Good morning, ladies and gentlemen. Welcome to the Bajaj Consumer Care Q1 FY 2020 earnings conference call hosted by ICICI Securities. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal the operator by pressing star two zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Vismaya Agarwal from ICICI Securities. Thank you, and over to you, sir.
Thank you, Lizanne. Good morning, everyone. It is a pleasure to welcome you all on behalf of ICICI Securities for the Q1 FY 2020 Bajaj Consumer Care earnings conference call. We have with us today from the management side, Mr. Sumit Malhotra, Managing Director, Mr. DK Maloo, CFO, and Mr. Kushal Maheshwari, Head Treasury and IR. I now hand the call over to the management for the opening remarks.
Good morning to all and welcome to the conference call for declaration of the Q1 results for the financial year 2019-2020 for Bajaj Consumer Care Limited. With me are Mr. Dilip Kumar Maloo, who is the CFO and Vice President, Finance, and Kushal Maheshwari, who's the Head Treasury and in charge of investor relations. The company has closed the quarter with an operating income of INR 230 crores. The growth in operating income vis-a-vis the first quarter of last financial year is 8.5%. Volume growth for the company during this quarter has been 4.7%. Accompanied by the volume and value growth, the EBITDA to sales ratio is a healthy 30.9%. EBITDA for this quarter is INR 72 crores, which is a growth of 2% vis-a-vis the EBITDA of quarter one of last financial year. The PAT and PBT for the quarter are INR 58.7 crores and INR 74.8 crores respectively.
Both of these indices have shown a 9.1% growth on a year-to-year basis. This quarter has seen the hair oil volume uptake growth slow down vis-a-vis last quarter. First quarter volume uptake growth of this category is at 4.4% on a year-on-year basis, which is largely driven by growth in the low-priced Amla category. This is in comparison to the 8.7% year-on-year volume growth that the hair oil category exhibited in the last financial year. The slowdown in hair oils is led by moderation in rural growth. The volume growth in the rural areas is now at 4.8%. The growth in the urban area has remained more or less constant at 4.1%. The work undertaken in streamlining the international business vertical has shown improvement over the last couple of quarters.
All geographies are now showing strong growth and secondaries of this division have grown by over 60%. Among the sales vertical, the biggest disappointment continues to be the Canteen Stores Department. This quarter has not seen any billing to Canteen Stores. The primary reason for this is lack of orders following the name change that was applied for with Canteen Stores. We hope that the procedural issues will be solved in July itself. The growth in turnover for the company, if we exclude Canteen Stores, is over 10%. Modern trade continues to lead the growth with a 21% growth in turnover in this quarter. Our first extension of Bajaj Almond Drops, that is Cool Almond Drops, has been well received by the market. In the first two months of the season, it has logged a market share of 31.3% in the cooling oil market.
The advertising for the product using Ravindra Jadeja as a brand ambassador has been noticed. We expect a larger share in the mini summer as well as the next summer season. Our second launch, Bajaj Nomarks Sunscreen, has done well in modern trade and e-commerce segments. The product has been liked. With special promotions in these segments, we are seeing uptake in excess of our expectations. Our association with Bain has now entered the execution phase. The triple point strategy of focusing on relevant communication, assortment, and effective reach is now being implemented in the test state. The execution had started from the 1st of July after two months of data analysis and one month of planning on-ground activities. We anticipate positive results of this brand focus strategy to come in by August of 2019.
Success in our efforts for building brand equity in this state will give us confidence to use a similar strategy in other states also. Despite fluctuations in crude oil prices, the prices of LLP that was consumed in quarter one have not seen any major change on a year-over-year basis. The prices of other RMPM have also not risen during the quarter. As a result of this, the COGS have shown a decline of 112 basis points, thereby increasing the gross margin. The reduction in EBITDA is large of 186 basis points, is only due to increase in A&SP of 230 basis points. As announced in the analyst meet on the 6th of May, our attempts at cost optimization have been actioned. The various areas that have been shortlisted for immediate action are production, supply chain, IT, and manpower optimization.
You will see more visible results in the quarter two of this financial year. We are now open for questions.
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Anyone wishing to ask a question, may please press star one on your touch-tone telephone. If you wish to remove yourself from the question queue, you may press star two. Participants, I request that you use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the questions get funneled. The first question is on the line of Abneesh Roy from Edelweiss. Please go ahead.
Sir, thanks for the opportunity. My first question is on the CSD. You mentioned in July the recovery is likely with a procedural issue getting resolved, it has already been resolved. My question is, in the last three, four years, CSD has been a recurring theme either due to one issue or the other. Do you see this as the final resolution, or this channel can continue to see disruptions?
