Good day, ladies and gentlemen, and a very warm welcome to the Bajaj Consumer Care Q2 FY 2019 earnings conference call hosted by Kotak Securities Limited. As a reminder, all participant lines will be in the listen-only mode. There will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then 0 on your touchtone phone. I now hand the conference over to Mr. Jaykumar Doshi from Kotak Securities Limited. Thank you, and over to you, sir.
Thank you. Good morning, everyone. On behalf of Kotak Institutional Equities, I welcome you all to Bajaj Consumer Care's Q2 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.
Thank you, Jay. Good morning to all. Welcome to the conference call of the declaration of the second quarter results for the financial year 2018/2019. With me is Sandeep Verma, President, Sales and Marketing; Dilip Maloo, CFO; and Kushal, Head Treasury, who also handles the investor relations. The company has closed the quarter with a total operating income of INR 212.7 crores. The growth in turnover vis-à-vis the second quarter of last financial year is 4.21%. The first half of this financial year has shown a growth of 8.1%. After adjusting the negative impact of GST, the growth for H1 is 9.9%. The EBITDA for the first quarter is INR 61.9 crores, which is a growth of 3.9% over EBITDA quarter two of last financial year.
The EBITDA to sales ratio, which has always been very healthy for Bajaj Consumer Care, is still at a healthy 30%, which is an 84 basis points improvement over the last year, second quarter. The tax and PBT for the quarter are INR 51.65 crores and INR 65.83 crores, respectively. The highlight during this quarter is that the hair oil industry growth continues to improve its growth trajectory. In the second quarter of this financial year, the total hair oil industry has grown by 7.4% in volume terms, whereas in value terms, this growth is at 16.3%. The difference between volume and value growth are largely due to the growth in the coconut hair oil MRPs. In contrast to the total hair oil growth, the volumes of light hair oil have grown by 13.6%, with the growth being driven by our lead brand, Bajaj Almond Drops, which is growing at 17.7% in volume terms.
The good news is that the growth in the rural area for ADHO as well as light hair oil is back. The urban growth are also robust in this quarter at 15.5%. I think the improvement in growth in rural areas portends very well for the coming quarter. Within the sales vertical, modern trade continues to grow at an impressive 23%. This should see the international business sales turnover coming back into positive within the next quarter. The concern in CSD continues, wherein the decline is at the rate of 45% in this quarter. We do not see a major improvement in this angle because the base itself is dropping quarter after quarter.
Improvement in volume growth of light hair oil and even better gains in our lead brand, Bajaj Almond Drops, has resulted in an all-time high market share of 59.8% in volume terms and 62.2% in terms of value market share. As the trend suggests, the growth of hair oils, especially light hair oils, is continuing, led by a revival in rural growth. During this quarter, we relaunched the new packs of Bajaj Almond Drops. This is the first time ever since the launch in 1989, Almond Drops has had a facelift. The intention of this improvement in the pack design is that we are looking at better improving the brand imagery cues of lightness, nourishment, and strength. The new bottle has gone to the market in September, accompanied by high decibel level advertising and visibility plans.
In this relaunch, there has been a special focus on the INR 10 or 20 ml bottles with the express purpose of upgrading sachet users into the bottle format. The difference between the offtake and turnover growth is largely due to the drying out of the pipeline prior to the relaunch of the new pack of Almond Drops. In addition, there has been a shifting in the Diwali season from September to October. The up stocking that used to happen in September last year will happen this year in October. Along with our market share gain, our effort of increasing direct distribution has resulted in all-time high distribution of our brand, Bajaj Almond Drops. The brand is now available in close to 40 lakh outlets, the direct distribution is currently at 4.99 lakh outlets, and our aim is to reach 5.4 lakh outlets within this financial year.
The increase in distribution is being led by the doubling of our direct rural reach over the last one year. Coupled with this, our dependence on wholesale has dropped to 33%. Over and above this, September has seen a very weak sentiment in the wholesale segment, which has also affected the volume this quarter. The second highlight that we have is basically the new pack of Bajaj Nomarks has been distributed across the country. Post the launch in June, the off takes have been very encouraging, and the brand has shown a growth of 32% during the second quarter of this financial year. The sales volumes have shown similar strength, the domestic sales have grown by 16% in the quarter and 30% in the first half of this financial year. Currently, we are focused on urban centers by creating special task force to cover them.
During this quarter, we will be targeting the rural areas of one state to strengthen our strategy of improving rural market share in the anti-mark cream category. In large parts of the country, Nomarks is already a clear number two brand, which we will be strengthening over the next few quarters. With the effect of rising crude pricing, all our raw materials and packaging materials have been hit, and therefore the margins are under pressure. To absorb the rising prices, we have taken a MRP increase of 3.48% with the restage of Bajaj Almond Drops in this quarter. Despite this, the gross margin has gone down by 81 basis points. In terms of raw materials, light liquid paraffin has gone up 20% year-on-year. Refined mustard oil has gone up by 17%. Glass bottles have gone up by 5%. Perfumes have gone up by 6%.
