Ladies and gentlemen, good day, and welcome to Bajaj Consumer Care Q4 FY 2022 earnings conference call hosted by ICICI Securities. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference, please signal an operator by pressing star and then zero on your touchtone telephone. Please note that this conference is being recorded. I now hand the conference over to Mr. Karan Bhuwania from ICICI Securities. Thank you, and over to you, sir.
Hi. Good morning, everyone. It is our pleasure at ICICI Securities to host Q4 FY 2022 results conference call Bajaj Consumer Care Limited. The management is represented by Mr. Jaideep Nandi, Managing Director, Mr. Dilip Kumar Maloo, Chief Financial Officer, and Mr. Richard D'Souza, General Manager Finance. I now hand over the call to Mr. Jaideep Nandi for his opening remarks after which we can have the Q&A session. Thank you.
Thank you, Karan, for hosting this call, and good morning from India. Along with me, Mr. Malu and Richard, we have some of our senior colleagues from the management committee with me. Let me take you through the performance of the company for Q4 and FY 2022 before we open the house for questions.
The unprecedented inflation in the economy due to steep rise in material prices continued to impact disposable income as well as consumer spending adversely. While we are slowly seeing some recovery in demand, the last quarter of FY 2022 remained subdued. The hair oil industry was not spared, with the overall hair oil market declining by 6.5% against the same period last year. The Hindi-speaking markets, where we have a larger presence, continued to decline faster, while the markets of Maharashtra, West Bengal and South, which fared relatively better, also experienced a slowdown in Q4. The company reported a sales turnover of INR 216.1 crores for the quarter, which was lower by 10.7% on a high base of 43% growth last year. The CAGR for two years for the quarter was positive 13.2%.
The volume decline for the quarter was 9.8%. On a sequential quarter basis, the sales were slower by 4% over Q3 of FY 2022. For the full- year FY 2022, the sales was at INR 865.5 crores, a decline of 3.6%, while the volume decline was a little over 1%. The hair oil sales value was lower by 0.8% on a full- year basis, while we had a volume growth of 1.3% in overall hair oils for the full- year. With high dependency on LLP and RMO, both of which are witnessing unprecedented inflation, the company's gross margin continued to be adversely impacted in spite of price increases totaling 7% taken during the last five quarters in ADHO.
LLP and RMO prices for the quarter were 27% and 41% higher respectively over the corresponding quarter of the previous year. The gross margin for Q4 FY 2022 was 56.2% as against 60.6% in Q4 of 2021. Against the previous quarter, Q3 FY 2022, where the gross margins was 54.4%, we had an 80 basis point improvement in gross margins. LLP and packing materials have been volatile and inflationary due to surging crude prices on account of the Ukrainian crisis. This uncertainty is expected to remain till the Ukraine crisis is resolved. For RMO, while the crop in India has been extremely good, the prices have not corrected due to global factors.
The ban on export of palm oil by Indonesia, the impact on sunflower oil from Ukraine and Russia, and the lower crop of soy in Latin America have impacted the overall edible oil complex. We will continue to keep a close watch on commodity prices in the coming quarters as well as the competitive landscape, and we will take price corrections as and when necessary. The company.
Ladies and gentlemen, it looks like the management line is just disconnected. We request you to hold the line while we call them back. Please do not disconnect. Ladies and gentlemen, thank you for your patience. We have the line for management reconnected. Thank you.
Sorry, the line had dropped, so I'll just pick up from the pricing of the raw material prices. LLP and packing materials have been volatile and inflationary due to surge in crude prices on account of Ukrainian crisis. This uncertainty is expected to remain till the crisis is over. For RMO, while crop prices in India have been good, the prices have not corrected due to global factors. The ban on export of palm oil by Indonesia impact on sunflower from Ukraine and lower crop of soya in Latin America have impacted the overall edible oil complex. We'll continue to watch commodity prices in the coming quarters, as well as monitor the competitive landscape, and we'll take pricing corrections as and when necessary. The company has continued and will continue to invest in its brands, including new launches for long-term growth.
A&P spends for the quarter was 19%, which is 1.2% higher over the sequential quarter. The EBITDA for the quarter was INR 38.6 crores with a margin of 17.9%. PAT for the company was INR 38.4 crores against INR 53.9 crores for the corresponding quarter last year. The EBITDA for the quarter was down by 7% over the previous quarter of Q3 2022. We have been witnessing for the past few quarters, consumer downgrading continued for the quarter, especially in premium hair oils. There has been a decline in hair oils across categories, including coconut and amla in Q4 2022, while the premium categories have witnessed a sharper decline.
With slowdown in rural markets as witnessed in Q4, as well as the key wholesale markets in the north, east, and central parts of the country continue to see reduced business volume. Our company had a double-digit decline in wholesale, a single-digit decline in rural, while retail continued to grow in the quarter as well. The company took a one-time intervention to rationalize wholesale price uniformity across states in January, which affected January sales but had its desired impact. February, March, and April have all had sequential growth since. With improved pricing, there is a renewed focus on wholesale to regain distribution back to pre-COVID levels. Expansion of the wholesale loyalty program and its expansion to rural markets is also being taken up.
Retail, which has been the focus area of the company, where various initiatives are underway, grew by 3% for the quarter, while on a full- year basis it grew by 10%. Retail is being further strengthened across top towns with a new retail activation program being rolled out to increase focus in the top urban cities. Both modern trade and e-commerce continue to scale up as per plans. While the January event was not as high as expected due to muted footfalls, February and March saw very good revival in sales across chains, leading to 13% growth for quarter four in modern trade B2C. Bajaj Coconut Oil got listed in all major chains like DMart, Reliance, Star Bazaar, and many other local independent chains.
