Ladies and gentlemen, good day and welcome to the Bajaj Consumer Care Q2 FY 2023 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, Mr. Bhuwania.
Hi, good morning, everyone. It's our pleasure at ICICI to host Bajaj Consumer Care Q2 FY23 results conference call. From the management, we have Mr. Jaideep Nandi, Managing Director, Mr. Dilip Kumar Maloo, Chief Financial Officer, and Mr. Richard D'Souza, AVP Finance. I'll hand over the call to Mr. Jaideep, sir, for introduction. Thank you. Over to you, sir.
Thank you, Karan, for hosting this call, and good morning, everyone. Along with me, Mr. D.K. Maloo, Chief Financial Officer, Richard D'Souza. I also have some senior colleagues from my management team joining in this call. Despite tough market conditions, both in terms of demand scenario and inflationary pressures, the company posted a healthy top line growth of 7.2% for the quarter and 11.1% for H1, aided by an expanding portfolio. As mentioned, the operating environment continues to pose challenges. We continue to witness unprecedented inflation impacting disposable income and, as a result, consumer spending adversely. This is more pronounced in the rural as compared to urban. Inflation remains a significant challenge for many industries, including ours.
While there has been some easing of commodity prices and supply chain pressures, most commodities except copra remain volatile and at elevated levels compared to historical averages. The consumer price index inflation continues to be above RBI's threshold since January of this year, driven by high fuel and energy prices and food inflation. Let me now give you a brief about the hair oil market in the country. The overall hair oil market has shown instant decline by 5.5% and 5.7%, respectively, in terms of value and volume in Q2 FY 2023. Urban markets declined by 2.8%, while rural markets saw a sharp decline of nearly 9%. This decline in rural was expected as consumers at lower income levels felt the pinch of both inflationary pressures and reduced disposable income, leading to downgrading and prioritizing essentials over discretionary.
Long-term, MAT degrowth was witnessed in terms of volume across all hair oils category, with overall decline of nearly 4% versus last year. For the quarter, light hair oil category saw a decline of 11.3% in terms of volume and decline in high single digits in terms of value. All hair oils categories, including amla and coconut, also registered declines. On the backdrop of this macro context, let me now take you through the performance of the company for the quarter and half year ended thirtieth September before we open the house for questions. The company reported quarterly sales of INR 222.7 crores, and as I mentioned, translating to a 7.2% value growth and a volume growth of 5.8% over the same period last year.
The value and volume growth of total hair oils was 7.1% and 6.4% respectively over the same period last year. For the half year ended, reported sales of INR 471.4 crore translated into a growth of 11.1% in terms of value and about 10% in terms of volume over the same period last year. The value and volume growth for half year as far as hair oils were concerned was 10.7% and 10.8% respectively. On a three-year CAGR basis, the volume growth has been in mid-single digits.
The gross margin for Q2 FY 2023 was at 51.8%, lower than previous period due to steep commodity price inflation, and it was mainly impacted due to the consumption price of LLP in Q2, which was much higher than that in Q1. For the half year ended, gross margins was at 53.2%. The company's gross margin continued to remain adversely impacted due to high dependency on both LLP and RMO. Prices for LLP for the quarter was higher by 51% for the same period last year, and as I just mentioned, it was specifically impacted in Q2 because of a higher inventory consumption cost.
While sequentially, LLP prices remain range-bound with focus on inflation during the quarter, on the other hand, RMO prices have corrected by 11% in the current quarter over the year. To mitigate the inflationary trend, cost-saving initiatives are being driven to bring structural reduction in material costs and overheads. We continue to closely track the commodity prices as well as the competitive landscape, and we'll take corrective action as and when necessary. In spite of pressure due to reduced gross margins, the company continue to make marketing investment in both its existing products as well as new launches to support its long-term growth aspiration to build significant brands in a diversified portfolio. The A&P spend for the quarter was at 18.2% of sales, which was higher by 22.2% over the same period last year.
The half year ended A&P spends was at 15.4% of sales, translating to an increase of 38.7% over the same period last year. The significant increase in A&P spends is on account of media spends to support its ADHO and new TVCs of Bajaj Coco Onion and AD soaps, Almond Drops S oap, as well as increased spends on digital marketing on all brands. The EBITDA for the quarter was at 31.9% with a margin of 14%. The PAT for the quarter was 31.8% with a margin of 14%. The half year ended EBITDA margin was at 14.6%, and PAT was at 13.8%. In general trade, our sales grew by double digits as compared to rural sales, where the company witnessed a decline.
Retail continues to scale up with high-teens growth on the back of loyalty programs, which has helped build the NPD portfolio across urban areas. Expansion of wholesale loyalty program has helped grow the wholesale business in mid-single digits on a year-on-year basis. Rural slowdown clearly remains a concern area, especially in the HSM markets. Modern trade and e-commerce both have registered excellent growth as both channels continue to scale up well. The performance of non-ADHO portfolio in both these channels have been encouraging. Modern trade grew by 77% in Q2 FY 2023 over the same period last year and now contributes to around 9% of total sales. This is on back of well executed fulfillments, visibility and significant market share gains across top retailers. Independence Day event was a huge success across chains, with footfalls much higher than pre-pandemic levels.
Our strategy of creating channel-specific packs in select key products has been yielding good results. The canteen business also saw a revival in Q2 after a subdued Q1. E-commerce continues to scale up well, achieving growth of more than 180% in Q2 of FY 2023 over the same period last year and contributes to around 9% of total sales. This is backed by robust media and consumer promo plans with timely execution and differentiated portfolio strategy. Our brands gained significant market share on both Amazon and Flipkart and was amongst the top hair oil brands in peak season periods. Special pack strategy worked well in delivering high returns.
Our range of digital-first brands for premium pure oils, Bajaj 100% Pure and digital-first premium brands in personal care, Natyv Soul, are supported with digital marketing and are scaling up well as our plans. We'll continue to accelerate our footprints in the digital space going forward. The consolidated international business reported a strong growth of 60% in Q2 FY 2023 over the same period last year. New channel partners appointed in major countries in Middle East and Africa region have yielded good results, helping drive top-line growth. Nepal saw muted growth due to macroeconomic environment in the country. Rest of the world performed well, led by opening of new countries and portfolio expansion. The company now operates with a diverse portfolio in hair oils, covering 83% of the total addressable hair oils market.
