Good morning, everyone. It's a pleasure to welcome you all on behalf of ICICI Securities for the Q2 FY 2020 Bajaj Consumer Care Earnings conference call. I would like to thank the management for giving us the opportunity to host the call. From the company side, we have with us today Mr. Kushagra Bajaj, Chairman, Mr. Sumit Malhotra, Managing Director, Mr. D.K. Maloo, CFO, and Mr. Kushal Maheshwari, Head Treasury and IR. I now hand the call over to Mr. Bajaj for his opening remarks. Over to you, sir.
Thank you everyone for joining the call. My name is Kushagra Bajaj. I'm the Chairman of Bajaj Group and Non-Executive Chairman of Bajaj Consumer Care. I would first like to apologize for canceling the call last minute for Tuesday. I had to travel on an urgent meeting. I had to cancel the call. There was no other reason. Sorry about that last-minute thing. I would just like to give you an overview of what's happening in the company. As you might have read and seen, the promoters have sold a 22% stake a couple of days ago in the secondary market. The money has come yesterday. We have repaid our entire personal debt yesterday. There's no more personal debt at the promoter level. With that, all pledges on the stock will go away. That is one development.
Second commitment is that no further debt will be taken at the promoter group level, and no more pledges of Bajaj Consumer Care stock will be done going forward. That's one thing I would just like to put it on record. For us in the Bajaj family, reputation is much more important than money, because reputation is built over generations and once lost, can never be regained. Shareholding, once fallen can also, through creeping acquisition, be regained over time. I assure investors, none of us in the promoters are interested in selling the company to any third party. As liquidity in the group improves, over a period of time, as per the laws of the land, we will increase our shareholding to at least 51% through the creeping acquisition route. Second, the question which everybody has is on the search for the CEO.
We are almost on the verge of finalizing between two people. Hopefully, the new person should join by January of 2020, in the role as CEO. That doesn't mean that Sumit Malhotra is going anywhere in the near term, because there will be a hand-holding period, which is required both from Sumit's end and from the new person who's going to be joining as CEO from his end. The final modalities of compensation, et cetera, are being worked out, but by and large, there is a meeting of minds. We have met this gentleman for at least five, seven times between Sumit Malhotra and myself. Hopefully, the final compensation issue and the timing of joining should be finalized very, very soon.
Even if 99.9% this will work out, but say one in a million, this were not to work out, still Sumit is here until a replacement for Sumit, a new incumbent is found. There is no risk on continuation of business. Let me state that very, very clearly. Third, as you know, we had appointed Bain consultants to look at strategy and growth. We had taken one state, it's there in the presentation which has been uploaded on the website. That one state which we had taken was West Bengal. We started the whole execution strategy in the month of July, exactly on the 11th of July. Just like to give you what has happened over there. The West Bengal market for the total hair oil segment has degrown in terms of value.
Has grown at 2% in the month of July, minus 3% in August, and minus 6% in September. This is West Bengal, urban and rural together. This is value growth. Volume growth in West Bengal for the industry, for the total hair oil industry, was minus 6% in July, in August minus 9%, and in September minus 11%. This is data for the industry as per Nielsen. We, in those three months, our primary sales have grown at 19% in July, vis-a-vis 2% for the industry. In August, we grew at 15%, again, primary sale, against minus 3% for the industry, and we grew at 10% in September against minus 6% for the industry. This is all like-to-like comparison. Compounded primary sales grew 14% against minus 2% for the industry in West Bengal.
Our secondaries were much higher than our primaries in West Bengal with the new strategy in place. Secondaries against 14% compounded for three months was at 19%. This has been done. Actually, we have reduced inventory in the pipeline, even though our volumes have been disproportionately higher. Our secondaries in July in West Bengal were 20%, in August 22% growth, and in September 17% growth. This is not euphoric. We can't say that we have succeeded in our strategy, but the initial signs are very, very positive and inspiring, because in a state where the category is growing in terms of volume, which is again very, very rare. We haven't ever seen that for the category, at least in the last five, seven years. We have grown at double digits.
Obviously we have done some of the right things in terms of our strategy with the help of Bain. We would now continue to push in Bengal, and we would be taking up from 1st of November, a very large state for total hair oils. We'll be following the same Bain strategy over there, from 1st of November. If that state also outperforms significantly, the industry growth, then we would implement this pan-India, sometime in middle of first quarter 2020. That's the strategy going forward. I think our emphasis is very clear on growth and getting market share. Let me emphasize, this would mean that we would be significantly increasing our A&P spends as we go forward and go pan-India. Today we spend between 16%-18% on advertising and sales promotion.
We could up it to as much as 23%, 24%, once we go pan-India, which could mean that we would sacrifice on margins in the short term, maybe for a year or so. We are okay with that as long as we get increased market share. We are assuming that over the next four to six quarters, industry growth will be flat, will be zero. In spite of that, we want to grow in double digits to gain our market share. That is where we are on our strategy. Let me reemphasize, strategy is to grow double digits. We've done it in one state, West Bengal. Second, the results for last three months have been quite encouraging. We can't say it's a home run or we have completely succeeded. Still too early.
