Game Changers of FMCG Industry
Mumbai: The year 2010 was a bad one for Indian FMCG and Pharma businesses. Many like Paras Pharma, Anchor Electricals, Preethy Kitchen Appliances, Camlin, Ranbaxy and Piramal Pharma were getting sold to foreign players. Moothedath Panjan Ramachandran (M P Ramachandran), Founder, Chairman and Managing Director of Jyothy Laboratories Limited (JLL), did not like that one bit. “I felt like a slice of India was getting lost forever,” the man famously known for being always clad in white, reminisces sitting in his sixth floor corner office at Ujala House in Andheri East, Mumbai.
From that discomfort was born the ambition to buy a foreign company. Henkel India, part of Henkel AG & Company, a 135-year-old, multi-billion-euro German company and global leader in laundry and home care, was struggling in India since its entry 25 years ago, and on the block. In May 2011, JLL stunned the markets by acquiring 50.97 per cent stake in Henkel India and following it up with the mandatory open offer for extra 20 per cent. They beat India’s biggest FMCG players paying Rs. 785 crore to pick up Henkel India which had accumulated losses to the tune of Rs. 600 crore. It came with its factories and 475 employees. Trusted lieutenant and long-term colleague K Ullas Kamat, Joint Managing Director & CFO, says, “Henkel India was keen on Jyothy as they were also a family-led company. They saw that virtue in JLL. Also, they wanted their brands to live and not be killed which was fine with us.’’
Henkel brands like Henko, Mr White, Fa and Margo are doing well and part of the JLL stable today. Henkel left India on a good note and Jyothy kept their word. The day the deal was announced, JLL shares tanked losing 20 per cent market cap in the next three days. The thinking was that JLL could soon become like Henkel India rather than Henkel India becoming successful like JLL. But the markets were wrong. They had underestimated the man in white and his able second-in-command.
Yin and Yang
Ramachandran met Ullas in 1991 when JLL was a Rs. 60-crore, 60-employee business. Highly educated, Ullas is a CA, CS, LLB and MCom. Ramachandran was looking for someone who could understand his simple concepts and work towards achieving his vision. Ullas had just taken up distribution of Ujala in Karnataka. “JLL was then a high margin business but confined to just one state – Kerala. I felt we could do wonders if we went beyond Kerala and he was in agreement. I joined JLL because of my love and respect for the MD.’’
They have been together at the helm of JLL for 26 years and never got into an argument, they say. They can complete each other’s sentences, yet there is a thin line of utmost regard that is not breached. For Ullas, MD is the first and last word. “MD is the number 1 taking major decisions and envisioning the future. I am the number 2 executing, executing and executing.’’
Ullas has been entrusted with the task of grooming the next generation of leaders from the ‘first family’ (daughters M R Jyothy and M R Deepthi and sons-in-law Ananth Rao and Ravi Razdan). At JLL, MD and Joint MD are the top most layer in the hierarchy. Though they have defined responsibilities, all communications and requests for approval are marked to both of them and either can take a decision. Ullas says almost always he goes by what his MD would have done in a particular situation, and takes a call. They manage by exception and daily running of the business is already in the hands of the second generation.
If Ramachandran is the qualitative person focussed on character, values and integrity, Ullas is the quantitative guy looking at sales, margin, profit, growth and the like. It is this Yin and Yang compatibility along with religious focus on customer centricity-led R&D and a fabulous team that have been the bedrock of JLL’s tremendous success.
With a market capitalisation in excess of Rs. 5200 crore and total sales of Rs. 1644.73 crore as of March 31, 2016, JLL has clocked a CAGR of 21.3 per cent over the past five years. Today, it has 32 manufacturing facilities spread across 17 locations with 6000-plus employees and reaches one million retail outlets directly and another two million indirectly. Power brands from the house of Jyothy include Ujala, Exo, Pril, Maxo and Henko. Ujala Fabric Whitener has a whopping 77.6 per cent market share on all-India basis reaching 2.3 million retail outlets, while in Kerala it is over 98 per cent. Ujala sells more than 10 lakh bottles every day.
“We want to grow YoY and register 5 per cent above the industry’s growth,’’ says Ramachandran. “We can add one or two per cent as more people prefer a branded fabric whitener as cost of garment is high now. We can also grow if the category doubles as more people move up the ladder economically. In my view the category can double in the next five years easily.’’
Maxo lapped up 13 per cent market share in its first year of launch (2000) in spite of the presence of established players like GoodKnight, All Out and Mortein, and crossed 33 per cent market share in rural India in the second year. Ujala Crisp and Shine created a category by itself and is overtaking Ujala in terms of sales. In Kerala, Crisp and Shine does double that of Ujala. Exo, when launched (2000), was priced much above Vim, its main competitor. But it still captured 10.43 per cent market share by value (all India basis) and over 51 per cent in Kerala as market leader.
JLL picked up a loss-making Henkel India and turned around the company in a very short time surprising the market and the industry. They even declared a dividend of 250 per cent in the first year.
