Ladies and gentlemen, good day and welcome to the Bajaj Consumer Care Limited Q1 FY23 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 call, please signal an operator by pressing star then zero on your touchtone phone. 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. A warm welcome to Q1 FY 23 Results Conference Call of Bajaj Consumer Care. The management is really represented by Mr. Jaideep Nandi, Managing Director, Mr. Dilip Kumar Maloo, Chief Financial Officer, and Mr. Richard D'Souza, General Manager Finance. I would now like to hand over to Mr. Jaideep Nandi for his opening remarks. Over to you, sir.
Thank you, Karan , for hosting this call, and good morning from India. Let me take you through the performance of the company during Q1 of FY 2022/2023 before we open the house for questions. In the background, the inflationary pressures in the economy continue to impact disposable income as well as consumer spending adversely.
The overall hair market declined marginally by 0.4% in terms of volume, while in value terms, the growth was muted at 0.8% for Q1 FY 2023 over the same period previous year. Urban markets have seen a volume, value growth of 3.5%, overall as a market in hair oils as compared to rural markets, where there has been a decline of 2.3%. Long-term MAT growth continues to be dominated by coconut-based oils, which grew by 4.5% in terms of value over the same period previous year. For the quarter, light hair oil category was flat in terms of volume growth with a 4.5% growth in terms of value.
The company reported its highest ever quarterly sales of INR 243.8 crore for the quarter, which was higher by 15% over the same period last year, while volume growth was at 14%. Hair oils portfolio of the company grew by 14% by value and 15% by volume. On a sequential quarter basis, sales were higher by 12.8%, where volumes were higher by 9.8% over Q4 of FY 2022. The gross margin for the company for Q1 FY 2023 at 54.6%, saw a decline of around four percent as compared to Q1 of FY 2022, which is four quarters back, despite price increases that has been taken by the company during the year. Over the sequential quarter, the gross margins saw a drop of around 1.5%.
The company's gross margins continue to be adversely impacted due to its high dependency in LLP and RMO, both of which has been witnessing unprecedented inflation. LLP prices for the quarter were higher by 33% due to surge in crude prices post the Russia-Ukraine war, whereas RMO prices were higher by 7.5% due to ban in export of palm oil and imposition of export duty by Indonesia in the earlier part of the year. We continue to closely track commodity prices as well as the competitive landscape, and we will take corrective action as and when necessary. The A&P spend for the company was at 18.7% of sales, which is higher by 58% over-
Ladies and gentlemen, the management line is disconnected. Please be on hold while we quickly get them reconnected.
Ladies and gentlemen, the management line is now reconnected. Thank you and over to you, sir.
Yeah. Thank you so much, and sorry for this disruption. I'll just continue from where I had left off. A&P spends for the quarter was at 18.7% of sales, which is higher by 58% over the same period previous year. The significant increase in A&P spends is on the account of low base due to pandemic and additional media spends on the recent product launch of Bajaj Coco Onion. The company will continue to invest in its existing brands as well as new launches to support its long-term growth aspiration. The EBITDA for the quarter was INR 37 crore with a margin of 15.2%. Similarly, the PAT of the quarter was INR 33.4 crore with a margin of 13.7%.
On a sequential basis, EBITDA margin of the quarter declined by 2.7%, mainly due to increase in spends on advertising costs. For our company in general trade, urban sales grew in high teens as compared to rural sales, where growth was subdued at mid-single digits. Retail continues to scale up on the back of loyalty programs with a growth of nearly 33%, which has also helped build NPDs across urban areas. Expansion of wholesale loyalty program and its extension to rural markets has helped grow the wholesale business both on a sequential as well as on a year-to-year basis. The rural billing efficiency has been steadily scaling up. While the overall rural demand has not been good, the rural is also seeing a sequential scale-up.
More focus on the businesses of both modern trade and e-commerce have been scaling up well based on channel-led initiatives. Modern trade grew by more than 70% on the back of significant market share gains across top retailers. Modern trade footfalls are back to pre-COVID levels now in most places, and expansion plans have also kicked in from this quarter. Our strategy of creating channel-specific packs in select key products have been yielding good results. E-commerce continues to do well. It is now about 6% of the company's turnover, with doubling of top line over the same period previous year, backed by strong partnerships with key platforms. Digital brands, Natyv Soul and Bajaj 100% Pure are scaling up well as per plans. New launches contributed to about 1/5 of e-commerce sales.
In the international business, significant changes have been made in infrastructure and business practices across the Middle East and Africa. It has started showing results, helping drive top-line growth. Despite external challenges, infrastructure changes in Nepal have helped achieve double-digit growth. Bangladesh and rest of world saw a decline due to lower demand. Leveraging the strong brand equity of Almond Drops in late June 2022, and as for the long-term strategy of building a premium personal care franchise under the Almond Drops portfolio, the company launched its third product in the Almond Drops portfolio, Bajaj Almond Drops Moisturizing Soap in June, with an aim of strengthening connect with younger customers and entering a larger personal care category. The product has been launched in general trade as well as modern trade and e-commerce channels.
The press release event in Delhi saw a widespread coverage with a total reach of 11 million, comprising of print and digital reach of 6 million and 5 million respectively. The company also launched, as I said, the other two brands in the Almond Drops portfolio, two premium hair care products, the Almond Drops Seed Amino Oil and Almond Drops Almond Argan Oil in e-commerce. These products will now be launched in modern trade in the coming quarters. The company started the year with a diverse hair oil portfolio, covering 83% of the total addressable hair oils market, which is more than double the addressable market at the start of FY 2022. The Amla portfolio for the company grew by 47% over the same quarter previous year.