We would be implementing it in a very, very large hair oil state from first of November. Then we would wait for two, three months results over there also. Once we have that confirmation in terms of actual volume, then we would go pan-India with the same strategy. Obviously, the strategy is to identify gaps and then form separate execution plans for each state. Not even each state, even within the state, we are breaking up the states also into different geographies, and for each geography, we're having different strategies. The emphasis is to gain market share, as stated in the May presentation, from 10%-20% as soon as possible.
For that, we would be significantly increasing advertising and sales promotion spends even though the economy is slowing down, even though the category is slowing down, and should remain slow at least in the short to medium term. Our emphasis is on growth, capturing market share, so that even if it means reducing margins by a couple of percentage points over the next 12 to 18 months. The idea is that at some point the economy will start growing again, and if on a larger base we have a larger market share, then the delta to earnings will be significantly, disproportionately higher. That's the third thing that I would like to highlight. On the cost-cutting front, we have been quite successful in implementing some of the cost-cutting initiatives that we had taken.
Hopefully by June of next year, the entire target that we had set out for cost cutting would be fully implemented. We have also initiated automation. The next step, AI automation, in terms of we already have handheld devices, but now there is an AI tool which is available. It's only for salespeople, which is available on hand-held which we are implementing. That tool will basically make it easier for the sales officers, the ISRs and the lowest salespeople in the organization. Make it user-friendly for them, exactly what they need to do for the day or for the month and what they have done, where are the gaps in the market in terms of the people whom they are selling to or the SKUs, which are slow-moving, fast-moving, et cetera. It basically makes it very user-friendly, and it's an app.
We are in the process of implementing that. Two, we are in the process of implementing SAP across the organization. Hopefully by March, SAP should get completely from production all the way to sales. It will be fully automated. We are doing that exercise. As I said, from the cost side we had initiated a target of about INR 16 crore of cost saving. I think we've achieved INR 4 crore or INR 5 crore as of now, and the rest will come by June of next year. That's on track. This cost saving includes manpower reduction. Out of about 500 people, we have almost downsized 89 people already. This includes sales as well as general.
Support
general support, which includes all other departments. Basically now, the whole strategy is growth, even in a slowing category, slowing economy, and we will leave no stone unturned to achieve that, to get that growth. With that, I would like to wish everybody a happy Diwali and a very prosperous New Year, and hand over the thing to Sumit Malhotra to take the matter, if he has anything further to add, and then we'll open up for questions.
Good morning, all of you. After the initial comments by our chairman, I'd just like to add one or two things that has been concerning most of you, which is the actual slowdown in the industry. There are two or three points to be noted in the slowdown. At least ever since I've been in this industry, I've never seen hair oil growth so gloomy. In the second quarter of this year, the volumes are flat. That's a big cause of concern, but the bigger cause of concern is the growth engine, which used to be the rural growth, is for the first time negative. In the second quarter, total hair oil has de-grown by 2%.
The third thing that really concerns all of us is that urban is actually now outgrowing rural. If this continues, you'll see a longer-term period of zero to flat growth in the coming quarters. I think this is something that all of you have been quoting in your various reports. We see it in figures that we are getting from Nielsen and from other agencies like Kantar IMRB. That's the first point. The second point that people have been talking about is cost. Fortunately, the cost has not gone up for us. This is a statement on our effectivity in sight of maintaining cost. Like you have seen over the last three, four years, even in bad times, we have been able to maintain or better our margins.
This quarter also, we have been able to do it quite successfully, which is available in the investor presentation that we have done is despite increase in A&P by around 160 basis points, my EBITDA has not gone down. The third thing I'd like to talk about is that the Bain experiment, as we call it, has done quite well in the state that we piloted it in, and this has given us a lot of confidence, and we are well into implementing it in stage 2, and we'll keep you all informed as we go along. With this small synopsis, I'd now like to hand over the mic to you all to ask your questions as you feel like.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question, you may press star and one on your touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. A reminder, you may press star and one to ask a question. The first question is from the line of Laxmi Narayan from TN Capital. Please go ahead.
Yeah. I have two questions. The first question is with respect to your direct coverage, which you actually increased substantially over the last three years. What is the growth you're getting from the new direct coverage? What is the mix between the old and new, and what is the cost of increasing the distribution? That's my first question. My second question is related to the Uptown property, which we acquired in 2011. What is the plan for that? Do you intend to infuse more capital into that, and what is the end plan for that? These are the two questions.
I'm Kushagra Bajaj. I'll answer the second question on Uptown because I would like to just nip that question in the bud permanently. We are building our own office building on that premises. We are waiting for final approvals from BMC. It's a mess in BMC to get approvals. We are not asking for extra square feet. BMC being BMC. We are waiting for final approvals, and we will start construction on building our office building on the Uptown property. Obviously, that would require capital to be put in to build that property. As and when we get approvals, we will then go about in building that building.
What's the kind of outlay you are expecting for the next three years towards this?
I think over the next 18 months, it'll be about INR 25-30 crore for basic civil works, and then the interiors and things like that. We have a projection of about 18 months. After that, the interiors will cost us significantly more, but about INR 25-30 crore over the next 18 months. Once we get permission. We still haven't got the final approvals, so hopefully should get this final approvals in the next two, three months, and then we should start civil construction work. Should be digging and piling and things like that, and then we will start the civil work. Once the civil work is complete, then the interiors can start.
It is just how the Bajaj Consumer Care or it's the larger premise?