“There was a calculation behind that figure,” adds Ullas. Number of years Henkel has been in India (25) multiplied by a minimum 10 per cent annual dividend, was the simple logic.
But what did JLL see in Henkel India? Ramachandran knew that he could make all of Henkel’s products in his factories. There were no strategic consulting firms involved in the integration exercise. As a grand master in manufacturing of fabric care products, household insecticides and dishwash products, he knew how to achieve a gross margin of 40-45 per cent if JLL produces and sells Henkel India’s current product slate. “Having been in the business so long, we know exactly the input and production costs, and trade margin. That was the starting point. In reality, we achieved 50 per cent gross margin. You cannot fail with that.’’
Ramachandran took the decision to stop all outsourced manufacturing. This gave them total control over the process and related costs. “JLL has derived tremendous synergy from national distribution, widest reach across urban and rural retail outlets, and our 1900-plus strong sales team on the ground,’’ says Ramachandran. “Whatever product we decide to manufacture and sell, we should see a gross margin of 50 per cent and a net margin of not less than 15 per cent,” he is affirmative.
Adds Ullas, “MD says any product we do we should go to one million retail outlets across India through our 3500 distributors and our boys should be able to tell the product story well.’’
Ramachandran never believed in the herd mentality. He did not understand why entrepreneurs would make a similar product and compete on price. While JLL’s product success stories appear like scientific innovations, for him it was the customer who was always the focus and the starting point of all his innovations leading to market success, and sometimes even creation of new product categories.
Ujala was born out of this ability to think from the customer’s point of view. Fabric Whitener products available in the market in the early 80s were of very poor quality. For someone who wore only white (a habit he picked up from his father and has nothing to do with his business), this dearth of a quality product in that space was really daunting. Though a finance professional by education, affinity for chemistry, thanks to his salaried employment and curiosity, led to the formulation of Ujala. The rest as they say is history crafted by the magical spell of four drops. “With every product of Jyothy we give something extra which is not in the market then for consumers,’’ says Ramachandran. This is what has ensured that products from JLL pick up customer loyalty and market share.
When Exo was launched, it was the first anti-bacterial dishwash bar in India. Till then dishwashing was only about removing grease and not disinfecting utensils. JLL took the conversation in the category from grease-free sparkling utensils to germ-free healthy utensils. That apart, by introducing the product in a round plastic container with a scrubber, JLL ensured that it addressed other key concerns of the customer – wastage and ease of use.
HenkoLINTelligent was conceptualised and marketed by elder daughter and director on Board M R Jyothy. The insight was to go beyond stain removal (the value proposition till then in this category) and offer fabric care through lint reduction, leading to lesser fraying of the garment, colour protection, enhanced shine and longer fabric life.
Maxo Cyclothrin Mosquito Coil that acts within 20 seconds and Ujala Crisp and Shine which can be used on clothes of any shade for stiffness as well as shine are also examples of JLL’s customer-centric thinking and heavily R&D-driven new product launches.
“JLL spends anywhere between 1-1.5 per cent of its turnover on R&D. We have two teams dedicated to R&D in Mumbai and Puducherry. Thirty highly qualified professionals work there,’’ informs Ramachandran.
Like R&D, quality is another strong pillar of customer centricity at JLL. Hence, JLL has adopted vertical integration. It does not engage in contract manufacturing. Even the plastic containers are done in-house and use only virgin materials. Machinery fabrication is also performed internally. While it brings in savings and drives quality and speed, it also keeps the IPs safe and secure.
From Products to Services
In 2008, JLL created a subsidiary, Jyothy Fabricare Services Ltd. (JFSL), to enter the services segment and offer professional laundry services at affordable prices at customer doorstep. To date they have invested Rs. 200 crore. “If we are saying we are a world-class fabric care products company, then we should be able to walk the talk. Our foray into the services side with a laundry business, where we can demonstrate the goodness of our products, comes from that thinking,” explains Ramachandran.
Organised laundry services is a Rs. 5000-crore industry in India, according to a KPMG study a few years ago. Ullas is confident that JLL’s laundry business will ride on the wave of social transformation sweeping across India. “Few years ago, if someone said we would buy milk in tetrapacks or pay for bottled water, no one would have believed,” he reasons. It is anybody’s guess that if we have to achieve 12 per cent GDP like in other developed nations of the world, we cannot have wives and daughters sitting at home. Everyone has to be employed. With a working spouse comes the need to depend on professional support services. At Rs. 2000 per month (40 pieces at Rs. 50 apiece), JLL’s laundry services at doorstep appears a sure winner. “If we go national, we can easily secure 25 per cent market share,’’ says Ullas with extreme confidence. That is a whopping Rs. 1250 crore just washing soiled clothes!