Bajaj 100% Pure Coconut has shown good traction with consistent monthly sales post-all India rollout in April. Through dedicated regional marketing activities and leveraging our rural distribution capabilities, we are optimistic about being able to carve out a good market share of the coconut hair oil category. Bajaj Coco Onion saw good traction in modern trade and e-commerce, while distribution expansion continues in general trade. The overall portfolio expansion is in line with the long-term direction of the company to reduce the overdependency on ADHO, thereby de-risking and broad-basing the portfolio. It also has helped company to achieve double-digit growth for the company in hair oils. ADHO continues to get media support across TV, social media, print media, supporting key markets. Increased investments have been made towards visibility on e-commerce platforms.
Digital marketing for ADHO has been continuously dialed up, and we are now actively using new age influencers to reach out to younger consumers. New hairstyles by celebrity hairstylist Amit Thakur campaign launched in April and May 2022 on social media performed well with a VTR of 12%. ADHO's new price announcer created for 45 ml SKU to promote the mixed packs has been rolled out in July 2022. The objective is to increase new trials to the brand by driving penetration and building the awareness of almond nourishment at an affordable price. The quarter also saw a significant media activity on Bajaj Coco Onion. Over 1,000 GRPs were delivered in quarter one, with an SOV of 10% in the Hindi-speaking markets.
This is in addition to the 15% that we did for Almond Drops as well. Social media posts saw a reach of approximately 1.5 crore people, and AI tool was used along with YouTube to build incremental reach on non-TV viewing audience. Approximately 75 lakh people were reached on YouTube. Our range of digital first brands of premium pure, of premium oils, Bajaj 100% Pure, saw the launch of a pure virgin and cold-pressed coconut oil, taking the portfolio to five products including castor, jojoba, olive, kalonji and coconut. Our digital first premium brand in personal care, Natyv Soul, now has nine products under the portfolio. Listing of both these brands have been completed with all major e-commerce platforms. Both these brands are supported with digital media campaigns.
Community marketing campaign started behind Natyv Soul in the quarter with the objective of driving awareness, imparting education about the brands as well as drive visits to Natyv Soul page on Nykaa. Due to this, in the hair care conversations, we are now having a share of about 27% of mentions compared to nil a month ago. In line with the Three R philosophy of reduce, recycle and reuse in ESG, initiatives were taken during the quarter to reduce the consumption of packaging material and, in turn, helping the company to reduce its carbon footprint. There is a reduction in consumption of glass bottles by 8% over and above the 16% reduction achieved last year. Similarly, in laminates, we reduced our consumption by 6% on top of a 14% reduction last year.
The company continues to focus on reduction of usage of natural resources like water by monitoring water consumption and installation of controls at critical places, helping us reduce water consumption by 23%. Steps have been taken in process improvement at plants, reducing wastage, a reduction of wastage for certain critical categories like laminates, which has reduced by about 20% against last year. The dual challenge of a difficult market condition, especially in rural, combined with unprecedented increase in input costs will need to be monitored closely. We will, however, continue to expand our portfolio, invest on our brands, building capabilities and systems to achieve our long-term growth plans.
Focus on our strategic priorities of expanding our hair oils portfolio, extending Almond portfolio beyond hair oil, premiumizing the Bajaj Almond Drops Hair Oil and building digital first brands will remain our key strategic pillars. With that, I end the opening remarks and open the session for questions. Thank you.
Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on your 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. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Abneesh Roy from Edelweiss. Please go ahead, sir.
Yeah, thanks. My first question is on Coconut Hair Oil. Recently I saw Bajaj Consumer Care along with one more company offer ono on one of the e-commerce sites. Want to understand, are you doing this on modern trade also and is this a sporadic activity or you want to go aggressive on both e-commerce and modern trade across channels?
It will be a selective activity. We will do it in e-commerce and modern trade, modern trade in a case-by-case basis because as we build our portfolio and see where we need penetration and some trials, we'll keep doing that. As we scale up the business, we'll see how it goes forward. At this moment it is a tactical move that we are continuing.
At that kind of offer you will not make any money at even gross profit level, right?
Fortunately, with the kind of pricing that we have put, we still have a gross margins, a decent EBITDA margin that we are coming in. Not only gross margins, but even EBITDA.
Right. Second bit on raw material side of H2, what is the sense you are getting? There has been some correction in the crude related, but of course rupee has been depreciating. In the second half, based on the current pricing, could you give us some insights on the gross margin?
The LLP still remains inflationary. While RMO there has been some correction, I don't think it will be completely offsetting the increase that we are seeing in LLP. The raw material pressures will still remain. At least quarter two we see the raw materials pressures sticking.
My question was on H2.
H2 is a little too early to comment on because with the volatility of the nature and now at this moment we are also not doing any forward purchases. We are also monitoring the situation unless there is a strategic understanding that we should be doing forward purchases, which we did in end of Q4 and beginning Q1 we did some LLP forward purchases, which worked well for us. I don't think we have that kind of a visibility with this kind of a volatility in the marketplace, so I would like to reserve my comment on H2. We'll rather wait and watch. If the Russia-Ukraine war stabilizes a bit and we see the LLP softening, I mean in terms of crude softening and that should work in our favor, but that is more a wait and watch view.
Sure. Thanks. That's very helpful. Thank you.
Thank you.
Thank you. Next question is from the line of Prakash Kapadia from Anived Portfolio Managers Private Limited. Please go ahead, sir.
Yeah.
Thanks. A couple of questions from my end. You know, despite, you know, our highest ever quarterly sales, the three-year CAGR is 1%.