It'll have all the Group company offices. From promoter offices to part of the energy business, part of the sugar business and the consumer business. If there's any extra space, we haven't exactly planned the interiors as yet, but that's how we plan to do it.
Okay.
It'll only be for Bajaj Group, not for outsiders.
Okay.
Okay. Answer to your question on distribution. Currently, our direct distribution has gone up to around 5 lakh, 13,000 outlets. You would remember that when you started tracking around three, four years ago, it was a little under 3 lakh. Right? To your second question, which how much has it added to business? There's a little bit of background that I have to talk to you about, because one is that these outlets are obviously the smaller outlets that you get to it. Addition in terms of turnovers, prima facie, would be much less than the other outlets that we used to cover earlier on. The second part is something that you need to understand is that we used to depend on wholesale to the extent of 55%. That has come down to around 34%.
If we hadn't increased our direct coverage, actually our overall reach would have shrunk. It's not only increase in outlets that you're looking at, but also the necessity of moving to direct from indirect because of the strain in the wholesale market. If you look at wholesale, it is still under strain, and largely because of the liquidity crunch, but also because of the demonetization and GST pressure that were applied on all kind of cash dealings that were being there in the informal circuit.
Okay. What is the cost of this distribution increase? Is it something which you have worked out? I just want to understand that. For every 10,000 outlets you increase, what is the cost?
Calculation is very simple, Laxmi. Every person you add, adds around 400 outlets. Right?
A person normally costs at the lowest level between INR 10,000 to INR 12,000 a month. Right? The big question mark is what kind of outlets are you adding? For example, in the pilot state that we are doing the main study, we have actually added 10,000 outlets. From around.
38,000 to 48,000, we have moved. Right. This has only given us one-third of the growth that Mr. Bajaj was talking about, which is we grew around 19%. One-third of that got added because of the new outlets. The remaining came from the existing outlets. As we go along, you will see this mix existing in new outlets moving towards more delivery from existing outlets because of more pull and higher market shares.
Okay.
One of the things, Laxmi, that we have put ourselves as a target in this say in West Bengal, our target is that we should, over the next couple of quarters, hit 20% of the total retail outlets as direct coverage. That is what we plan to do, as we go to the second state also, where the number is much lower, and eventually do that pan-India. It may take two or three years to hit 20% direct outreach, but that's what we plan to do. I think that's also necessary because, the wholesale sector, because of liquidity crunch, is just hand to mouth. In some places, it's even de-growing the wholesale. It is better to have a direct reach with the customer. As you get volumes, then it more than offsets the increase in cost of adding manpower and distribution cost.
Got it. Thank you so much.
Thank you very much. Next question is from the line of Amit Sinha from Macquarie. Please go ahead.
Yeah, hi. Thanks for the opportunity. Firstly, my question is on the new strategy, and is it possible to share more details on the new strategy apart from the things that you have already mentioned that you're spending higher A&P spend and more regional stuff, and also the direct distribution is kind of taken up. Is it possible to share more details of things which are happening on ground?
I think a lot of details have been shared in the investor presentation. If you go through it's been quite exhaustive and quite transparent. I would request one to go through that. Answering your question, yes, the whole idea is to go more direct. For example, in Bengal, we've already made a special ad in Bengali with a Bengali actress in the Bengali language after seeing what they were looking at in hair oils and things like that. We've come out with a new price point, which is a fast-moving price point. We've increased direct coverage substantially through van operations. There are multiple things that we've done. Most of them, if not all, are there in the presentation, which I've already repeated. Our share of voice has significantly gone up in terms of spend vis-à-vis our market share in Bengal.
It's a combination of everything, not just one thing that we've done. Increasing in share of voice on advertising, increasing their distribution, new price points, improving per man return, launching a new ad in the Bengali language with a famous Bengali actress, and things like that. Without obviously giving any credit, the whole thing is on a cash-and-carry basis. I think those are broadly the major initiatives that we have taken.
Amit, I think you should appreciate that we have been transparent in just about everything we do. Here also on the call, if you need any theoretical insight into this, you're free to contact me, I can help you with. There's nothing to hide in all of this, I don't think any company would be as transparent as we are.
No, sure. I'll take in detail later from you. Secondly, on the cost-cutting plans and in the initial statement, you mentioned that there has been a significant cut in terms of number of employees. Just wanted to understand what are the areas where you have cut employees, and when you say that this is further going to go up in terms of the cost savings, what are the other areas apart from the employee cost where you see meaningful savings coming from?
Amit, I'd first like to talk to you about the whole idea of cost-cutting. It's not cost-cutting. It's basically, we call it cost optimization. When the strategy moved from diversification, providing option value, to focus on hair oil, you did not need such a widely distributed setup in each of the departments. What we have done is we have optimized each department, and this is not only sales, not only some of the support, it's each and every department, keeping in mind the new strategy. We've already seen that the employee cost to total cost has gone down by around 200 odd basis points. You've just seen only a part of it, because as you know, employee reduction doesn't happen overnight. You'll see more of it. The other departments will also start pitching in towards reduction in cost and improving efficiencies in their delivery.
Now the target is very crisp, which means that focus on the hair oil industry, don't start focusing in on many other things like international business, merger acquisitions, other categories you would like to go in, and so on and so forth.
Okay. You'd still say that the larger part of the employee reduction happened in the sales force, right?
