Ladies and gentlemen, good day and welcome to the Bajaj Consumer Q3 FY23 conference call hosted by ICICI Securities. As a reminder, all participants and lines will be in the listen-only mode. 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 and then 0 on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Karan Bhuwania. Thank you. Over to you.
Thanks, Mike. Good morning, everyone. It's our pleasure at ICICI to host Q3 FY23 results conference call for Bajaj Consumer Care. 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 would like to hand over to Mr. Jaideep Nandi for the opening remarks, post which we can operate for the Q&A session. Thank you.
Thank you, Karan, for hosting this call. Good morning, everyone, and best wishes to all of you for, and your families for a wonderful 2023. I'm delighted to have you all join us for this call. Let me take you through the performances of the company for the quarter and 9 months ended 31st December 2022 before we open up the house for questions. We continue to witness unprecedented inflation across a wide basket of commodities impacting disposable income. As a result, consumer spending is adversely. While there has been some easing of commodity prices and supply chain pressures, inflation still remains a significant challenge. The overall hair oil market has some instant decline by 4.4% in terms of volume, with similar value decline in Q3 FY23 over the same period last year.
While urban markets have seen a value decline of 2.1%, rural markets witnessed a steep decline of 7.5%. The decline in rural is in line with similar trends in the previous few quarters, as consumers, especially at lower income levels, feel the pinch of both inflationary pressures and reduced disposable income, leading to down trading and prioritizing essentials over discretionary. The long-term March-December 2022 decline was witnessed across all categories in health hair oils, with steeper declines in premium categories as against mass categories, which also underwent some decline. The company reported quarterly sales of INR 225.5 crores, translating to flat value growth over the same period last year.
For the nine months ended, reported sales were at INR 696.8 crore, delivering a growth of 7.3% in terms of value and 4.2% in terms of volume over the same period last year. Sales of NPDs doubled in Q3 FY23 and is now contributing to 13% of the overall company sales. This expansion of NPDs is in line with the long-term strategy of the company to build a robust portfolio beyond ADHO. The gross margins of Q3 FY23 was at 53%, which was lower by 240 basis points over the same period last year, mainly due to steep commodity price inflation. Change in product mix also contributed to the same. Sequentially, gross margins saw improvement of 120 basis points with softening of material cost.
For the nine months ended, gross margins was at 53.1% as against 57.6% for the same period last year. The prices of LLP for the quarter were higher by 32% over the same period last year due to surge in crude prices, post the Russia-Ukraine war depreciation of the INR against USD and tightening of refining capacities. Sequentially, LLP prices have corrected by 8% on account of overall weakness in demand. RNO prices remain stable in the current quarter over Q2 FY23. To mitigate the inflationary trend, cost-saving initiatives continue to be driven to bring structural reduction in material costs and overheads. A&P spend for the quarter was at 18.9% of sales, which was higher by 6.4% in absolute value terms over the same period last year.
For the nine months ended, A&P spend was at 18.6% of sales, translating to an increase of 26% in absolute terms over the same period last year. The significant increase in A&P spend is on account of increased investments on the new products. The EBITDA for the quarter was at INR 34 crores with a margin of 15.1%, whereas the PAT for the quarter was at INR 33.7 crores with a decline of 15.8% on a year basis. For the nine months ended, EBITDA was INR 102 crores with a margin of 14.8%, whereas the PAT was at INR 98.8 crores. Retail continues to scale up with a double-digit growth on the back of loyalty programs, which has also helped build the NPD portfolio across urban areas.
Retail, as you are aware, has been a focus for us for the last two years as a company. Rural slowdown continues to remain a concern and offset the growth in urban, driven by retail activations and cold revival. Both the focus businesses of modern trade and e-commerce have registered excellent growth once again, as both channels continue to scale up well. The performance of non-ADHO portfolio in both these channels have been very encouraging, as is the ADHO performance as well. Modern trade grew by 41% in Q3 FY23 over the same period last year and now contributes to around 9% of total sales. Modern trade business has scaled up 2x over the last two years in the first nine months of the year.
Our strategy of focusing on channel-specific SKUs in select key markets as well as the new products have been yielding good results. During the quarter, we acquired a significant market share in top retailers. Canteen business also saw a revival in Q3 over last year. E-commerce continued to scale up well, achieving a growth of 84% in Q3 FY23 over the same period last year, and now contributes to 7% of total sales. Contribution of non-ADHO portfolio is scaling up sequentially. E-commerce business has scaled up 4x over the last two years for the first nine months of the year. We recorded highest ever market share on a leading e-commerce platform in a non-event month. Growth in Almond Drops extensions, that is Almond Drops soap plus Almond and Argan and Serum Oil, has also been very encouraging.
The consolidated international business reported a strong growth of 36% in Q3 FY23 over the same period last year. New channel partners appointed in major countries in Middle East, Africa region have been starting to yield results, helping drive top line growth. Nepal saw muted growth due to macroeconomic environment in the country. Rest of the world performed well by new geographies and new portfolio introductions. During the quarter, ADHO registered a mid-single digit value decline due to weak demand conditions in key HSM, especially the rural markets. Share of Amla portfolio remains steady in mid-single digits at an all India level. Steady progress is seen in Bajaj 100% Pure Coconut, and consistent sales is now driven by repeat demand and distribution. Bajaj Coco Onion saw good traction in modern trade and in commerce.