Yeah.
You know, we've tried to expand the addressable market. With this approach, when do you think, you know, sales will come back to, you know, higher volume growth? For us some of these initiatives are in, you know, mass categories, certain are niche categories. What's your sense? Will it be second half? Will it be next year? What kind of, you know-
Yeah.
What time frame are we looking at?
Yeah, I think if you look at.
Yeah.
I think if you look at the scale up, in fact, I mean, for us 2019 April to January-March was one of the highest. If you take a four-year CAGR, for example, our sales growth is 3.6% on four-year CAGR basis. I understand that pre-COVID, that particular quarter is the one that we take as a base at this moment, so that's a normalized case. That was one of the highest quarters for us three years back, and hence I don't want to nitpick on numbers, but that's how the lay of the land is for us.
Having said that, if you look at the sequential business generation that has been happening, is happening, I think Almond Drops has been facing pressure because of the inflationary pressures that are there in terms of the raw material prices. So both ways it has been affected. One is in terms of the rural demand for, let's say, a large premium brand that has had an impact as well as in terms of our capability to take price increases with this kind of elasticity. That is where Almond Drops is and our effort to broad base the portfolio clearly is kicking in. We have seen clear traction happening as far as the Amla portfolio is concerned, which is where the growth has happened.
As well as in terms of, let's say, even Coco Onion has started building us a good base, and that's where we are investing heavily in Coco Onion because we clearly see that is a space that is there for us to explore. Overall if you look at in the entire hair oil space, I think we are in a far better position. I think one of the things that we were seeing in terms of stock-keeping movement as far as that is just because of Almond Drops portfolio is concerned, that should stabilize a bit. That we are seeing, I think it is happening. Going forward, the sales growth should continue to happen. I don't see too many issues as far as that is concerned.
On the other side, with the Almond Drops, the premiumization that entire portfolio is concerned, this is just the starting of it. We just have now three brands in that, and that is something that we will keep pushing forward. This is just one format that we have come out with. But that portfolio, we would be looking at for the next two-three years expanding over quite a few formats, which is what we have been talking of, I think. I think in terms of our long-term strategy in covering that entire hair oil space, as well as getting into using the Almond Drops equity across the various formats, this growth plans are, I mean, clearly there.
As far as the D2C brand is concerned, they have been scaling up, and obviously there'll be small numbers at this stage. We are also getting into our own D2C website, and this is something that we keep pushing. On these three platforms, I think our growth strategy is more or less steady and going as per our plans.
Understood. Secondly, on COGS, historically, have we seen more pressure in packaging materials? What has been the packaging material to total COGS? Or this time around, even that is seeing higher inflationary pressure due to crude prices.
If you look at, glass is something that clearly has seen huge inflationary pressures. PET is more or less stable, so PET is not something where we are seeing. PET had gone up, so now it has stabilized. Glass is clearly something that has gone up. We are also seeing how we can reduce our dependency on glass. Some experimentation is anyway happening on a larger pack to see conversion from glass to PET, which is not only from the price, you know, price point of view, but also from the market feedback where larger bottles are difficult to handle in terms of breakage. This has been going on for quite some time, for a long period, and that is a changeover that we are getting into.
The over-dependency on glass as well as the way we have also looked at reduction in packaging material costs, both in terms of sourcing as well as reduction of grammage in the glass content itself, which I just talked of in the ESG, both should keep us, at least as far as the packaging material is concerned, more or less in control.
Yeah. Okay. Lastly, you know, on the rural side, you know, your commentary was things are not looking as good as urban. We had launched some bridge packs, INR 10, INR 20 packs. That also doesn't seem to be working. What is the sense from rural?
We have actually not gone very strong on the LUPs if you look at. I mean, there are the INR 10, INR 20 packs, obviously. But LUPs, as you are aware historically, has the lowest margins across all categories I would assume. We, given the inflationary pressures that we are seeing and the gross margin pressures, have not gone very strong on the LUP. Instead, on the other side, we have gone quite aggressive on the larger packs and, across the last three, four quarters, the larger packs is what is giving us the good growth. Even this quarter, for example, the larger packs, like 60 ml, 650 ml, 500 ml is where our growth has come from.
Okay. What would be the LUP contribution, if you have that handy, to sales?
I'll just give you a sense. Our LUP contribution, you know, would be about, well, about, including the sachet. In fact, without the sachet, it's hardly anything. Our LUP contribution is about 4%. That's it.
Including sachet will be more like 30%?
No. Now the sachet contribution has gone down quite drastically, so it is about 17%.
Oh. Understood.
Yeah.
Thank you. All the best
... about 13 odd % coming from sachet and 4% from the LUP. LUP is not a real focus for us because that's where, I mean, not really much money is to be made.
Understood. Thank you. All the best. I'll come back if I have more questions.
Yes.
Thank you. Next question is from the line of Shirish Pardeshi from Centrum Broking. Please go ahead.
Hi, Jaideep and team.
Hi, Shirish.
Good morning. Thanks for the opportunity. Sir, I have three questions. The first question, which is really worrying me, that over 10 quarters, our gross margin used to be 65%, which has come down to 54.5%, and your EBITDA has also declined by almost 10 percentage points. Now, on one side we are investing into the brand portfolio, distribution, these all things, but we are also foregoing the margins. Now, if I relate a year before, you said that the margin will remain in low teens, and which has happened, but it's deteriorating further. If you can give some sense, because losing 400+ basis points decline on gross margin is really worrying, because this kind of decline we have not seen other than any discretionary companies.