Obviously. Out of 300 odd are salespeople, so which is the largest part of your organization.
Okay, sure. Lastly, when you say that you have to take up the market share from 10% to 20%, what goes under that assumption? You have been launching a host of product in the last one to two years. Firstly, wanted to understand if the main market share gain are going to come from ADHO or the plan is for having a bigger set of portfolio and the bigger market share will come through that route. Second is, in the last few presentations, there have been no mentions of some of the earlier product launches. While you have given some details of the cooling oil, which you launched recently, just wanted to understand the updates on some of the earlier product launches in the last four, five quarters.
This is Kushagra Bajaj here. I think it's very clear that we didn't have a really clear and focused strategy before we launched anything, and it was more trial by error kind of a thing. The whole emphasis now is that to identify the gaps in a state and even within a state, go micro-management. Say West Bengal could have a different strategy, central Kolkata could have a completely different strategy for the city, metro, northern, the hills, Darjeeling and things could have a completely different strategy. Southern part has a different strategy. We're not looking at even one state as one state. Then within that also, you could have rural separate, urban separate, things like that. That's one. Second, the growth can come from Almond, can come from cooling, can come from Amla, it could come from coconut.
For us, we are not a light hair oil company anymore. We are a hair oil company. Hair oil consists of everything and not just light hair oil. Therefore, we are not talking about market share gains in the light hair oil. We are talking about market share gains in total hair oil from 10% to 20%. Depending on what the gap is, what sells in a particular region in a state, we would then focus our strategy on that. For example, cooling. This is not the season to sell cooling oil. Cooling oil is sold only four months of the year, primarily in the summer. It doesn't sell in some parts of the country, even within a state. Some part of the state, it doesn't sell even in the summer. It's only in a particular region within the state that it sells.
That's the focus that we have right now. That's the strategy, because it's all data-driven and it's not gut feel driven. It's all data-driven with actual numbers and seeing competitive analysis. Why, say, a Himgange doesn't do any advertising, but does only a trade push, whereas a Navratna and cooling oil does a lot of advertising. What is the right strategy to do, when to do it, how to position your product? I'm just saying, for example, in cooling oil and when to do it, because right now there's no point doing anything. This is not the season for cooling oil at all. 100% of sales almost comes in four months for that product.
Our whole thing is to potentially have focused products across the value chain in the hair oil segment, and then see as and when, whatever the gap, whatever the requirement based on the particular region, we will then form a strategy for that region and push that product. Sumit?
Amit, just to sum up what Mr. Bajaj has been talking about. One, answer to your question directly, it will not come only from Almond, because our ambition is not to move from 10%-20% in Almond. Because even today, 10% is not Almond's market share in total hair oil. It's 9.6.4 comes from the other marginal brands. That's number one. The second thing is, like we launched the products nationally, we will not be launching a product nationally. For example, what you have seen is cooling oil or Brahmi, we launched nationally, and it did well in some of the places, it didn't do well in the other places, and therefore, to support that kind of strategy, we never had a clear allocation of resources.
Now we will do a micro-segmentation within states, even within states, in which we will identify products, and therefore the kind of resources those products need in that particular state. The third thing is, yes, we have talked about some of the launches, but as we go along, we are focusing on trying to update you on the new strategy, which doesn't tie up with the strategy we had up till around two years ago, which was launching products nationally. I hope I've answered your question.
Okay. Thanks a lot, sir. That's it from my side. Thank you.
Thank you very much. A request to all the participants. Please restrict to questions for participants so the management can address all the questions for all the participants. The next question is from the line of Sameer Gupta from India Infoline. Please go ahead.
Hi, sir. This is Percy here from India Infoline. Just wanted to understand some historic perspective to your pledges. I was just looking at data from the stock exchanges. As of end of June, the number of shares pledged were 53.8, June end price was 325. If you multiply these two, the value of the shares pledged was about INR 1,750 crore. As of September 2019, the number of shares pledged was 55.6 million, the share price on that date was 245. The value of the shares pledged came down to about INR 1,360 crore. About a INR 400 crore reduction in the value of the shares pledged would mean that the security available with the lender has gone down to that extent.
In that period, did you repay some part of your debt through some other means, or it's just that the lender was okay with a lower security?
Yes, we did repay from other group companies in the promoter level. We repaid. Plus now we are fully repaid with the stake sale. Now there is no more pledge going on, no more pledge as on today.
Okay. As of June 30th, sir, can you just tell me what was the promoter level debt as of June 30th?
Offhand, I don't remember now. It should be INR 646-650 crores. It was there.
643.
643 crores.
Okay. As of September
Which was there as of today also.
Yeah. Which was there as of September end, but as of June end, it would be higher, right? You mentioned that between June and September, there has been some repayment of debt.
No, March, we sold shares. If you remember, we sold 6% in March.
Yeah.
INR 643 crores was in June end and on September end. Am I right, Mr. Maloo?
Yes.
Now it is nil.
Okay. INR 643 crore was the same between June and September.
Yes.
The value of the shares pledged fell by about INR 400 crore. The lender was okay with a lower security by the end of September.
Yeah. Honestly, I don't look into that. The other team does that. I don't know why that was done.
Okay, sir. Okay. secondly-
I'm not even aware that was reduced, frankly speaking. I thought it would have increased.
