Good morning, ladies and gentlemen. Welcome to the Bajaj Consumer Care Q3 FY 2019 earnings conference call, hosted by Kotak Securities Limited. 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 then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Jaykumar Doshi from Kotak Securities Limited. Thank you, and over to you, sir.
Thank you, Lizanne. Good morning, everyone. On behalf of Kotak Institutional Equities, I welcome you all to Bajaj Consumer Care Q3 FY 2019 earnings call. We have with us senior management of the company, represented by Mr. Sumit Malhotra, Managing Director, Mr. Sandeep Verma, President, Sales and Marketing, Mr. Dilip Maloo, Chief Financial Officer, and Mr. Kushal Maheshwari, Head Treasury. I would now like to hand over the call to Mr. Malhotra for opening remarks. Thank you, and over to you, sir.
Good morning, welcome to the conference call for declaration of the Quarter 3 results for the financial year 2018-2019 of Bajaj Consumer Care Limited. I think the good news is that the name of the company has changed from Bajaj Corp to Bajaj Consumer Care with effect from 1st January 2019. The change in name has been put into effect to represent what we do and what we aspire to do in the future. We believe that the new name will be more in line with the nature of our business and also takes into cognizance one of our core values of becoming more consumer-centric as FMCG companies should ideally do. In the board meeting held yesterday, the board has recommended a dividend of INR 14 per share. This dividend is the highest ever given by the company since its inception as a listed entity in 2008.
The company has closed the quarter with a turnover of INR 222 crores. The growth in turnover vis-a-vis the third quarter in the last financial year is 12.5%. The volume growth during this quarter has been 7%, with our flagship brand, Bajaj Almond Drops, showing a robust 9.4% volume growth. Accompanied with the volume and value growth, the EBITDA to sales ratio is a healthy 32.6%. The EBITDA for the quarter is INR 72.39 crores, which is a growth of 17% over the EBITDA of Quarter 2 of this financial year. The growth in EBITDA on a year-over-year basis is 13.3%, excluding the GST refund of INR 5.2 crores, which pertained to the second quarter of last financial year, but was accounted for in the third quarter of last financial year. The PAT and PABT for the quarter is INR 60.09 crores and INR 76.6 crores respectively.
The third quarter has seen the hair oil volume growth remain healthy. The MAT volume growth for the category was at 7%, which was driven by Lite and Amla hair oils. Our brand has been driving the growth of both LHO or Lite Hair Oil and the total hair oil category volume growth and is at 2X of the total hair oil volume growth. Though we don't have the December 2019 Nielsen data as yet, the good news is that the rural growth for almond hair oil, as well as the Lite Hair Oil, continues to be good. The effect is seen on the volume of wholesale during November and December. This quarter saw all the sales verticals exhibiting a positive growth. The fastest-growing vertical was canteen stores with a 35% value growth during the quarter.
I would caution not to read too much into this because this is after six quarters of negative growth, and the outlook doesn't yet seem to be very positive. Modern trade continues its impressive growth trajectory with a growth during the quarter of 28%. The work being done in international business has started showing results with a 12% year-on-year growth in this quarter. The new pack of almond hair oil, which has been well accepted in the market. The volume growth during October and November of this year has shown a 21.3% growth on a YOY basis. Our focus on the INR 10 pack has helped us gain rural market share, and this SKU now forms 5.6% of the total almond franchise. The rural growth coming back has helped our INR 1 sachet growth to pick up.
With the picking up of rural volumes, the wholesale volume growth will continue to grow in the fourth quarter as well. Along with our market share, the efforts to increase our distribution has resulted in an all-time high distribution of our Bajaj Almond Drops. The brand is now available in 40 lakh outlets all over India. The direct distribution, currently at 4.92 lakh, is expected to move up to 5.4 lakh outlets within this financial year. Our strategy of focusing on Nomarks cream across channel continues to work. For the nine months in this financial year, the Nomarks franchise has shown an 11% growth, with the creams now forming around 82% of the total value sales of Nomarks. The effect of the fall in crude prices has yet not been reflected in our margins.
During the period the LLP prices were rising, we were protected by the low-priced stock that we were holding. This stock will continue to last till February of 2019, post which you will see the increase in gross margins because of the fall in LLP prices. We are currently consuming light liquid paraffin at INR 74 a kg, though the price at its peak was INR 82 a kg. We have now started contracting LLP at a much lower rate. The positives that we have witnessed during this quarter are growth in volume of Almond, which is two times the growth exhibited in the total hair oil segment, growth in volumes of the Lite Hair Oil, and improvement in rural volume growth. Improvement in market share of Almond within the total hair oil market.