What is the factor which we should be monitoring or we should be giving a weightage? That's my first question.
Yes. If you look at, there are two ways to handle this issue. One is obviously in terms of the gross margin that you're looking at, and the other is obviously the EBITDA that you are looking at. Gross margin will obviously remain under a bit of pressure with this inflationary pressure that we see on LLP and RMO. I think the product mix basket in terms of raw material input costs is different across different companies, so I would not get into a direct comparison of each of them. At let's say between the period of 2015 to 2019, both LLP and RMO were absolutely flat. There was zero CAGR as far as inflation was concerned.
I mean, 2019 to 2022 is when we are seeing slowly the increase, and now it has, last year has been unprecedented. These cycles will keep happening. Gross margin will be a function of that as well. I think if you're looking at the EBITDA point, I mean, this year, this quarter itself, for example, I mean, easily the same sales number could have been achieved with at least INR 10 crore-INR 12 crore reduction in the A&P cost, which is what we are investing in terms of, let's say, Coco Onion or in terms of Natyv Soul, et cetera. It's more Coco Onion, to that extent. Now, that is something we've got to manage the EBITDA and keep the growth plans a little by the side, so that it feeds the EBITDA numbers.
We have decided that we would invest so that at least the brands get built up, and by that time the cycle comes back, both in terms of demand as well as in terms of raw material, we are in a better space. Otherwise, it will be a chicken and egg situation where our entire focus will remain on ADHO. If ADHO's conditions remain favorable, which is the market conditions remaining good or above and LLP, RMO, the prices remaining above it, I think we will do well. If that does not happen, the company will suffer. We can't remain in that stage. We have to re-derisk ourselves, which is the direction of the company we are taking.
Just one follow-up, Jaideep. This primarily 400 basis points decline which has happened is purely because of the input prices or we have upped the trade spends?
Trade spends have not gone up. In fact, trade spends, if you look at it, if you do a market study, trade spends has gone across for some other companies, but we have not improved our, increased our trade spends much. Yes, there has been a portfolio expansion. Not all of them have a gross margin similar to ADHO, so there will be a bit of dilution as far as that is concerned. Quite a bit of it is because of the inflation of LLP and RMO, and bit of it will be a much lesser percentage related because of the change in the mix. Overall, ADHO still remains a large product, and hence the margin dilution from non-ADHO is not much at this stage.
Okay. My second question is on the market share. I think the market share slide is missing this time. Could you comment where we stand?
Okay.
What is happening or maybe what is the expectation?
The market share remains steady, because the market share more or less remains between 10.2%-10.6% market share. It remains exactly the same place. I mean, the entire category grew by 4.5% in terms of light hair oils. That's where we have also grown. In fact, our growth this quarter is a little higher in terms of value growth, but these are more takeover from the last quarter. The market share remains flat, about 10.5%.
Okay. My last question is on the international business.
Yeah.
I think, sometime back you told us that maybe another one quarter we will be ready with the international strategy. If you can spell out what is the strategy going forward?
I mentioned that by H2 of this year, that is, 2022, 2023, I'll be able to speak a little bit of it. I'll maintain that. There are some actions that has happened in two markets. I'll talk more of it about maybe Q3 earnings call.
This quarter is safe to assume that international would be about 2%-3% contribution?
This quarter has been about 3%. Next quarter will be a little more, maybe slightly more. As we scale up, then we'll talk about it as to what we are planning. In Q3, I should be able to tell you, I mean, where we have invested and what we are planning to.
International markets, we will be ahead of the margins or lower than the company average margin?
I think it'll be similar. I don't think there'll be a major difference as far as the margins are concerned. It'll be very similar, but we'll have to also look at which markets we are talking about, what kind of portfolio, because different markets will have a very different structure in terms of the P&L structure will be very different for different.
No, my only worry is that, we on one side might be expanding international market, but it should not be margin dilutive. Otherwise we will still remain in the less than 60% gross margin. That would be a concern.
Yeah, so as I said, I mean, it'll be different markets, so we'll have to follow different market strategies. Some markets will have lower than India. Some markets will be having similar to India. We'll have to have a mix of both.
Sure. Thank you and all the best to you.
Yeah.
Thank you. Next question is from the line of Deepan Shankara Narayanan from Trustline. Please go ahead.
Good morning, everyone, and thanks a lot for the opportunity. Sir, firstly want to understand, are we seeing improvement in the wholesale trade segment in our core markets of Hindi-speaking belt?
If you look at last quarter, we had done quite a bit of correction and I mean quite a bit of correction in terms of the basic hygiene. We have seen the wholesale come back. The wholesale has grown I mean very close to 10% this year, which is a reversal from quite a few quarters of where wholesale has not been doing well. In fact, this year this quarter, the secondary grew by INR 10 crore more than the primary, which is also an objective that we have taken up, that secondary is where we should be focusing on. In fact, our incentive structure, et cetera, has also been changed towards for the front line, which is only on the secondary sales and not on primary.
That structural change is also making a difference. Wholesale has grown by about 9.8%. If you look at the overall market structure et cetera, I think rural demand still remains not very strong, and we see pressures as far as rural demand is concerned. We have had a growth, but it's not a very buoyant market signal.
Okay. Secondly, what is the gap between the price increases taken and RRM price increase? When are we planning to take our next price hike?
At this moment, with the kind of demand situation that we see and the competitive intensity, because these are the only two factors that we look at, the demand conditions and the competitive intensity, we do not see price increases happening other than the coconut category where copra prices have gone down, so where actually price decreases are happening. Other than that, we don't see any price increases happening across the overall hair oil portfolio. At this moment, we'll have to remain with the market and at this moment we are not contemplating on a price increase, not in the near term at least. We'll have to monitor and see how the market goes.