Okay. Sir, secondly, just wanted to understand the Bajaj Energy. You have filed for an IPO, in case because of bad market conditions or whatever, the IPO does not go through and there is a substantial debt in that company, what is the plans to reduce debt in that company, sir?
Sorry, this is a conference call for Bajaj Consumer Care. I would not be answering anything on Bajaj Energy. Secondly.
No. Just from the point of view that it might have sort of Sure.
Let me complete. You asked a question, give me time to complete.
Sure, sir.
Second, I can't talk much because severe restrictions are there. Legal lawyers are there because the DRHP has been approved, I'm not allowed to speak much. It's a profitable standalone company. Extremely profitable. It has been in operations and profitable for the last eight years, which is mentioned in the DRHP.
There is no overhang of that on this business, whether the IPO happens or doesn't happen. That business by itself is profitable, and the debt over there is much more than sustainable from its own cash flows.
Okay. Understood, sir. That's all from me. Thanks, and all the best.
Thank you very much. Next question is from the line of Shirish Pardeshi from Centrum Broking. Please go ahead.
Good afternoon, Kushagra and Sumit. I have two questions. First question is on the CSD. In the investor presentation, you have said that after a long time, we have supplied to CSD. I hope the name change issue has got sorted out. If you actually look at last five quarters, CSD has been very volatile. Is that shipment which has happened, will give the benefit saying that another two quarters there will be further more shipments?
Shirish, there are two parts of it. One part is obviously the zero sales in the first quarter of this year because of the issues CSD raised because of our name change from Bajaj Corp to Consumer. That has been sorted out. The bigger problem, Shirish, is the way CSD themselves and the government is looking at canteen stores. They don't want to make it a hotbed of stock flows into the local general trade market, and therefore, they've been constraining the amount of stock in the canteen stores, as well as the kind of number of outlets, the products that are there in CSD, and that's not going to change. Third, if you're asking me, will this kind of invoicing continue over the next few quarters? Yes. I don't think you'll see major growth in canteen stores from now on.
My only question was, you have reported 1.45% sales, which has come, approximately INR 6 crore stock which had got. My only question is that, is that gone to one shipment or it was multiple shipment?
It was multiple. It was two months.
So fair to assume that-
It will be a steady state, 2.5% of our total business as we go along.
Okay. All right. We have seen the substantial improvement in the international business.
Yes.
Is there any new markets we have gone, and what kind of number we should look at for full year?
No. We have not gone to any new markets. If at all, we are actually constraining our expansion plans into new geographies. We are concentrating on basically five markets, and that is what is giving us our growth, and we are happy with that. Because we have to look at a new strategy in the international business itself, because consequent to our change in strategy from diversified to hair oil or hair care directly, our strategy in the international business will also change, which will be formulated as we go along.
Last question on the GT growth. This growth what we have seen is reflected into the volume growth also.
Yeah.
I assume that the volume growth on ADHO would be sub 1.5%, 1.6%?
You're right. It's 1.3%.
1.3%. If you can help us, because if I look at, we are very strong into the northern markets. I mean, some specific markets. The whole question is that which part of GT? Is it urban GT is growing much slower, or is the rural GT is growing much slower?
If you remember, Shirish, Mr. Bajaj said.
You're talking for our product, or you're talking for the hair oil category?
No, I'm talking about ADHO per se.
Yeah. Actually, if you look at the industry and also ADHO, our growth in the urban is higher than the growth in the rural areas. This sort of mirrors what's happening in the total hair oil industry.
Okay. All right. Thanks, and all the best.
Thank you very much. Next question is from the line of Sachin Shah from Emkay Investment Managers. Please go ahead.
Yeah, good afternoon, sir. Thank you so much for this opportunity. What I would like to know is that, after this Bain experiment that we've done and with the success that we've tasted over there, will it be fair to assume that for the next two, three, four years, our focus to grow will be largely on the organic growth and not too much through inorganic? Where I'm coming from here, this question is also, is that in the last three, four years, we've had a very high dividend payout ratio. Do we expect that to continue, or we might have some other options of using the cash flow?
Thank you for your question. I see it as two parts. One is whether we'll actively look for merger and acquisition in the next two to four years, and the second is the dividend payout.
Answer to your first question, I think four years is a long horizon that you're looking at, and I would like to tweak it out and say that I think we have enough on our plates in the next two years that we may not need to do any acquisition of hair oil, because we have enough scope, enough products, enough understanding of the hair oil to be able to do organic growth, whether it be through our current lead brand, Almond Drops, or new categories or new products in different categories that may need to be sort of worked on in particular geographies as per the micro-segmentation plan that we are doing state by state.
In terms of dividend, since like Mr. Bajaj said that we would be increasing our investments and you could probably see the profits come down over the next two years, you could possibly see a reduction in the kind of dividend that we have been giving, because you would agree with me that we have been giving very high dividends in the past three, four years. You could possibly see a reduction because of the extra investment we are giving behind brand building and getting organic growth there.
Right. Profits may come down, and thereby the dividend may come down somewhat, which is fine, but will the dividend payout be as high as 70%, 80%?
May not be.
May not be because we will keep cash, because we don't know how much more we are going to be spending on organic growth.