The full impact of these price hikes, as well as MRP increases, will be seen in the third quarter. The current price of light liquid paraffin is close to INR 80 per kg, so we are still using stock bought at INR 72 per kg. The positives that have been witnessed during this quarter are growth in volumes of the light hair oil industry, and this growth is being led by rural volumes. Second, improvement in the leadership position of our lead brand, Bajaj Almond Drops, with the improvement in both volume and value market share. A healthy A&P of 13% despite strain on RMP and prices. Mark improvement in distribution led by improvement in direct distribution and deeper penetration into the rural sector. Good growth of Nomarks post-launch, both offtakes and sales turnovers are clocking impressive figures.
Focus on getting our rural strategy right to ensure trajectory of market share gains in the anti-mark category continues, and our ability to maintain gross margins by increasing MRP and building stocks of lower priced raw materials. We are now open to questions.
Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchtone phone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Abneesh Roy from Edelweiss. Please go ahead.
Sir, thanks for the opportunity. My first question is, you mentioned the pipeline got dried up because of the relaunch and also because of Diwali shift also there was an impact. Any insights what could be the impact of both of these?
Normally, it would take a period of a quarter, and even if you have 15 days of down stocking, you have a fairly significant factor in volume. In terms of Diwali shift, it would be around 4%-5%, not more than that.
Sir, you also mentioned in September the wholesale suffered because of weak sentiments. Could you elaborate on that part, and will it continue in Q3?
It's too early to say. As of now, wholesale is down. It still continues to be down, but I expect that if the rural growth continue like the way they are, there is no way but wholesale picking up over the next month or so.
What is the reason for this wholesale sentiments turning a bit poor?
It could be many things. It could be basically, they want to down stock and convert their cash into Diwali purchases because quite a lot of wholesalers shift from FMCG to the Diwali kind of things. Second could be they are seeing something in the rural areas which they have not yet been able to spot.
That was a follow-up. You have a good exposure to the rural economy. We are hearing divergent pictures. One is monsoon has been short in parts of the country. Second, of course, is distress is there in farm, MSP, et cetera, not helping because prices of farm crops are anyway below MSP. In that context, do you see optimism for FMCG, but negative for bigger value items like two-wheelers, four-wheelers? Is that the view? Or even FMCG could suffer after that.
If this continues and this negativity that you're talking about is real, it will affect FMCG. Now you cannot contain it to things like durables and vehicles. It will affect us, but it normally takes a little longer for consumer non-durables to get affected or staples to get affected. The only sign that I see is the weak wholesale demand in September.
Sir, my second question was on CSD. It was down 37% in first half. I mean, Q2 it was down 44%. It seems to have deteriorated. Now, for such a long period, obviously customers would have now shifted to other distribution channels. Modern trade has seen a very good growth, very good revival. My question is, has that happened, shift has happened? Second, modern trade growth, what is the specific reason? Third, e-commerce, is it reported separately? I think, is it part of the modern trade, or is it reported separately, if you could share that number?
One is CSD. I think they are still not sure of which way to go. They obviously want to reduce the quantities being purchased. You would know that they have a smart card in CSD in which the entitlement of each rank of the army or the military has a particular limit that they've been constraining over the last three years. That is one possible reason. Yes, a lot of that has shifted to general trade and modern trade. I think modern trade has got the slightly higher side of the pie in terms of the shift. The first question was e-commerce, it's included in organized channels. Currently, it's very small, but it's being added to modern trade in our reporting structure as of now.
Sir, how much is it percentage of sales, e-commerce?
It'll be less than 0.1% currently.
Do you see that changing or is it a portfolio issue? For some of the companies, it is already 1.5%, 2% for the larger companies. Is that a portfolio issue?
It is a portfolio issue. I think the biggest issue is it's not very attractive for the e-commerce guys also. We have a product with a put down price of INR 60 odd. The delivery cost itself is so high. Currently there are only a few guys like BigBasket, et cetera, who are really pushing staples. As we go along, maybe the other guys will catch on. We already have a separate task force who's approaching e-commerce, and the growths are very interesting. They're still a very small part of our total volume.
Sir last question. Ad spends do not seem to be up that much in spite of relaunch, et cetera, happening. Is it because of Diwali that it has been postponed?
It's basically we relaunched late August, the advertising actually started only in September. Before a relaunch, you basically sort of get off the channels, so as to conserve a little bit more money for the relaunch. September has been very high, basically when the launch happened. July, August quarter dipped in our main brands. Our other brands are continuing to be advertised in the normal sustenance mode.
Okay, sir. That's all from my side. Thank you very much.
Thank you.
The next question is from the line of Prakash Kapadia from Anived Portfolio Management. Please proceed.
Yeah, thanks for taking my question. I had two questions. On the rural side, you talked about uneven monsoons impacting sales. Which part is it? U.P., Bihar? If I were to look at some of the government schemes in terms of the health insurance, upcoming elections, so what kind of an offsetting impact that could have in terms of continuity of rural growth as the base remains favorable?
That is a very difficult question because one thing you are assuming is a good monsoon will directly affect Hair Oil growth overnight. That hasn't really happened because the bigger ticket items get affected much earlier than the other smaller ticket items like us. I think it's more the enthusiasm of the environment that gets a positive swing because of monsoons or extra money flowing in on account of elections. On the ground, I think monsoons have shown positive and negative impact across the country. I think the negative impact largely is in the central parts rather than all across the country. In terms of the positive impact of elections, we haven't yet seen much effect at this point, even in the states that are going into elections now.