The market share in the total market rises by 50 basis points if you compare November 2018 versus November 2017. Healthy EBITDA at 32%, despite strain of RMPM prices during the third quarter. Distribution is hitting an all-time high of 40 lakh outlets. Good growth of Nomarks post-launch. MAT market share is hitting 8.6%, which is 100 basis points higher than the same period last year. Conversion of sachet users to P10 bottles showing short-term results. With crude prices dropping, LLP prices have started softening, and this should improve gross margins post February of 2019. We are now open to 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 and one on your touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is on the line from Abneesh Roy from Edelweiss. Please go ahead.
Sir, congrats on a decent show. My first question is on the direct coverage. For the past three quarters, your number has been fairly stagnant at 4.8, 4.9, 4.92. Now in three months, you want to increase it significantly. What is the reason for such a sharp increase? Is it possible to do that in three months?
See, it is possible. It is not that it is not possible. You should realize that the source of the data is through our SFA, which is our sales force automation, we actually keep updating it on a regular basis. Updation would normally happen during the period January, February, therefore you should be able to hit 5.4 lakh outlets.
Sir, on the volume growth data, you mentioned 9% in the Almond and 7% overall. Could you take us through how the 9% falls to 7%? Essentially the other parts of the business, how the growth is?
If you look at the other marginal brands, since we have not been really concentrating, they have not been growing. That's not a big thing. The two brands that we are focusing on, both have been growing during this quarter.
Sir, coming to the name change, what is the full reason for that? Why I'm asking this is when I see your EBITDA margin, that's one of the highest in the consumer pack. When you want to be more consumer-focused, does it also mean longer-term you would look at a lower EBITDA margin than the 33.2% because very few companies make this kind of margin in the consumption space.
Abneesh, I don't think both points are related. I'll answer it in two parts. One, Consumer Care we made because we all felt within our management team that the name Bajaj Corp really didn't signify the business we were in. The more important question was that within the organization, we're trying to be much more consumer-focused than trade-focused. With that, the Corp seems to be a trading post rather than a marketing company, therefore, with the changes that you will see as we go forward, this was one step we thought that was crucial to sort of reignite the internal passion of becoming more consumer-focused. The second part was the EBITDA margin. Yes, I've always gone on record and said that 32% is a very high EBITDA margin, it is bound to drop with new launches and acquisitions.
Whether it will happen in this quarter or the next one or two years, I'm not sure, but the fact is that 32% is a very high EBITDA margin.
Next question on Nomarks. When I see your rural market share, Pan India or UP, that hasn't moved much while your urban market share has. Is that part of the strategy that you want to do rural later, or rural there's a stress and that's why that's not happening?
Good question, Abneesh. If you remember the last conference call, we had said that we are now looking at pushing into the rural areas. Normally this doesn't happen overnight, and it's a strategy that takes at least three, four quarters to sort of turn into numbers and market shares. The reason why we had focused only on urban and still largely on urban, was that the market was higher, and we had enough problems to solve in terms of getting into the right kind of outlets. Therefore, we said rather than spread it all over India, we took one state, and rather than spread it across the state, we looked at urban. Going forward, we have stated on the call last conference call that we are looking at a strategy to push rural volumes and market share.
Sir, last question on the pet format, your launch is INR 10 pack, 40% growth quarter-on-quarter. Of course, any new launch in the first three months, there is a very good sale. My question is, we are hearing a fair bit of rural distress that's impacting, of course, other forms of non-FMCG consumption quite on the higher side. In this, my question is to essentially this 40%, is it largely because of the new launch, and does it come down significantly in terms of growth in the coming quarters? Second, on the rural distress, what would be your comment on this pack, and then overall portfolio, what is the comment?
Amish, just to put it on record, our INR 10 pack is not a new pack, huh. It's been in the market since 2003. The only problem was focus. We really didn't focus on it. In terms of even distribution, it is increasing, but not dramatically. It's not like launching a new product and suddenly you build up a pipeline and therefore you grow. I'm quite hopeful that this INR 10 pack, given our strategy of trying to upgrade from a INR one sachet to a bottle, will work. That's our strategy for INR 10 bottles. Your second question was on?
Rural distress.
Rural distress. I think our feedback is that after November, there has been some change in that. The reason we are not in agreement to this distress is that the wholesale volumes have started going up again. You would realize that the first indicator of any increase in rural offtake is wholesale, because wholesale caters to the largest part of the rural area. Very simply, when you have 650,000 villages, there's no way any company can look at it in terms of direct distribution, and therefore indirect through wholesale is a very important indicator for rural offtakes.
Okay, sir. That's all from my side. Thanks a lot.
Thank you.