Okay
How aggressive we will need to be on that, because our whole strategy is to just gain market share. If that market share, if the gap identifies that we may need to acquire something, we would also like to keep cash for that. Second, obviously, as mentioned earlier, we are also going to be starting to spend on building our own office premises, for which we will require money. Although for the next 18 months, the amount is much less, but eventually it will be a much higher number over a 4-year period. The dividend payout will be as a percentage and in absolute value, lower than what it was.
Okay. We already have a decent amount of cash on the balance sheet, isn't it, at this point in time?
Yeah, if you look at an acquisition, for example, suppose the Bain strategy throws up that there's a requirement to fill in a gap through an acquisition of a particular brand in a particular segment of the hair oil-
Okay
What do we do at that point? As you know.
Okay
The valuations are prohibitively expensive in India to acquire anything.
Right.
At that time, we would not like to further sell equity, either through primary or secondary means to acquire something, and it is better we then have cash on the table.
Okay. If I can just squeeze in one more. With this strategy of growing organically, I would say, that from the organic growth, and I am saying a little bit longer timeframe, say four to five years, is there a goal of doubling our profits from INR 250 crore to, say, INR 450 crore, INR 500 crore in the next four to five years? Will that be a fair thought?
Yes, that's the target, that if you increase market share, as mentioned in the presentation in May. That had assumed that category will continue to grow at the historical growth rate. Obviously, that was 12% or 14% in the presentation. Category is flat growth. The whole idea is that you should more than double your profits if it were to continue to grow at 12%, 14%. I don't believe that over the next five years, the category is not going to grow at all. Yes, there may be 12 months, 18 months, 24 months.
Right
very little growth. If you say that the economy is just going to collapse, I don't see that happening. I see no growth or very little growth being there for at least the medium term. Long term, I'm still very bullish on India and the Indian economy because it's very resilient.
Perfect. Thank you so much, and all the best.
Thank you.
Thank you very much. Next question is from the line of Tejas Shah from Spark Capital. Please go ahead.
Hi. Thanks for the opportunity, and thanks for very detailed opening remarks on a lot of issues pertaining to the business. One, a couple of questions. First, pertaining to the new CEO that you spoke about. Now, in terms of our long-term vision, we have just pivoted and committed to our new vision. How important is that the new CEO should be aligned to this vision and it is non-negotiable? Or we are open to pivoting again if the new CEO has a new vision on the business?
Kushagra Bajaj here. He has to be completely aligned, and that's non-negotiable. That has been explicitly discussed in great detail over four or five sittings, each of three, four hours, both with me separately and with Sumit separately. That is non-negotiable. Strategy is this. If there is 100% buy-in of the new CEO, then he comes in. If he has a completely different strategy, then he's not the right fit for our organization. The two people that we have shortlisted, both seem to have 100% buy-in on the strategy that we are implementing as we speak.
Sure. This explains. Second, this is for Sumit, sir. Sir, in your quarterly presentation organization charts, IB position, International Business position is missing from this chart. Is there an attrition or there's a rethink on the international business as well under the new strategy?
That was on attrition, but post the attrition, we are looking at how to handle it.
International business will be part of this strategy, right?
Obviously.
We don't have a strategy for the international business as yet. Right? Therefore, under the new scheme of things, we are looking at Bain for India only. We are sitting and looking at our strategy for the international.
I think first we need to get growth and market share gain in India, and we're still far away from that. Once we have that in place, strategy for all the states, and then implement it, get the execution right, get the growth there over a couple of quarters, we will look at it for the same thing, how we can replicate it internationally.
Sure. Lastly, this is for Mr. Bajaj. Sir, I agree that you did not want or you don't want to speak on Bajaj Power IPO on this call. Just from Bajaj Consumer Care's perspective, when you say that you will defend your holding at this level, are you building a contingency of, let's say, all the contingencies, including that of Bajaj Power IPO, because of market scenario getting delayed by two years or more? Are you building that contingency in that guidance?
The only overhang was promoter debt, which has been completely taken care of, and I have addressed it upfront. Other than that, there is no overhang. If the IPO doesn't happen, nothing changes. Consumer business continues to do the way it is. The power business will continue to behave the way it is, and the sugar business will continue to behave as it is. Any of them will not have an overhang on each other, even if the IPO doesn't happen.
Thanks. This helps a lot. All the best.
Thank you very much. Next question is from the line of Rohan Samant from Multi-Act. Please go ahead.
Yeah, hi. My question is with respect to the pilot project that we have done. Have we seen any sort of a reaction from the competitors, or have they increased their A&P in that state? Where I'm coming from is, our competitors also have a lot of headroom in terms of increasing the A&P. Shouldn't it lead to a zero-sum kind of a game? Are we going into that kind of a thing? That is my question.
Let's look at it very pragmatically. This is an INR 13,500 crore category, hair oil industry. 62% or 63%, if I remember my data, market share is by three players, Marico, Bajaj, and then Dabur. That means there's 38% or 37% market share still to be gained from 1,300 other local mom-and-child brands. Okay? There is no international competition in this category because of the nature of the category, which is hair oil. You have three guys in the INR 13,500 crore category, which is the second-largest personal care category. Even if all three were to spend money, they still have 1/3 of the market share to gain from the other 1,300 brands, point number one. Point number two, if everybody starts spending disproportionately, they will definitely grow the category.