Amla portfolio of the company grew by mid-single digits in H1 over the same period previous year. Share of Amla portfolio remains steady in mid-single digit at all India levels. Steady progress is seen in Bajaj 100% Pure Coconut Oil. Bajaj Coco Onion saw good traction in modern trade and e-commerce, while distribution expansion continues in general trade. Through dedicated regional marketing activities and leveraging our rural distribution capabilities, we are optimistic about being able to carve out a good market share in the light hair oil category as well. The Almond Drops soap launch in the last quarter is supported with TV media as well as digital, and continues to receive positive and encouraging feedback from consumers.
The Almond + Argan Oil with serum, Almond + Argan Oil and serum with oil under the Almond Drops extended portfolio has been live on e-commerce and will drive offtakes in the coming quarters. We'll continue to nurture and develop the Almond Drops extensions going forward and expect the same to become a significant part of our portfolio in the midterm. The sales of NPDs more than doubled in Q2 FY 2023 over the same period last year. This expansion of NPDs is in line with the long-term strategy of the company to build a robust portfolio beyond ADHO. ADHO continues to get media support across TV, social media platforms and print media supporting all key markets. Increased investments have been made through visibility on e-commerce platforms.
Consistent media presence in Hindi-speaking markets has resulted in increase of SOV of ADHO alone to 18% from 14% last year. Bajaj Almond Drops #StyleFearlessly registered 4.7 crore views on YouTube. The new Almond Super Food for Super Hair campaign started from July 2022, reached 8.5 million people across YouTube and OTT platforms. The digital marketing is being used for increased thematic reach in quartiles and building nourishment credentials with the power of almond campaign. We continue to make visible progress in our ESG program. In line with our 3 R philosophy of reduce, recycle, and reuse, we continue to take initiatives for reducing our carbon footprints and greenhouse gas emissions. These initiatives have led to reduction in consumption of glass bottles by 8% this year over and above the 16% reduction achieved last year.
Similarly, laminates, we have reduced our consumption by 6% on top of 14% reduction last year. The company continues to focus on reduction in usage of natural resources like water by monitoring the water resources, water sources and installation of controls at critical places. This helped us reduce water consumption by 30% in the first half of FY 2023. Steps taken in process improvement at plants helped in reduction of wastages of certain critical categories like laminates by about 25% over last year. Our manufacturing plant at Guwahati was awarded with the outstanding achievement in environment protection by the Greentech Foundation in August 2022. As an organization, the focus is also to drive cost efficiency as rationalization initiatives across the company.
About 20 projects have been undertaken in supply chain, R&D, manufacturing and HR to drive down costs, and these are continuing to track well. Overall, despite a weak macroeconomic environment, including subdued demand in rural, we continue to drive our business strategically with focus on mid- to long-term objectives. While current demand remains weak with the festive season and normal monsoon, we expect recovery in demand conditions in the near- to midterm, and we will plan our strategies accordingly. With that, I end the opening remarks and open the session for questions. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone 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 Percy Panthaki from IIFL Securities. Please go ahead.
Hi, sir. I wanted to know your extent of price increases, how much you have taken in Bajaj Almond over the last 12 months. I mean, on a YOY basis, what is the price increase sitting in our results? Also if you have actioned any price increases in the recent past, in the last two, three months and which are sort of there in the pipeline. Yeah, that's my first question.
If you look at in the last six quarters, we have taken about a 7% price increase, and in the last four quarters we have, that is about 4% overall. In the last three months, we have not taken a price increase given the market conditions, given what we see in terms of demand conditions, especially in rural, and that too in the HSM markets, we have not been able to take a price increase.
Okay. On the commodity cost front, since most base commodities are now stabilizing, some are showing some downward trend also, do you think that the EBITDA margin that we have posted this quarter is the trough and it will not go any below that in future?
See, in terms of mustard, if you look at clearly there has been some correction that we have seen. Mustard crop is a bumper crop, so we expect a downward price that we are seeing in mustard to continue. LLP clearly is unfortunately not showing a similar trend. It has still been upward. It has corrected a slight bit. In Q2 specifically, we faced the brunt of it because between Q1 and Q2 we had about 18% increase in terms of a consumption price. In Q1 we had a lower inventory cost of LLP. In Q2 we had a higher inventory cost. That's how you see this gross margin difference.
That will even out, but I think overall, unless LLP for us has a significant correction, there may not be a large impact, large change that you'll see in the gross margin in the near future.
Okay. Your overall input cost index, which is likely to come in for Q3, would be marginally lower than Q2, right? Because even if LLP is more or less flat sequentially, but mustard is down, so the overall cost index should be a little down, right?
RM-wise, yes. Packing material-wise, glass is on a little bit of an upward trend, so it will get a little bit offset. In the overall context of what you're saying is correct. Yes.
Okay. Okay. What really is the issue with the hair oils category if basically Nielsen is saying that it is declining by 5%, light hair oil is declining even more than that. Is it that I understand there is a pressure on rural incomes, et cetera. I fully understand that. We are seeing that in many other companies also. Hair oils is definitely, I mean, at the higher end of the band in terms of the pressure. Is it, I mean, what do you read into this? Why do you think this is happening?
If you look at other than pure discretionary, and most of these regular daily items that you are seeing, which are even essentials, have also gone down. Even soaps. If you're looking at all the other FMCG categories that we see, all of that basket has actually gone down in Q2. That rural demand that we are talking about, especially in the HSM market, that is something that we have been talking about for quite some time, has been clearly showing the same discount. In fact, clearly showing the same kind of a decline.
If you look at just soaps, for example, while in the last quarter it had an 8.6% value growth as per Nielsen, it was 11.2% in terms of negative and YTD September was about nearly close to 10%, 9.4%. Hair oils actually is tracking little better than, let's say, the largest category, which is soap. Hair oil being the third-largest category. In terms of volume terms, hair oil is doing much better off. Obviously, value-wise, the soap category has been able to take the price increase, which we have not been. Toothpaste, for example, is another category where we have seen declines which are higher than hair oil is concerned.