Almond Drops soap is supported with TV media plus digital, and continues to receive positive and encouraging feedback from consumers. Listing of the brand has been done in large modern trade channels, in modern trade chains this quarter. Almond + Argan Hair Oil and serum with oil under the Almond Drops extension portfolio have been live on e-commerce and will drive off takes in the coming quarters. Our range of digital first brands, Bajaj 100% Pure and Natyv Soul are also being supported with digital marketing and are scaling our customer plans. We'll continue to invest strategically in these two brands in the digital space going forward. We continue to provide media support for ADHO across TV, digital as well as print, supporting key markets. The company has recently signed up with popular Bollywood actor Kiara Advani as its brand ambassador for ADHO.
The latest creative with Tara Boring Nahi, Ban Ja Toofani campaign aims to connect the brand with young women to further consolidate its market leadership in the segment. As a new face of the brand, she will feature in a series of high energy marketing campaigns and events in the coming months. The social media activity towards the new ADHO campaign, Daro Nahi Dare Karo, registered 1.3 crore views over December, January. Community marketing for ADHO on beauty, parenting and lifestyle reached 63 lakh people in around 200 online communities. The Almond SOP has increased from 8% to 17% in these communities. We continue to make visible progress in our ESG program. In line with our three R philosophy of reduce, recycle and reuse, we continue to take initiatives for reducing carbon footprint and greenhouse gas emissions.
These initiatives have led to reduction in consumption of glass bottles by 8% this year, over and above 16% reduction achieved last year. Similarly, laminates, we 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 consumption sources and installation of controls at critical places. This helped us reduce water consumption by 34% in 9 months FY23. Steps taken in process improvements at the plant helped in reduction of wastage of certain critical categories like laminates by around 25% over the last year.
While we see raw material slowly coming off its peak and the gross margin pressure is easing slightly, the company will continue to invest in its existing brands as well as new launches to support its long-term growth aspiration of diversifying its portfolio beyond ADHO. As we expect the markets to normalize in the coming months and RM prices to soften, we believe we will be in a much stronger position to reap the benefits of the portfolio expansion, which we are already seeing yielding results. This would lead to de-risking ADHO, having a consistent and robust top line growth as well as better EBITDA margins going forward. With that, I end the opening remarks and open the session for questions. Thank you.
Thank you. We will now begin the question-answer session. Participants who wish to ask a question may press star and one on your 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'll wait for a moment while the question queue assembles. We have the first question on the line of Varun Bang from Bryanston Investments. Please go ahead.
Thank you for the opportunity. I have couple of questions. First one is on ADHO segment. If I were to take a slightly longer term view on ADHO segment, given how the consumer preference is evolving around hair oil, in a normalized environment, what sort of opportunity do you see in ADHO segment? Does it still have potential to grow 4%-5% in volume terms over long term? Is it possible? Can you share your thoughts?
If you look at, currently the way we are witnessing, because of this down-trading, in urban if you look at, the down-trading is not that obvious. In fact, urban markets, even ADHO has been performing pretty well. It is because of this sharp decline that is happening in rural markets, and especially the markets. Unfortunately, that's the trend we are seeing as far as our company is concerned, that in spite of so many initiatives, especially exactly where it hurts is hurting us most, which is the markets of, let's say UP, MP, Bihar and Chhattisgarh, Jharkhand. I mean that belt which has been a consistent story for the last three, four months. Even Nielsen data specifically shows, let's say, UP is down by 12%, Madhya Pradesh is down by 10%. That is where which is hurting us most.
Other than that, if you ask me in terms of expansion of ADHO is concerned, I mean, there are a lot of pockets in the country where we feel ADHO can still further grow, and those are where we are seeing the growth happening as well for ADHO, whether it be in the western and the eastern markets and some parts of South, maybe not the entire South. We are seeing good green shoots happening as far as ADHO is concerned. If you look at, because of the democratized markets, through modern trade and e-commerce, there also we see a proliferation of ADHO in markets which are beyond our traditional strength HSM markets.
If the HSM markets, which is today a concern, and if you ask me, if the markets normalize, if the demand conditions were to come back, overall demand, where the discretionary basket for the people, I mean, they are able to spend money on disposable income. I personally think that kind of growth is easily doable.
Okay. On new products, in the products like Coco Amla, Coco Neem, we have range of products in Bajaj 100% Pure, and then range of new products in non-standard, Almond Drops category as well. Given that this market is crowded with lots of new age products, what is our right to win in this market and how do you think we stand vis-a-vis the competition? If you can just share your thoughts.
Yeah.
Slightly.
Yeah.
Over slightly long term, how do you think we could position ourselves?
Absolutely right. In fact, when we launched the soap, we were absolutely aware in a INR 20,000 crore completely saturated market, that we are launching a brand in a very saturated market. As we had made the commentary at that point of time, and we are clearly seeing the results bearing out now, the launch was not only a part of a product launch in a soap category. We wanted to launch in the entire Almond category itself. We wanted to own the entire Almond category, and that is where you see now a plethora of products getting coming up. We have the serum, which is tracking well in the e-commerce and modern trade channel. We have that Almond + Argan Hair Oil, which is already tracking well. soap has already started showing good traction.