See, I think what is different, Abneesh, between the last two or three years and this quarter is that this quarter is largely due to a procedural issue. Basically, we changed our name from Bajaj Corp to Bajaj Consumer Care. Typically, CSD requires you to re-register the name change. That has taken a lot of time because the chairman of CSD is not in office, therefore it just keeps dragging along. The last two or three years, the slip is largely because of the way CSD wants to do business. As you would have heard, and I've mentioned in my previous calls, they're trying to tighten this whole route to market for their so that leakages and other forms of corruption really goes down. Therefore, what has happened over the last two or three years and this quarter are very unlike each other.
Sir, this quarter, your volume growth, 4.6%, was broadly in line with the growth, which I think most FMCG companies are seeing. My question is, how is the competitive intensity in terms of promotions? I have seen Dabur offer 50% extra. Did that have any impact, and did you also have any counter to that kind of offer?
All of these are largely contained in the modern trade, or what we call alternate trade channels, in which deep discounting and all that happens. Normally, in general trade, which are the mom-and-pop stores, you don't see such kind of deep discounting. If anything, the consumer offers that were very prevalent three, four years ago has actually come down. You rarely see things like soap free or extra grammage and all that in many brands in the GT. In modern trade, yes, you have one plus one free, you have extra volume, you have add-on, all these things are there. In terms of general trade, I don't think the competitive intensity has gone up. The fight in modern trade is well and truly on.
Sir, why I ask this, because the ad was there in the mass media, you are saying the product was available only in the modern trade, essentially.
You're talking of Dabur Almond, right?
Yes.
Dabur Almond, yes, 50% extra. Yeah. That is largely in modern trade because their distribution in GT is fairly low, and their market share in GT is just around 1.2%. It is doing much better in modern trade.
The final question, you have tried the Cool product earlier also. This time, of course, the branding, et cetera, is different versus earlier. Would you say that this time, finally it seems that the positivity can continue in terms of scale-up?
I think it's too early to make that comment, but we are quite confident that thanks to it coming under the Bajaj Almond brand umbrella, it should see a better performance this time.
Okay. Okay, sir. That's all from my side. Thank you.
Thank you. The next question is on the line of Sameer Gupta from India Infoline. Please go ahead.
Hi, sir, this is Percy here. Sir, my question is on the other expenses line, which even excluding advertisement, has grown at about 25%. Just wanted to understand the reasons for the same, sir.
Actually, other expenses largely includes the overheads and all the costs in terms of supporting your sales. For example, all the consultant costs, all the rents that we pay, the new factory in Guwahati, the rent is added on, and so on and so forth. It's a mixture of everything, but these are largely sales and admin overheads that you see out there.
Sir, how long do you think it continues at this growth level of 25% before it annualizes and sort of comes back in line with sales growth?
Like I said in my opening address, we are looking at cost optimization. There are certain parts of it, things like rent or legal expenses and all that, which will continue because it is not a one-off, it's a continuing thing. There are a lot of expenses we will be containing, therefore, I think it will fall in the coming quarters as we go along.
Okay, sir. This cooling oil, sir, can you give us some idea in terms of how do you plan to take this forward? Right now, I think it's in certain geographies, right?
By the end of this season, that is, as we are speaking, this season is about to end. We'll be there in the whole Hindi-speaking area. Of course, south, we are not yet touching, it's largely in the Hindi-speaking area. The first response has been good in terms of distribution and even off takes. We hit 1.3% market share within three months of launch, which is quite good. Like I was saying in the opening address, that the ad has been really appreciated, therefore, we should see further traction in the mini summer that comes in the central part of India in October, and also the next summer season, which will start from March of 2020.
Right, sir. I joined a little late, I'm sorry if this was dealt with earlier. Could you give us some idea about how you're progressing on your plan, which you spoke about in the annual conference? You basically said that you wanted to become a general player in the entire hair oil space and not look at only cooling oils. If you can give some more idea as to what are the sort of steps you are taking towards achieving that goal, what are the subcategories you have had already entered cooling oil? Is there something else on the anvil that you plan to enter?
I didn't talk about this in my opening address, you didn't miss much. The plan was basically building the hair oil portfolio that we had, and keeping that in mind, we had sort of worked with Bain, and after two months of data analysis and one month of planning ongoing activity, we have actually launched the plan in the test state. The plan includes three parts. One is effective communication, that means that how do you communicate the benefits that are required in the hair oil space. Second is assortment, which answers your question that what are the prices and what are the products you would like to push. That analysis has been done. New products have not yet been launched, but they will be launched as we go along. Third is to look at increasing your reach.