Thank you. The next question is from the line of Sameer Gupta from India Infoline. Please go ahead.
Hi, sir. This is Percy here. First, just wanted to check on some numbers if my understanding is correct. ADHO volume growth is 9.4% and overall is 7%. Does it mean that the rest of the portfolio has seen a material decline?
Percy, obviously you're right, but the other things are the overall portfolio that we have apart from Almond Drops, which is a decline. Nomarks has not seen a decline.
Okay. I see. Sir, over the last one and a half years, whatever new products that you have launched, could you sort of give a summary of how those launches have been, whether which ones have been satisfactory, above expectation, below expectation, et cetera?
Hi, Percy. This is Sandeep here. Let me answer that question. Over the last four quarters, we've had three relaunches actually, one new product launch. First relaunch was Brahmi Amla relaunch, which we did in September last year. Brahmi Amla relaunch is doing well in the urban and rural markets. Unfortunately, Brahmi Amla has a 35% contribution from CSD, which has basically taken the overall volumes on Brahmi Amla down. Other than that, it's growing in modern trade, it's growing in general trade, ex-of the CSD. We are also focusing now with Brahmi Amla on the e-commerce channel a lot, and it's doing quite well over there.
Our next new product launch was the Bajaj Coco Jasmine product, which we launched in Maharashtra, which we were doing more as a pilot to understand and to iterate on it, to help us understand what works, what doesn't work. There, three months back, we had started doing a pressure test in certain specific districts of Maharashtra itself, again, to just understand what works and what doesn't. Again, in those pressure test districts, it's done well. We are still looking at how do we take this pressure test into the other districts of Maharashtra now and get the same kind of growth in the other districts of Maharashtra. Once we are done with that, then we plan to expand Coco Jasmine into some of the other states as well. Our third relaunch was Nomarks, you're aware of the Nomarks relaunch.
We are gaining market share quarter-on-quarter. We are at our highest ever all-India share. We are at our highest ever urban share, highest ever share in U.P. itself. That's done really well for us. We launched Almond Drops itself in September, you are aware of the Almond Drops performance. Sumita just spoke to you about it. Yeah, I think we've had a few hits and misses. I think the relaunches have done very well. Dabur Amla has not gone as per what we were expecting, but largely because of the CSD factor. We are hoping that once CSD stabilizes or once the contribution from CSD goes down, we will start seeing some growth over there as well. Bajaj Coco Jasmine, like I explained, is more of a pilot where we are still trying to figure out what works and what doesn't work.
Okay. Sandeep, when do you see the overall hair oil volume growth exceeding the ADHO volume growth?
That's a tough one, Percy. That's a tough one.
When you have 92% of your sales coming from one, you can imagine just by pure mathematics how much the other brands will need to grow over Bajaj Coco Jasmine.
Just to give you a perspective, Percy, if I take away CSD from the Dabur Amla growth, then our other hair oil growths are actually higher than the ADHO growth, just to give you a perspective.
Okay. Understood. It's mainly the CSD which is pressuring. The second question is, the volume growth that we've seen in ADHO this quarter at 9.4%, we need to look at it in perspective of the last quarter's performance also, right? Because last quarter you had said ahead of the relaunch, there is some amount of pipeline drying, et cetera. Can you just help me understand this number in context of pipeline adjustment, et cetera? How does it look? How is the underlying growth happening there?
I would like to sort of turn that question around and try and explain to you how it looks in terms of the offtake.
Offtake, yes.
pipeline filling or depleting is a short-term measure. Consumption is a long-term measure. When I said that Almond Drops is growing at 2x in terms of volumes of the total hair oil, you can see how well it is doing again. The sort of strain that happened over the last two years is clearly abating now.
Here's the 8.4% offtake growth for the hair oil category. Almond Drops has actually grown at 18%. It's actually more than two times of the overall market growth, again, as compared to previous quarters. Previous quarter also, we had a fairly decent volume growth of about 7% in offtakes. This quarter, our offtake growth is double of that, more than double of that, 7% versus 18%. I think you're right. Like Sumit saying, pipeline filling is a one-time phenomenon. We did suffer because of that in the previous quarter. Offtake gives us the confidence that all of that is behind us now.
When you say offtake, these are Nielsen numbers, right?
Yes. Nielsen numbers.
these are YTD November, because we still don't have December numbers with us.
Understood. Sir, since your offtake growth is continuously, at least for the last couple of quarters, coming higher than your primary sales growth, does it mean that the trade pipeline is shrinking materially? How long do you expect that process to continue?