It's still obviously it's a cluttered market as we are rightly pointed out, so there'll be a slow growth. With our consistent push in terms of TV ads, et cetera, we are seeing traction coming in. Now there'll be one or two more products which you will see coming up in the next few quarters as far as this Almond. Almond category, Almond Drops extension category is something that we want to develop as a 10-15 products over a period of 3-5 years, which we want to push. I think that category of Almond Drops, which is where we feel that we have some ownership. I mean, that we want to proliferate across consumers.
Wherever we have done consumer districts, et cetera, we see that the fact that it is coming from the house of Bajaj, which is Almond Drops umbrella, that itself is a good right to win. As far as the product is concerned, we see a value add as far as this part of the portfolio is concerned. As far as the hair oils portfolio is concerned or the oils portfolio, if you look at whether it be an Amla or it be an coconut, I think there is enough proven record for us that we are seeing good traction. I mean, today you see the new products, which used to be one of our key concerns, that we do not have a portfolio beyond Almond Drops. Today, that NPD is now sitting comfortably at 13%.
Both your quarter number saliency as well as your year saliency is at 13%. If the hair oils market were normalized, it was not at this -4.5% overall market situation. If you, then I think we would have been a far better situation. If you look at the commentaries of the various hair oils players, and you look at us, I think in terms of hair oils with a growth of about 7% yearly, I think we are doing fairly well as far as hair oils itself is concerned. It's just that the market, if they were more buoyant, you would have seen the results coming up in terms of our portfolio expansion, and these numbers would have been far stronger. Yeah.
Is there a leaky graph successes in these products? I mean, how will be the repeat demand for some of the differentiated products? Is there a strong pull factor that we are seeing? What is the sense that you're getting?
That's one thing. Now most of these products are already, I mean, except the almond serum and oil, these are just been launched. None of them we are doing too much of primary sale. I mean, quite a few of them are, let's say, e-commerce focused, except soap, which is obviously GT focused. It is now beyond the beyond the level of where only primary sales has happened. Consistently, our focus has been to continuously focus only on secondary sales. If you look at both the quarter as well as the year, our secondary sales for the quarter in general trade, for example, have been 5% more than primary sales because that's been the conscious focus.
That reduce inventory, get it to the as low as possible so that it, you can focus on actual sale that is happening. That way, I think most of the sale that you are seeing is actual sale happening right up to the consumer.
I am assuming that we cut down on our ad spends two years from now. Would these products continue to see traction? Is what I wanted to understand.
Different products will see different kind of, let's say tracking that is happening. If you look at today, ADHO gets about 60% of our ad budget, and new products get about 40% of our ad budget, and about roughly about 25% of our spend is on digital. Slowly the digital component of our component itself is going up. The moment you increase your digital component of your ad spend, obviously your total the cost itself will also keep going down. Moment these products start showing traction, today it is 13%, and we have far higher aggressive plans as far as taking these NPD numbers higher as concerned. As a percentage obviously the ad spends will keep falling. Today we are at 18%-20%.
We intend to keep it like that somewhere till maybe next year, and then slowly start bringing it down to the levels of that 16% or so, which is what we want to stabilize it at.
Okay. Thank you.
Thank you. Participants who wish to ask a question may press star and one on your touchtone telephone. We have the next question on the line of Percy Panthaki from IIFL. Please go ahead.
Sir, I just wanted to make sure I heard that correctly. You just mentioned that you have grown 7% in the hair oils segment. Is that right?
That is correct. Nine months, yes.
Okay. On a 9 months, okay. How much for this quarter?
The quarter is actually flat. The quarter sales, your value sales is overall also is flat. Hair oils is also flat.
Understood. Secondly, just wanted to understand what is the % contribution of ADHO to the total company now?
ADHO, see, total we have now 85% contribution coming out of ADHO, 2% is coming out of the traditional brands, and 13% is coming out of the new products.
When you say new products, you are including this onion oil and Natyv Soul, Bajaj Pure, everything put together, is it?
Yes, absolutely. What. See, the definition of new products is everything that has been launched in the last 3 years. Anything that has been launched in the last 3 years. We'll keep dropping anything that goes outside the 3-year mark.
Understood. This 13%, even if you're not, giving exact numbers, but any kind of flavor you can give how it is distributed, this 13% among the various initiatives?
If you look at in General Trade, the launches has been only a few products. It has been basically the Amla range, the Coconut range, and the Coconut range and the soap. General Trade, the distribution is of that. As far as e-commerce is concerned, it is all of this as well as, let's say, the any extensions of serum and almond oil as well as the digital first brands. If you look at the e-commerce and even the modern trade, quite a bit of it is very, very democratized. It's all of these are tracking well. If you look at look at our partners like Amazon and even Flipkart, all of these brands are tracking very, very well. As far as General Trade is concerned, obviously the product range is restricted.
It is, as I said, the Amla range, the Coconut range and the soap, and it is distributed between these three only in general.