Okay. On the ground, you don't see that. On the distribution side, when does the direct reach start having a more positive impact on quality of sales, continuity of sales? Once we reach, say, 20%-25%, obviously we've scaled the distribution reach and de-risked the wholesale contribution over the last few years. When does that start having a positive impact?
Only the positive impact of direct distribution helps you in range, which means that rather than only selling a few sizes of Bajaj Almond Drops, the range starts getting sold. Not only does Almond Drops sell, but the marginal brands get a better fill-in, because you should understand the problem or the flip side of wholesale dependencies, only one or two of your fast-moving FPGs go. Therefore, direct distribution effectively, much more strongly when you start launching your innovation products in the market. Like we have done for Bajaj Brahmi Amla Ayurvedic Hair Oil and to some extent in Coco Jasmine.
Okay. Understood. Lastly, on the sales side, you did mention the channel sales. When do we see the channel sales translating to company sales in terms of higher growth? As you know, GST is now out of the way, the taxation and all the channel-related issues seem to be settling down. Assuming if the channel sales are buoyant in the second half, that should translate to higher sales growth for us?
Growth. Whenever we are talking about growth, depends on two or three things. One is the base. Therefore, you do see these ups and downs and difference between sales growth and offtake growth because offtakes don't swing overnight. Whereas sales can swing because of things like demand, GST, down stocking, up stocking, and things like that. I think on a like-to-like basis, you should look at a year to sort of time match brand sales versus offtakes. Otherwise, if you do it on a monthly or quarter basis, I guess you'll never see a one-to-one correlation. You will be very lucky if you see a one-to-one correlation, which would mean that last year the base was stable, and this year also the base is stable.
Understood. Lastly, sir, on the inorganic side, you mentioned some bit of this thing we are looking at. It'll be more on the export side, anything we are sensing or valuations or are things okay on the domestic side? In case we look at inorganic, it'll be more on the international side.
Of course, valuations outside India are much more palatable than those inside India. I think we continue to look at both angles because it's not that we have a huge number of targets available and we are going to pick and choose. You sometimes need to focus your attention on international and our biggest interest obviously is in domestic acquisitions.
Being better than what they were on a relative basis in the domestic market also?
It's very difficult to quantify these things. Valuations are fairer. Yes, I think valuations are becoming fairer even in the domestic angle.
Understood. All the best on coming up with all the questions.
Thank you.
The next question is from the line of Percy Panthaki from IIFL. Please go ahead.
Hi, sir. Good morning. Sir, my question is on the issue of the relaunch and its effect on the pipeline stock which you mentioned as one of the reasons for why the primary sales growth for this quarter has been a little subdued. Just wanted to understand that a little more. Your relaunch was in the second half of August. Typically, when you're doing a relaunch, you would have the new product already on the shelf. The drying up of the pipeline and refilling of the pipeline both should be done by August 10. Even if there is some spillover into September, that is also within the quarter. Why should this be an issue impacting the sales growth, sir?
Percy, I think what you are trying to simplify is that as of here, one distributor all over the country and one depot. The issue with this is that you have to get a uniform drying out across the country, because it's not that I have one point we can dry out overnight and fill up overnight there. You have sort of potential stock across the country, and when you launch it and you want to start your advertising, you have to be reasonably sure that the whole stock is out, at least from the distributor point of view. What you normally do is you stop filling or stop producing the old stock sometime in July, dry out your depots and last part of your distributors within August, and start filling it up towards the end of August or September.
Most of the refill happens in September, by that time, most of the old stock gets out because it's very detrimental to the new advertising when you start saying you have a new pack, and when a person goes to buy a pack, he still sees the old pack in the retail or distributor outlet. Since it's such a large product, you normally have a much bigger dip in your stock. It happened in Nomarks also. If you remember last time, conf call, we said one of the reasons why you didn't see that kind of a good growth was that we dried it out in retail and dried out Nomarks in April and May.
Understood, sir. Just taking this a little forward, I think one of the earlier participants asked about this. You have mentioned in your PPT that offtakes at the consumer level are very healthy, in high teens or even higher. How do we interpret this number? Does it mean that if, let's say, offtakes are 20% now, two or three months later, the primary sales growth will also be at a similar level?
See, Prithvi, again, please remember the offtake figure comes from Nielsen. This is a sample. It is not 100% accurate number. Therefore, we should look at trends. That's why in my conf call, I keep harping on trends. I think the trends are positive. Both total hair oil is being driven by good growth in light hair oil. The light hair oil growth, which had dropped to something like 4% last year, is now picking up. The important part is rural is picking up at a decent pace, because if this continues, we will see much better growth. Whether it's going to be 10%, 15%, 20%, a matter of time will tell you how much of these offtakes will get translated into our growth to our distributors.
Understood. One more question I have, sir, that basically the price increases that you have taken so far, are they sufficient to offset the cost inflation, assuming that your input costs continue to remain at the current spot prices?
