Ullas Kamath talks at the Entrepreneurs’ Organisation’s learning event on Jyothy Laboratories’ growth, its Henkel acquisition and the entry of professional management in the organisation

Poornima Kavlekar

Our endeavour at The Smart CEO has always been to bring to the fore experiences of successful leaders by tracing their journey, analysing decisions that they have made and identifying the uniqueness in the business processes, which led their company to great heights. In line with this, when Entrepreneurs’ Organisation, an organisation that enables entrepreneurs to learn and grow from each other, invited Ullas Kamath to address their learning forum one evening, it was an opportunity for us to present to you his success story and learn from it.

Ullas Kamath, the Joint Managing Director of Jyothy Laboratories, is a qualified chartered accountant, lawyer and a company secretary. He joined the company in 1991 (founded in 1983 by M. Ramachandran) and is instrumental in taking the company to the level it is at today – with a turnover of Rs. 1,500 crore and a market capitalization of Rs. 5,000 crore.  He was also responsible for the company acquiring the loss making Henkel India and turning it around in three years. He is an insider yet an outsider with no ties to the promoter family; importantly, he attracts talent for the organisation from the outside.

We bring to you the excerpts of his talk on Jyothy Labs, the company’s acquisition of Henkel and its turnaround story and professional management in the organisation.

The growth story of Jyothy Labs

At the age of 76, the founder of the company, M P Ramachandran is still very active in his business and according to Kamath, it is the employees of the organisation who keep him that way. “Keeping the person who started the business active is very critical for a continuous success of the business.”

Almost 1.2 million bottles of the company’s flagship brand, fabric whitener Ujala, is sold on a daily basis, and it reaches almost 60 per cent of Indian households. “We have about 75 per cent of the market share in this category with the nearest competitor holding a 3 per cent market share.  Our belief is that we should be number one in the market and there is no place for number two,” says Kamath. Its other brands include Maxo mosquito repellent and EXO dishwash bar.

From a proprietary concern, Jyothy became a private limited company and eventually in the year 2000, Kamath raised private equity from players like Baring India Investments, CDC Advisors and so on and then took the company public.

In the midst, Kamath asks the audience, if entrepreneurs raise money because they need it. “Most of the people will say yes but I will say no,” he states. He explains, “You raise money when you don’t need it. When you want it you will never get it.”  He also believes that an investor’s brand becomes a part of the invested company’s brand.  “PE fund is the best equity, they bring in money, talent and ask you questions that are difficult to answer which helps you grow. When they invest for a 10 per cent stake in your company, they cannot multiply four times unless they multiply your value by the same. When we went public they got five times returns,” shares Kamath.

The company’s second brand – Maxo – came to life with this Rs. 35 crore. “Ujala was like an ATM for us. And we didn’t want to put Ujala money into Maxo. We wanted to raise risk capital,” says Kamath. Today, Maxo has grown to become a Rs. 300 crore brand.

The company today covers a million retail outlets on a monthly basis. “After the Indian post office, the best direct reach is by Jyothy Labs,” says a proud Kamath. Around 1,200 company staff walk nearly 6 kilometres a day and as a result its direct coverage is one of the best in the country. The company has 34 factories across the country and one in Bangladesh.

It acquired Henkel in 2011 and in 2014, it re-launched most in-house brands.

And the story thereafter…

When you have taken 17 years to become a Rs. 100 crore company and if you come across a Rs. 350 crore company with good brands, will you consider buying it?  Remember, it will take another ten years to create a Rs. 350 crore brand. Kamath’s answer was yes. He knew that Henkel was a loss making company but housed seven good brands like Margo, Pril and Henko. However, the company had 470 people and an accumulated loss of Rs. 600 crore.  “But, my MD said that it was possible to achieve 35 per cent gross margin, at a stretch 40 per cent, on the company,” recalls Kamath.

And hence, they decided to go ahead with the acquisition.

How did the company do it? Kamath simply flew to Dusseldorf, Germany, Henkel’s headquarters, to talk about this association. “Never say that you have come to buy them out. The best way is to say that I want to work with you,” he advises. Kamath presented four sheets, which covered where the business is, what the problems are, how they could change the business and what this would result in.  Within four meetings Kamath and team closed the deal. “Investment advisors Ram Prasad M and Jacob Cherian from MAPE did a great job. In return, we told them no due diligence and within 30 days we closed the deal. We also needed the tax indemnity,” states Kamath. He trusted Henkel’s auditors, KPMG, which is why they didn’t spend much time on due diligence. In the meantime, the existing Rs. 350 crore business’s value would have reduced to Rs. 200 crore as everyone would have come to know that it is up for sale.

“So we acquired the business for Rs. 685 crore (on a turnover of Rs. 300 crore),” shares Kamath. When Jyothy bought the business, it had a negative EBIDTA of 4.8 per cent. And within one year the EBIDTA was 14.8 per cent. Today, those brands are growing faster than Jyothy’s brands except Ujala. In three years, the company has doubled its turnover to Rs. 700 crore from Rs. 350 crore when it was acquired. “Some of the advantages that we had were carry forward accumulated loss of Rs. 600 crore and a Rs. 200 crore tax break,” says Kamath. Henkel’s factories were sold and real estate value was realised and as far as the staff go, the company retained only five members out of 475 people, resulting in savings of Rs. 30 crore every year.

“If you want to turnaround a company, you need to challenge the norm. As the brands were great it just took off. We did packaging changes, we brought in a great campaign and spent money on it,” recalls Kamath.

Be religious, know what you have to do, have a timeframe and understand what you will do in the first three months to successfully turnaround a company. That’s the takeaway that Kamath shares.

A professional approach

“The founders of the company should be free to plan the next five to 10 years of the company and not get involved in the day-to-day activities,” says Kamath. If they work 24*7 then the company is not growing.  If at all it is growing, it is likely to degrow later.  Kamath suggests that the owner should get the MIS and identify the things that have gone wrong and ask people questions based on the MIS report. “If you don’t get an answer and you don’t know the answer too, then hire a consultant for a fee which is only on the basis of success,” states Kamath.

The founder has to professionalise the company in such a way that he/she is relieved from the daily role. The question is how much to pay to professionalise the company. “10 per cent of the profit of the company should be given to the professional management team,” opines Kamath.

“We were fortunate to hire Raghunandhan, the CEO of Jyothy. His pedigree is very good,” says Kamath. He is from BITS Pilani, IIM-C with work experience from Hindustan Unilever, Dabur, Asian Paints and Paras. “He was the MD of Reckitt Benckiser from where we hired him,” he says.

He believes that the whole world should work only on variables and does not believe in fixed expenditure at all.  “We told our people that to grow further, we decided to bring in more talent from HUL to become like that after 100 years,” says Kamath.

This is the grand before and after Henkel story for Jyothy. It also traverses the company’s transformation from a proprietary concern to a listed entity and as a part, the importance of a professional top management.

About Entrepreneurs’ Organisation: EO aims to make an impact on today’s leading business owners through its learning programs, member benefits, global events and thought leadership. As the world’s only peer-to-peer network exclusively for entrepreneurs, EO helps transform the lives of those who transform the world.