JHS Svendgaard Laboratories Ltd Management Discussions.



The global economy witnessed a healthy growth during the first half of 2018 but the same momentum is unlikely to remain during 2019. Growth for 2018 was pegged at 3.6% while the same is projected at 2.6% by World Bank. The major headwinds to growth are ominous signals of slowing down in the U.S economy coupled with a trade war between U.S and China.

The U.S economy is grappling with intensifying trade wars that seem to be indicative of slowness in the domestic economic scenario. While this sluggishness is yet to reflect in data, there seems to be an offshoot impact on the credit cycle with the Federal Reserve mulling a halt in its string of interest-rate hikes thus fuelling anticipation of rate cuts during the September quarter review.

A similar sluggishness gripped Asia Pacific with China, in particular, suffering the early bouts of financial cramps due to its continuing trade skirmishes with the U.S; this has duly caught up with dwindling investor confidence.

Growth is subdued in much of Europe, the Middle-East, and Africa with lack of fundamental economic soundness in these economies that will, in due course of time, play out in the form of serious vulnerabilities.


The domestic economy suffered a slowdown with growth pegged at 6.8% in FY19, down from 7.2% in FY18.

This was primarily owing to the lackluster performance of the economy in the second half of the fiscal (Oct18-Mar19) – GDP growth under 7%. This was mainly due to the poor performance of farm, mining, and manufacturing sectors. Indias industrial production (IIP) growth slowed to a three-year low of 3.6% in the 2018-19 as against 4.4% in the previous fiscal.

The Ministry of Finance in its Monthly Economic Report of March 2019 warned that Indias economy appears to have slowed down in 2018-19. The proximate factors responsible for this slowdown include declining growth of private consumption, a tepid increase in fixed investment and muted exports.

There is some respite for the Indian economy with oil prices having slumped by around 25% since early October 2018.

While the performance indicators may appear dismal, the prospect for Indian economy have considerably improved owing to the resounding victory of the incumbent lawmakers at the Centre. It suggests the continuing of favourable policies which will could fuel economic progress.


The International Monetary Fund (IMF) cut Indias GDP growth forecast for 2019-20. They project growth to pick up to 7.0% in 2019 (2019-20), supported by a recovery in investment and healthy consumption amid a more expansionary stance of monetary policy and some expected impetus from fiscal policy.


The Indian FMCG sector is one of the leading sectors in the Indian economy with a size of US$68.38 billion in FY18. Its size is expected to grow at a CAGR of 23.15% to reach US$ 103.75 billion in 2020. The spurt in the sector comes mainly from the final consumption expenditure of households which is set to grow at CAGR 25.44% during the period of 2017-20 to reach US$3.6 trillion in 2020 from US$1.82 trillion in 2017.

Within the FMCG sector, the consumer durables companies have reported 12-15% growth in revenue on a y-o-y basis. Moreover, the Ayushman Bharat scheme launched by the central government could result in a significantly higher healthcare spend in the country.


Global scenario: The global oral care market size was pegged at US$52,250.4 million in 2018 and is expected to grow at a CAGR 6.32% till 2024.

The market is typified as highly product innovation driven coupled with significant investment in marketing and promotional activities to enhance consumer reach. The major hindrance to growth comes from the lack of awareness among consumers regarding product innovation.

The product spread is mainly dominated by toothpaste, toothbrush and replacement heads with a market share of 74.95% in 2018. The prominent markets in terms of geography are the Asia-Pacific region, given the high population of the area, followed by the European region and the North American region. Consumers in the U.S, Germany and United Kingdom display a high afinity to toothbrush, mouth wash and dental floss which is expected to be a key demand driver (Source: Global Oral Care Market Analysis, 2019-2024, Mordor Intelligence).

Indian scenario: India oral care market has shown tremendous growth by value and volume in the last few years. The growing oral care market is driven by change in consumer lifestyle, demand for premium products and rising disposable income, among others.

Penetration level of oral care products in urban area is high. The growing awareness of oral hygiene has created sizeable demand for premium products in urban areas.