As of current, if it's only light liquid paraffin, which is currently at INR 80, we are decently covered. Unfortunately, this is one of the few times that all our RM and PM prices continue to rise. Like I said in my opening address, you talk about mustard oil, you talk about glass, you talk about perfumes, you talk about tin, all of them seems to be going up. If it goes up any further, you would have to do a rethink about it. It's not in the next one month or so that we have to take a rethink. We are covered at least at this time.
Sure. My question, sir, was all these five or six inputs that you mentioned, supposing if we just take an assumption that all these inputs sort of remain at the current spot prices for the next two or three quarters, then are we protected as far as margins are concerned?
You won't be. What I'm worried about is crude continuing to go up, and therefore, light liquid paraffin moving up from the current 72 that we have bought to way past 80.
Right. Understood, sir. That's it from me, sir. Thanks and all the best.
Thank you. The next question is from the line of Rahul Jha from Bay Capital. Please go ahead.
Hi, this is Nikunj Doshi from Bay Capital. Just a couple of questions. What is the % of revenue from ADHO in this quarter, and what it was in the corresponding quarter last year?
The percentage of ADHO hasn't shifted too much. Nomarks is currently around 3.5%-4% of our total sales. The total Almond Drops would be between 92%-93% of our turnover.
We have target of launching one new product every quarter. Have we launched anything new or any new product which is under trial or pilot launch or anything at present?
This quarter was the restage of Almond Drops.
Okay.
It was a very big initiative we had taken more than a year ago. I think you should appreciate that a brand that has been here for so long, if you start playing around with the packaging, you have to do it very consciously and carefully. I think we focused all our attention on that, and the media campaign that you see now, accompanied by the pedestal support advertising, like visibility or on the social sites or all the activities that we've been doing, it is a very intricate thing and takes a lot of time. We did not launch a totally new brand in this quarter, but I think one of the biggest effect that you'll see is the restaging of Bajaj Almond Drops.
For the full year, what will be our A&P target as a percentage of revenue?
Again, if you look at our numbers, the reported numbers are between 13% and 15%, but a part of that actually goes into reduction in the sales volume. The way we look at it should be between 18% to 19% A&P.
Okay. Thank you.
A part of that goes into reduction of sales numbers. It doesn't mean negative.
Okay. Thank you.
Thank you. The next question is from the line of Shailesh Kumar from Suniti Securities. Please go ahead.
Yeah. There are a couple of questions. If you could throw some light on these newer products which are there in the pipeline, which you intend to launch over, say, next 6 to 12 months, that will really be helpful, because we really don't have any sense.
Unfortunately, these things cannot be disclosed, because obviously you're opening yourself up to competition. Having said that, we are looking at largely the first round of innovations happening in hair and skin care before we go into any other segments. Rather than naming, I would say that these are the two categories that we understand, and we are further ahead in terms of closing in on these innovative products. Unfortunately, obviously, over a call or even one-to-one, I cannot tell you what products these are.
Do we still sell Kailash Parbat cooling oil?
No, we aren't. We have
Thank you.
Thank you. The next question is from the line of Bharti Mundara from CD Research. Please go ahead.
Sir, how is your ADHO volume faring pan-India?
93% of my turnover is
If you look at those numbers, you would probably see the same kind of a thing. If you look at volume or value growth, which are adjusted over the last quarter, you will see that hair oil for the company, its volume is more or less flat, whereas value has grown by around 4.5%, 5%.
Which regions are faring well for ADHO?
I think, like you know, our main three regions are Northeast and West. I think the East is doing the best. I would say a part of North is not doing as well as the rest of the country.
If you could highlight why is it so? Why is West not doing that well?
I think it's too much of a long discussion because it depends on three things. One is obviously uptake. Uptake is not different across these regions. Second could be infrastructure. This could mean our own manpower and distribution. Third could be the rural uplifts that we are seeing. I would say that I think the biggest impact on town stocking and wholesale has been felt more on the North rather than across the country.
All right, sir. Thank you.
Thank you. The next question is from the line of Ankit Babel from Shubhkam Ventures. Please go ahead.
Yeah, good morning, sir.
Good morning.
Sir, first question is this time we couldn't find the volume details of your products in your presentation. Any reason for not disclosing?
There are two parts of this. One, I actually wanted you guys to ask this question because when you start looking at volume, you start looking at one number, and when you have multiple categories-
Nomarks and skin care is becoming bigger and bigger, looking at one number doesn't really make sense. The second thing is also that in Nomarks itself, we have various categories. For example, if I tell you volume growth of Nomarks is growing at X%, or cream growing or soap growing, again, doesn't make too much of sense. We actually pulled it out consciously saying that at least you start looking at across segments in terms of value, which is an equitable number, rather than looking at one carton of soap and trying to equate it to one carton of cream, which is more than 10 times the cost of a carton of soap.
Sir, like other companies, you can at least disclose the underlying volume growth of your products.
