Good evening, everyone. On behalf of Kotak Institutional Equities, I welcome you all to Bajaj Consumer Care's Q1 FY 2019 earnings call. We have with us the 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 Kushal Maheshwari, Head Treasury. I would now 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 for declaration of the first quarter financial year 2018-2019 results for Bajaj Consumer Care. With me are Sandeep Verma, President, Sales and Marketing; Dilip Maloo, CFO and Vice President, Finance; and Kushal Maheshwari, Head Treasury. After many quarters, we are seeing all the indices of the company's performance like turnover, value, volume, EBITDA, retail offtakes, market share, et cetera, showing positive growth. During this opening address, I'll be getting into each one of them. Then we are open to questions. The company closed the quarter with a turnover of INR 215 crores. The growth in turnover vis-à-vis the first quarter of last financial year is 9.45%. The volume growth is 8.7%. The EBITDA for the quarter is INR 70.48 crores, which is a growth of 13.9% over EBITDA of Q1 in the last financial year.
The EBITDA to sales ratio is maintained at a very healthy 32.8%, which is 128 basis points improvement over last year Q1 EBITDA to sales percentages. The PAT and the PBT for the quarter are at INR 63.77 crores and INR 68.53 crores respectively. The growth in turnover on a tax-neutral base, that is accounting for the difference between the VAT and the GST regime, is 13.2%. After 11 quarters, we are seeing double-digit turnover growth even though there has been a base effect of GST last year, last July. The encouraging news is that our lead brand has shown a volume offtake growth of 10.5% this quarter. The main reason for this is an improvement in the growth in the rural areas. As against the 4.8% growth in the previous quarter, our lead brand, Bajaj Almond Drops, has shown an 11.9% growth in the rural areas this quarter.
GST still is causing some concern, this concern is now largely on the refund of the budgetary support announced by the government for the erstwhile excise-free zones in the hilly states. We have started receiving a small part of this refund, but the company still has to get a refund of INR 21 crores for the last four quarter refunds. We are seeing a very robust growth in our domestic hair oil volumes. This is led by the growth in the modern trade sector, which is 36.25%. General trade, which is largely sales to traditional retail formats, has also shown a very encouraging 17.5% growth. While sales in CSD normally grows in tandem with the retail sales, orders from CSD are showing a very erratic trend. We believe that it is difficult to predict what their strategy is. Therefore do not expect any major growth from CSD this year.
The reboot of the international business is towards the last stages of implementation. We expect that the positive results would be visible in the third quarter of this financial year. Even though the offtake volume growth in total hair oil segment, that's including all the brands, has dropped this quarter, the growth in light hair oils has actually picked up. The volumes of total hair oil has grown by 2.6% quarter. On the other hand, due to the rise in copra prices, the hair oil value growth have jumped to 11.3%. As against the volume growth of 3.6% in the third quarter, volumes of total hair oil rose to 4% in the fourth quarter and have now fallen to 2.6%. On the other hand, the light hair oil segment growth and volume has picked up. This has been led by a smart increase in rural growth.
The rural volume growths of light hair oils have jumped from 5.3% in fourth quarter to 9.8% in this quarter. This led to a volume growth of 6.7% for the complete light hair oil segment. Whereas our lead brand, Bajaj Almond Drops, has driven the growth in light hair oil with a growth of 10.5% this quarter. Improvement in volume growths of light hair oils and even better gains by our Bajaj Almond Drops brand has resulted in an all-time MAT market share of 59.4% in volume terms and 61.8% in value terms. As predicted in the last quarter's con call, the turnaround in light hair oil volumes, largely driven by Almond Drops, is well underway. We expect that with a good monsoon and various rural income growth programs announced by the government, this growth trajectory should continue in the next couple of quarters.
Along with our market share gains, the effort to increase our direct distribution has resulted in an all-time high distribution of our lead brand. The brand is now available in 39.67 lakh outlets. The direct distribution currently stands at around 4.8 lakh outlets, and our aim is to reach 5.4 lakh outlets within this financial year. This increase in distribution is led by doubling of our direct rural reach over the last one year. Along with the improvement in direct reach, the use of automation by all our sales personnel has led to better controlled and efficient targeting of the right kind of outlets for our products. This quarter saw the restaging of our skin care brands, Bajaj Almond Drops.
Bajaj Nomarks.
Bajaj Nomarks. The national launch happened in mid-June. The enthusiastic response from the consumer and the consumers in the trade has driven the brand to a 41% value growth during this quarter. In fact, June 2018, we saw the highest monthly primary and secondary sales for this brand since July 2015. The new packaging and the new communication strategy with Taapsee Pannu as the brand ambassador has been widely appreciated by the consumer. This restage has been driven by the innovation center and is the third in the line of launches that have been planned. With the confidence that we have gained with the three launches, we expect the next round of launches to be larger and more exciting. The previous launches, Bajaj Brahmi Amla Ayurvedic Hair Oil and Bajaj Coco Jasmine, have shown early signs of success in the geographies where we have launched these brands.