Our anchor play with larger packs of various products have worked well across these retail channels. Our in-store execution is being strengthened along with improved store visibility. E-commerce continued to scale up well with growth of 50% in the quarter and around 80% growth on a full- year basis. Strategic exclusive SKUs and digital-first brands for the channel continued to drive growth. Digital brands Natyv Soul and Bajaj 100% Pure have started well. In rural, various efficiency initiatives through technology interventions have helped us optimize van operations as we look to improve brand throughputs. With portfolio expansion in progress, the focus has been to seek some of these new brands in the rural markets as well. ADHO continued to be supported across TV, social media platforms and media, and print media supporting key markets with increased investments in advertising during the quarter.
The new youthful thematic campaign, Dialing Up the Element of Style, has started getting positive reviews across younger consumers. The campaign has been integrated for both traditional and digital media. The new commercial on TV is performing better across both memorability and messaging parameters. Digital marketing for ADHO is being continuously dialed up, and we are now actively using new-age influencers to reach out to younger customers. Expansion of the hair oil portfolio continued with further launches in Q4. During the quarter, the company launched its product in the category of value-added coconut hair oil with its brand Bajaj Coco Onion across the country.
This product is the first of its kind to be launched in general trade as well as across modern trade and e-commerce, with five SKUs being launched from INR 20 for 45 ml, INR 52 for 90 ml, and right up to INR 195 for 350 ml for modern trade. Onion is amongst the newest ingredient preferred by consumers, especially younger consumers, and is a time-tested and trusted ingredient which stimulates growth. Bajaj Coco Onion hair oil campaign featuring Ileana D'Cruz started from 15 April 2022. The campaign has TV, digital, and in-store visibility campaigns. Both Bajaj Pure Coconut Oil and Bajaj Coco Onion hair oil have been rolled out across the country in February and March 2022, respectively.
Bajaj Pure Coconut Oil has started showing good traction across all channels, including GT. The Amla portfolio for the company grew by 14% in the quarter and 32% in the year, with the share of Amla Aloe Vera touching 3% in quarter four. Distribution scale-up and other in-shop initiatives planned in Q1 will continue in the category to carry on the Amla growth. With the broad-basing of the hair oil portfolio, which now includes the two Amla brands, both Amla Aloe Vera and Sarson, the launch of Pure Coconut and value-added coconut, the total addressed market for the company in hair oils have more than doubled from 35% at the start of FY 2022 to more than 83% of the addressable market by the beginning of FY 2023.
The launch of premium range of Almond Drops extensions in hair and skincare has been initiated with the launch of Bajaj Almond Drops Almond + Argan Oil in March, with the product being priced 100% premium to Almond Drops. Further new products are being rolled out under the Almond Drops umbrella with two launches, one each in skincare and haircare being planned in Q1 FY 2023, with further launches slated during the course of the year. Our digital-first premium brand in hair and skincare, Natyv Soul, saw five additional products launch in the quarter, increasing its portfolio. The other digital brand, Bajaj 100% Pure, saw the launch of Kalonji, along with castor oil, jojoba, and olive oil, which we launched last quarter. Both the brands have seen good consumer reviews, and the initial offtakes are encouraging.
Launch of new products in both these digital brands will continue in FY 2023, as well as these being an integral part of the e-commerce strategy as we scale up for the activation and support in e-commerce space. Digital marketing in March on Natyv Soul saw social media posts reach 1 crore, while Google search display had a 16 crore impression. Influencer posts touched 1,500 posts in Q4. YouTube long-format campaign started from March and had 4.7 million views. Bajaj 100% Pure oil also saw good traction with a click-to-conversion rate of 9.63%. In the international business, Bangladesh grew by 36% in the quarter and 55% in the full-y ear over last year.
The economic situation in Nepal, unfortunately, has worsened in Q4 with non-essential imports being banned in March, impacting demand. In Middle East, we are doing significant changes in the infrastructure and business practices, which will ensure enhanced business delivery from Q1 of FY 2023 onwards. The ESG initiatives to reduce carbon footprint, greenhouse gas emissions, especially in case of packing materials, continue to progress well. There is a reduction in consumption of approximately 16% in glass bottles, 7% reduction in paper, and 14% reduction in laminate through optimization and rationalization of specifications during the year. Currently, bulk of the material in our packaging material is recyclable. We have successfully completed trials of recyclable laminates for commercial production. As part of our extended producer responsibility, we have collected and disposed of 100% of plastic as per our commitment.
Conservation of natural resources like water, reduction of carbon footprint, wastages at factories also remain key focus areas. Water conservation, consumption, conservation efforts saw us measuring water consumption sources, installation of controls at critical places, helping us reduce 27% of our consumption in second half of FY 2022. Optimization of transport led to reduction in distance traveled per liter of finished good by 10% in FY 2022. We have now been certified as a great place to work by the GPTW Institute for the fourth consecutive year, with improved scores across most functions in the company. The company has also embarked on sales capability development programs for frontline sales for range and multi-category selling.
While the market conditions have been challenging currently with unprecedented inflation and subdued demand, the company will continue with its mid- to long-term strategic direction of expanding its distribution footprint, build a comprehensive haircare portfolio, further launches in the premium hair and skincare range under the Almond Drops umbrella, and scaling up the digital-first brands Natyv Soul and Bajaj 100% Pure. Along with this, the investments in these new brands in both conventional and digital media. We believe that as the market conditions improve, this will help us to achieve a long-term, sustainable, profitable growth for the organization without being over-reliant on ADHO. With that, I end the opening remarks and open the session for questions. Thank you.
Thank you very much, sir. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Anyone who has a question may press star and one. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Our first question is from the line of Percy Panthaki from IIFL. Please go ahead.