Despite we being the most distributed hair oil in the country today, you still can increase the reach. That has been shown in the data analysis that we have done for that particular state. We are moving actively towards increasing our reach in that state even further.
On this reach point, you are approximately about half a million direct outlet, right? What is your goal on a one-year, two-year, three-year kind of horizon?
I think direct reach is not the goal. The overall reach is the goal because you should realize the delta that will happen in terms of reach will largely come from the rural areas. There, indirect plays as big a role as direct does. Direct actually is more to do with the better kind of outlets, which are largely in the larger cities and the semi-urban areas. Whereas the increase in reach will largely be from the rural areas. Yes, we are looking at our overall reach going up substantially. It's already at around 40.1 lakh. I think you should be seeing a much bigger increase as the whole plan evolves.
Okay. Got it, sir. Thanks and all the best.
Thank you. The next question is from the line of Prakash Kapadia from Anived PMS. Please go ahead.
Yeah, thanks for taking my question. I had two questions, Sumit. One is on employee costs are down on a year-on-year and sequential basis. You did mention about rationalizations, if you could give some more light, and is it fair to say going forward, the employee cost growth will be lower than sales growth? Secondly, on the variable pay implementation, if you can throw some light, that'll be helpful.
First, on the employee cost, you have just seen the start of the reduction in employee cost. To give you numbers, we have approximately 570 odd employees on our rolls. We are aiming to rationalize these, and we are looking at a reduction of around 100 of them all over the country, partially due to outsourcing and also due to rationalization of the number of people in the support functions. In terms of variable cost, this was something we started around five years ago, in which we have been consciously taking this variable pay concept down to the lower levels. We started only for ManCom around five years ago. Three years, we had variable pay only for the ManCom. Last year we got more managers in and all the managers were covered. This year we have moved to the lower level of the sales officer or the officer cadre.
The whole idea behind this is. Participation in growth and profitability. The way we look at variable pay is we have a percentage for individual performance and a percentage for the company performance. Company performance is measured by the turnover growth and the profitability growth. Ultimately, down to a sales officer level, there is a percentage that he gets for the overall growth of the company, both in terms of turnover and profitability.
Going forward, it is fair to assume employee costs will be lower than sales growth now?
In the immediate terms, you should possibly see a further reduction in employee cost to sales. As we go over a larger period, it should be lower than the sales growth.
Do some of these expenses on the outsourcing be part of other expenditure?
It's a part of what we call legal expenses, basically.
Understood. Thank you. All the best.
Thank you. The next question is on the line of Pritesh Chheda from Lucky Investment. Please go ahead.
Yes, sir. I just wanted to draw your attention on slide 17, where we have given the category trend. First question is, what explains the deceleration in the offtake growth rate in your opinion? The second question is, until last year, we had this strong offtake growth, and we were expecting a supportive primary growth to eventually flow in. From that angle, are there any changes in thought process, any of your observations would be really helpful.
Just one thing is, which I've been repeating on and on, please don't compare the quarter or the month growth versus a year, because there are certain parameters. These, like I keep telling you, are from Nielsen, and Nielsen, in a smaller area over a smaller period, can go wrong. Therefore, don't base your understanding of what's happening on hair oil just by comparing the first quarter of this year versus the annual growths over the last few years. That's point number one. Point number two, what is happening in this quarter basically is that, again, the low-cost products are doing better than the premium products. This was what was observed around a year ago. The last two or three quarters have been good for the value-added perfumed oils, which are largely more expensive than the coconut oil.
What we have seen now is the lower-priced products doing better, and this normally does happen when there's a strain on the rural areas. Then conversion from unbranded oil largely moves into low-cost products and not the more premium products that we see. One thing that you can take is, this is just a trend. I don't think you should base too much on just comparing the quarter to a year. Second thing is this does show a little down trading into the lower-priced products, be it the low-cost Amla or the coconut. Third, it also shows the strain on the larger part of the consumption that happens in the rural areas.
Your thoughts that eventually the primary growth rate will pick up, considering we had a fairly strong secondary market offtake that we saw all throughout last year.
In the long run, primary will be equal to secondary will be equal to offtake, right? You can't build up stock over a long period unless there's a data error, because there are three different sources of information. One is our sales to distributors, second is distributor to the retail, and third is retail to the consumer. There are three different sources of data. Therefore, if any one is off, and the first one that could be off is the Nielsen offtake data, because this is a sample-based data analysis and not the physical movement of stocks.