What is the gap exactly between price increase and RM price increase?
It's close to about 6% or so.
Lastly, ADHO revenues, are we anywhere close to our pre-COVID levels?
ADHO this quarter grew by a little more than 5%. That is the kind of growth that we have. It has actually been on a four-year CAGR. If you look at it has a growth on a four-year CAGR. Yes.
Okay. Thank you on all this.
Thank you.
Thank you. Next question is from the line of Nisarg Parikh from Neev Capital. Please go ahead.
Yeah, hi. Thank you for the opportunity. My first question is just to confirm the volume growth number for this quarter. I know you said in your comments a little bit in this platform.
The volume growth for the quarter is 14%, 14.
Year-over-year, right?
Year-on-year. Hair Oils, the volume growth is 15%.
You know, with the volume growth of 14%, the value growth will be 15%, you know, we've not taken any price increases. Can you just comment a bit on, you know, the impact of price increases?
No, it is. No, that's not correct. The price increases happened, but that is only on ADHO. The growth that you see is also because of the other portfolio's expansion that has happened, like Amla, as well as Coco Onion, as well as Coconut. All of them with the price being much lower than, not much lower, but lower than, Almond Drops Hair Oil. That's why. Because of the product mix, you'll see a volume growth and a value growth as such.
Right. Versus competition, you know, say pre-COVID versus now, what would be our pricing differential?
Pricing differential. In fact, our pricing premium has gone up. I mean, I talked about in the last presentation call. Our pricing premium has actually gone up versus the, let's say, the two other largest players in this category. Earlier the premium that we have, that premium has gone up now. Hence we need to also keep it within control. That's where unfortunately we will not be taking a price increase at this stage.
Understood. Got it. You know, you mentioned about ADHO, non-ADHO. Is it possible for you to give the mix between, you know, what is the mix in ADHO today?
ADHO's salience is about now remains at about 86%, which used to be about 90+% earlier. Now it is 86%.
Okay, understood. My last question is, just from the modern trade side, you mentioned that is also growing well. One is, you know, what would be the share of modern trade today? Secondly, which all products do we, you know, have in modern trade now?
Modern trade, our share is about 8%. As I said, e-commerce is about 6%, modern trade is about 8%. Our aim of touching that 15% mark between modern trade and e-commerce and including institutional actually is more than 16% in at this stage. As far as products are concerned, we are actually having all the products in modern trade, right from ADHO, which obviously remains our focus product. And then Coco Onion becomes one of the other focus products which has been there in modern trade. We also have our Brahmi Amla Hair Oil, which we have been using strategically.
That has been also doing well, as well as Coconut, which has been launched in select few markets that we discussed in the first call. Tactically we have launched in select few markets.
Select few modern trade outlets.
Sorry. Otherwise, other than that,
In modern trade, all the large modern trade outlets we are present today with the Dentac portfolio.
All right, cool. Thank you so much.
Thank you. Next question is from the line of Santosh Kumar Keshri from Keshri Wealth. Please go ahead.
Thank you so much, but my questions are already answered by Jaideep. Thank you so much for giving me an opportunity. Thank you.
Thank you. Next question is from the line of Percy Panthaki from IIFL. Please go ahead.
Hi sir. I had just maintained some old prices. I was seeing for your 100 ml pack three years ago, the price was INR 65 for 100 ml. Today the price is INR 70 for 95 ml, which is like a 13% pricing growth across a three-year period. In spite of this, our EBITDA margins have fallen like close to 13%-15% over a three-year period. I understand that there is input cost inflation, but I mean, what is it that is driving the margins down so much apart from input cost? Is there any other factor? How do we see the margins going back to those levels and over what period of time?
As I said that 15-19 period when the LLP prices and both RMO was the most benign, I don't know, I'm not sure whether we'll be reaching those kind of prices. I mean, today the prices if you look at LLP has gone from, let's say Q1 of FY 2022, which was at INR 46, now is at INR 91. That is exactly in two years it has gone to 2x. If you look at RMO, it was at INR 89 at this period, and now it is at INR 156. Unless the prices were to go back to those kind of levels, it will be very difficult to have that kind of a margin. It will become slightly more.
The other point that you mentioned, you put out 100 ml, which is where we have taken the price increase, which is what I was talking of. The premiumness for our product has become much higher than that of others. There are certain other packs where this kind of price increase was not possible. Hence, while our contribution of these packs have been low, but they do contribute. The INR 10 pack, the INR 20 pack, even the sachets. This is where we have not been, because these are fixed price SKUs, and generally speaking, you can't reduce the grammage beyond a certain point.
That is where in the portfolio overall, the price increase has been more like 5%-6% and not 13%, which was for the whole, in terms of raw material prices, the average increase has been closer to 13%-14%. That's where the gap is. The other side that we talked about is the investments that we are making, which we have mostly made in terms of automation, et cetera, which we were anyway planning to do as a long-term thing. Those expenses will keep happening as well as in terms of, or is more of a continuous thing, but also in terms of our marketing spend for some new brands, we'll keep investing.
Because if we don't do that, it'll only be back to only ADHO, and we'll keep only looking at that EBITDA margin with the best case scenario of the market situation being good and hence ADHO to grow, the raw material prices to be good, and hence our EBITDA to grow. That is a little bit utopian at this stage.
Sure, sure. Let's say if the current commodity prices remain where they are, a couple of years down the line, what kind of EBITDA margins should the company stabilize at?