Hi, sir. Just wanted to know, out of the total ad spend, this quarter of about INR 40 crores, how much of this is on the new launches? I mean, how much of it is, let's say, excluding ADHO? Roughly, at this stage, it is just about a little less than 10% on non-ADHO, but that should be keep picking up. Last year, last quarter, we wanted to go a little stronger on ADHO itself because in Q3 our ad spends were much lower. Last quarter was mainly on ADHO.
Going ahead, what percentage of your ad spends will be non-ADHO in your view, let's say for FY 2023 as a whole?
We are looking at about 25% spend as far as non-ADHO portfolio.
Of this 25% universe, how much of it do you think would be digital?
I think if you look at it might go up to 30% based on what traction we see. Just to give you a perspective on overall this overall basket of ad spend, there'll be three baskets where we'll be spending. One is on ADHO itself. Two will be two brands as far as GT is concerned. One is obviously Bajaj Coco Onion. There'll be another brand which we are launching. In these two some money will be spent. There'll be a third leg which will be under digital media, which is basically Natyv Soul and 100% Pure, which will actually cross-play along with some of the digital spends that we'll be doing in some of the other brands as well.
Mm-hmm.
In that, if you see, roughly we are looking at about a 10% spend going to, let's say the digital brands, about a 20-odd%, going to, let's say, Coco Onion and the other brand that we are looking at, and about 70% remaining with ADHO. This is roughly the breakup. These numbers will keep changing. I mean, these are not absolute numbers. These are just tentative.
Understood. Basically the non-ADHO spend, which is currently 10% and it goes up to 30%, does that increase your overall ad budget? Or do you think that you would be able to accommodate within this approximate absolute number of about INR 40 crores per quarter or something like that?
No, as stated earlier, we have stated that we will be increasing our ad spends annually by 2.5% to at least 200-250 basis points in this year at least.
Okay. Sorry to belabor this point, but last sub-question on this. As far as ADHO is concerned, why do we spend so much when basically the entire hair oil industry has no demand right now? Even if I look at, let's say, a Marico or a Dabur, for the quarter on a three-year CAGR basis, the sort of sales is flat. It's clearly an industry issue where the consumer is just not prioritizing this category. At this point of time, what is the need to advertise ADHO so aggressively?
See, if you look at the last four years' data, and if you were to look at the larger of the hair oils, you will see that we have taken a price premium amongst them from, let's say, FY 2019 to FY 2022. If you were to look at, we are significantly up the price premium against that. I mean, that itself might have some impact. We would like to have this price premium on ADHO, because we feel that this is something that we want to defend. To defend this, we would like to remain in this advertisement so that at least we are able to defend the price premium that is there.
Clearly we can see that when we are splitting our advertisement between digital and the non-digital media, this is the bare minimum, GRPs that we would like to have across markets of interest for us. I mean, we have some specific numbers that we would want to target as far as ADHO is concerned, we would like to remain there.
Understood, sir. Next question is on margins. Given that, we probably have not seen the full impact of the cost inflation post the Ukraine war, et cetera, and also given the fact that you want to increase ad spends by 200-250 basis points.
Yeah.
At what level do you see the EBITDA margin bottoming out for you?
The EBITDA margin for the next two quarters will go a little lower. There's no question on that. We feel that over time, these price corrections, at least the RMO part of it and even LLP part of it, will get corrected by the next two quarters. I think we should see more of an evening out of the EBITDA by the end of the year.
Understood. In the interim, in the short term, any sort of idea how bad it can get? Like if we are at 17%, can it go only to 15% or it can go closer to 10% also? Secondly, in the slightly longer run, let's say towards the end of FY 2023, what kind of margin do you target at that point of time?
See, Adil, I would not like to get into quarter by quarter because it is pretty volatile at this stage. It's very difficult to comment as to quarter by quarter how the EBITDA margins will pan out. By the end of the year, we should be targeting somewhere close to what we are currently or maybe a little lower.
Okay, okay. Understood. Yeah, that's all from me. I'll come back in the queue if I have more questions. Thank you.
Thank you.
Thanks.
We'll take a next question from the line of Shirish Pardeshi from Centrum Broking. Please go ahead.
Yes, hi, Jaideep. Maloo, sir, Richard. Good morning. Thanks for the opportunity. I've got three questions. The first question is in continuation with the previous participant. You said you have taken about 7% price increase. If you can quantify what is the current weighted inflation we have, and against that, the 7%. Basically I'm trying to arrive what is the gap?
You are saying, see there is a material cost impact. Are you talking of the material cost impact that is there and the break-up of the material cost impact? Is that what you're asking?
No, I'm saying, with the material basket, RMPM put together, what is the total?
That's why I told, so break up of the material cost basket. Roughly if you ask me, there has been a 6% gap that you see between, let's say, FY last year versus FY this year. From the material cost going up from 36.7- 42.7. That 6% comes from roughly about, LLP comes to about 3%. Packing material is about a percentage point. RMO is about 1.5%, and the mix is about 0.5. This is roughly, very roughly the breakdown.
Okay. If that is the status, do you think there is a merit to that we can take price increases? Or do you think now the category is also seeing the headwinds, so it's not the right time to pass on the inflation at this time?
At this stage, as I said, if you look at last year, we had taken price increases against the larger brands in hair oils, while they have remained much more muted. Hence at this current stage, with what is looking at demand, we are not looking at price increase immediately. In future, maybe in the next quarter or so, we'll see how the demand conditions remain. We are aware that there's been a good monsoon, and we are seeing a bit of recovery in demand. If that happens, we'll see how to take that forward. Immediately, in the very immediate near term, we are not looking at a price increase. Not immediately.
Okay. My second question is on the distribution front. We had Almond Drops, then we had small representation in Amla, and then we ramped up Amla with Aloe Vera and then Sarso has come. In addition to that, now you have Vakro and other extensions. How do you think one should look at the distribution angle and whether the sales is ready to take this kind of broad portfolio? Because I think when you have a single brand, your skill set with the retail and even distributor would be more dependent on your fast-moving packs. When you have a range, do you think any efforts are made on that? Of course you have van sales which is there, which is complementary.