Today, Fabric Spa serves 140,000 households in Bengaluru where it started. If all those households also start using JLL products, then imagine the upsell? In the core business, the difference between the money JLL realises and what the customer pays is 30 per cent which is shared between C&F, wholesaler, distributor and retailer community. World over this difference is less than 15 per cent. Since retail price cannot be increased due to competition, the only option to enhance margin is to go to the households directly. JFSL is that magic direct ticket to India’s millions of urban households.
JFSL has facilities in Bengaluru, Pune, Delhi, Mumbai, Ahmedabad and Chennai, and 134 retail outlets, making it India’s largest laundry chain. Apart from individual households, it also won the BOOT contract from Western Railways (Ahmedabad) and Delhi International Airport Limited. Many five star hotels also depend on JFSL for their laundry needs.
“We will not invest more in JFSL for now. We will get a strategic investor in that business later. As of now, the focus is on the product business,’’ informs Ramachandran. JFSL was the first project M R Jyothy launched when she joined the business after her education.
JLL is a family-owned company but run professionally. It kick started its succession planning programme for first family leaders a few years ago. The second generation of well qualified leaders from the first family is being groomed thoroughly to take up more responsibilities at senior leadership roles at an appropriate time as deemed fit by the Board. “We want to hand over when we can run along with them for some time. In many companies, they think of succession planning when it is too late,” says Ullas.
Ramachandran’s elder daughter M R Jyothy is already a member of the Board. “At her age, I was only looking for employment. She has big ideas about current and future products. Her talent around product packaging and communication strategies is so impressive. She has deep insights about market-product gaps,” says the proud dad. Jyothy manages new product ideas, marketing and brand communications, including product packaging.
With seamless transition in mind, JLL established a Management Committee (MC) few years ago when Jyothy was inducted into the Board. The MC has seven members comprising M R Deepthi (Finance), Ananth Rao (Operations), Ravi Razdan (IT & HR) and roles like VP Finance, VP Manufacturing and VP Procurement, and is headed by Rajnikant Sabnavis, COO. The MC reports to the Board and executes the Board’s vision.
Small Beginnings; Simple Principles
Ramachandran was employed in Mumbai for over 14 years. It is here that he developed an affinity for chemical formulations. When his employer planned to down shutters, he decided to turn entrepreneur. With just Rs. 5000 loaned by his brother, he started Ujala in the temple town of Guruvayur in Kerala in 1983 after two years of R&D. He had a truly innovative product but growth was slow and marketing was by word of mouth. When he was about to shut shop and return to salaried employment, there came a large wholesale order. “More than the revenue it validated my business idea and gave me the confidence to move forward,” says Ramachandran. At Rs. 6500-plus crore market cap today, the Rs. 5000 initial investment has given a terrific RoI.
For a company which had such humble beginnings, JLL has over the years secured funding from marquee investors: ING Baring, CLSA Hong Kong, CDC Financial Services (Actis Capital), ICICI Bank Canada, ICICI Bank UK, Prudential, Fidelity and L&T Finance. Wipro founder Azim Premji’s Premji Invest and the Aditya Birla PE are also shareholders.
“I am very content with small things in life. Growth is a business requirement and profit is an outcome, a corporate responsibility. But personally, I am not enticed by money,” informs Ramachandran whose day starts at 4 am with one-and-a-half hours of exercise and two baths. He leaves office at 6.30 pm sharp to spend the evening with family and Malayalam television.
Business associates and investors underline the fact that Ramachandran has always left money on the table. “He is happy to create wealth and share it with all stakeholders than take it all. Be it percentage of ownership or trade margins or dividends, he wants all involved to win,” says an associate on condition of anonymity.
JLL’s CSR activities are all in Kerala and involve providing housing and sanitation for less privileged sections of society. The CSR arm was started two years ago and about 65 houses were constructed and delivered to vanavasis (tribals) and fishermen. In FY 2016-17, 20 houses for nomads are being developed. All houses come with two bedrooms, a hall, kitchen and a toilet. JLL has also built toilets for the Girls’ High School in Guruvayur.
That apart, women empowerment has been a key construct of JLL’s HR policy. Factories of JLL employ only local women except for heavy duty work. Today, the group has over 3300-plus female employees on its payroll. This financial independence among the women folk has brought about a remarkable social transformation in the towns where the factories are located.
JLL’s R&D slate is brimming with a couple of exciting new products for sure but Ramachandran is unwilling to spill the beans. He only says Jyothy is leading those efforts and that they will announce product launches early this year. For a company hung on creating differentiated products that offer the customer a definite value add, the agarbathi business (Maya), they too agree, is an ‘also-ran.’ But there is more to it than meets the eye. The long-term intent is to use Maya as the entry point to the air care or fragrance market.
Says Ullas, “Air care will become a big business in the next 10-15 years. Agarbathi is a Rs.3000-crore market in India and we are going after it.’’
I ask Ramachandran if he has any dreams around what next, and pat comes the reply: “We want to be the biggest and the best. 10000 employees and 100 factories. By 2020 we want to double the turnover and treble the profit.’’
“MD has spoken; we will execute,’’ concludes Ullas.