Just one more question on the margin side. Until we had this whole new category product launches that are stated. If I recall at the analyst meet, you were of the opinion that it will not impact the margins. Just looking at the slightly elevated cost that we are seeing in the quarter one, is that an indication for throughout the year or there would be some one-off or bunch offs in this cost and which would subside eventually? Your thoughts on the two cost sides.
I think if you look at cost, the margins have actually expanded and the gross margins. What has gone up is the expenses that has really gone up are the other expenses, like we discussed, which would include rent, legal expenses, et cetera, and also advertising. What has gone down is the employee cost. I don't think margins have gone down. It's actually gone up.
At the EBITDA, it is down, which is a function of other expense line and the advertisement line.
Yes. That's largely. That's both for brand building and also support that is required in the overhead space.
Is it safe to assume that remain at these elevated to slightly higher levels than what we were doing before?
A&P is something that we will have to control as we go along to match competition. Other expenses would go down as a percentage of sales as we go along.
Okay. Thank you, sir.
The next question is from the line of Daga Shah from CD Research. Please go ahead.
Good morning, sir. My first question is that what is the business growth in ADHO?
By business, you talk about value growth, turnover growth?
Sir, volume.
Volume growth is around 5.2%.
All right, sir. Sir, could you give us the revenue mix for rural and urban for ADHO?
The revenue is still around 31% rural and 59% urban.
All right. Sir, what is the growth in rural and urban, sir? If you could give us that.
I gave that in my opening address. These are offtake growths, which are 4.1% in urban and 4.8% in rural for ADHO.
All right, sir. Sir, just wanted to understand what is the price differential of ADHO with, let's say, Patanjali and others for similar volumes?
I didn't understand. Price difference for similar volumes. Oh, you mean.
Yes
SKU, right. Patanjali is not a major player. To give you an idea, our 100 ml is now priced at INR 65, and the other Amla is now priced at INR 45.
Okay, sir. That's all from my side, sir. Thank you so much.
Thank you. The next question is from the line of Shalini Gupta from Quantum Securities. Please go ahead.
Good morning, sir. Just wanted a small clarification. Basically, this is on slide number five. You said strong penetration increase in ADHO with a 22% increase in households. What exactly is happening? If you could just please explain this.
You want to know what does penetration mean?
No, where are we getting a 22% increase in households?
I think because more and more people are using your product.
Yeah. We are reaching out to that many more people in the rural areas?
Not necessarily rural. It could be urban also. This is the overall increase in penetration of Bajaj Almond Drops.
Essentially, there's been a substantial increase in the distribution.
No. This is consumption. This is buying by consumers from the retail outlets. It's got nothing to do with distribution. Penetration is not distribution. Penetration is number of households that have Bajaj Almond Drops. To give you a marketing 101 lesson, you have what you sell to the distributors, which we call primary, then what you sell from the distributors to the retailers, which is secondary, what you sell from the retailers to the consumer, which is basically offtake, and what the consumer consumes, which is consumption or penetration. Basically, how many households you're getting into.
No, sir. Actually, my question was that suddenly how is it increasing so much?
It's not suddenly. If you take five years ago, we were just at around 9%-odd penetration. Right? Consumers do not suddenly start buying your product. They buy over a long period. Over one year, the penetration has gone up by 3.2%. This is not very high, but it's not low also. It's a very good performance of the product. Now, remember, distinction between penetration and the volume you sell is the consumption per household. Right? The mathematics works in consumption per household into number of households, which will give you the amount of total consumption by people in India.
Sir, I just wanted to understand your thoughts on this. I think the Cool oil, right now it's very new. It's a smaller market, as in it's like INR 1,000 crore market with very strongly entrenched players, especially in the Hindi belt. I just want to ask, and you yourself have also launched in the Hindi belt. Over, say, the next three years, what kind of market share do you see for yourself, and how large do you see this becoming?
Yes, you are right. You have many entrenched players in cooling oil. Do you have in coconut oil, Amla, light hair oil, and that's the peculiarity of hair oil industry. The reason you have these strong entrenched players is that there hasn't been a launch which can create differentiation. That is, why should I buy you when I'm very happy with my existing brand? What we are trying to do in Cool Almond Drops is create that differentiation by having a light cooling oil from the staple of the largest hair oil brand in the country today.
Okay. Sir, vis-à-vis the market leader or vis-à-vis your closest competitor, where would you be priced in cooling?
We are the same price as our competitors. We are not playing on pricing.
Okay. Sir, one last question. Again, like sunscreens, who would be your close competitor and how is the market itself growing?
