JLL will go for Acquisition anytime soon, says Ullas Kamat
Mumbai: In an exclusive interview with Destination Kerala, Ullas Kamat, Joint Managing Director, Jyothy Labs, spoke about the company’s plans to ensure consistent growth in the current financial year. Here are the excerpts from the interview.
As part of ensuring steady growth, Jyothy Labs will go for an acquisition, which according to Kamat, will follow a balance-sheet cleansing later this year
In May 2019 you had indicated plans to go for a major acquisition. Where are you with that plan?
As macro and micro economic factors are changing, we also have to adapt and re-evaluate business priorities. As a business we will consider what is good for the enterprise, when should we act and how much to invest. For any successful organisation, growth has to be both organic and inorganic. In my view, organic growth of a good FMCG company will be 10-12 per cent YoY because GDP is about 6-7 per cent and on top of that one can grow another 5 per cent, totaling 10-12 per cent. A company of our size should preferably go for an acquisition every five years to the tune of 20 per cent of the enterprise valuation. So for JLL, we can go for a ticket size of around Rs. 1000-1200 crore. This way we can grow at a rate of 20 per cent YoY combining both organic and inorganic growth.
For acquisition, we invest some funds from internal accruals and remaining from borrowings. The equation we follow is 25 per cent internal and remaining loans, and pay back the debt from the new business’ profitability over a period of 5-6 years. We will repay the debt we raised for the Henkel acquisition, of which Rs. 120 crore is remaining on our books now, by September 2019 or latest by end of the year. Our cash profit for the year is about Rs. 300 crore so it should not be a worry at all. In late 2019 or early 2020 we will make an acquisition. We have identified a few very viable targets.
We want to pick up a business in which we have expertise and/or which is an adjacent category to our existing business lines. We have expertise in fabric care, dish wash, home insecticides and personal care. So we do not mind looking at hair care or personal care segments as the distribution channels are the same as what we have today. We should be able to manufacture from our existing factories (27 factories across 17 locations) and sell nationally. Only then can we get the scale and efficiency.
Margo and the Ayurvedic personal care category is receiving your extra attention. What is the opportunity you are seeing?
We are close to Rs. 180 crore in revenue in this segment. When we bought Margo from Henkel six years ago, it was clocking about Rs. 60 crore. We are growing at a CAGR of 20 per cent in this category. Today, the youth of the country has warmed up to Ayurvedic personal care products as they are chemical-free. Margo is a proven product for last 90 years and comes with the goodness of Neem. It is the only authentic product in the market which contains 15 per cent Neem oil by gross weight. Margo was present in East and South India before our acquisition; now it is available across India.
In 2018, you opened five factories in Assam. What was the rationale?
We have put up the new factories in Guwahati for fiscal benefits and also because we see immense opportunity for FMCG companies like us in ASEAN (Association of Southeast Asian Nations). North Eastern States of India also pose a huge market. We are expecting ASEAN to have beneficial tax treaties with Government of India. Assam will become the gateway of India to ASEAN as good road connectivity exists between Assam and ASEAN. In the coming years we see our investments in Assam transforming into our export hub to ASEAN bloc. When we met the Chief Minister at the Advantage Assam – Global Investors Summit in February 2018, he was very vocal about attracting investments into the State. At present, 100 per cent production is targeting domestic consumption – 20 per cent for the North East and remaining for rest of India markets.