This is not too much of a problem. I'm saying we have grown at 4.2%, and we have taken up to 3.48%. Volumes are more or less flat.
sir, my second question was that, now sir, it has been around more than 19, 20 quarters that we have been hovering around the INR 200 crore revenue per quarter and an INR 50 crore-INR 55 crore of profit. At the same time, our employee cost has almost doubled, with no corresponding increase in revenue. Sir, we just wanted to understand when we will come out of this range of around this INR 200 crore revenue.
I would have loved it had an answer, yet we are doing a lot of things, not only adding employees, but we are adding newer products, our innovation center. We are adding efficiencies in the system. The whole idea is to bump this up to the next level, that's one important thing we are all focusing on. Whether it'll happen now or it will happen a quarter or two down the line, it not only depends on us, but also the environment that we are in.
Sir, we really appreciate the efforts you people have been putting since at least one and a half years. Actually, we are just waiting for that inflection point that when results would come. Just wanted to have your views.
What I can tell you is have faith. We are still working on it's not only what's happening internally, it's also a lot of external factors that are not in our control at all.
Okay. sir, lastly, just one question, you did mention that the 17%-18% volume growth is just based on some sample analysis. At least you people would also be talking to your distributors, your retailers, about how the growth has been. You would also be mapping something like that. How is the growth at the secondary or the consumer level from your end?
Okay. That's a good question because what we have always focused on is primary. Whereas secondary is a much closer thing to consumption. Secondary doesn't drop so much, and secondary is significantly higher than the primary growth that you see in these presentations.
Okay. Should we now assume that the channel destocking thing is now behind? Suppose, assuming that we are second. Pardon?
See. That's behind because, you see, it's also something which is natural, but when you start looking at numbers on a monthly or quarterly basis, you see higher things
Over the years, this downstocking will not have any effect because downstocking in August will see a stocking in September, October, November.
That's what, sir. As investors, we have to take some call on your growth rate. If assuming that the secondary market growth, which we are expecting, say, around high double digit or 18%, 20%, then your growth will also be in that range?
Over a long period of time. The disclaimer is never, ever look at numbers on a quarterly basis. Please look at a longer period.
Sir, we have been looking since last three, four years. We definitely are looking on a longer term only. We just need to understand that if the secondary growth continues at 18%, 20%, at what time our growth will also match that?
See, you're asking us to do a lot of speculation there. Okay? Since you're asking us to do speculation, I'll tell you the best way to do speculation, which is what Sumit has spoken about earlier. If you look at the overall market growth in the hair oil segment over the full year, the overall market growth in the last, if you take Q1 and Q2 together, is about 11 odd %, around 11 odd %.
Yeah.
If you look at our H1 value growth, what is our H1 value growth ex of GST? Around 10%, right?
Yeah.
We are in line with the market growth right now, entirely. That's why the whole point that is being made again and again, which is that, look at growth, look at whether it is offtake growth or it is secondary growth. You have to look at it over a longer term period, or even the primary growth. You have to look at it over a longer term period. In quarter one, we did a relaunch of Nova. Okay, there was obviously a destocking which was done on Nova. Nova is only distributed in 2.8 lakh outlets. It is much easier to get the stock out of 2.8 lakh outlets. Almond Drops is actually the most highly distributed hair oil brand in the country. It is distributed in 40 lakh outlets.
We don't just need to clean out the stock from the distributor's end, we also need to clean out the stock from the retailer's point. Otherwise, like Sumit was saying earlier, you see an ad, you go to an outlet, and you see the old bottle over there. Nobody wants to buy the old bottle, the stock gets stuck. The cleanup of the stock from the retailer's end is not going to happen as fast as it happened in the case of Nova. Hence, I think somebody here was also making the point earlier that, if you did a destocking in August, it should come back in September through the upstocking that you do post the launch. Things with such a very distributed brand, with a brand like AD, which is the most highly distributed brand, don't happen so fast.
It's going to take us almost a full quarter to clean up. We can clean up from the distributor's end, the primary routes start coming back a little bit. Till the secondaries start coming back in the same fashion, which means that the stock at the retailer's end has also been cleaned up, the primary routes would not be to that level. That's why we are saying, reiterating again and again, that you look at the volume growth over two quarters, over at least two quarters. Yeah. I don't know if this long-winded answer answers your question, but the point I'm making again and again is that look at trends like Sumit was saying, look at the overall numbers. If you see the overall numbers, you won't find so much of a difference between the offtake trends and the primary trends.
Primary is always reflect secondaries because there's no upstocking in any case.
Great. Thank you.
Thank you. The next question is from the line of Rahul Ranade from Goldman Sachs. Please go ahead.
Yeah. Hi, sir. Thanks for the opportunity. Just a quick clarification to begin with. The price increase you have taken in September is around 3.5%?
Yeah. On Almond Drops.
On Almond Drops. This is over and above a similar price increase that we took in April, right?
April, what we have done was in two sizes, we have done a size downgrade. From 105, it came to 153 to 50 ML. Price increase is only in two scales.
Okay.
300 and 500. It is not 3.5% there.
Okay. Effectively, that would have worked out to around 4% range?
One-off % price.
Okay. Just looking at the offtake data, I'm still kind of, if you could help me understand. The value offtake is still lesser than the volume offtake if you look at the numbers, whereas we have taken some price increase. I just wanted to understand what the disconnect is over there.