Market is growing well. It's growing at 20% plus. The market hasn't yet been established. We have a lot of players all over the spectrum, all with sort of fragmented market share. You have a brand from Himalaya, from Joy, from Lotus. You have a lot of brands in this thing, but since the market itself hasn't stabilized, you don't have big leaders or laggards in this whole space. This is normally what happens in consumer. As the market becomes more established, the consumers start displaying their preferences for one or the other product.
Okay. Thank you, sir.
Thank you. The next question is on the line of Sri Kishore from Cholamandalam MS. Please go ahead.
Hi. Thanks a lot for taking my question. I just want to understand, what is the split between wholesale and retail sales in terms of volume as well as value?
Wholesale, retail only happens in the general trade. The figures that you have, if you see the presentation, you will see that we have also given you splits of general and modern trade. If you take the general trade, currently around 33%-34%, both by volume and value, comes from wholesale, and the remaining comes from retail. Again, qualification is this is only for GT, and this is largely urban because rural, you have a different split.
Okay. Fair enough. How is this trend expected to be sustained going forward?
We would like to maintain it at this for the coming few quarters at least, the only reason this should go up is when your direct reach or the number of outlets you sort of tackle directly either stagnate or start going down as a percentage of your total reach. The difference between direct and the total reach is what we call indirect. This is the wholesale component of the total.
Okay. Understood. One other bookkeeping question. What is the breakup of your other income? There's been a definite spike. I just want to understand.
It's all the investment we have in our treasury. We update and invest it in only AAA-rated bonds. Therefore, a large part of this is basically all the AAA-rated bonds. There's a very small amount in mutual funds and a little more in equities.
Did that actually give you a treasury income of INR 5.97 crores?
Under the new accounting laws, we are supposed to mention also mark-to-market gains or losses.
Understood.
These are not realized profits or whatever. This includes realized profits and also mark-to-market profits and losses.
Fair enough, sir. One last question. I just want to understand how good or how bad is the fragmentation in the hair oil business?
I don't know how to answer that. Diplomatically, I can tell you there's been worse, and there's definitely been better times that we have. This is a qualitative question. I think everybody will answer it in a vague manner. Yes, it's not the best we have seen. Even if you look at the figures that we give, and we give much more data than anybody else in this industry, and you can see that this is definitely not the best times that we are in.
Fair enough. Thanks a lot for taking my question. Thank you.
Thank you. The next question is on the line of Arshad Mukadam from Vibrant Securities. Please go ahead.
Hi, good morning. My first question is regarding the impact of the appointment of Bain. What will be the impact on the income statement?
At this moment, as I said, implementation has started from the 1st of July. Impact on appointment of Bain in the first quarter is nil.
Okay. Will we get a figure of how much it's going to affect us going forward?
We will have a figure, but I doubt that we will share it with the investors on a call.
Okay. Another thing is previously you all have given the split of raw material percentage of revenue. Is it possible to get access to that split for this quarter?
Yes. If you can send a mail to Kushal, he'll send it to you.
Yeah, perfect. We'll do that.
You're talking about the line-wide composition of our costs, right?
Yes. Like LLPs, the mineral oil, the glass bottle as a % of revenue.
You have Kushal's mail ID, please send it to him.
Yes, I'll do that. My third question is regarding the glass bottles used. If I look over the last three, four years, the amount spent on glass bottles has been pretty stable. Is that because of the prices of glass being stable, or could that be because we're shifting to plastic bottles in, say, smaller SKUs?
We took a price hike of around 6% last year, the difference that we see is also on, of course, the weight of the glass we use. We have been doing re-engineering on our glass bottles that has brought down the quantity of glass being used. Therefore, even though the price hike is there, you don't see it in the P&L.
Okay, got it. Could you give possible guidance on how you see these gross margins going forward? Do we expect it to come back down, or any comments on that?
As you would know, and if you've been following us, we don't give guidance. I don't have any guidance to give you at this point of time. All I can say is that our biggest raw material, which is light liquid paraffin, we are covered till October. The coming quarter, you shouldn't see any decrease in gross margin because of LLP going up.
Okay. Thank you. My last question is regarding the pledging of shares. I think at the meeting you said that the pledging of shares is going to come down, and from the March quarter it has reduced, I think. Can I have the latest figure for the June quarter end?
If you were there in the investor meet, I did not say this. This was said by the Chairman because the pledging of the shares is outside my purview, and therefore, I cannot and will not talk about pledging because I'm not directly responsible or in control of what is being pledged by the promoters.
Okay, I understand. Thanks so much.
