channel partners has been a major issue for FMCG companies. “Bank -financing can be looked at. There is some liquidity crisis in trade channels especially with non-banking finance companies holding back on lending,” Kamath added.

Jyothy Labs operates on a cash and carry model; unlike some other FMCG companies who might extend credit to the trade or have a longer credit cycle.

Market sources say payments cycles have already been extended in the trade to counter the slowdown.

Revised outlook

Incidentally, consumer confidence in India has fallen in January 2020 visi-a-vis a year-ago-period, according to the Reserve Bank of India’s survey. The same survey also said the current perception on general economic situation, price levels and household income remained weak when compared with the position a year ago.

Jyothy Labs posted a near 12 per cent drop in consolidated net profit to ₹45 crore for Q3 FY20 (October – December) and six per cent decline in revenue from operations which stood at ₹421 crore during the quarter.

According to Kamath, the company has revised its FY20 growth outlook to “mid single digits”; especially with the slowdown continuing. Previous estimates suggested a possible double digit growth. An 8-10 per cent annual growth is possible in FY21.

“So far January has been good. But, demand is not yet moving up. We are hopeful that a couple of quarters into the next fiscal (FY21) is when growth momentum will come back. For this fiscal, mid-single digit growth looks possible and good,” Kamath said.

Published on February 09, 2020

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