It is across the board clearly that inflationary pressures eating into the disposable income has been very stark in the rural markets and especially the lower income rural markets of the northern and the eastern belts and some parts of, I mean, mainly the northern, eastern and the central parts of the country.
My final question is again on the margin. Do you see a clear path to a 20% EBITDA margin? If so, over what period of time do you think it will happen and what will be the drivers for the same?
Two clear drivers. One is today you see far higher elevated investments that we are making for the future as far as the brands are concerned. Just to give you a sense of the A&P spends that we are doing, today 50% of our spends are going into. I'm talking of pure A&P spends. 50% of our spends are into ADHO, and 50% are into the non-ADHO, both digital as well as the non-digital. Now these are the brands which are now started scaling up well, which is where we see the value growth coming from. That we expect over the next two, three years to start giving far stronger results than they have already started showing.
That will clearly be one driver which will bring down the overall cost pressures and hence the EBITDA margin we see. The other is obviously we will have to wait for the LLP correction or the demand conditions to become better. One of the two, either we are able to take the price increase to offset the increase in raw material prices or expect the raw material prices to come down itself. It will be a function of both, while the first one is more internal, controlled by us, and we hope that we are able to achieve, and we are already seeing traction in that. The second one will still be a function of how the macroeconomic conditions.
Understood. On this ad spend, as a percentage of sales, how much do you expect it to come down by? How many basis points over the next two to three years?
At this moment, as I said, we'll keep at that 18.5%, closer to 19%, that kind of numbers. We expect it to come down over time. I mean, very difficult to speak of exact numbers, but we expect it to come down to that average 15%, 16%. We expect at least 2.5% gain in terms of margin from that aspect, as well as expecting another 3.5% from our gross margin aspect. These are the two areas where we feel that 6% or the 5%-6% bridge that we require will be coming from.
Okay, sir. That's all from me. Thanks and all the best.
Thank you.
Thank you. The next question is from the line of Abneesh Roy from Nuvama Institutional Equities. Please go ahead.
Yeah, thanks. My question is essentially on the digital in terms of ad mix. Since you have taken over, what is the transition here? What was it at what level when you had joined? Where do you see over the next three years in terms of digital as a mix of the total ad spend?
Yeah, at this moment, we are at 20% in terms of the digital spend that we have there. If you're saying about two and a half years, it was lower than 5%, and that has gone up to 20%. That time, obviously, the entire digital spend was basically only on ADHO. Now it is a broad-based spend. It is not only on the product, it is also on the theme promotion of Almond Drops for Super Food for Super Hair. That theme that we want to extend the Almond Drops beyond just Almond Drops hair oil. That is also where we are spending, as well as on the first digital-first brand, as well as some campaigns going on Natyv Soul, etc.
Natyv Soul and 100% Pure. That has taken the numbers at this moment to 20%, and we expect that to keep on going further up. I really wouldn't be able to put an exact number as to how much we will take it to, but clearly the direction is that that number is expected to go up as a percentage.
Right. My second question is on the larger peers investing in the B2C website startups or doing on their own also. For now, because of the overall liquidity drying up, startup capital is going to be scarce. Lot of deals, lot of M&A will happen. Are you also on the lookout or you want to essentially ride on the third party only rather than investing in a platform?
Two aspects. One is obviously D2C itself, which is basically our own website where you get better control on your consumer data. That is obviously initially a cost burner. Cost burner because for acquisition of the customer, for the billing size that you have, initially it may not add into your bottom line. At this moment, with the pressures that we have as far as inflationary pressures as well as demand pressure is concerned, we would rather invest in our brands rather than get into a D2C straightaway. D2C is clearly something in our horizon. We are doing our maths for that. At this moment, we would prefer to invest more in the brands and taking third party, through third party rather than have our own D2C.
That is clearly a direction that we'll take as and when the market conditions improve. The other aspect is obviously of having a larger footprint as far as digital is concerned. As you rightly said, the valuations today are far more benign than they were because of the drying up of the capital that was available, free capital that was available. We are also actively tracking that. As we had already told you that, in the last quarter itself, we are engaged with an investment banker, so we are exploring options. If anything justifies, we'll obviously get that.
Right. My last question is, back on the volume growth. Your previous company, Asian Paints, reported double-digit volume growth and, not just on year-over-year basis. Even if you see three or four year, they have reported very good set of numbers, multiple quarters. In Q2, if you see, the two food companies, Britannia reported around 4%-5% volume growth. Nestlé reported around 8% volume growth. When you see the high single-digit kind of a dip in hair oil. Would you say that hair oil as a habit is now structurally changing? Because in some of the Southeast Asian countries, we did see many years back that hair oil as a habit for the millennials is coming down. Is that a risk because of the slowdown?
In India also it can happen because two, three years back, no one was expecting that. When you see such a big gap in terms of growth between paints and hair oils, and more importantly in FMCG between foods and hair oils, are you getting a bit concerned?
I'm not sure how paints is related, so I'll keep that completely out because I'm not able to see the sheer linkage. Foods, I can understand where you're coming from, but as I just mentioned, I was just talking of the categories in personal care, which are the large categories in personal care. The largest category is soap, where you have seen a volume decline higher than hair oils. We talked of toothpaste, where we saw volume decline higher than hair oils. I don't think hair oils is behaving completely different. Yes, you're absolutely right. Newer forms of hair oils are coming in with onion oil, et cetera. Newer ingredient, newer actives are coming in. There are newer formats which are coming in terms of serum, et cetera, which we are also actively tracking. As you've seen, we have launched serum, et cetera.
Usage of hair oil, which is so far ingrained, I don't think is going anywhere. It's a INR 13,500 crore category, highly penetrated at more than 90% households. I don't see that as going anywhere. It is more of the current demand situation. We will still remain very, very buoyant about hair oils, where in spite of so many, you know, doomsayers for a long time, hair oils have really gone nowhere. If you look at a long-term trend, hair oils, while it has not had stellar growth, it has neither declined heavily except for this current period where everybody else is also in a similar situation.