Again, Percy, we have had this discussion many times, and I've always maintained that since Nielsen is a sampling exercise, so there's always an error, plus, minus. Therefore, if you look at Nielsen figures on a shorter period, which is a quarter or six months, you will always have these things. If you look at it on a MAT basis or an annual basis, these kind of numbers are much more easier to digest in the sense of comparing it to volumes. Also, the issue that we always have, we look at the company volumes, which also includes things like CSD, international business, which is not a part of Nielsen retail surveys.
Right. Sir, what's the last 12 months average offtake growth?
It's similar, exactly the same as not just last 12 months, even the last nine months, average offtake growth is just 2% higher than our primary value growth on ADHO.
Of domestic.
Of domestic.
What is the number, sir?
YTD, one second, I'll just tell you.
GT is which one? This is total.
You want I'll just tell you.
Okay.
Yeah. Just to give you a perspective.
Yeah.
Let me see volume. Basically, if I look at domestic volume growth X of the CSD, it's 7.1%, 7.1%, 7.1%. Our average offtake volume growth is about 9.5%. There is not that much of a difference between the two. Actually, value is even similar. Value growth are even closer than this. Of course, one benefit that we should get hopefully in our offtake growth is now with the increased MRP, that should start getting reflected in the value numbers, which obviously start getting reflected a little faster in your primary sales value numbers per se.
Right. When you say YTD, you are saying January to November, right?
No, Q1- Q3.
Okay. April to November. Okay.
Nine months.
Okay. That's all from me, sir. Thanks and all the best.
Thank you.
Thank you. The next question is from the line of Prakash Kapadia from Anived Portfolio Managers Private Limited. Please go ahead. Prakash Kapadia, your line is on the talking mode. Please go ahead.
Yeah. Thanks for the opportunity. I had two questions, Sumit.
Yeah.
If I take a slightly mid to long-term view, given that our market share in the category almond hair oil is at an all-time high, the initiative which you are talking about of scaling some smaller brands and new launches, these will have some time to shake the needle because the contribution of almond oil is large to our overall sales growth. How do we achieve 14%-15% kind of steady sales growth in the mid to long term? I'm not looking at one quarter, two quarters. Over a period of time, how do we achieve that? That is the first question. Secondly, given that we have declared an interim dividend, can you highlight some of the issues which you would have faced while scouting for an acquisition? Is it valuation?
Is it size or some of the other challenges in our key focus areas of hair and skincare?
Okay. Two very deep questions. Let me answer the first one, which is the source of growth. What you're basically asking is, how are you going to get growth? Again, this is something I've gone on record and said that we still believe there's a lot of meat left in almond oil. One way of looking it is at our market share within the light hair oil. That's not how a consumer or how the market should actually look. We should look at our market share within the total hair oil. That's your playground. You can't say, I will only play behind the stumps area. I play the whole cricket game itself. Keeping that in mind, our market share, even in value terms within the total hair oil, is under 10%. Therefore, we need to grow that.
How do you grow that is a marketing task that we have been at for the last three years, and we will continue to focus. Our new ad is actually aimed at gaining market share in total hair oil and not in light hair oil. That is one big source of growth. If we can keep pushing at that and this volume of sales continue growing at the 15-odd%, you would probably be able to use this as a major source of growth.
Source of, right.
The second is the new brand launches and extensions that could come up in the future, and that's why we went on record and said that we are actively looking at new launches. Yes, it could be EBITDA dilutive, but I think the good news is that we are already fairly high on EBITDA, and therefore worse come to worse, I think we have a playout there. The third obviously is acquisition because this is an effective use of our treasury because treasury, like I keep telling you, gives you some 8% returns, and business gives you 32% returns.
Much higher. Right. Absolutely.
These are the three main sources of growth. You can also look within India, where am I going to get growth, outside India. That's I think a long discussion, which, if required, we can have offline.
Sure. We'll take it offline.
Right. The second part was? Sorry.
Challenges in terms of the acquisitions.
Yes.
while scouting.
Like you know, I think it's hidden in your question itself, valuation is still very, very high, and expectation, especially after the recent two big acquisitions that have happened in India, are still obnoxiously high. Therefore, we are not desperate because this kind of valuation can sort of push back the payback period to an unacceptable limit. We are looking at smaller brands, regional brands that we can actually use. To buff up our strategy of growing in international businesses, we are also looking at smaller brands outside India.
Understood. That is helpful. Thank you. All the best.
Thanks.
Thank you. The next question is on the line of Kaustubh Pawaskar from BNP Paribas. Please go ahead.
Sure. Hi, sir. This is Kaustubh here from Sharekhan by BNP Paribas. My question is on the input cost. You mentioned that the LLP prices have seen a declining trend with the fall in the crude prices. Just wanted to understand, the benefit of same would start flowing in from Q4, or you will start seeing it from quarter one of FY 2019, considering that you will be having some inventory left of the high-cost raw material?