There's no disconnect there. You're looking at a price increase at a production level, and we are looking at volume and value at offtake level, right? Please remember, between the time we produce and ship to our distributors and the time an offtake to the consumer happens, you've got a long lead time, and that's the pipeline that we keep talking about.
Okay. How long would that be in duration?
If currently you look at our distributor stock is just under a month. Our retail stock is around close to 40 days, right? Even if you do a simple mathematics on average, just for the averages, you're still talking about more than two and a half months there.
Okay.
It doesn't happen. It happens somewhere faster, somewhere slower. Urban, it will happen faster, rural, it will happen slower. That's why, again, at the cost of sounding like a broken record, please look at trends. Don't look at these monthly, quarterly numbers so deeply.
Sure. Just one final question on the employee cost. Again, it has gone up in this quarter, just wanted to understand what is driving that and where should we expect it to stabilize.
This quarter, for the first time, we have started acknowledging the ESOP cost because as per the SEBI guidelines, if you have given an ESOP, you should equate that cost over each quarter rather than at the year-end. That has added. It's not only salaries that have gone up. Salaries have also gone up because of some marginal employees that have been added to this also.
Say from INR 22 crores in Q1 to INR 24 crores, the ESOP would be-
Close to around .
Sorry?
It's close to INR 80 lakhs that's been accounted or parked in this quarter.
Okay. Got it. Okay. Thank you.
Thank you. Before we take the next question, we would like to remind participants that you may press star and one to ask a question. The next question is from the line of Tejash Shah from Spark Capital. Please go ahead.
Hi. Thanks for the opportunity.
Tejash, I can't hear you.
Yeah. Is this better?
Yeah.
Yeah. Thanks for the opportunity. Sir, I was just going through your presentation. The kind of buoyancy that we have witnessed in Nielsen data, our market share and overall total hair oil volume has moved up by 25 basis points only. Are we saying that this kind of buoyancy, obviously not at this level, but we are seeing an overall hair oil market as well as the Nielsen?
If you see the market share, what market share do we put there? Is it a month or is it a MAC market share?
It is a MAC market share. I'm saying TTM basis, the traction should be overall basis. That's what I'm asking, sir.
The traction over the last 12 months is not as much as you see now. You're trying to equate last quarter versus what has happened over 12 months. Market share is like I was just saying, we look at MAC market share and not month market share. If you see month market share, last month it was 63.1% was the market share. That's a month. Whereas you're trying to equate the buoyancy in this quarter with the 12 months of the preceding year.
Okay. Let me rephrase the question, sir. The kind of buoyancy that we have seen in this quarter for us, at least trend-wise, would it be the same reflection on over hair oil market or is it that LHO driven by our numbers is an outlier here?
That's a good question. Yes. See, LHO grew by around 13.6% this quarter volumes. We grew by around 17% by volumes. The delta here will get translated into our market share gain, which you are seeing in this quarter. In total hair oil, the value growth is around 16%, which I said in my presentation. This is largely due to the increase in market of the YTD 16%, which is seen in the swings of our total hair oil market share. If you look at the total market share of ours, it's not gone up as significantly as the market share within the light hair oil. For our analysts, we actually put this in our presentation. We are now putting our market share in light hair oil as well as market share in total hair oil.
You won't see that kind of a significant market share shift in total hair oil.
Sure. Second, is there any less than average or more than average inventory at primary or secondary distribution level?
Not really. See, again, you should realize we sell on cash. Therefore, why would a distributor increase his inventory or his investment in stock? He would rather increase his investment in market credit or service to the market rather than stock. We unfortunately do not have that cushion of increasing distributor stock over a significant period of time. That can do it with a few percentage points of schemes, but that will happen only maybe 15 days to a month, and after that it will drop to the normal level again.
Sir, if that is the case, then the 25% growth that in retail off take that we saw, and I take your point that it is just a sample and it should not be taken in totality, but even in some diluted form of this number, it should show up in primary sales in coming quarters. Is that correct assumption?
In my previous question, I said that you have close to two and a half months of stock in the pipeline. This is distributor plus the retail. Consequently, if I reduce distributor stock over, let's say, a month, in a period of three months, you are talking of 33% drop in your volumes. Again, Tejash, the plots of swing. If you look at a smaller period of time, these swings are very difficult to explain. Over a longer period, you will see that they even out. Even over six months, they even out. Let me just add something over here. In general, there have been many a marketers who have died in trying to marry the offtake growth to the primary and secondary sales growth. Normally what most of the companies do is that they stop trying to correlate the offtake sales growth with the primary sales growth.
The only thing which most of the companies do is firstly, A, look at trends, whether the trends are going up and down. Offtake to market share is the best indicator. Secondly, whether your offtake is growing faster than the market growth or not. Instead of looking at the absolute numbers of 25%, which the offtake seem to be growing at, what we are more interested in, whether we are growing faster than the market. If the market offtake growth rate is 21% in quarter two, we are growing at 25%, which means that over a period of time, over a period of next one or two odd months, it will start reflecting into market share. There is no point in trying to completely correlate or do a one-to-one correlation of offtake with primary.
