What does a change of management mean for Jyothy Labs and its investors?

The second generation is set to take over the reins at Jyothy Laboratories Ltd (JLL), the Rs 1,800 crore fast-moving consumer goods (FMCG) maker of brands such as Ujala, Henko, Margo, Exo and Pril.
From April, founder MP Ramachandran’s elder daughter MR Jyothy will become the company’s managing director. Entrusted with marketing and branding roles in the company for the past 15 years, she seems to have been groomed to take charge. JLL underwent rebranding and changed its brand logo last year. The change at the helm comes at a time when JLL has been underperforming on the ground as well as on the bourses.

The company’s third quarter net sales dropped exceptionally by 6% over the year-ago level to the lowest in the past ten quarters. It is likely to miss its target of 12-14% revenue growth for this fiscal. Stress in the rural market, which accounts for nearly 40% of the company’s business, has impacted the overall performance. JLL’s household insecticides business has been underperforming in the wake of competition from incense sticks. Its laundry service business has failed to ramp up as expected. Its return on capital employed, 16.5%, is low relative to the industry.

Little wonder then that the JLL stock has halved from its year ago level – the drop being much steeper than the 15% decline in ET FMCG Index during this period. At a market cap of Rs 3,700 crore, the company is valued at just over double its past four quarters’ revenue – against an industry average valuation of three to four times the revenue. Increased leverage and pledging of promoters’ shares also impacted the company’s valuation.

The company has been deleveraging itself and monetising its land bank with a target to become debt-free by March 2021. The company’s promoters have also managed to reduce their portion of pledged shares.

JLL has a pipeline of innovative products such as neem paste face wash and organic toilet cleaner.

A recent ETIG analysis of change of guard at BSE-500 companies in the past three years showed that one in every three CEO changes in the past three years led to positive returns on the bourses. MR Jyothy is set to be the only woman CEO of a listed FMCG company in India. She faces challenges including improving the brand performance amid challenging demand conditions and stiff competition, reducing debt, controlling costs, penetrating the northern markets and increasing return on equity. Investors would want to sit up and take note of the changes coming with the new CEO amid volatile times for the sector.