Like I said, Kaustubh, we have stock till Feb. You'll probably see the new priced stock being consumed in Feb and March of this quarter. Therefore, hopefully when we report quarter four, you'll see the consumption coming down there.
Okay. Sir, what is the price increase you have taken in Almond Drops?
We have taken a 3.5% price increase in August, which actually came into the market in September.
Okay. The INR 10 pack, how much it contributes? It contributes about 5.6% of your revenues?
Yes.
Sorry, Almond Drops volumes.
Yes.
Okay. How was it maybe a year back or since you have-
It was around 4.8 basis points. 80 basis points it's gone up. It's gone up only in the last two months. You can expect to see what effect our focus makes.
Right, sir. I think your focus turned up well or it was at a right time, maybe.
That time will tell, of course, sir. But yes, that's all about strategy. When you have senior people looking at marketing, these are the calls that normally come positively.
Okay. Thank you.
Thank you. The next question is from the line of Jinal Sheth from Multi-Act. Please go ahead.
Good morning, Sumit and Sandeep. Just to take Percy's question, what you mentioned, Sandeep, that the growth in the offtake in the last nine months until November, and that the gap between offtake and retail, the nine and a half%, seven%, that was a smaller gap. Correct me if I'm wrong, that the gap right now is far larger, right?
Yes.
That has to shrink over time.
Jinal, again, it might shrink, actually over a longer period, it's already shrunk.
Yeah.
That's the point I was trying to make. When we were also, I told you that, look, Nielsen is a number that should not be taken to 100% correctness. Therefore, trending should be what you guys should actually look at. The reason we put it in investor presentation is that you can actually see what's happening in the overall hair oil industry and not look at numbers and try to sort of build a model on my next quarter's profit or turnover growth.
Okay.
The other reason why there was a big difference, let's say, in the previous quarter between our primary volume growth and a primary sales value, and the Nielsen offtake value, was also because of the ADHO relaunch. Obviously, the offtakes will continue to happen because the stock is still there on the shelves. While at this side, we had shut down the pipeline of old stock. Our primary sales suffered, and hence the primary sales volume and value suffered, but the offtakes continued to grow at a good pace. I think there is that bit also which accounted for this gap that you are seeing. Like Sumit is saying, you add one more quarter, we are hoping that even this 2% gap between current primary sale volume growth and offtake volume growth will come down to maybe next to nothing.
On a YTD basis.
On a YTD basis.
Okay, I got that. Okay, I got it. Sir, my last question is, in terms of the export outlook, do we still maintain the momentum and the tone as what discussed last quarter, or any change there?
No, no change there. We are seeing a little more light at the end of the tunnel. I won't say we have come out of the tunnel, but I think we are seeing more light at the end of the tunnel.
Okay, thanks.
Thank you.
Thank you. The next question is from the line of Abneesh Roy from Edelweiss. Please go ahead. Abneesh, your line is unmuted. Please go ahead. As there's no response from the current participant, we'll move on to the next. That is on the line of Amit Sinha from Macquarie Group. Please go ahead.
Yeah, hi, sir. Thanks for the opportunity. Sir, firstly, the question is again on INR 10 pack. Do you think that this will continue to remain the key growth driver, at least in the near term?
Will it or will it not is a question I can't answer at this moment, it's a very important part of our strategy, therefore, we will continue to push it with all our might.
I'll just add that basically our rural penetration is actually much lower than our urban penetration, okay. Most of the time, this is what happens for premium brands. Both the INR 1 sachet and the INR 10 pack are absolutely critical for us to enhance our overall rural penetration. Yes, at least we are looking at it as a strong driver of our penetration growth in rural in the future as well.
Sure. Okay. A follow-up on the same is that while your strategy is to upgrade from INR 1 sachet, there might be a risk of some downtrade from higher SKUs. In the same light, do you think that if that happens, there is a risk of margin getting eroded because I'll throw some more light on INR 10 pack, whether the margin is similar to the higher SKUs or there'll be some kind of lower margin for this pack.
You're absolutely right. There is obviously that risk of downgrading from the 50ml to the INR 10 pack. We do believe that, see, when this INR 10 pack was not there, the gap between an INR 1 sachet and our next SKU was 32 times, 32x, basically. It was just too high a gap for most of the rural consumers to bridge. Hence, we were never able to get them to upgrade to a higher SKU. When the consumer continues to buy a smaller SKU of your product, there is a much higher likelihood of her switching over to some other brand. Hence, this INR 10 pack is important for us from that perspective of ensuring that we have a greater amount of consumer loyalty. Both your points are absolutely correct. There is definitely a risk of upgradation.