Yeah, as your offtake continues to grow faster, especially than the market, your secondaries, which means that if you are not up-stocking, then your secondaries will obviously grow faster as well, and if your secondaries grow faster, then your primaries also will grow. There is that bit of a simplistic correlation, which is the only way we can correlate primaries to offtake. Otherwise, like I said, if we are growing faster than the market, we are happy with the growth rate, because it means that our growth are competitive.
Fair enough. How's the NPD pipeline looking for rest of FY 2019, in terms of counts?
I didn't get your point. What is NPD?
NPD. New product development pipeline.
We're far ahead of our requirements. It's only which product to launch and how close we are to sort of having a portfolio ready in terms of communication, packaging, product and all that. Probably, we should see one towards the end of this quarter or early next quarter.
The other addition that we have into the NPD pipeline now, with the stabilization of our international business team, overall, we've also added international business into our NPD pipeline. Hopefully by the end of this fiscal, we will also have one new product coming in in the international market, which should help us boost the growth over there.
It will be an extension of current product portfolio or new product for that market?
It could be either. It won't be from the existing portfolio. I'm not talking about extending the current portfolio of India into international markets. I'm talking about an NPD.
Sir, what will be effective tax rate for this year and next year?
It's 20 plus.
20 plus. Even for next year, sir, looking at whatever assumptions you have.
It will continue to remain in mid.
Please remember, Kedar, around one-third of our production still happens from Guwahati.
Okay. Sir, lastly, one request. Perhaps I'm speaking for majority of participants here, if not all. Since listing, through thick and thin, you have been consistent in sharing volume data, and you have been praised on calls also for your consistency in presentation. I appreciate the complexity in the business as we are growing, but we'd still appreciate if you can find a way to share underlying volume data, which you have been doing for so many years now after listing.
Kedar. Thanks for praising me after so many years.
Thanks a lot. All the best, sir.
Thank you. The next question is from the line of Amit Sinha from Macquarie. Please go ahead.
Thanks for the opportunity, sir. Sir, how has been the trend in the offtake growth in the last four to five quarters?
I think we have been putting it and consistency is, unlike, let's say, volume data, we have been showing you those trends in our numbers.
You do.
Yeah. Let's say growth in volume. Total quarter one of this year, we were at 10.4% volume and 10.7% volume growth. This quarter, we are at 25% value and 25% volume growth.
In some of the presentations, this data is not there, and so that's why I asked this question. I mean, how the trend has been improving in the last four, five quarters?
Certainly. From zero in quarter 3 of last financial year, we are talking of 25% growth now.
Sure. Okay. Secondly, sir, would request you for some update on some of the new launches which you did last financial year, mainly on Brahmi Amla Ayurvedic oil and the Coco Jasmine oil which you launched.
Yeah. Let me just start with Brahmi Amla. Brahmi Amla continues to do well on offtake. We again have a good offtake growth of about 15%. What we are now doing is that we are extending the range of Brahmi Amla. We are adding more SKUs of Brahmi Amla into our alternate channel business, so into modern trade and e-commerce, which we hope is going to enhance the overall portfolio. One big challenge that we are facing with Brahmi Amla is that CSD, which used to be a big customer of Brahmi Amla, there we have sort of come to complete zero over there. That's why the primary numbers on Brahmi Amla are hit on account of that.
Like I said, on offtake front, it is still growing at about 20%, and we are trying to get a lot of the volumes that we've lost in CSD through modern trade by increasing the range over there.
The other brand which we launched in February of this year was Coco Jasmine, Bajaj Coco Jasmine in Maharashtra, which is again, hopefully, we should be able to meet our launch parameters this year. Right now, this is big season time for Maharashtra. We are doing a big pressure test, what we call a pressure test plan in Maharashtra, where we are going with full 360 and a very strong consumer offer. Going across all fronts. The big learning we've had in Maharashtra is that we've now managed to identify specific FCR or specific districts where we believe we can invest a little bit more and get a better bang for our buck.
We are focusing on those specific districts, rolling out this pressure test plan, and then trying to create a repeatable model which we can then implement in all of Maharashtra by the end of this year, and then hopefully extend Coco Jasmine to some of the other states where perfumed coconut oil is becoming a big category. That is the summary on both the new launches we've done in the last one year. Novast and Sumit has spoke about already.
Yeah. Very clear. Thanks a lot, sir.
Thank you. The next question is from the line of Jinal Sheth from Multi-Act Equities. Please go ahead.
Good morning, sir. Just to clarify, since I think confused between the two, has the restocking been already done?
It's in the process. Like Sumit pointed out, and before that I tried explaining. With such a widely distributed product, it takes much more time in restocking the whole thing. It started in September, and I think it will continue in October and maybe early part of November.
Okay. I think that's about it. Thanks a lot.
Thanks, Jinal.
Thank you. The next question is from the line of Saurabh Kundan from BNP Paribas Mutual Fund. Please go ahead.
Yeah. Hi, this is Kunal Bohra. Sir, on the ADHO relaunch, there could have been some temporary stockout. Do you think there is some loss of sales because of temporary stockouts? Can you comment on that?
It could happen because it's such a big country that you can't uniformly destock and restock everywhere. You do run a risk of getting out of stock in a few places, that could happen.