I think saying that the market prices for both LLP and RMO will remain at the absolute peak, will not go down, it's not really proven in history. In fact, commodities always go through a cycle, and what goes up has always come down. It is very unlikely. We will not be able to plan in a situation where we say the prices have gone to an unprecedented high, and will remain so. If that remains so, going forward, many other macroeconomic parameters will also change in terms of the demand situation for customers, et cetera. I mean, there will be a much larger overall economy rather than just our own prices. We will have to plan for a reduction.
Having said that, we don't expect a complete reduction in this, and we continue with our entire plan of saying that we will have a maintained situation or a more stabilized situation with our EBITDA coming to about 20%-21%, around that level.
Sure, sure. Got it. Thank you.
Yeah.
Thank you. Next question is from the line of Anup Ramchandani from AMC Investment. Please go ahead.
Hi. Most of my questions are answered. I'm left with one or two questions. My one particular question is with respect to this Bajaj 100% Pure oil.
Yeah.
See, what I noticed is, virgin coconut oil seems to be a large growing market.
Yeah.
Most of our competitors are already there. I don't know what the company's thought process behind pricing it at 280-290 for a 200 ml pack when our competitors are selling almost INR 20 or INR 30 extra for 500 ml pack.
If you look at, this is more of a overall portfolio strategy that we see. In fact, as far as e-commerce pricing is concerned, you look at one side, you look at the MRP, and finally you look at the net selling price that is given to the consumer in terms of discount. We have seen that overall as a part of our e-commerce first, digital first brands, whether you look at the larger digital first brands, most of them have a little higher MRP and give those discounts on platform to the consumer. We have decided that is the path we'll follow. We have seen good traction happening as far as the castor oil is concerned. As far as olive oil is concerned, we have had some supply issues as far as olive oil, which has got sorted out.
Olive oil is tracking well. Castor is tracking well. We feel that coconut should also track well. Pricing is in terms of MRP is one point. The other point is at what price the customer is getting it. We'll be as a company more tracking as to what price the customer finally gets it at, and that is something that we'll keep it more or less close to what the larger players are.
You hit the bull's eye. Exactly. I'm also talking about the net selling price itself. You're selling at INR 280.
Yeah.
Our competitors are selling at INR 290-INR 310 for a 500 ml pack.
Yeah. We are actually not targeting the mass end in that sense. The discounted virgin ones that you are talking about is more towards the cooking usage. We are more targeting more on the hair and skin usage, which is basically the kind of pricing that we are looking at.
See, again, I'm talking about one of the most popular brand where they've done a premiumization with respect to their virgin coconut oil. With another. They're not using their. The blue ones, which they've come up with. I'm saying that the popular blue color brand, that they've come up with another brand and they're using it as a virgin coconut oil.
Mm-hmm.
For hair and skin itself. They're selling at INR 310 or INR 320, 500 ml. We are selling at INR 280 for 200 ml. That seems. Because I'm pressing on this issue because virgin coconut oil is a big market, a growing market. We don't lose on the whole pricing side itself.
No, I don't think that is so much of an issue. The virgin cold pressed coconut oil, which is what we are selling. I mean, a virgin oil is one product, the virgin cold pressed coconut which is what we are promoting for a premium hair and skincare product. I think this is the price we are comfortable with, and I don't think there is much loss that we foresee or that we'll not be able to get traction. Already there is a lot of traction we are seeing as far as the customer conversations that are happening about this product. We'll monitor the price and in case we feel that there is some correction required, we'll go for at that stage.
At this moment, we feel this pricing is perfectly fine.
Okay. Excellent. Just have a look at it in case it is.
Sure, I understand. I take your feedback. We'll monitor that. This is a pricing that we are aware of. I mean, obviously when we do our pricing, we obviously track all the largest selling competitors that are there, and based on that we do our pricing. This is a conscious call that we have taken. It's not a price that we have just.
Because the rest of the products which you said you are doing quite well, castor, they're all priced competitively, what I saw. What I saw from our research. They've been priced competitively, and they seem to be doing quite well.
Yeah.
Yeah. Anyways.
No, I appreciate your point. Completely appreciate your point. I'll take that feedback and see how our products track. In case we need to do a pricing correction or any other pricing action, we'll do that accordingly. Obviously, yes, we appreciate that.
Yeah. Thanks. Again, the cost of repetition. The last quarter also I had this question about Brahmi Amla.
Yeah.
This Brahmi Amla, I know you validate it through your lab tests and you see there is no substantial benefit which comes out of Brahmi. You also have a feeling, the company has a feeling that this is the product which 70+ or 60+ use it. Only the older generation will have brand recall and not the newer generation.
Yeah.
My perspective is, if you see, say one of the major e-commerce sites.
Mm-hmm.
If you see the bestsellers in the beauty list, not even in the hair care list, I see Brahmi listed at 37 or 38 as one of the bestsellers.
Yeah, that's correct. Yeah.
Right. I don't see ADHO even in the top hundred.
Uh.
The bestsellers.
See, it'll be.
I'm saying if-
Yeah.
Forget about Flipkart. We don't have the details of Flipkart.
Yeah.
I'm saying, see, there are only two major websites. I will take the name Amazon. I'm saying if Brahmi is doing so well.
Yes
Even in the e-commerce site, and some of the Ayurvedic properties cannot be validated from the perspective of modern science. I'm just saying company can have a relook at the strategy as to how they want to do it with Brahmi.
Okay. First and foremost, let me correct some of these questions, perceptions. For example, ADHO, for example, tracks very well in both Amazon and Flipkart. Flipkart is actually number one.