In the medium to long term, are we making some changes in the field force?
I think absolutely a fair question because, see, in van sales, if you look at van sales will only cover most of the rural SKUs, and some of these higher premium range of products would actually be pushed through your urban retail mainly and a little bit in the larger rural towns. One of the things that we have been working on just on this direction is basically our work that is happening as far as retail initiative is concerned. As of now, we have about close to 3 lakh retail outlets, a little less than that. That is what we are trying to ramp up further going forward, as well as do retail activations and loyalty programs, which pushes that retail part of it as far as distribution is concerned.
On the other side, a lot of work is happening as far as sales training and inputs are concerned as far as the entire sales force. Sales force, we have engaged external agencies to work with our sales team to look at multi-category selling, multi-category as well as range selling itself. Because transferring from a ADHO selling to a multi-category selling is a skill set by itself. Fortunately for us, there have been senior leaders and also mid-level leaders who have come from outside who are used to this category selling, so that is adding value to that entire thing. That we are seeing good traction happening. Already in the last two months, we have seen some improvement happening in that direction, and I'm quite confident that this will only improve as we go forward.
A sub-question on this, that we are also trying to end up with Vakro at the premium end, and we have launched even Almond Drops at the premium range. Do you think the premiumization strategy, because I'm just relating to the numbers what you mentioned, the category decline is much sharper in the urban markets. How one should look at in the medium term whether these all efforts will yield the fruits faster or you will take the spread maybe another four to five quarters?
See, it's a question of what you want to target particularly as an organization. We are looking at building brands which will give us larger gross margins over a period of time. If you look at even the value-added coconut, the Bajaj Coco Onion, it has gross margins which are very close to ADHO. A little lower obviously, but closer to ADHO. We would rather want this kind of brands to get established as an organization rather than have the flanker brands or our rural portfolio brands which will not give you, even if you scale up a lot, they will not give you any really any gross margin to play with. Ultimately, as an organization, we have always remained a very ADHO-focused organization. Our entire performance is dependent on the performance of ADHO.
If we have to break that shackle, we need to invest, and we need to develop some premium brands whereby over a period of three, four years, we have at least two, three brands which are giving us gross margins as well. While we will build volume through the Amla and the Coconuts of the world, and Coconut incidentally is also a pretty decent margin for the value added. We would like to develop some of these premium brands so that at least we have a portfolio at the end of three, four years to go with.
Okay. My last question is on these new products, starting from Aloe Vera to last one is the premiumization of Almond Drops. What is the contribution of these products? I mean, not quarter-on-quarter I'm saying, but for a full- year if you can break it out. Out of these four new products what you have launched, including Natyv Soul, which you think looks promising in next two to three years, if I may put a number, say INR 50 crore mark. Which brands you think which will cross INR 50 crore?
I would, again, not get into the number game right away at this stage. If you ask me, the three brands or the three buckets that you talked about, all three play a different role as far as our company is concerned. The value-added coconut is basically our strategy to get into the entire hair oils market through two routes. One would be the brand-led investments, which is Almond Drops and the Bajaj Coco Onion, which will be brands that will be established. The other will be where we are exploiting our distribution reach, which is through our coconut, through our Bajaj Amla Aloe Vera, and through our Bajaj Sarson Amla. That completes the hair oils portfolio, and I think all these brands have a good potential to reach the kind of numbers that you're talking about.
The number of years we'd like to see, but most of these brands have that potential. You move on to the Bajaj Almond Drops extension, that is something that we have been working on for a long time. This is not something that we just wanted to launch in a hurry because there's more a method to the madness that we want to be there. Now the portfolio is more or less ready, and you will see the launches happening. Now, obviously, because of the same point that all of you are saying, which is basically the amount of investments that we can do, we will have them as graded launches. Some of the brands will get launched this year, and some of them will be next year.
The Bajaj Almond Drops umbrella is something that we would like to push for on a much larger scale as situation improves. These are all in the premium range. Some of these brands do have a potential to cross the numbers that you are talking about, some of the products in that entire umbrella. Natyv Soul and Bajaj 100% Pure are brands that we will keep scaling up. I don't think they'll reach the numbers that you are talking about in the very, very near future, but we have some other strategic thought process as far as these brands are concerned. We'll see as they come back.
Thank you, Jaideep, and all the best to you. I have more questions. I'll come back and get to you.
Thank you.
Thank you. Before we take our next question, we would like to remind participants to ask a question, you may enter star and one. Our next question is from the line of Deepak Shankar from Trustline Portfolio Management. Please go ahead.
Good morning, everyone, and thanks a lot for the opportunity. Firstly, wanted to understand this premium hair oil category for industry, how was the performance for Q4?
Overall, the decline was about 6.5% in the premium hair oils category.
Okay.
Mm-hmm.
Secondly, for the last two to three years, we have been seeing that wholesale segment for us has been declining at more than double-digit terms. When are we seeing that being arrested for us? Are we having a higher proportion of wholesale terms as compared to industry? Even if the industry turns favorably, are we in a better position to improve our volumes in terms of wholesale?
To answer your question, our component being higher, yes. Traditionally, we have had a higher component as far as wholesale is concerned, roughly about 5%-10% higher than that in similar categories, because that's how traditionally we have built our brand, through a more wholesale dependence. That's why our retail presence in urban towns has been relatively lower. The focus in the last two years have been to ramp up the retail. Obviously, the focus was not to drop wholesale, but during COVID period, we were maximum impacted because during COVID period, lot of wholesalers had dropped down, which we are now trying to, you know, gain back.