Sir, no industry study is there on the youth in the metro cities, because what happens in the metro cities in the youth may happen eventually in the other markets also. Any study has been done by any industry player or say any third party on how the youth usage in terms of hair oil across the board, not just in your case?
Yeah.
Because we do see anecdotal evidence that in the big cities it is definitely changing.
If you ask me in terms of hair oil usage, we don't see too much of a difference. It's not that the millennials are getting away. They are. Yes, they are experiment with newer ingredients. They are experimenting. They are requiring more functional. Earlier, the story that styling, glamour, et cetera, I mean that no longer sells with a new age customer. It is more the actual ingredient that you are talking about, actually delivery that you are talking about. That's how today, if you look at our campaign is also more towards nourishment, towards hair fall, reduction of hair fall and not so much just style and glamour. Clearly, that is something that is pushing through.
That's how you see even Almond Drops, in spite of this kind of difficult period, conditions. Almond Drops did register a growth. In fact, in spite of a double-digit decline as far as the market is concerned, we had a value growth as far as Almond Drops is concerned. Almond Drops continues to do, I will not say stellarly well, but continues to do well. I think overall hair oils we don't see a big trend that is coming in. Yes, down trading has happened. Most of the impact that you see is in more in the rural. The urban markets are still as well. In fact, our urban trade is in double-digit positive. Our retail is actually high teens positive even in this quarter. I don't see that too much of a concern.
Yes, there has been experimenting going on from the youth. They are trying out new formats, but hair oils is also not going anywhere.
Sure, sir. That's very helpful. That's also my take. Thank you.
Thank you.
Thank you. The next question is from the line of Prakash Kapadia from Anived Portfolio Managers. Please go ahead.
Yeah. A couple of questions from my end. You know, how much is LUP to our rural sales? You know, Jaideep, you mentioned about down trading. What is happening? People are moving to copra. Are they buying the loose oil on the rural side? What is happening?
If you look at the low unit packs and I would include even the sachet pack inside that. Because our contribution in that INR 10, INR 20 as far as ADHO is concerned is very low. Our own contribution to ADHO is quite low. If you were to include the sachet, then it becomes about close to about 15%, 18%. That is the kind of contribution that we have. For us, if you look at the bigger chunk of it has happened in the mid packs. The larger packs are doing well because the urban markets are doing well in terms of modern trade. e-commerce have been doing well. The larger packs have done well.
The lower packs, because of down trading also, has done better, plus also our prices are much smaller. Those are done well. It is where the mid packs, which is our core rural customers, which is where we are getting hit. That is a substantial chunk of hopefully more than 14%. That's where the hit is today.
These would be what? INR 40-INR 50 price point packs?
Yeah. It would be about a INR 40-INR 70 pack, INR 35-INR 70 price packs.
You know, for the EBITDA margins, if I look at them, they are even lower at 13.3% lower than the COVID quarter. You did, you know, mention about two drivers for improvement. One is, you know, LLP prices coming down or demand going up. Which do you think is likely to happen first? Because, you know, on the rural side, the base is now getting pretty low. Do we see demand coming back in second half? Is there some, you know, confidence or visibility of rural doing better in the second half because of the low base and maybe, you know, elections and government getting into some spending mode? Is that likely to happen? Or we have to wait for LLP prices to cool off?
I think both will be going hand in hand. I don't think it will be an either/or one before the other. I think it will be there. Because if you look at overall, all of it is finally related back to the crude oil price and the availability and the demand conditions. I mean, that is where the entire story will still play out. Unless the inflationary pressures on the economy goes down, I mean, we can all talk of much better season, much better these things. Those will have obviously marginal impact. But if it has to grossly correct, then inflationary pressures on the system has to go down. If that does not go down, rural is not going to bounce back.
Yes, it will be better than, as you rightly said, because the bases have come down. Obviously, it will be a little more benign as far as base is concerned. I think if you look at the structural correction, that can only happen when the inflationary pressures on the system come down. That will have an impact both on LLP, RMO. RMO is not really so much directly impacted, but LLP definitely and as well as demand conditions. Having said that, urban is still continuing to do much better than rural. I mean, we see quite good hope as far as urban is concerned. Then as far as we are concerned as a company, I see there is enough opportunity for us even in this market conditions to do well. Yes.
I mean, obviously, if the raw material pressures were better, the better margins would have looked much rosier. Clearly, in terms of penetration, in terms of building our brands, I mean, getting them into a situation where other than ADHO, we have a portfolio to back with. When the demand conditions arise, there will be multiple engines to fire. That is clearly already started to happen. Today, ADHO's ADHO, in spite of our growth ceilings, we have gone down, or let's put it the other way around, nearly 17% of our contribution is now coming from our new products, which is a pretty substantial improvement from where we were.
This is something that we would like to keep on growing, because ADHO will remain restricted and limited in terms of growth by the nature of the market and nature of how the hair oils market behaves. We have enough engines to grow with, and that is what we'll continue to push.
Understood. Lastly, you know, on the inventory side and packing cost, how are we managing in these volatile times? You know, demand continues to remain muted. Is it like, you know, lead time being less? Are we taking like shorter calls, taking one-month call? How are we managing the input side?
We'll keep inventories will remain at a lower level, which is we'll keep shorter calls because it's unless in this kind of a volatile this thing, it can go both ways. Just as I was talking about in Q4 of last year, six months back, we clearly realized that LLP is going up, so we stocked up on LLP. That was a tactical call. We took advantage of that in Q1. In Q2, obviously, that advantage did not remain. At this moment, with elevated levels and with RMO prices expected to go down, we will not take long calls at this stage. We'll take short calls, and once we see some trends coming up where we can take some funds, then we'll be taking in.
Otherwise, we'll operate with low, much lower inventories than we normally do.
Yeah. Yeah. Understood. Thank you. All the best.
Thank you. The next question is from the line of Sameer Rachh from Nippon India Mutual Fund. Please go ahead.