Third, over and above this INR 13,500 crore, there is another INR 3,000 crore or INR 4,000 crore of unorganized segment, which is not captured in this INR 13,500 crore and within these 1,300 brands. There is ample scope for growth for all three of the top players to grow. In fact, rather than cannibalizing each other, I would wish that all of them actually disproportionately spend and grow the category.
Okay. So far, we haven't seen any reaction from the competitors in that particular state?
No, we have seen.
Okay.
It's not that we haven't. Obviously, nobody's going to be sleeping.
We have seen competition. We are prepared for that. That is the basic thing that we have to take up before we even start executing our strategy, that this is how competition is going to react.
Sure.
At least the big players, yes. The local players, obviously, they don't have the financial muscle to hit back dollar for dollar.
Okay. My second question is with respect to the royalty. We shouldn't expect any change in the royalty structure, right?
No, it's been locked in for how many, 99?
Ninety-nine.
99 years at 1%, and that won't change.
Okay, sure. Thanks.
Thank you very much. Next question is from the line of Harsha Mokadam from Vibrant Securities. Please go ahead.
Hi, good afternoon. My first question is, I want to understand the volume growth in terms of cases for probably both ADHO and total products.
Like I said initially, ADHO has grown at 1.3% and total volume is flat.
Okay. My second question is in terms of the Bain agreement, the Bain partnership that we have. I think you said that the cost would incur on our income statement from this quarter onwards, which is quarter two. Are we seeing that impact currently?
I don't know where you got this that it's coming. We are engaged with Bain from April, therefore, all our income statements from April includes the impact of Bain. This is not something you can amortize. You have to take it as an expense.
Agreed. Okay. If I just look at the income statement also, I see there's this sequential fall in other expenses in the P&L. Is that something to do with the seasonality, or is it just
We said that we are looking at cost optimization, and one of the biggest cost is the cost of manpower. Other expenditure also, you're looking at the LR. LR also includes wage bills and other expenses.
Sales and distribution costs.
Everything, but the biggest drop is wages.
Wages would come under employee expenses, right? Would it come under other expenses as well?
No, in LR, it would be other expenses.
Okay, got it. Thank you. That's it from my end.
If you look at the investor presentation, you will get a split there.
Okay. Got it. Thank you.
You're looking at two different things.
Sorry.
Interested.
Thank you. Next question is from the line of Saptarshi Chatterjee from Centrum Broking. Please go ahead.
Thank you for the opportunity. Sir, my question is again on the pilot. Basically, I want to know the criteria for choosing this state for pilot. How easy or how difficult it was to run the pilot and compare to other states through A&P spends and micromanagement?
No, we haven't done it in any other state. We don't know how it will be run in any other state. We took Bengal simply because it's an isolated market. We could, from an advertising perspective, isolate it, and it's the third largest market for hair oils. It's a fairly large market to do a strategy over there, so you could see meaningful gains. How it will pan out for other states at this point in time is very difficult to say. We are hoping for the best, and we're giving it 100%. That's how.
Understood. Okay. Secondly, when you say that this kind of micromanagement you have done [PTYEs], and you have used local languages and actresses, the similar kind of thing, are you going to do for the other states for pan-India, and how do you think how feasible would it be to expand it to pan-India, and what kind of timelines you are looking at?
As we progress, we will answer this question. At this point, it's too premature to say whether we need to, depending on the size of the market, whether there's a requirement or not, and things like that. Obviously, there's a cow belt, which is a Hindi-speaking belt, where only the Hindi language ad can do, and that will be in multiple states. It will benefit. Let us go state by state and see whether there's a requirement to do a specific ad in local language. It's too premature to say whether that will happen or not. We are completely open to it. If need be, we will do it. If need be, we will not do it.
Understood. Any kind of timeline you are having for this, like 2-3 years or any kind of timeline for this?
I already mentioned at the beginning of the call that we'll be taking up the second state, which is a very large state, from the first of November, waiting for the results to see over the next two, three months after November, and then go out with the pan-India strategy.
Okay. Sir, thirdly, as you have said, our strategy is not only light hair oil but the entire hair oil market. For other segments, are you having any new product or are you thinking of inorganic expansion?
I think we've already answered that question on the call already. I would suggest that you go through the transcript because it will be repetitive for everybody else.
Okay. Thank you so much.
Thank you very much. Next question is from the line of Srinivas Seshadri from Mirabilis. Please go ahead.
Yeah. Thank you for the opportunity. The first question is relating to this Nomarks. Until last quarter, we were launching, say, the sunscreen, et cetera. In the new strategy, where does Nomarks fit in, if at all, and what are the plans with that sub-brand?
Yes, Nomarks was a part of our diversification strategy that we had. Under the new strategy, we are focusing on hair oil, which basically means that we will not be over-investing in Nomarks as of now. At this point of time, we would like to continue selling Nomarks and making money and not taking money from the hair oils to Nomarks.
If the opportunity presents, we would look at some kind of a sale also.
I can't answer ifs and what. If it happens, we'll decide at the top between the board whether it makes sense to divest or not.
Sure. Sumit, just regarding this entry of the other categories of hair oils. One you're already kind of doing, and then there are potentially more on the way over the next few quarters. We used to have a portfolio of products spanning several hair oil categories until a few years ago, where, of course, Almond Drops continued to be a market leader, while the other categories we are not able to kind of challenge enough. Just what are the learnings from that, and how would we do things differently now compared to the past, which can lead to a better measure of success?