Just looking for like, at least, the sequence in terms of size. I mean, which is the largest amongst Bajaj Pure, Natyv Soul, the Coconut range, the onion range. Out of these four or five, if you can just arrange them in descending order of size or something like that, it would help.
See, because your, because of your sheer general trade presence, both your Amla range as well as the Coconut range, that is the entire Coconut portfolio as well as the Amla portfolio, both have been in terms of size is much bigger. Beyond that, if you look at all of them are tracking in similar trajectory. The soaps are a little higher, and I think Natyv Soul, the serums, et cetera, are just coming, but showing good traction. In fact, the almond-based extensions are showing pretty good traction, and we are very buoyant about both the serum as well as oil, as well as the oil.
Oil and Serum Oil as well as the Almond Argan Oil has been showing good traction. We're planning to launch a few more in this Almond extension category because we are seeing that tracking very, very well. Yeah.
Over a three-year period, I think the ADHO salience has gone down from some 92%, 93% to maybe 84%, 85%. If I look at only ADHO over a three-year period, is that product flat in terms of revenue, or has there been a revenue decline, and if so, by how much?
This year you would have a little bit of a revenue decline. Overall, if you look at a 3-year period, it has a little less than a mid-single digit growth rate. Close to about a 3% growth over a 3-year period.
Value-wise, right?
Yeah, value-wise. In fact, volume-wise it is more or less flat.
Understood. Understood. Next question is on margins. If we look out 2, 3 quarters from now, what kind of margins do you think at a company level we can clock? Are we sort of set to go back to a high teens EBITDA margin in 2 to 4 quarters, or will it take longer than that?
Let me answer you. If you look at our entire cost structureBasket. The two costs which are basically impacting our EBITDA margins are basically the gross margin as well as the marketing cost. Marketing cost, I already told you, given that we are investing and as we are seeing traction, that 18%-20% is roughly going to remain for the next 4 quarters or so, and then we'll I think as the business scales up, we'll see a natural reduction of these marketing costs coming down to about 16% or so. That's as far as A&P spends are concerned. If you look at the gross margin dilution that has happened, just to give you a sense of where we are seeing, it's roughly, let's say a 5.5% gross margin dilution that we see.
About 4.5% is coming straight out of. In fact, we have had about 200 basis point improvement. We have had a 200 basis point improvement on the current spot prices. You already see an improvement also on our gross margins happening itself, right? I think, I mean, it will be more a function of how we see the LLP prices moving in the next 2, 3 quarters. We see that the prices have already stabilized or rather, normalized quite a bit, this thing. With the weakness of demand, we feel that LLP prices can further go down a bit. What I meant was are today's spot prices higher or lower than the Q3 consumption price?
Today's spot price is lower than Q3 consumption price. Okay. Q4 should naturally see some more gross margin benefit over Q3. Yeah, let's we'll see. This is just the middle of the first or second month, so we see how this pans out. If this trend remains, yeah, it is. Sure. Okay, that's all from me, sir. Thanks and all the best . Okay. Thanks sir.
Thank you. We have the next question on line of Gaurav Gandhi from Glorytail Capital Management. Please go ahead.
Hi sir. Thanks for the opportunity. Sir, our advertising and promotion spends, I want just the breakup of how much is for the incentives and how much is for advertising.
This is all advertising. This is the incentive is not part of A&P. This is accounting, right?
All right. That is pretty much higher, so that's why I was asking.
This is how we have always kept it. 60%, as I said, 60% of the cost goes into ADH and 40% go into new products.
All right. Sir, with our new product, that serum with oil, how much are you confident with this product and how will it perform? Because serum is the category which is attracting, you know, younger India is attracted towards that. How much are you confident about that product?
We have launched this product in both base as well as the Almond with Argan Oil, which is about 50% premium over the ADHO itself. Both these products have gone into modern trade, more in e-commerce first and now into modern trade. We are seeing good traction happening as far as our serum is concerned. In fact, as a product, all the products that we have launched in terms of consumer, we are getting good traction and good feedback, including our rating soap itself. As far as the Almond extension is concerned, we are slowly seeing that niche is getting carved out as far as our portfolio of Almond Drops products are concerned. As we see more products getting launched, and we will see more products coming up.
No, my question was regarding the. Is it a regular serum or serum with oil? I mean, how. What is the product exactly? Serum with oil, will it be something different from the regular serums which are present in the market?
This is a very similar product. It is similar serum with oil, which basically adds to the nourishment. I mean, not only does it reduce frizz control, it adds oil also as well as UFO.
All right. All right. The next question-
Oil as one of our key listings, this just accentuates the oil part of the product. I mean, serum is for frizz control. This oil adds into the nourishment.
All right, sir. Right, sir. The next question is on the Nomax brand. Do we produce that or have you stopped producing the Nomax brand soaps? You know, what my observation on ground says that the Alwan soap which we have launched, has a similar appeal to many other soaps. People for the people at large and it is, you know, bit saturated, Nomax soaps are something different.
People, you know, we might create a differentiation with that product in the soap category. What are your thoughts about that?