Yeah, good morning, sir. First of all, congratulations on decent volume growth despite tough time, and also very happy to see that you're continuing your investment in A&P, despite such tough times. One question on new products. New products in first half were around INR 58 crore, roughly 12% of sales. I just want to understand from you, where do you see this contribution of new products going over a period of time? That's number one. Secondly, as a portfolio, the entire new product do they have higher gross margin than their average portfolio gross margin, or they have lower gross margin?
Sameer, as I said, at this moment, we stand at 17%, and our expectation over a longer term period is to take this number to about 40%. About 40% or even higher, depending upon what kind of portfolio built while ADHO continues to deliver the growth. We'll continue to invest in ADHO. We'll continue to push all the pillars to exploit ADHO as much as possible. But on the other side, we would want to develop a portfolio which goes to about 40% in terms of. We just about started on that journey. Some of the products have started tracking well. Our objective was to build about three, four brands which are, which become some substantial products in that. In that, I think we are tracking pretty well.
The Amla portfolio has started to come out well. In fact, Q3, Q4 would be a good time for that portfolio to be taken up. The soaps has started adding to our portfolio and the entire Almond Drops extension portfolio, which is with the serum and the argan oil added this year and two more products which will come up next year. As we keep building that Almond extension portfolio, we feel that that portfolio as such, not a specific product, but that overall portfolio itself will keep us giving good gains. The Coconut portfolio with the value-added Coconut as well as pure Coconut has also started tracking well.
Overall, in this sphere of overall hair oils as well as in terms of the Almond Drops extensions, which is where we get into some of the categories in personal care where we were able to now available with some right to win, actually started working well and we feel confident that this is somewhere we can push it further. As far as margins and the digital first brands have already started, we obviously have some more strategic plans as far as digital brands is concerned. That is something that we would obviously want to scale up because in spite of this difficult conditions, we see that digital spends, digital trends, et cetera, are still in the upside.
While valuations of companies are down as far as the digital brands are concerned, clearly that has already gained traction, and that's not going to get reversed in the near term. Digital portfolio and digital footprint is something that we'll continue to push on. Having said that, coming back to your other question about gross margins, yes, ADHO has a good gross margin. Some of the brands in our portfolio have better gross margins than ADHO. Some of the brands are a little lower. Our objective would be to look at a bit of positive kind of numbers in most of these brands. Some of these brands may not be supported through media spends. They'll be more a trade-led brand where the gross margins may be lower, but our costs in terms of investments, in terms of media, et cetera, would also be low.
There'll be some brands which we would like to develop as brands where margins will be higher and where we'll be spending in terms of ad spend. That mix of trade-led as well as brand-led products is how we would like to balance our portfolio.
Sure. Thanks for the reply. Just my second question is on this overall demand environment in rural India. Kind of, the post-monsoon, in the post-festive season, are there some early signs of recovering or you still think that slowdown will still persist for some more months?
Frankly speaking, if you ask me, frankly whether we can see recovery in rural, not in our category, but any other category, there is no clear indication of that, is there? Urban clearly has been doing well. In fact, very very happy that urban continues to do well across the country. Rural is under pressure. HSM market's more severe than we think, and that has been the trend, not this quarter, has been consistent in that HSM markets we see that HSM markets are more severely impacted. The bases are also coming down.
What we are taking this opportunity on the other side to do is strengthen our basic core capabilities as far as general trade is concerned. A lot of work which is happening at the back end is developing capabilities as far as general trade is concerned, so that we are able to sell a multi-brand portfolio through the retail channel, et cetera. A lot of work is happening in terms of retail initiatives. A lot of work is happening in terms of the training and our own people's execution capabilities, et cetera. We hope that when the demand conditions revise, we should be able to take benefit of the same.
Sure, sir. Thank you so much, and all the best.
Thank you.
Thank you. The next question is from the line of Naysar Parikh from Native Capital. Please go ahead.
Yeah, hi. Thank you for taking the question. First question is on modern trade. You know, obviously, you're seeing the good growth in your increasing at percentage trade. Can you talk about which brand is kind of driving this growth? And secondly, you know, are there any other white spaces that we, you know, which we can target to kind of increase this even further?
Modern trade is obviously led by ADHO. I mean, the entire growth that you see is led by ADHO. One of the good things that we see both in e-commerce as well as in modern trade, because of our sheer contribution of our ADHO to all our channel sales, ADHO has been what has given us this growth. It would not have been possible without ADHO to give this growth. The other brands, fortunately for us, both in modern trade as well as in e-commerce, the other brands are also tracking very well. Some of the brands in GT are also tracking well. In modern trade and e-commerce specifically, if we were to say, all the brands that we talked about in terms of launches have been tracking pretty well.
We have not launched all the brands in modern trade as we have launched in e-commerce. Wherever whatever we have launched in modern trade, whether it be the soap, whether it be the Coco Onion, whether it be some of the extensions that we are planning to get into, some of the digital first brands that we have launched, most of them have been tracking pretty well. We have also had some specific channel-specific SKUs so that there is the interplay between general trade and modern trade is kept as minimum as possible. Those seem to also be giving us good results.
Understood. Got it. You know, on the digital-first brand, right, the 100% category of Natyv Soul, are there any metrics there in terms of customer survey or the, you know, traction and numbers or something that you can share in terms of how those brands are performing and, you know, how do you see that? How do you see performance of those two brands going forward?
We have some internal parameters of measures in terms of what is our average billing size. I mean, how many customer acquisition. I mean, because we don't get unique customers, et cetera, because it's through a third party. As much as possible, we try as to what kind of overall sizes that we are getting in terms of billing sizes, et cetera.
Basically, in terms of brands, which brands are taking up, what we also are realizing and basically trying to do at this stage, especially, for example, as far as Natyv Soul is concerned, we also realize that some of the SKUs which are picking up well, which are tracking well, we want to try and, as we also learn from some of the digital-first brands, that they are far faster in terms of churning products. We are also trying to replicate some of these models. I would not say we are extremely as agile as they are, but at least we have come a long way from what we were maybe six to nine months back.
A lot of learning so that how do we rationalize the portfolio so that the ones that sell, so that we are more able to push that in. That is the work that is happening. Metrics as at this stage, we have some rudimentary metrics. I would not like to make that in a public forum like that. Yes, as time flows and as our business picks up volume, we should be able to share some kind of basic rudimentary metrics with you so that you can get a sense of what is happening with these brands.