Okay.
Number one, if you have to go on the site. This is just a small correction. Second thing is, I take your point exactly. We have taken Brahmi. I mean, I actually maintain the point that scientifically Brahmi's usage as a hair oil ingredient has not been really proven. Having said that, because of our old association with Brahmi Amla Hair Oil and we think we wanted to rejuvenate the brand, and that's where we have taken e-commerce and modern trade as a path because the margins of the product is very good and we have utilized it to counter some of our competitive activity in terms of where there is action against Aarohan.
We have used this product effectively to counter some of them, and we are seeing good traction both in e-commerce as well as modern trade as well as Brahmi Amla itself. This is the path that we are taking. Not so much in general trade, but modern trade and e-commerce.
Okay. Any thrust on A&P for Brahmi? Anything of that sort and the company's thought process?
In terms of A&P?
Yeah. Basically for
No, because it's not being promoted in general trade.
Mm-hmm.
We are not on a platform. We are doing as and when necessary as far as Brahmi Amla is concerned, but not as far as in terms of search, et cetera. We do some work as far as Brahmi is concerned, but not in terms of A&P.
Okay. This is my last question. With respect to digital marketing.
Yeah.
Is company working on any YouTube influencers marketing because that also influences our general trade. I know the Instagrams and the Facebook and all do a lot with respect to digital marketing, but I don't know how far it will influence our general trade. It may have a lot of influence on our modern trade and e-commerce. YouTube influencer marketing, I think, will have a lot of impact on general trade also.
Yes, in fact, Facebook, Insta, YouTube, all three are taken as our overall digital strategy, and we have separate tracks for all of these three. In ADHO, YouTube is we are getting in more and more content as far as YouTube is concerned. This is a clearly identified area and more content generation is happening as far as YouTube is concerned. You'll see that in the coming quarters. You'll clearly see more and more, you know, more and more posts as far as YouTube is concerned in terms of video content.
Content generation is definitely there. I'm talking about the influencer marketing.
Yeah. Including influencers as well. Content is. One is the content, otherwise using influencers in this space as well. You'll see both.
Okay, that's all from my side. Thank you.
Thank you.
Thank you. Next question is from the line of Rahul Ranade from G Sachs . Please go ahead.
Yeah. Hi. Thanks for the opportunity. Just one question. Most questions have been answered. Just wanted to get, you know, the thought process behind entering, you know, a category like soap. You know, obviously there are much bigger brands, well-entrenched brands. What was the thought process behind entering that? You know, if I recall correctly, the last time we did such an entry, let's say in terms of, you know, having well-entrenched brands, let's say in the terms of a coconut oil, you know, one of the, you know, rationales for that was also that coconut would play the role in terms of expanding distribution for the core ADHO also. You know, is that the similar thought process here, or is it something different? Just wanted to understand that.
No. This is a completely different thought process. Coconut, you are absolutely right. I mean, getting our footprint more well-entrenched as far as the hair oil is concerned, not only increasing our distribution in ADHO, but also covering ADHO flanks where the pricing requirement will be there as far as Coconut is concerned. Coconut is also tracking decently well as far as HSM markets are concerned. In some of the HSM markets, specifically where ADHO alone may not be the answer in today's context. That is how Coconut played out. As far as the Almond Drops soap is concerned, which is a point that I have continuously maintained, I mean, Almond Drops soap is not a launch in its isolation.
It is more a portfolio launch, and this is just the first product of, I mean, three products that have got launched with soap being the largest. In the next two, three years, this is a portfolio. Almond Drops is somewhere you'll see from in next quarter that we will talk of almonds a little more in our way of communication. Overall that almond portfolio which is more on a premium, more reasonably priced, I would say, little affordable and yet premium range for both hair and skincare is what we'll promote. Slowly you'll see in the next two, three years launches happening in different portfolio across formats. Soap is just one of them. It is not in isolation that we are launching. It's more a portfolio launch.
We see that our numbers that we are tracking as far as soap is concerned, I mean, it's a large category. You understand it's a very well-entrenched category. It's a very competitive category, but I think the initiatives that we want to operate, we'll see, we having a room there to play. Yeah.
Okay. Almond Drops will be more of an umbrella, you know, beneath which we will kind of soap is one, and probably you highlighted serums as the other, right? Where you said that.
Serum and Almond Argan Oil are the two smaller brands that we have launched. There'll be a little more larger formats which will come. Some of them may be a little more modern trade, e-commerce heavy, but larger segments. Some of them will be more traditional GT as well as modern trade, e-commerce, which will be launched in the coming, let's say, two-three years on sequential basis. It's just a question of how much money we spend in advertising, so hence we'll grade them. In the next two-three years, we have a plan to launch about eight-nine products going forward.
Yeah. Internally, like, do you have thresholds beyond which you will not, you know, kind of invest if you don't see success on the ground? Especially, let's say for a category like soap where, you know, competition is so well-entrenched that getting success is relatively difficult versus something like a serum or something like argan oil where, you know, you can do something on e-commerce or on the digital side of it.
It's a matter of how you define success. If success is defined as just pure market share, maybe your question is right. But I think, with our kind of a sized company, I think we'll have to also look at the top line number as defining a success, threshold top line number and looking at some threshold EBITDA number in a three-year phase. Three-year is the typical period we take for a brand to get launched and with the support, and we'll see obviously with internal parameters of measure is what we are saying. Serum and Argan Oil, et cetera, you're absolutely right, they will have easier chances of success. But the scale that they can go up to may not be equal to some of the larger brands that we have.