I thought I'd answered it, but let me repeat it while boring maybe the other people. The strategy earlier on used to be one strategy for the whole nation. Therefore, if you had a strategy on, let's say, Amla brand for the whole of the country, you would have some parts that did well, some parts that didn't, but you would be spending all over the country, and therefore you could never give the impetus that brand needed. Now, the big difference is you will do micro-segmentation, and therefore you will push one brand in one part of the country or one state, or if within one state, one part of that state. Therefore, the strategy is one of focus and pushing a brand where it has a better chance of gaining market share. Because now it's not just about getting volumes all over the country.
It's about getting market share in each small segment of the country. That's one big difference that you have to realize. You will maybe be ending up getting a bouquet of brands, but not all the brands will be sold all across the country.
We used to have the presence in some 5, 6 hair oil categories.
We still have on paper. We still have.
You still have. Will that aspiration still remain that we want to be sizable in each of these or that be more spaced and we will discover things?
We want to be where the hair oil sells. If in a place like, let's say, Jharkhand, cooling oil sells, we want to be there. If in Jharkhand, Amla doesn't sell, we will not be there in Jharkhand. It's not about having a big size all over India, it's having a market share in a particular subsection of India.
Okay. Sir, just the final question on the A&P which earlier you referred to on the call, in what time frame should we expect a substantial increase in the advertising program for the company as a whole? Are we looking at six months or 12 months or
Haven't you already seen it? I think I also said that our A&P to sales has already gone up as a percentage. This is only one state that we are looking at. Once you get into other states, you will see this increase much more apparently.
Sir, the increase in spend has already started. You'll see the full impact once we roll out pan India.
Okay. That's the time frame I'm asking about. Is it 12 months?
That's why I said first quarter of next year, we plan to roll out-
First quarter.
pan India.
Okay.
End of first quarter next year.
Okay. Fair enough. Thank you so much for answering the questions.
Thank you very much. Ladies and gentlemen, due to time constraint, we will take the last question from the line of Sarvesh Gupta from Maximal Capital. Please go ahead.
Thank you for taking my question, sir. Given that you are planning for a high growth strategy going forward, any guidance that you can give on your EBITDA margins, going forward? Basically, will revenue and expenses grow in tandem or you see that the growth?
One, we don't give out guidance, per se, but I've already stated that we will significantly be increasing our A&P spends. Second, over the next year or two, we don't mind taking a dip in our EBITDA margin if it requires, just so that we get growth and increase in market share. What the exact quantum will be will be very difficult to say, and we don't give out guidance on that.
Okay. Secondly, sir, related to the pledging issue. While the company which was the promoter's holding company for Bajaj Consumer would be de-pledging all the shares. Is the promoter-level debt gone from the other non-operating companies of the group as well?
Yes, absolutely. There is no more promoter debt from all other group companies at the promoter level.
Understood, sir. Finally, if I may check.
There was only debt in this company. There was no other debt, so there's nothing else to go.
Okay. except for the operating companies which will have some debt of its own-
Yeah
There is no debt now.
No, there are no operating companies.
These are the holding companies.
Yes.
As well as at the personal level for the promoters.
Yes.
Sir, final question related to the pledging. Since the company had substantial cash on its balance sheet, one way to manage this sale of promoter shares was you could have announced a high dividend, which could have given some liquidity to the promoters to avoid selling.
Can we do one thing? It is over and done with. This question is irrelevant at this point in time. Share has been sold. The decision has been taken by the promoters to sell down the stake, not let anything affect the company and its growth and its future. That's the decision we've taken. This whole discussion now is meaningless. I'm not even further answering this question.
Understood, sir. Thanks a lot and best of luck for the coming quarters.
Thanks.
Thank you very much. I will now hand the conference to the management for closing comments.
As a sum up, repeating. For us in the Bajaj family, reputation is built over generations and once lost, can never be rebuilt. That is most important, much more than money or anything else. That's why the stake sale took place. The 22% that we sold, with that promoter level debt is zero across promoters, their holding companies, non-operating companies, et cetera. 2, with the commitment that no further debt will be taken at the promoter level and no further pledges on Bajaj Consumer Care or any other group company will be done. 2, we are very almost close to finalizing between two people for the search of the CEO, and hopefully you should hear in the first quarter of next year, you should hear the formal announcement of that individual joining. There will be clarity on continuation even from a long-term perspective for the company.
The strategy that we've adopted, the new CEO will be completely aligned to that. He will have 100% buy-in. There'll be no change in strategy even when the new CEO coming in place. Third, our strategy is to grow double market share as stated earlier in May. We will be increasing as we go along, as we've already started, but as we go along, further increasing our A&P spends significantly, both in terms of absolute value and as a % of sales. Over the next two years, there could be a reduction in EBITDA margin, and profitability, but we are okay with that, provided we get growth, and we will monitor that on a monthly basis as we go forward. That is what we know that the industry has slowed down considerably, something we haven't seen in many, many years.
In spite of that, we are very bullish with our strategy, and we hope that when the industry growth comes back after maybe six quarters, eight quarters or more, if we have a higher market share on a higher base, that will disproportionately add to the bottom line in the future. The medium-term strategy is to get growth, even at the expense of EBITDA margins. With that, I would like to close today's session and wish everybody a very, very happy Diwali and a prosperous new year.
Thank you very much.