Okay, got it. Just last question, can you just, maybe you mentioned a little bit, but what is the ADHO value and volume growth and what percentage is ADHO share of revenue in this quarter?
ADHO share of revenue, as I mentioned, was 83%, 17% coming out of non-ADHO. ADHO had a value growth both in this quarter as well as in H1. Volume was slightly negative, but value had a growth of about 2% this quarter and in H1 about more than 3%.
Okay. Thank you so much.
Thank you. The next question is from the line of Rahul Ranade from Goldman Sachs Asset Management. Please go ahead.
Yeah. Hi, sir. Thanks for the opportunity. Just one question on the ad spend where you mentioned, you know, you want to take it from 18.5% to 15 odd percent or as a percentage of sales. Any, you know, kind of time horizon that you mentioned? I probably missed that.
We have not mentioned the timeline. Typically, it would be about a two- to three-year time horizon. I don't think it will happen in a very short duration. It's more the midterm that we are looking at going there. Whereas as the volumes keep you know tracking as the volumes keep going up for some of these other brands, I mean that 17%, as that number keeps going up, you'll see the spends as well as ad spends going down as a percent. It will be a gradual drop to that 15%.
Okay. It will be more a function of offline growing, and a percentage declining rather than the, you know, kind of earlier, philosophy of, you know, spending behind brands which, you know, started, let's say two years ago. No change in that, right?
At this moment, see, once you've started this journey and started to spend and in spite of these difficult times we continue to spend on the brand and we've seen the green shoots coming out and we are seeing these brands develop, it will be, I think, suicidal to just take those off and just protect your EBITDA in the short term. We do not intend doing that. We continue to invest so that at least in a two-year horizon, we have a much stronger company as far as brands are concerned, quite a few of the meaningful brands which we can then keep supporting, and then we can take the tactical calls as to which one to support and which one not.
Sure. Understood. This ADHO, you know, kind of value growth of around 2% in the quarter and, you know, decline in terms of volume, what would that split be between urban and rural? I remember you said that, you know, urban has been positive, but what would the numbers be?
The urban was double-digit positive, rural was double-digit negative. This is the starting point, of which again, if you look at the quality of that sale in urban, retail was close to about 18% growth, 17%-18% growth, while wholesale was clocking mid-digits. That's how it is. Retail is where we have been pushing. Both, I mean, we are clearly seeing traction happening as far as this is something that, as you are aware, we have been pushing for the last seven, eight quarters. The retail, our presence in retail as an organization, that has been identified for a long time as a thing, and that is something that we'll continue to do. Overall, if you look at strategically, we are not seeing any of our challenges.
Yes, the market conditions have become difficult, et cetera, but we have not been tactical and just withdrawn some of it because we, if we need to correct this, we require this long-term, little bit of a long-term position as to what all we want to do with the company. If you look at the things that we have wanted to track, retail for us is going up. As far as some of the markets where we are not strong going up, modern trade, e-commerce going up, some of the non-ADHO portfolio going up, some of the SKUs in ADHO going up. Most of them have been doing well, except maybe we have not been firing in all the states that we had wanted to beyond where we are strong. These are things that we would want to take up.
The other thing that we had said that we will take up two years down the line, which is the international business, which you'll see, which you would have seen some kind of movement that is happening. Still the numbers are very low, but those are things that you'll start seeing, starting to flow.
Got it. Understood. All right, sir. Thanks for that.
Thank you.
Thank you, Rahul.
The next question is from the line of Shirish Pardeshi from Centrum Broking. Please go ahead.
Yeah. Hi, good afternoon, Jaideep and team. Thanks for the opportunity. I have one fundamental question, and if I go back five, six years before, we used to get about 50% + sales from the wholesale. Though I completely agree with your strategy expanding retail and giving more impetus to D2C brand and with time we have changed. Is it a good conscious strategy that we have cut the wholesale and now you think we have become irrelevant to the wholesale and that's why the wholesale has declined? Or you think there is a genuine rural demand which is slackening for the kind of portfolio we are holding?
Firstly, I would like to politely disagree with Shirish that wholesale is not a focus area for us. Wholesale is very much a focus area for us and in fact if you're a largely penetrated category for us, if wholesale is something that we defocus on or we were to ignore, you will never be able to make progress. Wholesale continues to be a very, very important area for us, but we are also doing things that we were not strong in. This is more a complementary thing that we are doing rather than an add on. Wholesale if you look at, in spite of these difficult conditions, we have had about a 6%-7% growth as far as wholesale is concerned.
Wholesale is clearly focused, specific programs for wholesalers, loyalty programs, et cetera, for short- and long-term, all these are in place, and this is something that we are driving clearly. My point was that in retail where we have been historically weak is something that we'll have to focus on because more than anything else with the strategy that we have to get into a larger portfolio, et cetera, you require the control on your distribution channel partners, which is where this entire effort towards retail went in about two years back, and now it is rectifying with some of these new products that are coming in. Even in GT, they are doing well. Also because we have that control in retail, mainly in the tier one, tier two cities, but that is what is happening and that is working there.
This is where it is. Wholesale is definitely not something that is defocused. Wholesale is something that we'll continue to support because in our category as well as in our country, without wholesale it's very difficult to imagine that we will ever do well.
Okay. Another observation. About 10 years journey when we have seen since the time of listing, we always banked on the light hair oil, and that was the market change that millennial would not like to use the thick oil. The conversion will happen to the light hair oil. That was the history. If I look at, say, five years, the market leader tried to garner the volume by cutting Amla prices, and the HSM market grew very faster. In the current scenario, what is it that is not in sync with the change in the market? Because I would see that even Amla has not grown. Maybe I'm trying to stretch your thought to find out what is exactly the problem.
See, again, very interesting the way behaviors are changing. During the COVID period, as you are aware, with people staying at home, lot of self-experimentation happened with a lot of categories and also in our hair oil. One of the things which is easy to experiment is basically the coconut oil, because that's a pure oil where you can do the experimentation. A lot of homemade nuskhas or homemade remedies, et cetera, were being used by the, by, let's say, the lady of the house who typically otherwise not had time to do her own experiment. That has also structurally changed behaviors of people.