It'll be a play and a mix of all that, and we look at more the portfolio number that we can look at rather than in typical categories that we have.
Okay. Understood. Yeah, that was it from us. Thank you.
Thank you.
Thank you. Next question is from the line of Pranjal Garg from Mirabilis Investment Trust . Please go ahead.
Sir, what is our A&P with respect to new brands during the quarter? If you can give me the split of the non-ADHO versus ADHO A&P.
If you look at about, we have spent about 20% as far as A&Ps are concerned, while the balance is one.
Okay. Sir, this generally, like you've given that 13% is from LUPs and as in LUP plus other smaller packs totally some 17%, 18%. About 80% of our sales is from larger packs. What is the
Yes. Packs and larger packs. Yeah.
Yeah. What is the pricing, like, reason why we can't take price hike given that most of our consumers have relatively better affordability?
No, I think if you look at in terms of, again, it's back to the demand traction that you see in most of our HSM markets. You will see all the larger HSM markets of, let's say, Bihar, UP, MP, Rajasthan to that extent. These are the markets which are more affected during the last, let's say, six quarters in terms of demand. Let's say compared to a little more affluent markets of Maharashtra, Punjab, South, for example. Hence our ability to push through the pricing increase itself is not that strong. The other thing that we are clearly seeing is that there has been a large shift towards, let's say, the lower selling products.
There have been lower cost products, the cheaper economy range that we see. There has been a large shift. In this kind of a market condition, taking price increases beyond a certain level might not give you that kind of a return. We are not seeing that kind of a traction happening, especially for example, the mid packs, the 50 ml, 100 ml packs, etc., remain under pressure. That's why we are going into price announcements, etc., going specifically onto TV, talking of the mid packs, the kind of pricing that is available. It's not that we can take price increases in the larger packs, strictly in this market condition.
Okay. Just one last question. You had mentioned that we're planning to add some eight-nine products in the next two-three years. Is this only the ADHO addition or is this the overall NPD that we're planning?
No. It will be a combination. I mean, the Almond Drops portfolio itself will have a few products being launched in the next three years or so. We have some products that we'll be launching. There'll be certain other flanker brands, maybe here or you'll see one or two products getting launched. We want to space it out so that we have enough investment money for this. We don't want to get into launch of products where we cannot support them as far as brands are concerned.
Okay. Thank you so much.
Thank you.
Thank you. Next question is from the line of Sunil Jain from Nirmal Bang Securities Private Limited. Please go ahead, sir.
Yeah, thanks for taking my question.
Yeah.
Sir, my question relates to as we are not taking any price increase, and you said that the cost pressures are still there. We may be looking for further decline in gross margin in the coming quarter?
See, that we'll have to monitor. As I said, the inflationary pressures have not yet gone off. Both LLP, RMO remains. The pricing pressure will still remain. The gross margin pressure will still remain as far as Q2 is concerned.
Second question relates to more of the launch of the product. A lot of products we had launched already in last one and half year. Going forward also, the next launch of products will be more of a near term or it will be taking some time?
No. It will be a graduated launch. I mean, gradual launches will keep happening. We started with the Amla Aloe Vera, which happened two years back. Last year was Sarso Amla that we had launched, and then the Coco Onion came in the middle of or late last year. Coco Onion got launched this year, and now we have launched the soap along with the smaller products that are also getting launched. This kind of a graded launch should keep happening going forward.
My question relates to more of like the spend or whatever they spend or expenses which we are doing for launch of the product and product may be taking a lot of time to break even and all.
Yeah.
Any of the earlier product we are seeing coming to profit and which is likely to support the future plan? Or it will be-
So-
More of an ADHO which will be supporting the other.
No. One or two products we are already seeing going on a marginal costing basis on EBITDA positive. It's just that obviously it will not have the kind of margins that ADHO has. We'll keep grading it, and that's why I said while we have the portfolio as to what all products we want to launch ready, this will happen over the next three years and not immediately. Not all of it will happen immediately. We'll keep balancing out our A&P spend versus what kind of launches we want to get. We already have a decent set of products that have been launched. Immediately, for example, in Q2, you will not see any large products being launched because we keep supporting the brands that we have launched.
We'll keep introducing one brand at a time as we feel the market conditions demand and require for us.
Lastly related to this A&P spend this quarter you said that the spend was somewhere around 18.7%. Is this within the range or this is it was having some extra spend in this particular quarter?
I've always maintained that 18%-20% is what will keep the spend cap for the next two-three years, and that's where we used it.
Okay. Thank you, sir. Thank you.
Thank you.
Thank you. Due to time constraints, we have reached the end of question and answer session. I would now like to hand the conference over to the management for closing comments.
Thank you so much for attending our call. I think the market conditions still remain quite a bit of a difficult market conditions with the rural market clearly under pressure. As a company, we continue with our long-term plans of expanding the portfolio so that ADHO remains steadfast. At this moment, we are continuing to invest a little ahead of time so that at least we are able to build a credible portfolio of our brands, of brands beyond Almond Drops. I think clearly we are on our way towards that. Some of the brands which have been launched, you know, one and a half years, two years back, has already started showing traction with some of the new brands showing promise.
We believe that for the next two-three years, we have to keep investing as well as growing the business so that by the time the market demand comes back, as well as in terms of the raw material prices stabilizes a bit, we are in a far better company and a far stronger organization that we were earlier. This is where we are. Consistent business growth as well as in terms of investments in the newer brands is what we'll be looking at. Thank you so much, and I wish you the very best.
Thank you. On behalf of ICICI Securities that run through this conference, thank you for joining us. You may now disconnect your lines.