I would like to politely disagree with that. The Nomax soap actually did not bring in any specific attribute itself, because Nomax by the name itself means that you leave no marks, and it was more like a nose scar kind of a brand. It was not. It really was a very different portfolio, which was through the OTC channel that we are servicing and mainly in the Bihar UP markets, et cetera. The Nomax as a brand remains, but the soap itself, I would like to think that the AD soap has a far higher product proposition than Nomax soap itself. Nomax soap itself will not get pushed. AD soap, obviously, yes.
All right. All those. The last question is, do we have any plans to get into some of the products where the growth is higher and include those products in our basket? Our existing portfolio is almost saturated and Bajaj has very good, you know, very fine goodwill in the markets to penetrate easily. How should we look at that? Also, how should we look at the company in, you know, say, a slightly longer term, say five to seven years of time frame? Can you throw some light on that?
As you said, as we embarked on the journey earlier, Nity, a few years back, the objective was to build ADHO and create a portfolio where Bajaj has a right to win. We had identified two areas where we saw, I mean, with our consultants, et cetera, that we worked and with consumer studies, the two areas is where Bajaj can work, which is the hair oil space itself, which is what we have filled up with quite a few product offerings. Now we cover about 85% of the overall hair oils market in terms of product offering.
On the other side, using the Almond Drop extension in skin and hair category, which is what we have taken up for the next 3 to 5 years to take on. This is what we have been pushing. We also feel that there is some more scope of the Bajaj brand name, which is an Indian brand name, which can be, which is a very traditional trusted Indian brand name.
Right.
More categories as far as the personal care space is concerned. This is under consideration. As and when any good fit comes, we will come back to you. The criteria will be where we see growth potential and where we see a cross-market potential. Only products where we feel that can be exploited with a Bajaj right to win is where we would like to get into.
All right. All right, sir. Thanks a lot. Thank you very much.
Thank you.
Thank you. We have the next question from Shirish Pardeshi from Centrum Broking. Please go ahead.
Okay. Hi, Jaideep Nandi. Good afternoon. Thanks for the opportunity. Just 2, 3 observation. We go back a year before, and we started saying that we have launched Coconut and we are trying to look at the penetration, and then we launched the Amla segment. If you look at the observation last 3 years, Amla, I mean, knowing Amla has grown very fast and there was a downtrending which is happening. Right now, when I connect the dot with Nielsen, the rural is still declining 7.4% in volume terms, what you have stated in the presentation. Do you, can you give some benefit, what exactly we are trying to make?
This Almond Drops equity is premium, and we have launched Amla, but the growth rates are still falling. As a company, would you guide what is we can expect in next 1 year?
Shirish, as I said, if you look at Shirish in terms of hair oils, I think we have overall, if you do a comparative analysis, I think we have performed well. Either if you look at the quarter number in isolation only for the hair oils or you look at the 9-month period, I think across all companies put together, I think we are tracking pretty decently.
Having said that, specifically Amla, we have taken a strategic call saying that given the kind of bloodbath that is happening in the Amla market today, I mean, as the market stands today, we wanted to stay out of some of the lower priced products as far as the Amla is concerned, which is more the INR 10, INR 20 packs specifically, because as we thought with the current structure of LLP and RMO and all the other raw materials, you really can't make too much of margins with the kind of pricing that is happening in the market. We actually took a conscious call in Q3 this year, I mean, end of Q2 and Q3 this year, where INR 10 and INR 20 packs of Amla that we defocused on because there was no money to be made.
We would have got top line growth, but margins would have collapsed further. This is what we have taken up. I mean, Amla still, the larger packs have been doing well, tracking well, we'll continue to support that. As we see RMO, LLP, they were to stabilize, et cetera. I mean, this is a segment, even the root is something that we'll definitely go back into. This is where as far as the hair oils market is concerned.
That's helpful. My second question on HSM market. Last 4 quarters, we have been talking about HSM market. There are pain points. We started saying that we are expanding the van distribution. Then in between, we tried to escalate the efforts on the wholesale pack. Where are these initiatives? Are these initiatives really yielding any efforts? Quarter on quarter, we are seeing that HSM is becoming a pain point for us.
Yeah. If you look at even HSM markets, again, it's again a very consistent commentary, unfortunately. The entire HSM as a block is not what is doing badly, neither for the country nor for us. It is, you know, northern part of the HSM market, which is Delhi, Punjab, Haryana, Rajasthan, that bit is still good even for us as well as far as reach and details concerned. Yes, there are some blips here and there market-wise, but otherwise, overall it's good to me. It's this market of which I called out, which is UP, Bihar, Madhya Pradesh, Chhattisgarh, Jharkhand, which is where the problem has been for the last one year. It's not only you said it, even we are facing. Unfortunately, our feeling is high end. This is what we are grappling with currently.
We are seeing some green shoots coming up, and hopefully this should slowly start normalizing as the year goes by.
Okay. My last question on the gross margin or EBITDA margin. A year before exactly, you guided that we will take a hit on the EBITDA margin, but we will spend money on the advertising. Maybe if I look at next 4 quarters, not the guidance per se, but if you can provide the direction where we are heading for the gross margin, given the context that the RMO prices are softening and the input material is also softening. Maybe your qualitative comments on that.