If you look at today's distribution, if you look at quarter four's distribution of retail, wholesale, and the rural market, as we call it is actually at 25%, 25%, 50% in terms of the breakup, which earlier used to be 20%, 30%, 50%. That's those are the kind of numbers that used to be. Yes, wholesale as a segment has dropped down. Retail has gone up, but retail is a planned activity. Wholesale is where two things have happened. One is during the COVID period, there has been quite a bit of disturbance as far as the wholesale markets are concerned, and there were a lot of price instability that happened across states, a lot of inflation. Those corrections have been done in January.
We took a one-time hit in January, and I think clearly we can see the fruits of it, where the prices in wholesale has improved much drastically, and wholesale has started to show much better performances in the last two, three months that we have seen.
Going forward, if industry improves, we could see, along with the industry, we could also improve volumes?
I would think so, because I think as far as urban retail and rural markets are concerned, clearly we are seeing we are better off than where we were maybe two, three years back, before pre-COVID period. In rural, the van penetration has obviously helped. Now we are a little better off in terms of rationalizing them, in terms of technological interventions that we have done with GPS, et cetera. So the van throughput efficiencies. Van is what we are now looking at. So that has clearly moved the needle as far as rural markets are concerned. Retail, there has been a clear focus for the last 8 quarters, and that is clearly showing as far as our results is concerned.
It's wholesale where we have dropped our ball a bit, and that is clearly one of the focus areas for the company in this year.
Okay, sir. Lastly, so what is the kind of growth we are expecting for FY 2023 in terms of revenue?
Let's hope that the market improves. I don't think we'll be able to give you a clear number as far as the growth numbers are concerned. We have internal targets which are pretty ambitious, but we'll have to see that the market conditions also improve and our strategy also need to go right. At this moment, I am quietly confident that we should have a good year as far as top line is concerned this year.
Okay. Thanks a lot, and all the best.
Thank you.
Thank you. We'll take our next question from the line of Kaustubh Pawaskar from Sharekhan by BNP Paribas. Please go ahead.
Yeah, good morning, sir. Thanks for giving me the opportunity. My question is on the market share. We have around 10% market share in overall India. Now, since our portfolio has increased and now we are covering around 83% of the overall hair oil industry, where do you see your market share, you know, going up to? Do you have any specific targets? I don't want from next three years perspective, but over the next four to five years, where do you see your market share, you know, improving?
That's a good question. In fact, that is the purpose where we wanted to be. Now that at least we are playing in all the hair oil categories or the entire categories, we'll have to also tone down and tone up our expectation based on various other parameters as well, in terms of what kind of spends we would like to do, what kind of EBITDA margins we are making, et cetera. As we scale up other brands that we are wanting to invest in, we might do a little bit of jugglery in terms of the distributed brands. I mean, the brands that we are pushing through distribution. Ideally, our objective would be to scale up Almond Drops, scale up all the brands that we are advertising through, where our gross margins are higher.
We will like to keep the other portfolio a little balanced. We have a different expectation as far as market share is concerned. I would not like to quote numbers at this stage because there will be a function of many other parameters. Yes, in terms of our own internal growth, we have some ambitious numbers.
Related question to that is with your, you know, the target or expectation of improving or scaling of the brands, do we also need a scale-up in operations? Are you looking for capacities, you know, capacity additions in, you know, in some of the geographies, from where you can have a much better distribution of your product?
Okay. Yeah. That's an important question. In fact, a lot of work has been happening at the back end in terms of both streamlining our manufacturing operations as well as making it far more efficient. In fact, just to give you a number as far as manufacturing and supply chain initiatives are concerned, we saved about INR 5.9 crore through about 21 initiatives. Large part of it was obviously in terms of supply chain, in terms of lot of rationalization that we did. One of the other things that we did was in terms of which manufacturer, which is the best plant fit for each depot location. The 10% reduction in transport cost that we did was a lot of algo that was done in terms of connections from each plant to the depots.
Now, as we scale up, we are also looking at next five years, what kind of numbers we are looking at from which region, and hence accordingly, how the manufacturing footprint of the company should be. As you are aware, Guwahati plant which is still under the GST benefit regime will be there till 2027. That's tax benefit that we are getting. Now, as that goes off by 2027, we are also looking at how we can bring the manufacturing facility closer to the markets that we operate and closer to the import locations for the imported products. Whereby the movement of raw material and the movement of FG is the least both put together. These kind of rationalization are happening, and as a result, some.
There will be some investments that will be made as far as our own plant is concerned, while we also set up a robust manufacturing facility as far as our 3PM, 2P, third party, second party operations are concerned. Yeah.
Sir, any specific number you want to, you know, give in terms of CapEx for next two years? Or, it is too early and, once, the scale-up happens, then only you'll be able to give us any numbers?
While we are crunching numbers internally, I would not like to talk of numbers right away because these are all still in the growing broad phase. Based on how the market reacts and how our brands get traction, et cetera, we'll also be building the facility. The requirement is still a couple of years away, so we have the luxury of time. In that time, in the next two years or so, I think we'll have a better view of where the manufacturing blueprint lies.
Right, sir. Sir, one last one on the international business. What is the current contribution if we are looking to the FY 2022 numbers and, you know, whether we are looking to add, you know, maybe geographies, so that the even international business would scale up parallelly with what your strategies are for the domestic business.
The international business contributes to about 4% of our total business. Over time, I think, we have some focus areas. Again, I would not like to talk of exactly what we are doing at this stage. Maybe in this year we should see some movement as far as the international business is concerned. We are looking at one or two markets where we would want to focus on the better. That's where we are focusing on. The last two years we had said that international will not be a focus area for these two years. FY 2022, 2023 is where we would like to pick up, and that's what we are doing currently. International business, just a small correction, international business is about 3% and not 2% of the total.