Thank you. The next question is on the line of Harit Kapoor from Investec. Please go ahead.
Just two questions. Firstly, the hair oil growth that you mentioned for the quarter, how do you see that, sir? Has that been slowing as the quarter has gone through, or it's been fairly steady at this 4.5% that you spoke of? We just wanted to get an understanding whether market is slowing as the quarter's gone by.
Yes, you're right. April was good, and May and June have been bad sequentially. If you talk about monthly growth, I would say after a good April, this is more or less the same growth as we had in the fourth quarter of last financial. May and June have been going down.
Got it. The second question was on the pricing. You took a 4% or 3.7% price increase at the start of the year. Given that you are covered for LLP for half the year and the other cost inflation is not so significant, as well as the fact that market environment is a bit challenging, do you expect pricing to be fairly stable now for FY 2020, at least as it stands right now?
I expect so, because ultimately this depends on the price of crude. The fluctuation in crude is the only driving factor, and I don't see that being too up and down during this year. That's my estimate. Like you know, there are very few analysts, let alone professionals, who can actually predict the price of crude. I don't expect it to go up drastically.
Got it, sir. That's it from me. Thanks a lot for the rest.
Thank you. The next question is on the line of Tejas Shah from Spark Capital. Please go ahead.
Hi. Thanks for the opportunity. Sir, last time when you presented at the analyst meet, you shared a broader outline of the new Bajaj Consumer Care. Now it's been two months. Can you share some more details on the same on two key aspects? First, growth plan for Almond Drops, in the sense, what are we planning? What states we have outlined where we'll be focusing more on, and the whole NPD outlook which needs to change under the new plan that we have.
See, Tejas, in terms of growth plan, currently what is on ground is the kind of re-look at Almond Drops, and therefore, how do I change the communication, how do I change the pack sizes, and how do I change the distribution set up in Almond Drops? What will happen as we go along is you will see the second part, which I called in my opening address, which is assortment. That which product do we launch and how do we take it forward, that will happen. That, in my opinion, will take at least six more months, if not more.
We do have a NPD pipeline, most of it on hair oils. I don't think I can share anything at this point of time, because we first need to see whether our brand growth strategy that we are using in one state works, and then only can we start trying out different kind of hair oils.
Okay. Sir, just a follow-up on ADHO. Are we entering new states or we are digging deeper into existing market, as you had highlighted that there are pockets within the existing regions also where.
At this moment, we are trying it out only in one state, and as we go along, you will see it moving into other states.
Sure. Thanks a lot for the rest.
Thank you. The next question is from the line of Ekta Mehta from Vallum Capital. Please go ahead.
Hello. Sir, thank you for the opportunity. Most of my questions have been answered. I just had one more question, that it has been highlighted that there has been the weighted and numeric distribution is at an all-time high. I just wanted to know whether this distribution is concentrated more in the urban or the rural area.
No, it's there both ways, and the figures that we have given is the consolidation, which is urban plus rural. Yes, typically, numeric will be higher in the rural areas because we have a widespread and smaller kind of outlet. Whereas weighted would be higher in urban areas. This is typical for any product in India. The figures that you see are a summation of urban plus rural.
Okay. Also, even going further, our distribution will be more focused for tier 2 kind of cities or more for the fully rural. What is the if you could throw some light on that.
It depends on the state. There are states in which rural is very, very high, and therefore, if you were to gain any market share in that state, you would have to focus on rural. There are other states where you have a higher composition of the urban sales of hair oil, and there maybe urban would be. It's a mix. You can't have a strategy across India. Like we said in the analyst meet, India is a continent, and therefore, you can't have one color paint all in India, and therefore, you'll have to identify areas that behave similarly and try a strategy for that area. For other areas which don't behave similarly, you'll have a different strategy. Saying that the post and distribution will be only rural would be a wrong thing to say.
Yes, rural is a very important part of the overall growth strategy that we have.
Okay. Thank you, sir. Also one more thing. Sir, ad spends have been increasing recently since you have been now having new launches. Is the ad spend going to increase over this year as well, or is it going to be at the same levels as last year?
See, ad spend will be high, but you won't see too many new launches in the next one or two quarters. The ad increase will happen largely on what extra we spend on Almond Drops Hair Oil.
Okay. Thank you so much.
Thank you. The next question is from the line of Jinel Seth from Ortega Capital. Please go ahead.
Good morning, Sumit. Hope all well. I just wanted to touch base on the growth part that you mentioned, that May, June saw some slowdown compared to April sequentially. Just wanted to understand that from your experience, do you believe that right now it's a waiting watch to see that whether this slowdown can worsen further or it's not as bad? Any thoughts on that?