I gave you the thing on gross margin, how it has got diluted and what is the recovery back. Out of 5.5% gross margin dilution that we saw, about 4.3% odd was coming out of the raw materials. Again, the raw material itself, that is after the pricing freezes that we have taken, and about 1.2% because of the product mix change that has happened. That 1.2% is a deliberate conscious call and, you know, we are comfortable with that. The 4.2% is a function of how the market price has stabilized. We have seen already a gross margin improvement that has happened over Q2 because of the raw material softening.
We are expecting that in Q4 and Q1 it might further stabilize. We expect the RMO prices to come down a bit with a good crop and NLP we have to see. I mean, this is a function of how it is. If these prices were to go down, you'll see a direct contribution happening as well by the trade function.
Okay. Thank you, Jaideep, and all the best to you.
Thanks, Shirish.
Thank you. Participants who wish to ask a question may press star 1 on your touchtone telephone. Participants who wish to ask a question may press star 1 on your touchtone telephone. We have the next question on the line of Mohit Mehra from Guardian Capital. Please go ahead.
Good morning. Thank you for the opportunity. I wanted to ask you about the demand recovery, especially in rural area. Now that commodity price inflation has started coming up, how do you see that? secondly, how have Jan volumes been so far?
On the easy question of the second part is that I can't give you guidance on January, so we'll have to leave January out of this discussion. The second part is rural demand. Unfortunately, we have been hearing commentaries earlier in after the Q2 earnings call, that rural expected in Q3, Q4 to be better. I think the Q3, after Q3 we hear the earnings call to be far more muted, and I don't think there is a very clear directionally improvement in terms of rural demand. I don't think there is a very, very clear near sight of that the rural demand is going to be very, very much better than what it has been in Q2, Q3. Q4, I don't think there'll be a huge improvement in rural demand.
Having said that, we clearly see urban doing pretty decently well, and some of the markets which I called out earlier have been still okay. It's the more the poorer markets which is where the low income markets is where the problem in rural remains. I don't think that is going to get sorted out in Q4 itself.
Got it. Thank you.
Thank you.
Thank you. Participants who wish to ask a question may press star and one on your touchtone telephone. Participants who wish to ask a question may press star and one on your touchtone telephone. We have the next question on the line of Kaustubh Pawaskar from Sharekhan. Please go ahead.
Yeah. Good morning, sir. Thanks for giving the opportunity. My question is on the new product launches. Currently, NPV contribution is around 13%. At what level of contribution do you expect it to contribute materially to your profitability so that, you know, there would be kind of a basis for you over the period of time? For example, if you say 20%-25%, it should start contributing materially to your profitability.
If you look at on a net contribution basis, quite a few of the products are today profitable. Except the ones which are getting very, very high media investments, disproportionate to the sales that is happening, only those are a bit of negative at the current stage. Some of the products already a bit of positive. That's why we talked about rationalizing of some of the products that we are selling in terms of SKUs that we wanted to sell, et cetera. Keeping it a bit of positive is one of the things that we wanted to do as a structural thing even when we started the business. I mean, this gross margin reduction that we see is what is hurting us.
Otherwise, in terms of basic fundamentals of business, in terms of how we want to treat each of these products except one or two, all of them are keeping them to be net positive in terms of margins.
Okay.
By net positive, I mean that, all the marginal costs for the product is taken in, not only just the gross margin.
Yeah. Can you explain us which are these products which are currently profitable of the new launches?
Except for the ones where there is high media investments happening, except there, those most of them are profitable.
Okay. In, last one year, have you lost any market share in Almond Drops?
The Almond Drops market share remains more or less steady. I mean, it is, in that, hovers between the 63%-65%. That's about. Yeah. The LHO market itself has also declined substantially. If you look at the recent LHO market, it itself has declined by about 8.6%.
Okay. The new product launches which you did into General Trade, are some of these launches, done, in small unit packs, or you're comfortable launching them in the bigger packs and the traction is good for whatever launches you're planning on General Trade?
large part of that. See, it's, you really can't launch in bits and pieces in terms of not launch the entire range as far as the product is concerned. The launches happen across all ranges, but the support may not remain across the LEPs at this stage. The low unit packs, which is typically the INR 10, INR 20 pack, is not something that is supported by the company because of the gross margin profile that currently is the case at this point. Not to say that they will not happen in the future, but at this stage, that are not being supported.
Okay. Thank you. Thanks for that.
Thank you.
Thank you. Participants who wish to ask a question may press star and one on your touchtone telephone. Participants who wish to ask a question, may press star and one on your touchtone telephone. We have the next question on the line of Saket Malpani from Precision Capital. Please go ahead.
Hello. My question has been, of course, on the buyback side. What was our intention with the buyback and how do you see that happening? Second is on the cash on the balance sheet, the current investment close to INR 700 crore. Is there a plan to invest it further in other ventures?
Ladies and gentlemen, the line for the management has dropped. Please stay connected as we reconnect the management. Ladies and gentlemen, we have the management reconnected. You may go ahead.
Yeah, are we back on?
Yes, sir.