Right. NPD contribution is how much, sir? New product contribution to your revenues. Any.
At this stage, again, it's very little, because as of now, we have just started. ADHO still remains 90% of the portfolio, because we have just started investing in the new products as of now. The contribution of ADHO has gone down from 93% to about 90%, by this year. This year you should see a significant change in that.
that would be largely with Amla's contribution going up, not the new brands you have recently
Not really. Amla will continue. Amla has already done whatever it had, and there'll be some more push obviously as Amla is concerned. I think the overall other new products should be a big difference in the total number.
Okay, sir. Thanks. Thanks for the understanding and all the best for your future plans.
Thank you.
Thank you. We'll take the next question from the line of, Vidhi Shah from YES Securities. Please go ahead.
Yeah. Hi, am I audible?
Yes.
Hi, morning. Thanks for taking my call. The first question is Natyv, the new launch that you all have. It kind of spell checks on Amazon, and it provides wrong results, either, you know, N-I-T-I-V or N-A-T-Y. Since it's a B2C brand, you know, direct to consumer, is management kind of aware of addressing this actively? My second question is on the GT side. Would it be safe in assuming that the company's new launches and the relaunch-related investments are kind of having a, you know, impact on GT? Would the pressure on, because of the new launches that have come on GT continue for the next one to two years?
If so, is it safe to assume that, you know, 1.4-1.5 crore pack is a new base that you form? Is it gonna continue going forward? If so, why?
Okay. Four questions, as I see it, and I'll answer the first question first. Natyv Soul is how we wanted distinctly the brand to be, with N-A-T-Y-V. We are well aware that in a search, N-A-T-I-V, et cetera, will come in. That's where two things are happening. One is we are actually buying the N-A-T-Y-V and pushing the search to N-A-T-Y-V, as you would see when the search happens. The other thing is, as we built up the brand, N-A-T-Y-V, Natyv itself will become popular, which we are also seeing at the point of attraction. This is how Natyv goes. This was something that was thought through, and this is how we want to play it out. This was a planned launch in that manner.
Coming to your brand and what it will mean in terms of the EBITDA moving forward and the PAT moving forward, you're absolutely right. The question for the organization is simple. Whether we remain in ADHO and keep trying to push ADHO beyond a certain level. Now, given what the market conditions are, you will always be a slave to both market conditions as well as to the material cost. You will have to break the jinx at some point of time and hence move forward so that you have a multiple baskets to play with, not only possibly in hair oil, but also across categories, which is what we will be trying to develop over the next two, three years. Yes, there are no magic bullets, unfortunately.
Hence, investments in these brands will happen, and they'll be for a short term, little bit of erosion of the EBITDA, which we'll live with. We assume that the kind of work that has happened, these brands will start scaling up over the next two, three years, and we'll see a reversal of the, EBITDA numbers as well. We also expect that the material cost will not remain. Now, these are absolutely an unprecedented high. The question is whether we would want to ride out the material cost and the demand situation to improve and then start investing. There is never a right time to invest.
We have taken a decision that we invest now so that at least the investment starts, and by the time the cycle turns, at least we are in a better position rather than start afresh at that stage.
Sure, sir. Thank you, sir.
Thank you. A reminder to our participants, if you wish to ask a question, you may enter star and one. Our next question is from the line of Shirish Pardeshi from Centrum Broking. Please go ahead.
Hi, Jaideep Nandi. Thanks for the opportunity. I have two questions. One question, when I look at last 2.5-3 years, I think there was clear-cut downtrading. People were downtrading to Amla and low-cost value-add segment. Now you have, now the assessment says that even Amla is also declining and Coconut has just managed to flat. Just wanted to understand in your lens and in your assessment, what exactly are the problems the hair oil industry is facing? Is it that the status of hair oil is still discretionary and people are not spending on it? Because when I see last five quarters now, I think fairly the people have started going back to, and economies also recover. Still, hair oil typically has not improved.
Maybe if you can help me to understand what are the problems, which we are facing?
If you look at Amla as such, Amla and Coconut, it's basically also because of the quarter impact that was there. Last year quarter was a very high quarter for most of these products. Amla and Coconut is more of a temporary phase. I don't think there is too much of a thing to be read into the growths of Amla and coconut for the quarter. It's also a bit of a base correction. I don't think that is something that is going to change over a long period. Now, hair oils as a category, we are aware, is not one of the highest growing categories or will not be a high growing category.
On the other side of it as well, we don't see the category just vanishing off in a very quick space either. There might be a little bit of a decline that has happened, but when the overall economy and sentiments work, we are seeing the hair oils market has also been pretty resilient, and it does come back. It will not be a sunshine industry whereby the growth will be very, very high. The market will remain resilient. The INR 1,300 crores or 13-
Mm-hmm.
Yeah, INR 13,200 crore that Nielsen reports, the market will more or less be somewhere there. While that hair oils market will remain, and we'll keep working on the various portfolios of the hair oil, as we said, as a company, we need to look beyond hair oils, and that's why our attempt to enter into some of the other categories beyond hair care into skin care, which we should start by this year.
Okay. Got that. In terms of wholesale, what is our current contribution? I'm sure we had a peak more than 50% coming from wholesale. The two parts to the question, one is that what is current contribution from wholesale and what exactly we are trying to do? Are we trying to rationalize the pack, or we are trying to change the promotion or the whole altogether, the reach to the wholesale?
As I said, for the quarter, it is now nicely sitting at 25, 30, with retail being 25%, wholesale being 25%, and some billing that we do, which is for the rural markets, which is above 50%. This is where we are. Ideally, the situation was 20, 30, and 50 wholesale from our urban markets, I mean, directly from distributors to wholesalers. That was about a 30% number as far as we were concerned earlier. Now, while our push for retail will always continue, and we would like to continue to grow much stronger in retail for two reasons. One is because our retail footprint itself is much smaller. I mean, we are a little behind as far as competition is concerned, as far as retail footprint is concerned.