The way we have tried to underplay or avoid this risk is by selling the INR 10 in slightly different channels. We haven't gone, for example, into urban with the INR 10 pack.
It's largely a rural and semi-urban pack. Okay? If you go to any urban market in India, you will not even find it there in the shop shelf. We've restricted it to certain channels and certain geographies with the absolute objective of ensuring that there is no clash between the 50 ml pack and this pack. Yes, to answer your last question, yes, the margin on this, as the margin on sachet also, is a little lower than the margin on the bottles.
Very clear, sir. It was a very detailed answer. My second question is on the CSD channel. Despite this quarter numbers being good, you have highlighted that there is some risk still remaining in the overall CSD channel sales. Just wanted some perspective on the same.
Why I said there is a risk, the whole strategy of CSD is not very clear. It changes from month to month. As you know, there's no chairman of CSD as of now. The new chairman is coming on a temporary basis, and there's a lot of confusion in terms of what route do they want to take. Do they want to take by providing the ones larger variety or steady supply of a limited variety of stock? Till that happens, these numbers keep on fluctuating up and down. They've got the numbers for, or the orders for the current month, and it's exactly the same as the average of what we used to do two quarters ago. I'm just not very confident because I really can't understand what is their sort of future outlook in terms of supplying stocks to the brands.
Okay. Sir, lastly, on your new product launches, if I go one year back, I think both on the commentary side as well as on the action front, I think there was a significant action from the overall company and some of the new products were doing significantly well quarter-over-quarter. I'm including even Bajaj Brahmi Amla as also as a new launch because I think it was on the Ayurvedic side. After the Coco Jasmine launch, we have seen some amount of slack, if I can use that word, from your side. You have highlighted that some of the relaunches took your bandwidth. Now with most of the major products from the key segments done with the relaunches, can we expect the new launches momentum to continue from going forward?
See, Amit, this is a very analytical way of looking at it, which I don't doubt, but in marketing terms, relaunch is actually a launch itself because you're looking at the change of packaging, communication, route to market and all that. Saying that relaunch is easier than a launch, I'm not agreeing with you. Going forward, since our two largest brands already have been launched, or three largest brands have been launched, it's logically correct that the new products that will come out in the market will not be relaunches or restages, if you can call it.
Okay, sir. Thanks a lot. Thank you.
Thank you. The next question is from the line of Aashi Anand from Allegro Capital Advisors Private Limited. Please go ahead.
Thanks for the opportunity. I have two questions, both of them financial. At the first level, promoter pledging has actually been increasing quite steadily on a quarter-over-quarter basis. I just wanted to understand, one, the background behind the pledge, and what really is the outlook in terms of this unwinding going forward?
Yes, you're right. The pledge has been increasing. I think as the Managing Director of Bajaj Corp, I can't obviously comment on this because this is something the biggest stakeholder in this company is doing for managing his personal financing. The reason for increase in pledge is actually not because more shares are being pledged. It's basically because the stock price is coming down and therefore proportionately, the number of shares will go up. That's the thing.
It is not incremental financing, it's really just.
No.
He needs to give additional security to maintain that particular cover.
Yes.
Is there any outlook in terms of his desiring to actually unwind the pledge, or this is also not something you comment on?
Again, I'm not Kushagra Bajaj, I'm Sumit Malhotra. Having heard your question, I think it is logically that any promoter will unwind the pledge as and when his investments start giving returns.
Sure. Perfect. Second question is, we do have reasonable cash balances. You mentioned that acquisitions are reasonably expensive and are not very easy to get through. Given the fact that the share prices has actually fallen quite significantly, we're one of the cheapest FMCG companies in the market. Are we considering a buyback? Because it could be very value creative for all shareholders.
Yes and no. There's obviously a lot of debate that I've had with other investors on buyback. We have considered, not now. We are considering it for the last three years. At this moment, we believe that giving dividends is a better return to shareholders than buying it back. Obviously, this is something which is debatable.
Okay, great. Thanks a lot, sir, for the answers.
Thank you. The next question is on the line of Ravi Srivastava from Bay Capital. Please go ahead.
Hi, Sandeep. Congratulations for great set of numbers.
Thanks.
A couple of questions. One, how much is the distribution of Nomarks right now? Have we sort of become all-India present, or we are still in selected geographies?
Yes. There are two parts. One is distribution, which is numeric. The second is where we are now in terms of dedicated. You would realize that we started with UP. We have now moved into 3 states, around four or five large cities. Because if you look at the current market of anti-marks, it is largely in the large cities. We have been trying to change the thing and start going into rural, but that is a future project and not something that will yield results today. In terms of numeric, we would be at around 2.1 lakh outlets all over India.