Jinel, if you look at it after so many years of experience, you realize that bad times and good times come off and on. The thing is that if you really want to build a strong brand, it is what you do in bad times more that matters. Because what happens is most companies try and reduce advertising and sales promotion expenditures, and therefore, open a gate for you. That's what we did last time this slowdown happened. That's what we are planning to do now. That is spend in building brands at this point of time. Like that famous saying, "Neither good times nor bad times last," and we strongly believe in that, and I think it will return. It's only when will it return is the question that we'll have to wait and watch and see.
Okay. Secondly, on our relationship with Bain. How is it that that is moving forward, where we are constantly tracking how the process is moving forward with them and how developments are happening? Any insights on that, how are we kind of keeping that and whether things are moving in the right direction?
I think you should understand, Bain is not a consultant alone. They're actually a partner in progress, and therefore, there's a whole group of Bain employees and partners who sit in our office and work with all our heads on a daily basis. In fact, once the implementation has started, there's another group sitting in that state office and monitoring progress on a daily basis there. It's not that at the end of the month, they come and present and go away. You do have a steering committee meeting every 15 days, but you have literally a meeting every day that they are here in the office. We have a whole area cordoned off for them, and they're free to speak to any of the departmental heads or the various group members of finance, supply chain, marketing, sales, obviously, and any company employee they just should speak to.
Is there an incentivizing structure? That is, we've met certain milestones, then get X. How is it accomplished? Is there something?
Not yet. This was an experiment that we are trying, but as the partnership becomes larger and larger, there will obviously be a partnering in progress concept that will be built up.
Okay, got it. Lastly, since you mentioned this in the earlier call as well, that in such a period that we're seeing downgrades to the low-end Amla category, I presume based on when I look at the market share, that it's not hurting us to that extent that we've lost market share, right?
No. Not really.
Okay. Thanks a lot.
Thank you.
Thank you. The next question is on the line of Shirish Pardeshi from Centrum Broking. Please go ahead.
Yeah, good afternoon and congratulations for the explanation. I have only two or three questions. One is the CSD business you said is under consideration. Can you share what is the CSD contribution last two, three years for the company?
It's been coming down over the period. Three years ago, it was five. It dropped to three and a half. Last year was around three and a half. Currently, this quarter it's nil.
You are very confident within the next one quarter it will get recovered?
Yes. What happens is it may not cover up for the loss in sales of the quarter one. If you see on a H1 basis, it will be down.
Okay. My second question is on slide 17. You have given some numbers on AC Nielsen coverage, which is about four million outlets in terms of penetration. If I compare your direct distribution between 2016 and now, it is about 371,000. However, the AC Nielsen number shows only 2.62 lakh outlets, which has gone up. Is there anything?
Excuse me. Which slide are you talking about?
Slide 12. Where you've shown Nielsen coverage and direct coverage.
Yeah. This is direct, and you're comparing direct to Nielsen.
Yeah.
Yeah. What's your question?
My question is that right now we cover almost 13% of the outlets under penetration. You just mentioned earlier in the call that you're going to improve this 4 million to maybe something more.
Before that, we also read that wholesale has come down from 60%- 33%. What are the activities which is driving on the ground?
Increasing efficiency of our field force and adding to field force.
Yeah, you also mentioned that there is 100 people who need to come down.
Did I say it will be in sales?
Okay.
I clearly said that in support functions, we are trying to do manpower optimization. If you read the transcript, you will see that I mentioned it was from support. I think you assumed it would be from sales because logically, the largest number of people are in sales.
Okay. When you say that this 12%, which is right now the measure, do you think this 12% will move also in tandem with your indirect distribution?
It will go up as we go along.
Any thoughts on wholesale? Which part of India you are seeing the severe issues of wholesale?
Largely in our biggest areas, which are the north and Hindi-speaking areas. They are also our largest wholesale markets. Things like Delhi, Punjab, UP, MP. These are the large wholesale mandis for our product, because obviously when your market share is very high, wholesale requirements also go up.
I would presume that wholesale would be driven I mean, in wholesale, only sachet and maybe INR 10 to a certain extent would have gone.
No way. The largest product selling in wholesale is actually 100 ml.
100 ml?
Yeah.
Okay.
That's the largest segment product for Bajaj Consumer Care. Sachets come beneath.
Sachet is also contributing? No.
Obviously, yes. Every size contributes, but it's the third largest.
Okay. Just last one question. On Nomarks, we have done the sunscreen, and probably if you could share what is the distribution of sunscreen.