The other is strategically it is far more important to be present in the rural, both in terms of width and depth, in retail, urban retail, both in width and depth. Given the kind of products that we are launching, we would like these are more urban-centric products, and we would like a much stronger presence as far as retail is concerned, these advertised brands that we are talking about. This is as far as the retail, thing is concerned. Now, as far as the wholesale is concerned, I think we have done an in-depth study as to where the losses have been, and most of it, as we discussed, was mainly in the Bihar, UPs, and MP's, where the numbers had fallen from the pre-COVID levels. These are activation programs that we are doing to reactivate back these wholesalers back into our fold.
There has been some bit of green shoots that we are already seeing happening, and we will continue to do that. A lot of rationalization of prices. One of the things that we did as a one-time correction in terms of in the month of January was rationalized prices across markets so that the prices in the wholesale improve and there is inflation at our streets which go down. That had its desired impact, and we are seeing the wholesale starting to slowly come back. It has not yet come back to the earlier levels, but it's clearly showing signs of improvement.
My sense is that we have roughly about 80,000-83,000 wholesale across India. Is it fair to assume that we would be covering at least 20,000-25,000 wholesale accounts at this time?
Again, the way we calculate numbers is we don't calculate the wholesalers that our sub-stockists supply, which is basically a tertiary sale. We only cover the wholesale. We just count the numbers as far as wholesalers are concerned, as far as our urban distributor supplies to wholesale, which is our secondary sale. That number is about 10,000 as far as we are concerned.
Okay. All right. Thank you, Jaideep Nandi.
Yeah.
Thank you.
Thank you.
Our next question is from the line of Sunil Jain from Nirmal Bang Securities. Please go ahead.
Yes. My question relates to more of you introduced a lot of product in last year. Next year, the current year, you want to take them aggressively. What I was thinking, like, whether you have introduced not too many products in this year, means whether you will be able to service all these products in the coming year or some of these products may remain unfocused over a period of time.
Absolutely right question. The way it'll work is. That's why if you look at a little closely at the portfolio that we are launching, let's look at the hair oils itself. Hair oils, we are now looking at about 6 or rather 5 products. There is an Amla Club hair oil, which obviously will be continuously supported, and we are looking at renewed focus on Amla Club itself. There is a Bajaj Coco Onion, which the advertising has started, which is again a brand-led investment where we continue to invest in the brand itself. That I said is a high gross margin product. We'll continue to invest it. There are 3 other distribution-led brands, which is the Amla Aloe Vera, which is the Sarso Amla, as well as the Coconut, Bajaj Coconut, Pure Coconut.
These are all distribution-led. In terms of advertising budget, it will only be restricted at this stage to the first two, while there'll be more of sales initiatives and activations as far as the other three brands are concerned. While in terms of number of brands, they may look high, but not all of them will be media supported. Because we feel that the two strengths of Bajaj, which is Bajaj Almond Drops, the name itself, and the distribution of Bajaj. These two need to be exploited as much as possible. Some will go through the distribution route and some where the Almond Drops extensions we are launching, and that's why there'll be also graded launches as far as the Almond Drops extension is concerned. Not too many brands, because we will not be able to support them through.
For the other brands like Amla and Coconut, it's more of a basket you are taking to the retailer and where you will be able to gain some share in that where earlier you used to just take one product.
Yes. I mean, if you look at through our direct brand sales initiative itself, the 3 lakh retail outlets that we added, there is a good bit of presence that we have also direct reach. We have a direct reach today of 8.5 lakh retail outlets, ±10,000 here and there. With that kind of a reach, we would want to exploit it, just not keep the basket only restricted to Almond Drops. Last year, or over the last 1.5 years, we have seen how Amla Aloe Vera has scaled up well just through that route. We are seeing even Sarso Amla scaling up in that route. You see not only us, but even competition for these products, most of them go about in the same manner.
In fact, last year, if you look at that entire Amla portfolio, there has been hardly any advertising that has happened there as far as the Amla portfolio is concerned by any company. Yet there has been good growth in Amla. Yes, I agree, that has been in the cheaper categories of Amla. Even competition has sold more of the cheaper category of Amla, but that's the nature of the business, and that's the nature of the dynamics of the business. We'll have to also be aware of the dynamics of the business. That's what it has been. We will exploit our distribution and keep filling some of these brands where we can exploit the distribution.
Yes. Great, sir. Thank you very much.
Thank you.
Thank you.
Our next question is from the line of Anup Ramachandra from AMP Investments. Please go ahead.
Hi, thanks for allowing me to ask question. My first question is basically with respect to LLP. Is there any thought process that marketing team has thought about to handle the negative feedback that you get in the digital media spectrum?
I think as far as the negative feedback is concerned, as we are aware, one of the most popular baby oils is actually 100% LLP, as all of us are aware. We are looking at how we want to also market that. LLP as such doesn't have a negative connotation in terms of at least the product being as far as applicable to the beneficial value of the product as far as hair is concerned. In fact, it has a very positive impact both on hair and skin. That's how that most popular brand as far as baby oils, which is 100% pure LLP works. Now, obviously, there is a marketing side to it.
We are looking into how to address that in terms of looking at this thing. This is one area where we have actually identified and taken up as something that we would like to do our communications in, and we are working on that. LLP does have an environmental impact because given that it is a mineral oil, but clearly it is beneficial to both hair and skin.
I agree with you to the aspect of that there's beneficial aspect, but I'm saying there's a lot of miscommunication also happens from so-called influencers, which may have impact on rural sales. The reason I'm asking.