That is quite less compared to where Bajaj and others.
The whole category is only INR 350 crore, as against INR 11,000 crore of hair.
Right. Okay, 2nd question was on the whole disclosure standards in a way. In the last few quarters, what we have observed is that you used to give far more clarity over different oil categories that you have, all brands that you have, and their volume growth, their value growth, as well as the break-up of cost of goods and everything. That has, over a period of time, started to reduce. Why is that the case?
The case is very simple. When you keep doing the same thing over and over, it loses its significance. The moment I not give it's not that we are hiding it. If you want, we can give it to you. There's no issue out there. We do maintain it internally. I think the significance itself got lost, and therefore, if you know, last time we did not give volume, this time I've given you total volumes. Probably next time you'll get it brand wise. This is something we alone used to do. I haven't seen it with any other company, but we gave it so that as an investor you know what's happening in the business much more than what's happening in other companies.
The reason, sir, I'm saying is that because over a period of time, while optically pledge may not be increasing, optically it looks like pledge is increasing, and at the same point of time, if the disclosures are coming down, it puts a negative impression on the investors as to what's happening.
Again, I go back to my question, how does pledge affect me?
How are the two related? Can you explain?
I fail to understand, because this is a decision I cannot take. Pledging or unpledging of shares is not in my control because the money is not mine. What is mine is my company and the disclosures we make from my company. I take the call on the disclosures I make for Bajaj Corp, irrespective of whether the promoter has pledged or not pledged. These two things are really not related, in my opinion.
Just to directly hear the point, the thing is that the person who's pledging the shares is the Chairman of the company, right?
Yes.
In that sense, it is important if the disclosure standards are maintained at the same level as they were made.
What disclosure are you talking about? What disclosure do you want? I think in the last 48 minutes, we've answered pretty much every question that people had about volumes for ADHO, for Nomarks, for Brahmi Amla, for Coco Jasmine. Is there any other brand you have in mind that you want to ask us the volumes of? Tell me a brand that you have in mind.
I'm not saying anything specific. I'm just commenting on the-
You are saying something specific about disclosures. If you have any concerns, you please raise it directly, and we'll answer it directly. Sir, to cut this argument short, let me assure you that from Bajaj Corp, there's no question that we will not answer. If you have something that you believe disclosures we have not made, we can answer it offsite, or if you want, I will put it in the next investor presentation. Having said that, pledging, I cannot answer that question, and therefore I'm trying to sort of request you not to link these two things, which is not correct.
No, I'm not trying to link anything. I'm sorry if it meant that way. I just meant that the disclosures for the previous few quarters, whatever we were tracking, was sort of not available. That's the only comment. There's nothing else to it.
What more do you want? We'll put it in the next quarter.
Sure.
There's nothing to hide there.
Yeah.
If you want to, please send me a mail. I will answer that mail and give you that.
Also, you can tell us which other FMCG company you want us to follow the standards of, which does any more disclosures than us. We will do that. We will follow them.
Sure. See, frankly, over the time that we have IPO'd, one thing that I protect very aggressively is disclosure. There is nothing that I hide from you guys. I am going on record on a conference call and saying that. If anybody believes that we are hiding something, please do get in touch with me directly and not to anybody else. I assure you that this is something that I personally protect very aggressively. If there is something you'd like us to add, we will add it. Like last time, people said, "You're not giving volume. Why are you trying to hide?" This time we gave you volume. Now you want to know exactly each brand. I don't know why you want to know each brand, but if you want, we can add that also.
Got it. Thanks.
Thank you. The next question is on the line of Aman Batra from Goldman Sachs Asset Management. Please go ahead.
Hi, Sumit. Hi, Sandeep.
Hi.
Thanks for your time. Just a couple of questions. One on Nomarks, you said it's now in four states. Just trying to understand, what's the saliency of UP roughly in the Nomarks business?
Sorry, come again, Aman. I didn't get your question.
You said Nomarks has now expanded to four states.
Yes.
Just trying to understand, what's the salience of UP currently in the business?
UP is about 38%, 38% for the category. For us, it's about 40% now.
Okay. Similar to for the category.
Similar. It used to be about 25% for us when we started the UP project one and a half years ago. It's now come to the same salience as the category.
Sure. The second question is on the international business. Are we looking at stable growth from international business?
Yeah.
Any specific geographies which you want to highlight are the focus areas for you?