On the one side, well, the new-gen brands have come in with active ingredients like onion, et cetera, vitamin C, so many other ingredients, and people are taking notice of that, and that is becoming a fad on one side. The other side is also usage, self-usage, self-home remedies, et cetera, coming in. If you look at the patterns and behavior are also changing based on how your consumer is also gravitating towards, et cetera. Both of these factors are coming. While on the one side, the demand pressures ensure that the premium oils suffered more than the cheaper oils. Today, you see even the cheaper oils are also getting stressed. This is on one side as far as pure demand situation is concerned.
At the micro level, as consumers play with the oils, play with the products, et cetera, they are also experimenting and migrating in, migrating out of various categories based on how they see the usage. These dynamics will always continue. Really speaking, that earlier trend that you are talking about is no longer just a thing that only the cheaper oils, if you just have more penetration, Amla will grow, et cetera. That is a theory now debunked a bit.
Though I agree with you, but just another observation having worked in the industry. The consumer will always have a budget. If the price inflationary has cut these spends, because this, the perennial thing is that highly penetrated categories, we have seen the consumption slackening, whether it is soaps or shampoos or even hair oil or even toothpaste also.
Mm-hmm.
If the pricing is an issue and we'll have to wait, the raw material prices will fall, we will cut the prices and the consumer will come back. Is that the trend which you are seeing or this is transitory?
I think it is transitory. Today, again, it is a pure function of disposable income. Today with this kind of inflation pressure, people are down-trading, people are opting out. Usage patterns and usages are really not changing. Otherwise, we would have seen far sharper falls or sharper falls in specific categories. If you see most of these categories that I mentioned, whether it be the toothpaste, soap, hair oils, et cetera, all are showing similar trends. I mean, soap can come down further, but it is not that there is a huge marked difference in terms of behavior, in terms of the consumer. It's just pure play inflationary pressure and the disposable income that is there. I think this is transitory, transient and as situations improve, I mean, this cannot keep on bottoming out.
You can't have a situation where demand is bottomed out, inflation is at an all-time high, this remaining as a constant. You will see some intervention happening somewhere. That situation is anyway going to improve, and it is not going to impact our category more than any other category.
Just one last follow-up on this question. In your market visits or in your sales meetings, what is the feedback you are getting that do you think another quarter or two, three, four, things will become normal or it's a structural issue which will take a little longer time to settle?
See, I mean, I have visited the eastern markets and the northern markets extensively and a bit of the western markets. South, I have not visited in the recent past, so I can't talk of the South. The rest of the markets that I went into, I see most of them the same story coming out. I'll just be repeating the same thing. If you talk of any future optimism, et cetera, yes, there is a cautious optimism there, but everybody wants to wait and see that optimism play out. Really speaking, I don't see any part of the channel or in terms of our people, et cetera, that there is an absolute huge buoyancy or huge expectation in demand conditions so far.
I think in our team, et cetera, I see some kind of a excitement because with so many products to play with, they still see that earlier, that pressure that if ADHO or I am not able to push through, I'll not be able to power up my business from anywhere else. That pressure is not there so much on them. They are able to now play and play with the range to able to try and see how they can develop and do their targets. That is very heartening for us. As far as we are concerned, we still feel that people still seem to have some options to play with, and this is something that we will continue to push.
While we will expect the demand conditions to improve, and hence as a result, all the other parameters will fall in place, we'll continue our work so that at least we can protect our business, going forward and notwithstanding the external conditions.
Okay. My second question on slide four, what you have mentioned, the NPD contribution at 12% for first half, and that number is INR 58 crore. What is the cash burn we are seeing in this business, especially on the NPD?
If you look at overall, I mean, if you look at pure ADHO itself, on an absolute EBITDA basis, it will still be clocking more than 20% as far as the EBITDA is concerned. ADHO, if you were to look at compared to the previous period versus now, ADHO's EBITDA will be more or less very similar. Maybe a little bit here and there, but otherwise more or less same. Most of the cost is today going in terms of A&P spends as well as, let's say, products like Coco Onion, products like soap, which are national brands, so hence the investments are also little higher. We expect those brands to start slowly, and that is what we are seeing already, traction coming in.
Those to start flowing in, and we'll also then start readjusting our investments. When you launch a brand, obviously your investment intensity is also a little higher, so that will also regulate and basically take in. That is how we see it going forward.
In this INR 58 crore, what could be the contribution from e-commerce and modern trade and GT?
INR 58 crore modern trade, e-commerce GT. I'll have to see. I have not split it up as a brand. Brand channel-wise, I'll have to do the math. If you look at, it'll be in terms of modern trade and e-commerce, it'll be quite a large component. GT will also have a decent component to that because you have the Amla, you have the Coconut, so GT will also have a large component. It's just that the modern trade and e-commerce will be more broad-based in terms of GT will be restricted to fewer brands of, let's say, just the starting of the soap, the Coconut, the Amla range only. That's where.
The reason why I'm asking because you have fairly about four or five new products which have given you this kind of momentum, INR 10 crore per month. I was more keen that in the medium to long term, which is the segment or which is the product you think is promising?
I think that's what I replied. I mean, what are the products, that's why we don't want to go for a large range of products which we can't support. I mean, we see companies where large range of products are launched and maybe some of them they support in a different manner. We feel that with our company capability, et cetera, we would like to have a restricted range of product introductions which we can support most of them. Some of them may not take off as the way we would expect to, but at least we would want them to have higher chances of success. We will still remain with the Coco Onion, we'll remain with the soap, we'll remain with the Coconut and Amla range, as well as the Almond Drops extension and the first digital. That's where we would restrict us to.
It will not be a plethora of launches. As we said, I mean, in terms of the Almond Drops extension, it's a lot of formats we already have rights to win, et cetera, but we will do this in a graded manner. We will not launch all these products because we will require all of them to be supported. We'll just not launch them and just support them through trade spends or just on the platform spends. We would also like to support them and build some equity for the brand, and that's why we would like to have a little more graded. All of them, as a result, all of them are tracking decently well as far as expected. Some may not be as per our internal numbers, some of them may be exceeding the numbers.