It's a fair question. Given that the sensitivity and the awareness is increasing and there has been clearly a negative this thing which been promoted by one this thing on LLP itself, there has been a buzz in the social media. I don't think the impact of it is major, but clearly this is something that we need to address, and we are looking into that. How to minimize the impact of the negativity of this thing or maybe put it in a positive place itself. This is something that we are working on, an area clearly identified by us.
Okay, excellent. And the second question is, basically, what's the company's perspective with respect to Bajaj Brahmi Amla? Because that's the brand recall which most of the consumers have other than Almond Drops. Is that company looking at with respect to Bajaj Brahmi Amla?
Bajaj Brahmi Amla, if you look at, I mean, unfortunately, while, as you rightly said, it had a large recall, but the recall is mainly restricted to the older generation and not really to the newer generation. One of the main reasons for that is while there are a lot of work that has happened, there's not really any clear ingredient benefit that was coming out of Brahmi, which actually could be claimed as far as the hair is concerned. It has been a historical product. It has been there from a long time, but Brahmi did not come out. I mean, we have actually worked in our R&D lab to see how we can claim Brahmi as a positive twist to the hair. It did not come out strongly as far as we are concerned.
Having said that, we understand that Brahmi does have a latent demand and we would not like to let it completely go. We are using that product as a strategic SKU. In the canteens anyway, it's a large brand. We push it. Also in modern trade where we do use it as a flanker brand to protect our ADHO, Brahmi is actually strategically used even in modern trade as well. As such, if you look at it, there's not too much of a story as far as the Brahmi part of the Amla is concerned.
I just want to know, how is Brahmi doing with respect to e-commerce sales?
E-commerce, it's not in e-commerce that we push it. It is more in modern trade. E-commerce, Brahmi is not a product that we have. E-commerce, we mainly restrict ourselves to more the premium end of the, you know, portfolio, not so much Brahmi. There is a bit of Natyv sales do happen through e-commerce, but not Brahmi.
From the 50 on platforms like Amazon, I know this is what I see. It's from my research into what is there. Other than maybe it's the brand is the one which is getting a lot of reviews and views.
Yeah, it is there, but that is not what is sold in a larger listing. There is a lot of NOMARKS or I would not say lot of. There is a bit of NOMARKS that is sold, and some of the newer brands which are also getting traction.
Okay. The last question is, you were talking digital brands.
Yes.
What exactly is the company looking at in the five-year spectrum? Like, does it contribute substantially to our sales? Is the company strategizing that in a way that digital brand contributes substantially to our sales, and then do you have any plan on going offline? Or do you want to keep it muted and see how it's doing, and then you wanna scale it up or something like that?
As far as the digital brands are concerned, it is more the digital footprint that I would rather talk about rather than the sticky brand itself. As far as the digital footprint is concerned, the company does have plans to go further on that. We are looking at both the D2C platform itself and see how that works out, how the costing dynamics work out as far as logistics costs, et cetera. That is more a little midterm rather than short term, I would say. We are also looking at strategically some other aspects of the digital business, which I would not like to discuss at this stage, but there are certain other thoughts that is as far as the digital, that entire digital portfolio is concerned.
We have to see as we go by as to what we want to do.
Okay. Thank you. Thanks for answering the question. Thanks.
Thank you. Our next question is from the line of Kaustubh Pawaskar from Sharekhan by BNP Paribas. Please go ahead.
Just one question on the reach. What is our current retail reach?
Our urban retail reach is about 2.8 lakh retail outlets across the country. This is the urban retail reach as we define, which is basically what the distributors sell to our urban retailers. If you look at the overall reach, we have about 8.5 lakhs, which is supplied through both the distributors, through the sub-stockists and through the van sub-stockists as well. That is about 8.5.
Okay. How much it has gone up in last two years? Like whether you have done, you know, any significant addition or, it's like you are focusing on, you know, improving your, you know, scale in which, whatever reach you have.
If you look at again, it has been broken into parts. If you look at 1.5 years back when we did the van initiative, our direct distribution numbers went up from 5.5 lakhs to about 8.5 lakhs, which is where it has more or less remained. There has been a certain numbers, which are very small numbers lost in wholesale, certain improvement that has happened in retail. More or less the overall numbers have more or less remained the same. There's some bit of loss in rural, some bit of loss in wholesale, good coverage as far as retail urban is concerned. Overall the numbers have remained more or less at this level.
5.5 before COVID went up to 8.5 lakhs, and it has remained there. Overall number still remains at 43 lakhs, overall indirect coverage as far as our brands are concerned.
Right. Any particular target you have, like, this 8.5 would be going to around 10 lakh outlets by 2024 or something like that, target you have in mind?
We have targets not really as far as, I mean, by INR 10 lakh is a very nice 1 million number to achieve. More than that, we are looking at specific numbers. It's a little more granular, the kind of numbers that we want to approach with. We're looking at zone-wise, what kind of channel distribution numbers we would want to achieve in the next 2 years or so, and those numbers we have for us. Those numbers will be a little substantially higher. I would not like to discuss specific numbers at this stage.
Sure, sir. Thanks a lot.
Thank you. I would now like to hand the conference back to the management for closing comments. Over to you, sir.
Thank you. While I understand that the last quarter was a pretty tough quarter as far as business is concerned, we have taken this correction in January, so the numbers for the quarter was a little lower than what it would have normally been. This one-time correction has clearly seen positive results for us. We are hoping that this quarter, which has started well, would end well also for us. As rightly called out, we will continue to invest as far as our brands are concerned, and hence as a result, for the next two quarters, we feel that the EBITDA will remain muted.
If we are able to get traction back into our brands by the time the buying cycle turns and the demand cycle turns, we should be seeing both positive sides as far as our business is concerned. With that, I would like to end my comment, and thank you all for joining.
Ladies and gentlemen, on behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.