Yeah. See, in general, if you do a relaunch of a mass consumer brand, there could even be a dip in the market share for that month or even the next month, because there is a loss of sales. These are all low involvement products. A person who wants to use a hair oil will use a hair oil. If your hair oil is not on the shelf, she will move to some other nice hair oil. That bit of dip is expected to happen.
See, even if you look at the restage of Novast, if you go back and look at market share, it did dip before the relaunch really took off. Here also, September, if you take only September, you did see a minor dip because of downstocking.
Okay. Second question, how's been the feedback to your INR 10 per jar? Is there a risk that the customers could downtrade instead of up trading from sachets?
Not really, because it's not that convenient if you are a regular user. If you are a sachet user, it's a little more convenient, or if you are traveling, it makes sense. A person, let's say, who's a 100 ml user, won't move to a 20 ml definitely.
Okay. That's it from my side. Thanks.
Thank you. The next question is from the line of Neeraj Rajeev from BNJ Securities. Please go ahead.
Good afternoon, sir.
Good afternoon.
Sir, just need one clarification on the volumes. You mentioned around flattish for this quarter. Does it include the CSD or the IV business also?
Yes, included.
The like-for-like growth was 1%, so flattish volumes would be around, so I think it will be around 1%, but we are taken around close to 3% this quarter.
Last quarter. Only September it came into play.
Okay. Any update on the financial business when it could start generating revenues?
I think I've told you that secondaries have already started growing at a good pace, right? Primaries would most probably be turning around in this quarter itself.
Okay. Thanks a lot, sir.
Thank you. The next question is from the line of Aman Batra from Goldman Sachs Asset Management. Please go ahead.
Hi, sir. How are you?
Very fine, Aman.
Good. Just wanted to understand this 10 INR SKU in more detail, because this is an SKU which is always there for you. What's the relaunch about and how are we going to promote it as such? Are we advertising specifically for it or what are we looking at it?
See, Aman, yes, you're right. It was already always there. The issue with this was we had certain glass earlier on, and because of which we hardly made any profit on this product, and therefore, whenever we tried to push it through, we didn't really support it well enough. Now what we have tried and done is we have moved away one from the floor rack. It was actually put in a laminate and hung. This time what we have done is we have put it in plastic jars, which make it more visible and much more attractive to the retailer, because what he does is he sells all the 20 ml, 10 INR packs. Uses the jar for stocking other things in his portfolio.
We don't advertise for 10 ml because it's not that widely distributed, but we do use point-of-sale display material to attract consumers who basically come to buy sachets and get them to move from an INR 1 to an INR 10 sachet.
Understood.
To a ₹10 bottle, sorry.
Understood.
One of the challenges which we figured out, which we learned through some consumer work, was that when we put it in the flow wrap earlier, and the reason we put it in the flow wrap was because we said we should hang it like a sachet itself, so that it's always right next to the sachet. Now, that was a good thought in principle, but didn't work out because the consumers never understood that there was actually a bottle inside the flow wrap. Consumers typically tend to see inherent value in a bottle versus a sachet as such. That's why we just took it out of the flow wrap. Which makes the bottle very clearly visible to the consumer, and it also helps us to reduce some cost on the pack itself.
Okay. Thanks a lot.
Thanks a lot.
Thank you. The next question is from the line of Anubhav Sahu from MC Research. Please go ahead.
Hi, sir. I wanted to understand what is the distribution mix we are targeting. I think for wholesale you mentioned, I think we have around 23% of exposure. Could you also comment on what is the trend on the wholesale side? Say, one year back before GST, what was the share we were having from wholesale? Is there any ideal mix which you are targeting in terms of direct versus wholesale?
See, to answer the last part, there is no ideal mix. It depends on your product, and it depends on off take of your product. If your product isn't being picked up in the market, wholesale really is not there for you. Coming to pre-demon, actually the downturn happened in demon itself, sir, because the wholesalers normally make money in cash savings and not by paying tax. It used to be around 54%-55% of our total sales at that point of time. Now, thanks to the external factors and also our endeavor to increase direct distribution among the larger outlets, it's gone down to 33%.
Okay. 33%, okay. Sir, in terms of direct reach here, what are we targeting?
Yeah, I made a point in my opening address. We are targeting to hit 5.4 lakh outlets by the end of this financial year.
What is it now, right sir?
4.9.
4.9. Okay, fine. Got it. Thank you, sir. That's all.
Thank you. That was the last question in queue. I now hand the conference over to the management for their closing comments.
Thanks a lot for getting in on the call and if you go back and see a lot of questions were also trying to equate a Nielsen data with primary data and all I can say is that yes, even when I started my career, it used to be very confusing on the fact that I could never equate primary with off take, and my only suggestion is please look at a longer period and all of you are long-term investors in our company, and therefore, over a long period you'll see both of these converging, and the confusion that you have today it shouldn't be there. That's coming in a very nice conference call that we had today. Thanks a lot.
Thank you. Ladies and gentlemen, on behalf of Kotak Securities Limited, that concludes this conference call for today. Thank you for joining us, and you may now disconnect your lines.