Soap sops snap as Jyothy kicks the bucket, takes Henkel to the cleaners

Henkel lost money by giving out buckets free with detergents, Ullas Kamath, deputy managing director of Jyothy Laboratories, said.

He was only half-joking on Friday.

What he didn’t say was such strategies can no longer wash in a pursuit to remove deep bottomline stains at the detergents maker.

Four weeks after taking a controlling 66% stake in Henkel India, Jyothy is going hardball to prise out profit, ready to even take a topline compression on the chin.

Kamath said price correction will be the norm across the Henkel portfolio, where many brands have for long been discounted through extra grammage and other freebies.

For example, he couldn’t fathom why there was an additional 25% grammage being offered on the Margo soap bar.

“This is a 90-year old heritage soap that attracts a loyal set of customers,” Kamath said. So where is the reason to offer more neem sud for the same price?

He plans to turn Margo’s position on its head, pitching it as a premium brand instead.
“Margo will continue to remain niche in India, but it can bring volumes and margins when exported to markets such as Malaysia and Singapore,” Kamath said.
There will also be an increase in retail prices across the Henkel portfolio, and Kamath expects such action to result in a temporary lowering of sales by 15-20%.

The company will also cut out all sales commissions and promotional offers on products that it has identified as profit and brand equity draggers.

Henkel, which has three key brands — Henko, Mr White and Check, has been giving away buckets as freebies to push sales.

But they continued to lose market share to competitors, both local and national.

And despite the backing of its German parent, Henko Champion, Henkel’s premium brand, lags in pricing compared with Hindustan Unilever’s Surf Excel.

To gather the lather, Jyothy will also rope in seasoned managers to resuscitate brands, alter pricing and embark on a cost-cutting drive.

Kamath said over the next six-eight months the firm will carry out a “cleaning process” to put the company back on growth trajectory.

The company will also introduce new categories from the German parent Henkel AG’s portfolio which will include body care, hair care and adhesives.

One loser in the operation clean-up will be the Canteen Stores Department of the defence forces from where a fifth of Henkel India’s sales were generated.

Since this is a very low-margin business, this will be reduced to 2-3%, Kamath said.
And by August-September, Henkel will have roped in an FMCG veteran to spearhead the business. The new chief executive would be relocating to India from overseas, he said.

Jyothy has also shortlisted experienced marketing and supply chain managers to take on new roles at the beleaguered company that saw most of its top officials putting in their papers last year.
The 400-strong staff at Henkel have also been put on notice. “It’s time to shape up or ship out,” for them, Kamath alluded.

The sales force will be revitalised, and the company’s headquarters in Chennai with about 128 employees will be relocated to Mumbai.

The acquisition landed a hefty Rs600 crore debt on Jyothy’s books.

Kamath had said in April Jyothy intends to bring down debt on its books from `600 crore to `200-300 crore in three-six months.

Among the options to do this includes liquidating the combined land assets of Jyothy and Henkel.
Private equity infusion was another option the company is looking at, Kamath said.

Jyothy, which has three promising brands of its own — Ujala, Maxo and Exo — has added another seven —
Henko, Pril, Fa, Margo, Neem toothpaste, Mr White, Chek — to its kitty with the acquisition.

Kamath said the current fiscal will be the toughest period for Jyothy because turning around Henkel is a huge concern even among industry observers.

However, he is confident of a 20-25% growth at Henkel in the next four years.

In May, Henkel reported sales of Rs38 crore and, for the first time in its 24-year history of operations in India, a cash profit of Rs5 crore.    

Soap sops snap as Jyothy kicks the bucket, takes Henkel to the cleaners
The complete integration of Henkel with Jyothy will take over nine months, Kamath said, and “the process has begun”.

Jyothy will spend 16% of Henkel’s sales for advertising in the first year, 14% in the second and 12% and 10% in the third and fourth year, respectively. Hitting a Rs1,000 crore topline in two years will be achievable at Henkel, he said.

Then there are manufacturing costs that Henkel kept ignoring over the last two decades and letting the entity continue to bleed.

The company’s detergents manufacturing unit in Karaikal, for example, isn’t really an accommodating location to make products reach Delhi and Assam - Henkel’s two biggest markets.

Jyothy has 28 manufacturing units across the country and would look at more cost effective means of producing Henkel products from hereon, Kamath said.

Jyothy has announced open offer for an additional 20% stake in Henkel, a successful completion of which will take its stake to 86%.

German parent Henkel AG has the option of holding a 26% strategic stake in Jyothy after five years.