In recent times, companies are focusing on rural areas for penetration of oral care products to increase sales as rural consumers have started shifting from toothpowder to toothpaste and toothbrushes.

However, per capita consumption of oral care products in India is low compared to the U.S and China. Moreover, the low penetration of oral care products in rural area showcases the latent growth opportunity for leading brands in the oral care space.

Indias oral care market is fragmented in five categories namely toothpaste, toothbrushes, toothpowder, mouthwash and others. Toothpaste is dominant in oral care market. It is the primary product in daily oral hygiene and hence enjoys a sizeable presence in urban and rural area.

Increasing awareness of health and personal oral hygiene has made the average Indian more aware of the impact of their diet on their teeth and mouth. As a result, he/ she is now willing to pay more for preventive action. This has helped the toothpaste category to grow substantially in the oral care market.

Consumer upgradation in the dental care segment has followed a peculiar pattern. While in urban cities, the shift is from regular toothpaste to herbal/ayurvedic variants, in the rural markets, the same shift is happening from either powder or other plant-based homemade products to dental care solutions. As a result, Ayurveda or herbal-based products now constitute about 20% of the total oral care market, as compared to zero even 10 years ago.

Opportunities: The oral care segment is expected to grow significantly over the coming years. This optimism is owing to the following factors:

• According to a report by the United Nations Population Fund, Indias population grew at an average annual rate of 1.2% between 2010 and 2019 to 1.36 billion, more than double the annual growth rate of China.

• Increasing focus on education, health and hygiene is growing the awareness of the need for proper oral care.

• India is expected to be the youngest nation in the globe. By 2020, the average age in India will be 29 years with 64% of its population falling under the working age bracket.

• Less than 5% of Indians brush twice a day and only 65% of the population uses toothbrushes and toothpaste resulting in a huge untapped market.

• Indias toothbrush usage is more than 9 months, whereas the global average is 2-3 months leading to huge potential.

Threats: The huge opportunities in the oral care segment in India could increase competition. While this could impact the prospects of incumbent players, it widens the promise for private label players such as JHS Svendgaard.

An increase in private label players could impact the Companys growth prospects going forward. Also, volatility in crude oil prices could impact the Companys cost structure significantly.

Outlook: The Indian Oral Care market which is about US$1,674.0m in 2019 is expected to grow annually by 6.8% (CAGR 2019-2023).



JHS Svendgaard Laboratories Ltd. is Indias largest integrated manufacturer of oral care products that services the demanding requirements of leading Indian and global FMCG brands operating in Indian. Apart from contract manufacturing partnerships with domestic oral care brands, the Company manufactures proprietary brands as well. The Company manufactures the entire range of oral care product at its ISO-certified state-of-the-art manufacturing facilities at Kala Amb (Himachal Pradesh).


The Companys revenues declined from C14,264.19 Lakhs in 2017-18 to C12,411.29 Lakhs in 2018-19, a decline of about 15%. It reported a Net Loss of C159.71 Lakhs in 2018-19 against a Net Profit of C2,607.00 Lakhs.

Significant changes i.e. change of 25% or more in the key financial ratios In accordance with the amendments notified by SEBI in Regulation 17 of the SEBI (Listing Obligation and Disclosure Requirement) Regulation, 2015 on 9th May, 2018, the details of significant changes i.e. change of 25% or more in the key financial ratios as compared to the immediately previous financial year along with detailed explanations are reported hereunder

Particulars FY18 FY19 % of change Reason for change, if change is 25% or more
Debtors Turnover Ratio 3.30 2.13 (35%) The Company has increased export business, hence there is decline in this ratio.
Inventory Turnover Ratio 16.20 16.77 3%
Current Ratio 3.71 2.49 (33)% The Company availed of a cash credit facility to meet out the working capital requirements which directly affects the current obligations.
Debt Equity Ratio 0.01 0.03 416% The Company has taken additional bank borrowings of ##Rs. ##500 lakhs during the year to manage its working capital requirements.
Operating Profit Margin 34.00 29.14 (14)%
Net Profit Margin 19.94 3.06 (85)% The Company recognised net income amounting to ##Rs. ##2,727.21 lakhs during the year ended 31 March, 2018 received pursuant to the Settlement Agreement from its erstwhile customer.
Return on Networth 15.89 2.03 (87)% The Company has recognised net income amounting to ##Rs. ##2,727.21 lakhs during the year ended 31 March, 2018 on account of compensation received pursuant to the Settlement Agreement from its erstwhile customer.