It's too early to say, Shirish. It's a very new launch, and it's not a very widely distributed segment also. I don't think distribution is the key, and like I said in my opening address, the current growths are basically coming from modern trade and e-commerce, which don't contribute to distribution as such.
I got it. Just last one if I squeeze in. What is the modern trade contribution in this quarter?
7.5%.
Okay. All right. Thank you, and all the best.
Thank you.
Thank you.
The next question is from the line of Manohar Vijay from SL Finance. Please go ahead.
Yes, thank you for the opportunity. I want to ask you a couple of questions. First of all my questions are from the annual report. In the annual report, you mentioned that you have eight manufacturing plants, including third-party operations. Now, considering the fact that you are doing consolidation all across the company, whether in terms of warehouses, sales, and everybody, does the work with Bain also includes consolidation in the manufacturing plant as well?
No. Currently, Bain is only working on brand building. They have a process which is called BBA, or Bain Brand Accelerator which focuses on building brands. Right? They're currently not working on networking and where to place your production and so on and so forth.
Okay. My second question is, you also mentioned in the annual report that you intend to put up a greenfield facility in Vadodara.
Yeah.
What would be the CapEx for this plant, and what are the timelines?
Since the time of annual report, we are re-looking at that, and when I talked about cost optimization, we are re-looking at the model. That rather than we put up a plant, does a third party outsource the manufacturing process to make more sense. Currently, that project is on hold, and therefore the question of how much it will take in terms of CapEx is something that we'll answer along the way.
Okay. My third question is that you have already reduced the number of warehouses, or the depots that you had from 28 to 20. Now you intend to cut two more in FY 2020. This will have impact on the balance sheet in terms of reduced fixed assets or in the P&L with some reduced rentals.
These depots do not belong to the company, therefore the effect on fixed assets will not be there. Right? These are not our depots. What it will do is, fixed expenses of these depots will come down, whether you sell one case or sell 100 cases from a depot, there are certain expenses like rent, manpower, et cetera, which are passed on to you by the third-party 3PL. You see it largely in overhead and to give you a simple answer, you see it in P&L and not in balance sheet.
Perfect. My last question is that you have also mentioned that you've started now tracking, I would say, batch tracking has been implemented in ERP for all the production, for the product to actually identify slow-moving inventory.
Yeah.
What kind of a, let's say, benefit you intend to see from this step and what kind of, let's say, timeline you have so that you can say that, let's say all the efforts that you made towards this process are bearing some fruits for you?
See, this kind of a process is ongoing. It's not a start by and end by process. The reduction in slow-moving or expiry goods, et cetera, is something that we keep on tracking. Having said that, we do not have a very high incidence of slow-moving and/or expired goods, we are still doing this so that we can reduce it even further. Right? In terms of our total thing, our damaged stock, the slow-moving, and the sort of expired stock is around 0.3% or 0.4%, and you can expect 0.3%, 0.4%, the scope for massive reduction is really not there.
Okay. My last question, is it possible to share what kind of a CapEx plan you have, if at all, for FY 2020?
I just said that CapEx in terms of the factory is not there. Once we get all our approvals, maybe there will be some CapEx for the office building we have in Worli, but I think we are still at least six months away from deciding how much the CapEx will be and how it will be spaced over the next one and a half, two years.
Perfect. Thank you and all the best, sir.
Thank you. The next question is from the line of Arshad Mukadam from Vibrant Securities. Please go ahead.
Hello, sir. My question was on dividend payout. Is there a policy that we pay a certain percentage, at least to the shareholders?
We have stated that we would be giving one-third of our PAT minimum to our shareholders.
That's very helpful, sir. Thank you.
Thank you. A reminder to the participants, anyone wishing to ask a question, may please press star and one. The next question is from the line of Sri Kishore from Cholamandalam MS. Please go ahead.
Hi. Thanks for taking my question again. I just want to understand what is the latest shareholding pattern on the promoter hold?
60%.
60%, okay. That hasn't changed since March.
No, he hasn't sold anything after March.
Okay. Thank you. That's it. Thank you.
Thank you.
Okay.
Ladies and gentlemen, that is the last question. I now hand the conference over to the management for their closing comments.
Thank you all for logging on to the conference call. I think in the coming quarters, you'll see a lot of more activity happening in Hero as and therefore there'll be a little more to share with all of you. Thanks for logging in and staying on with our company for so long. Good afternoon.
Thank you. Ladies and gentlemen, on behalf of ICICI Securities Limited, that concludes today's conference. Thank you for joining us. You may now disconnect your lines. Thank you.