There has been a pressure on margin, which remains high due to the increase in crude oil pricing, as well as the rupee depreciation. On a quarter-by-quarter basis, Light Liquid Paraffin has gone up by 20%. Even after accounting for input tax credit, there is a 3.7% rise in LLP prices. On the other hand, refined mustard oil has gone up by 14%, which is equivalent to a 8.6% rise post ITC, and glass bottles by 6%. This quarter, most of the negative effect of these RMPM cost increases have been contained due to, A, increase in prices or MRPs in April 2018, maintaining stock of lower price RMPM, and the ITC or the input tax credits that we have this year. However, if this trend continues, we may have to look at another price increase this year.
Another standout feature of this quarter's performance is the difference between the growths of the operating profit and PAT. This difference is on account of the stark decrease in our other income. As per accounting standards, we have recognized the fair value of our investments in corporate bonds as on 30th June. As a result of this, the reported other income in the first quarter of this financial year has fallen from INR 11.06 crores last year, the same quarter, to just INR 1.17 crores. This drop is on account of mark-to-market losses, which are only notional, of around INR 8.26 crores. We have invested all our funds in AAA-rated bonds, and hence there is no real loss. Due to the sudden depreciation of rupee rates in the last two days of June, these mark-to-market losses have had to be recognized.
The positives we have witnessed during this quarter are, A, a growth in volumes in light hair oil industry, led by improvement in rural volumes. Improvement in leadership position of our lead brand. Improvement in both volume and value market shares. C, a very healthy EBITDA of 32% despite strain on RMPM prices. D, marked improvement in distribution led by improvement in direct distribution and deeper penetration into the rural sector. Lastly, E, a highly visible launch of our new Ayurvedic Bajaj Nomarks and the new strategy thereof. We are now open to questions.
Sure. Thank you very much. We will now begin the question and answer session. Participants who wish to ask questions may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking questions. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We have the first question from the line of Abneesh Roy from Edelweiss. Please go ahead.
Sir, congrats on good volume recovery. My question is on the anti-marks category. The growth rates are slowing down significantly for the past four quarters for the category from 48% to 35%, 22%, 9%, and now 7%. If you could explain why this is happening. Is it because of any specific Nielsen issue, or is it that market share loss is happening to some of the smaller players? If you could discuss that. In that light, your relaunch of your own brand, does it make sense if actually there is a category slowdown?
Yeah. Hi, Abneesh. This is Sandeep here. See, one of the reasons for
40% or the 50% plus growth rate that we were seeing in the anti-marks category earlier was also because of the entry of many new brands. That entry of new brands has obviously slowed down. Most of the brands which are there in the market now, in the category now, have been there for more than a period of one year. That is one reason that we can see for the slowdown. Other than that, we see absolutely no reason from a consumer impact perspective or from a consumer demand perspective into the category. We still believe very strongly that this category is going to continue to grow at a CAGR of 25%-30% plus over the next three years. We have relaunched on account of our long-term interest into this category without taking the current short-term slowdown into purview.
Normally when new players come, they do expand the market for medium longer term perspective, right?
Yes.
Such a sharp dip, doesn't it mean that competitive intensity also would have gone up because so many new players have entered?
The competitive intensity has definitely gone up, which is why the need for a relaunch in any case. You can't continue to play in the same category with the same set of rules, with your existing mix, if you have new players coming in and changing the rules of the game, which is what has happened in the category. That demands a complete relaunch, which is what we have done. What I'm saying is that, yes, there continues to be a category growth, but like you said, it is not to the extent of 40%-45% that we were seeing earlier, because there have been no new brand entries as such to further growth from that perspective.
My next question is on Bajaj Brahmi Amla Ayurvedic Hair Oil and your Jasmine hair oil. These two are seeing a very good growth, obviously on a smaller base. In your future outlook, you have said you want to keep driving the offtake. My question is, currently this high growth, is it coming from the competition or is it just expanding market? What exactly are you doing in terms of driving offtake? Is it the pricing part or is it the distribution which you have discussed in the presentation? Is that driving mostly the offtake?
Both the brands are in completely different stages of growth. Vis-a-vis Bajaj Coco Jasmine, we still believe that these are early days. Most of the gains in offtake that we are seeing is largely because of a distribution expansion per se. On the other hand, Bajaj Brahmi Amla Ayurvedic that you are seeing, the growth in offtake that we are seeing is we believe we are getting back some of our legacy consumers. If you recall, this is obviously a heritage brand, and one of the major reasons for it becoming so small is because we actually lost majority of our consumers. We believe that a lot of the early-stage growth that we are seeing is actually from the lapsed consumers of this brand who had moved on to some of the other brands.