Thank you. Sorry. Coming back to your buyback and usage of cash. See, buyback is basically a way of rewarding your regular shareholders. We wanted to go into some steps of rewarding back our long-term shareholders, and that's where we have got into our buyback. We have finished off our statutory mandatory 50% of our buyback, which is the minimum that you need to do before you can decide to call off or not. We have finished that, and we have about 3 months still pending as far as the closure window of the buyback is concerned. The buyback is still continuing as we speak.
As far as the cash utilization is concerned, again, that's, again, a way we'll have to discuss how we can both look at the interest of the business as well as the interest of the shareholders. We have the dividend policy which has been there, and we'll see how that will pan out. As well as we are looking at investments. I mean, we have called out even earlier, we'll keep exploring. We have not done any M&A till now, but we are actively looking at in terms of profiles where we want to invest in. We are also looking at some of the markets outside India where we wanted to invest as well as some investments in India. This is how the cash will get deployed.
We are not a very debt friendly company, so we are not looking at leveraging ourselves too much at this stage. If the situation arises, whether be it in terms of large M&A opportunity, et cetera, we're not sure of the outcome there.
All right, sir. Thank you very much.
Thank you. Participants who wish to ask a question may press star 1 on your touchtone telephone. We have the next question on the line of V.P. Rajesh from Banyan Capital Advisors. Please go ahead.
Thanks for the opportunity. My first question is on the NPD side. What percentage of revenue do you think will be coming from these products, let's say in the next three years? Like right now it is 13%. Where do you see that percentage going up to?
Our long-term aim for the next three to five years is that NPD, just organically, we think that the NPD can go anywhere between 30% to 50%. I mean, 50 would be on the higher side, 30 is clearly doable. I mean, 30 is very, very clearly visible with the current portfolio that we have and taking it to about 40% is what I would say within the next three to four years is what we will be looking at. That is just an aspiration at this stage. It will also be a function of some of the launches and how they track that we have for the next, let's say, eight quarters.
ADHO at that point, is it fair to assume will become less than 50% because some of your, you know, new products that have been launched in the last 1 year will no longer be part of NPD?
Let me then rephrase that. Yeah, technically you are right, so I'll rephrase myself. I'm including the products that we have launched back, taking us to that number of 34.
Understood. Okay. What you're saying is, like, whatever you have launched in the last two years, plus whatever you will launch in the next three, four years, will totally contribute to 30%-40%.
After the COVID period, if you were to look at those products, that should contribute approximately 50%, maybe 40% is more what we are aspiring for, and ADHO should take up the balance 60%. That's what we are looking at. Your current 85%, should be looking at, 60%, and obviously the investments will continue on ADHO.
Right. If you do something in organic, then obviously the situation will change.
that's a different thing.
Yeah. My second question is, a couple of times you mentioned certain states which are hurting us more. I'm just curious to know what is your observation. Is it a temporary situation or, there is something specific going on with our products or is everyone hurting? You can just give more commentary around those markets, especially UP, Bihar, which are very core to us, that'd be helpful.
We were looking at all the Nielsen data across other categories, so whether it be soap, shampoo, et cetera, all the other categories. If you look at even categories like soaps, which is the largest category there, I mean, though there have been value growth because of the amount of price increase people have been able to take. If you look at the volumes, in fact, soap is in a worse situation as far as UP is concerned than hair oils. Overall, it has a minus 2 kind of a growth rate that it is tracking. Across all other discretionary categories, wherever disposable incomes have gone down, all the products that come under that category, we have seen there has been a steep decline. It is not specific to hair oil.
Hair oil usage has not really gone anywhere. Hair oil usage has In fact, in the urban markets, there has been trend changes that we observe, and we have been able to ride that and take some benefit out of that, which is we're seeing our growth in modern trade and e-commerce. In terms of the rural markets or let's say the core markets of UP, Bihar, et cetera, we don't see too much of change that is happening. It's more the money in hand of the consumer today, free money in the hands of the consumer, disposable money. Once that comes back, we feel that we have enough results to be able to get that.
We don't have any specific issues, either be it in our distribution or in terms of our retailing or in terms of the product offering, et cetera, that has been hurting us very much.
Can I ask a follow-up on this? Are you saying that you are continuing with your market share and there is no competitive intensity that has gone up in those states? Instead, the consumer doesn't have the money to buy a premium product. Is that really what you're saying?
No. Competitive intensity is up, but the competitive intensity is not a like-to-like product. There has been down trading. There is no question on that. Both in terms of down trading and down purchasing. That is, ADHOs have gone up as well as the lower quality or lower priced products have gone up. We have seen a surge in the Amla products that have gone up. The lower end of the Amla products which have gone up, the 10 rupee, 20 rupee packs which have gone up, which clearly are not margin-making products. They're, I mean, they do yield volume, but they obviously will erode your gross margins quite drastically. We are decided not to play very strongly in those segments at this stage.
I understand. Thank you so much. That's all I have.
Thank you.
Participants who wish to ask a question may press star and one on your touchtone telephone. We have the next question on the line of Vaibhav B from Honesty and Integrity. Please go ahead.
Yeah, thanks for providing the opportunity. On ADHO, you know, for the overall Almond Drops hair oil market, what is it that what can actually drive the increase in the overall market, Almond Drops hair oil market as compared to the overall hair oil market, is what I'm trying to understand. We have been seeing that this market is little stagnant or declining as compared to the other hair oil markets. Is it, is it price-based action? Is it, is it more marketing? What can actually turn our cash cow around in terms of growth, is what I'm trying to understand.