At this stage we see all of them to be promising, and we don't have any plans of taking back any of the products that we have launched in the last two years, year and a half.
Okay. Sorry for stretching. I have last question. On slide 14, you mentioned that on the cost initiative in savings projects, 20 projects you are running in value engineering and alternative vendor development and transportation. Can you quantify what kind of savings as a percentage of sales or maybe in terms of absolute number you would like to save in next two quarters?
We would be looking at about a percentage coming in from there. These are 20 projects that we saw is typically more supply chain-driven. There are other projects also running across other functions in terms of R&D, in terms of. This is not only value engineering, but beyond value engineering as well. In terms of HR, in terms of rationalization, you would have seen from our graph that HR costs are in control. In spite of our reinvestment in getting people in from a large portfolio, a large team in marketing in terms of e-commerce, modern trade, in terms of our digital marketing team, R&D teams, et cetera.
In spite of that, you'll see that a reduction in HR costs have happened because we have rationalized our people structure, et cetera. Overall, the cost, we're saying we expect about a percentage or so other than manpower, to come down overall from the costs.
Thank you, sir, Jaideep, and sorry for stretching my questions. Thanks for your patience and all the best.
Most welcome, Shirish.
Thank you. Participants, we request you to please limit your questions to two per participant. The next question is from the line of Vaibhav Badjatya from Honesty and Integrity. Please go ahead.
Yeah, thanks for providing the possibility. So the ADHO that you mentioned, 83% of the revenue, is it for the first half or the second quarter?
The second quarter.
Okay, what would be that for the first half in total?
First half is similar. I mean, it is about 84%.
Okay. Got it. In NPD, now when you mention it is 12% of the revenue, what is not included in NPD?
What is not included in NPD? Let's put that what we take, what we define as NPD. NPD is what we define as, and that's a traditional definition I would assume most companies follow, which is any product that has been launched in the last three years. In that, by that definition, what is covered in NPD is starting from the Amla Aloevera that we started, then the Sarso Amla, the Bajaj Coconut, the Coco Onion, the digital first brands, and the Almond Drops extensions, which is soap, serum, and other oils. On the non-NPD category, obviously, you have ADHO. Other than that, you have the Amla H air Oil. You have the Nomarks range. That's about mainly the other than the smaller ones like the black seed powder, et cetera, whichever you use.
Okay. Got it. Understood. Lastly, Sir, on this, it is just a request. You know, on the promoter front, we now are seeing increasing sign of stress because some of the promoter companies are facing defaults. Even the personal guarantee of the promoters have also been revoked in some cases. Like last time, you know, when all these issues happened, promoter came on the call and clarified everything that there will be no more pledge, nothing. This time, again, if you know, either on this con call also previously or through a separate meeting, if this can be addressed that what are the plans and whether the promoters continue to support this company.
If that can be clarified, that would be really great. Just a suggestion. I'm not asking any question. This is important from the shareholder's perspective as to what is going to happen with the promoters' role.
I respect your point. The Chairman does not typically attend investor calls. He would take a transcript later. I'll pass on this information to him. I'll pass both your suggestion as well as your recommendation to him. Finally, this is delegated to address as and when necessary. At this stage, I can confirm that the promoter is fully, deeply involved with this business. He does a regular review with us, and he is very much actively participating, actively involved with the business.
Okay. Yeah, that's it from my side. Thank you.
Thank you.
Thank you. The next question is from the line of Abhijeet Kundu from Antique Stock Broking. Please go ahead.
Yeah, thanks for taking my question. Essentially I was, you know, just reconciling the revenue growth. If we if you see that modern trade is at 9% of sales. It has grown at 75%. Again, e-com is 9% of sales. It has grown at about 180%. International business also has grown at 50%. My question is, firstly, what will be the contribution of international business in the current quarter? We have said that general trade has slightly declined. But if you have to do the math, then general trade has to decline at a higher rate, right? I mean, just where am I going wrong? Just wanted to, you know, that detail.
I'll just help you with the numbers. General trade is at about 73%-74% of the saliency . Organized trade, as we call it, modern trade plus e-commerce plus the canteen's business is about 22%-23%, and international business is at 4%. General trade at this stage, at a half year level has grown at about 2%-2.5%. In the quarter level, it has grown slightly a mid-single digit number.
Okay. I mean, because general trade, modern trade, and e-commerce.
These are reconciled numbers. You can add them up. This is exactly how you can add them.
Okay, fine. That's it from my side. Thanks.
Thank you. That was the last question. I now hand the conference over for, to the management for closing comments.
Thank you everybody, and, thank you for the incisive questions and your interest in the business. I mean, obviously, it's been, quite a few quarters of challenging times. I remember two years back when we were looking at exactly this strategy, two things we clearly had not, anticipated, which is that unprecedented inflation that we saw, as well as the demand conditions which actually slumped. If you ask me, more than the inflation, I think we are more hurt by the demand condition slump that we saw. Because if the demand conditions were a little, better off, we could have actually been, able to support it. We understand obviously one is a function of the other, so really speaking, you can't pick and choose.
We just feel comfortable with the fact that if we were still just on ADHO, while we might have been reporting, as I said, if we are just doing ADHO even today, we would have reported positive data of more than 20%. I think for the long term, this would have been a very, very difficult and a stressful time for us and a very risky proposition for us.
We sit in a situation where most of the plans that we had put up for ourselves as far as internal plans are concerned, so both in terms of completely doing a revamp of our internal system, processes, governance, et cetera, controls in place, getting the right people in place for a future-ready organization, getting the IT systems that we wanted to do, as well as in terms of our marketing strategy, portfolio strategy, et cetera. All those engines have started running in. Yes, market conditions do remain difficult for a time, but at least the engines have started firing and when the market revives. It would be true for all the other companies. We feel that we are now in a position to really accelerate our growth engine.
With that, with this cautious optimism, I would like to end this call and thank you all for being part of this call. Thank you.
Thank you. On behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.