JHS strives to be an ‘injury free and ‘zero environmental incident organisation. For it firmly believes that a risk free environment results in improved productivity and superior performance.

In line with the philosophy, the Company has created a framework that focuses on eliminating the risk of injury or incidents. Subsystems and procedures have been institutionalised to facilitate risk-free operations. The Company incorporates the latest engineering standards and continually invests in contemporary safety hardware at all its facilities.

The Company ensures fair and regular audit of all operations and guidelines for assessment. This ensures compliance to all applicable Environment and Health and Safety regulations.


JHS believes that ‘great people create great organisations. As a result, it considers its human resources as its key competitive advantage which di3erentiates the organisation from among the clutter. Hence, it remains committed in creating an engaging environment and a learning culture which facilitates each member to gather knowledge, sharpen their skills and deliver superior performance.

During 2018-19, JHS focused on various strategic initiatives for engaging and motivating its team. They include:

• Transparent review systems.

• Rewards for teams and partners.

• On-job training to sharpening technical and process skills.


Since information technology has become a business imperative for e3cient business operations, protecting digital assets, systems and infrastructure from misuse, loss or unauthorised access has also become a business mandate.

JHS maintains a strict vigilance regarding entry of laptops, mobile phones, hard drives and pen drives at all operational locations. In day-today operations, the Company has put in place adequate safeguards to prevent misuse of information. Further, the Company has instituted multi-layered security systems. This enables regulated access to company and business related information to select employees (as per hierarchy and need) which facilitates in data security.


JHS has a well-defined internal control system which is structured around the business and its operations. The system is well tested and certified internally as well as externally to prevent escalation of risk.

The Audit Committee is in charge of reviewing the e3ciency of the control environment and monitoring the implementation of key recommendations. A robust ERP system accentuates the control system by officering furthering control and analytics of the Companys operations.

The Audit recommendations and follow-up action plans are also discussed with the Board of Directors and Senior Management of the Company along with the Audit Committee to ensure strategic action and adequacy of the control system.


JHS appreciates and encourages a robust two-way communication with its stakeholders. JHS always believe in maintaining open, honest and clear communication with its stakeholders. JHS has mapped its internal and external stakeholders in a structured way, and carries out engagement programs with them on a regular and ongoing basis. Currently, around 55.83% of the Companys equity are being held publicly and traded on stock exchanges. JHS endeavours to disseminate accurate, transparent and timely information to all its stakeholders.


JHS aims to foster a risk-aware culture by adopting an integrated approach towards effective risk management. Its philosophy of risk management is underpinned by identifying, assessing, measuring and monitoring risks on an ongoing basis. The Company has an independent and dedicated risk management structure with clear goals compatible with the Companys vision and strategy. The risk management department is guided by well-established policies and procedures that are continuously benchmarked with national and global best-practices.

The Board of Directors provides oversight and also reviews the Risk Management Policy. Additionally, an independent audit by internal auditors officers a second assessment on potential risks and mitigation measures.


Statements in this Management and discussion and Analysis describing the JHSs objectives, projections, estimates and expectations might be construed as forward looking statement within the meaning of applicable laws and regulations. Actual results may di3er substantially or materially from those expressed or implied. Important developments that could affect the Company operations include a downward trend in the Oral Care Industry, rise in input costs, exchange rate fluctuation and significant changes in political and economic environment, environment standards, tax laws, litigations and labour relations.