There are two aspects of the question as I see it. One is growing the Light Hair Oil market itself is concern. Other is growing ADHO, which I think are two different things. As far as ADHO is concerned, I think, we are taking it in two steps. One is obviously we need to get back our core. I mean, the core itself is now in a little bit of a difficult time, but that is not too much of internal issues that I see. It is more external, and we hope that when the external issues come back, we will be in a position to take them head on. The other two core areas where we think, it is a growth part of our growth strategy, which we should take.
One was basically looking at the unexplored or unexploited markets of ADHO, especially in the Western and Eastern markets. Those are where I think we are seeing some good traction even today, coming up. Not maybe the way we would have wanted to, given the again, the demand scenario, but I think that is really tracking much better than our HSM markets. South is not somewhere we have still been very firmly, strongly present, and that I would have to admit is still an area of that we need to track, and I hope when the demand conditions come back, it's something that we'll focus on. The other area is looking at the modern day, modern age, the young customer of today who's more in the urban and the semi-urban towns.
I think there we have done a pretty decent job through our digital marketing in getting connected with the young generation consumers. We can see the results coming out in terms of both e-commerce and modern trade. The B2B part of modern trade and e-commerce, they are doing kind of, in a fantastic way. We have also been very, very conscious that we don't want to push the B2B part of it. The B2C part of both modern trade, e-commerce has been doing very, very well, and there is a lot of new-gen customers who are really talking about it. That's a very conscious strategy. A lot of money has been shifted to digital media as far as BHL is concerned, and those are bearing fruit.
I think when the market stabilizes and demand conditions were to come back. I don't think there is any inherent problem in the Indian economy as such that demand should not come back. I think we're in a good position to take advantage of these two growth legs that we have been pushing, as well as coming back of the core, which is the markets that I talked about.
Do you want to touch our pricing premium as compared to other hair oils, or you don't want to touch that?
At this moment, I think premium is making too much of an issue. It's a small brand we are looking at strategically. Other than that, other than that, I don't think the pricing premium is hurting the brand. We would not. While, yes, you are absolutely right. If you look at a five-year period, our brand has taken a little higher premium than what it was compared to the top two brands in the hair oils market, we think. That is how we are, we also see it. I don't think that is resulting any loss of business as far as we are concerned. One or two packs maybe we might want to do something, but we would also want the prices of raw materials to stabilize before we take on any action on that.
That's it from my side. Thank you.
Sure.
Thank you. We have the next question on the line of Abhimanyu Godara from Antique Stock Broking. Please go ahead.
Hello, sir. Good morning. I just wanted to know, can you give some flavor on rural demand and urban demand? There are commentaries regarding rural demand revival and the urban consumption growth, some moderation in the urban consumption growth because of already high base. Can you give some flavors for the coming quarters on that?
Again, if you look at, while, what you're saying is correct on a, on an overall basis. For us, Urban, most of our urban was based on what we used to do in wholesale, and our retail was comparatively not as strong as, if you were to compare with some of our other competitors. Retail has been a focus for the last two years as far as the organization is concerned. We have been seeing good growth happening in retail throughout. In spite of this kind of a debacle that is happening in the marketplace, we have had good, strong double-digit growth. In fact, it is higher than mid-single digits.
It's actually in the range of 20% plus as far as the retail growth is concerned, I mean, on a nine-month basis, and about 15% as far as the quarter is concerned. Retail is something that has been doing very, very well as far as urban is concerned. In fact, if you look at even wholesale today is positive. We did a wholesale revival last year. Last year we did lose out on wholesale. We did a wholesale revival. A lot of work happened as far as the wholesale was concerned, wholesale also revised. Wholesale is also positive. It's obviously not as strong as retail, but positive.
As far as urban is concerned, we are pretty strong, and we feel that for the next few quarters also, urban will continue to do well as far as BCCL is concerned, this company. The rural, if you were to sort out and if the rural markets stabilize, I think we've been stable.
Okay. Thank you.
Thank you. That was the last question. I would now like to hand it over to the management for closing comments.
Thank you, everybody, for joining in this call. I think, we witnessed a very interesting quarter as far as we are concerned. In fact, all the legs that we have been wanting to push in the last 2 quarters is now slowly starting to bear fruit. The new products have been good, giving us good traction in the Modern Trade. E-commerce also has been doing well. Even in General Trade, it has been a mixed bag. While the overall numbers in General Trade is not very healthy. Overall, in quite a few of the markets that we wanted to push in terms of the Western market, some of the Eastern markets and the up-north market, they have been also doing pretty well. It's one block of market in General Trade which has actually been pulling this company down.
I am very, very hopeful that once this were to sort out, and as we see the raw material prices softening, a bit going forward, if this market were to be sorted out, I think we will be more or less back on track with the commentary that we have been talking of in the last two, three years of where we wanted to take the company, both in terms of growth as well as in terms of a better profile. Thank you for all joining us, and, wish you all the best. 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.
Thank you. Thank you.