Yes. Absolutely, we are looking at. I think our reboot is just about done now, at least in terms of people and in terms of structures, and in terms of just putting people and structures in place. We still haven't completed our systems reboot, let's say. A complete automation of IV system is what we are into next, which is going to take a little bit of time, maybe one or two quarters more. Going forward from this quarter itself, we are expecting more consistent growth to come in from the international business front as such. In terms of key markets, we are basically focusing on five markets outside India. We are focusing on Nepal and Bangladesh within the SAARC countries. Then in Middle East, we are focusing on KSA, Saudi Arabia, and UAE. Four. We're looking at one market in Southeast Asia.
We have a good presence in Malaysia. We're looking at expanding into one bigger market in Southeast Asia, aka Indonesia. These would be the five pillars of our international business strategy going forward.
Sure. Then just lastly, some bookkeeping numbers. One on employee cost, how much is the ESOP cost factored in? Second, on the GST refunds, are we getting cash refunds now or is it building up in the balance sheet?
Good question. The ESOP is around INR 1.6 crores, that has been factored in, and this is not being paid because like I said in my opening or the question, it's basically going to be first vesting will happen in August of 2019. In terms of refund, we haven't got refund for quarter four of last financial year and all of this financial year, a total of around INR 25 crores.
Okay. Fine. Fantastic. Thanks a lot.
Thanks, Aman.
Thank you. The next question is on the line of K. R. Senthil from Crest Wealth Management Private Limited. Please go ahead.
Sir, thank you for the opportunity. I just want to know, out of this INR 24 crore employee expenses, is this INR 1.6 crore accounted, sir, the ESOP numbers?
Yes, sir. As per accounting, you have to add everything. Even gratuity that you may need to give has to be accounted.
Again, even if I adjust that INR 1.6 crore, I am seeing an increase of close to some 60%-70%. This will be the increase going forward, sir?
Increase, this should be the steady state going forward, except for first quarter of next financial year, where the increments would hit.
Okay. Is it because we are adding employees across the regions or due to international expansions?
No.
International.
International is not the big part of it. It's basically we are adding layers to most of our support functions also. This is not a major increase in salespeople.
Okay. Fine, sir. Thank you very much.
Thank you. The next question is from the line of Abneesh Roy from Edelweiss. Please go ahead.
Sir, a few follow-on questions. First is, e-commerce, FDI retail, there has been some change, and FMCG is seeing very strong growth. Because of the discount and cashback being made much lower, do you see a big impact on FMCG growth for you and the sector?
Not for us, for sure. In fact, it is good for us, because we anyways are a premium brand, and we don't like selling at a discount on any channel. In fact, e-commerce was becoming a bit of a challenge for us, just on this account, and that is why we were limiting the platforms that we were going on e-commerce. Actually, if the discounting comes down, it will be good for us, because that will help us in terms of competing with some of the other mid-price and discount players on e-commerce.
Second one was also on regulation on the tariff order in terms of the new media rules. How does it impact your media planning next few months? Because viewership ratings for TV channels will become extremely volatile.
Absolutely.
Will you go as per the historical, or will you take the new research findings? How do you deal with it?
Abneesh, currently we are going as per the historical data only, because we have to do it at a comparative level. Many things are still not clear. When we go for our media planning for the. Right now, my assumption is that we probably still have to go with the historical stuff for a while more, till the air is a little bit clearer. We will wait for the dust to settle down on this one, when we go in for a media planning in February for the balance part of the year, for the next financial year.
Last question, Indulekha in its ad claims more hair, no loss of hair. My question is more from a claim perspective, you are a prominent hair oil company. Are you also working on something similar longer term? This is a big risk, right? Yes, price points are very different, but ultimately, hair is also very important.
Obviously, Amit, we can't tell you what we are working on. To answer your question, the reason why we started the innovation center was this. We were launching or we were looking at products without really testing the claims. When you don't test claims, and you start making claims like darker hair, less dandruff, less white hair, or less hair fall without claim substantiation, you open yourself to such competitors who come in with expert and can say that we are more certain of an outlook than you are types. Having said that, yes, there are a lot of opportunities we are looking at because hair and problems with the hair are growing, and therefore, if we can get a good product which satisfies the need of the consumer, we could form a niche of ourselves there.
Okay, sir. That's all from my side. Thank you.
Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to the management for their closing comments.
Thank you for logging in, and thanks for always being here for us and asking questions which not only clears your doubts but also helps us look at possibilities in the future. Before I end, just one thing, we had a discussion on governance and transparency. Let me assure each one of you that we are perhaps the most transparent company in the FMCG space. If you believe we are not, please reach out to me directly, not through anyone else, and I'll try and take care of that part of your doubts that are there. Thank you.
Thank you. Ladies and gentlemen, on behalf of Kotak Securities, this concludes today's conference. Thank you for joining us, and you may now disconnect your lines. Thank you.
Thank you.