Just to repeat, in the case of Coco Jasmine, this is largely on account of increased distribution, as you pointed out. We still feel that it's very early days. Currently, what we're doing in both Bajaj Coco Jasmine and on Brahmi Amla is to continue to increase our awareness by continuing with our television and other campaigns, and also on focusing on the coverage part, especially on the Coco Jasmine front.
The last question in terms of the innovation. You have said in Mission 2020, cultural innovation is going to be extremely key, and that too across the globe. My question is, how do we quantify this in terms of your R&D spend or in terms of new launches? Next two years, are you able to quantify it? I do understand it will be much higher than in the past three years, but are you able to quantify these two aspects?
Comparing our current R&D expenditure with the R&D expenditure of the past would probably not be the right measure, simply because of the low base. What we can actually say is that our R&D expense has gone up by about four to five times, but like I said, it's really on a very small base. We will continue to invest behind R&D, the spends on R&D will continue to see an upward tick. We believe that we will get by the end of three years, which is basically by the end of 2020, we expect to get almost 40% of our incremental growth coming in from the new innovations or innovation that we have done this year or we'll continue to do in the next two or three quarters. That is our goal.
FY 2018 would have been how much in terms of that number?
FY 2018 is very small, because our big relaunch has just happened in June.
This innovation is defined as in the past two years or three years?
No, only in the last Well, we've only innovated in the last three quarters, if you remember.
Okay. Okay, sir. That's all from my side. Thank you.
Thank you. Before we take the next question, we'd like to remind participants that you may press star and one to join the question queue. The next question is from the line of Bharti Mundhara from CD Equisearch . Please go ahead.
Good morning, sir. Sir, what's the status of our expansion activity in Baroda?
See, we have begun the designing part of it. As you know that for such a large facility, we'll need a lot of time in terms of designing it. Once the designing is closed by around July, August, we should start construction sometime in September, October of this calendar year.
What capacity are we eyeing in that plant?
We are trying to get around one third of our expected capacity need for next year from Baroda this year.
Okay. Sir, what's the capacity utilization of the Guwahati plant?
The Guwahati plant would be currently very close to 70 odd %, and we are trying to build that further also as we go along. Then all the small plants would stop being operational, and we would have three large plants based in Pantnagar, Guwahati, and Baroda in, let's say, two years' time.
Okay. Sir, if you could just throw some light on the sales from the IB division for the quarter.
It's actually next to zero. The reason why we took this step was we wanted to clean up the infrastructure, being the stock lying at our depots, stock lying with our distributors, and start on a clean state. This was also the time that the new team came in. We didn't want to burden the new team with the old issues. You'll see that there's a major drop in IB this quarter. From next quarter, you'll see a much lesser drop. The final third quarter, you should start seeing some growth coming back.
Sir, this drop is because of decline in offtake from the consumers?
No, it's basically your pipeline stock that has been dried out.
All right. Sir.
Our offtakes last month, in June, was the highest in three of the geographies that we exist in. It is Bangladesh, Nepal, and UAE. It's not offtakes, it's rather cleanup of the pipeline.
All right. Sir, why is the sales volume of Amla hair oil category getting depressed?
Amla, if you're talking of plain Amla, which is the low-cost warrior, we are not focusing on that at all. Whatever sale is happening, we are letting it go. We are not investing behind the brand because we believe that there, the differentiation between the other Amla brands is the least. Until you can find a differentiation, you really don't invest in communication on such brands.
All right, sir. Thank you so much.
Thank you. The next question is from the line of Manoj Menon from Deutsche Bank. Please go ahead.
Hi, team. A few questions. I'll actually take one by one. The first, the confidence on, let's say, potential price increase, which you may have to do this fiscal as the covers go away by August. I'm sorry if I just missed your initial brief. If you just covered it, just request if you could just address this price increase confidence thing first.
In terms of confidence, Manoj, you can either go by legacy, which is, I think, not worth it because three years we have not taken a price increase. The price increase that we took in April has really gone through, and that shows through in the kind of volumes and offtakes that you're seeing in the market. Second is also that if the price of Light Liquid Paraffin and the other raw materials keep rising the way they are, you really don't have any choice but to take it. It's largely due to confidence in volumes not dropping after the recent price increase, and more because of necessity.
Okay. Understood. Secondly, on a two-year CAGR basis, your volumes are largely flat. While it is an improving trajectory, if you could just help us understand basically the recovery, so as to speak, which is seen in ADHO. Is it macro, micro? The context what I'm asking is that, you had a lot of disruptions the last couple of years because of managerial changes, process changes, et cetera. Do you think it's all completely behind you? Or is it still holding back some of the growth?
Yes, if you look at internal changes, I think it's behind us. If you look at external like DeMon and GST, I don't have any control over that, so I can't comment on that. I think the basic thing, and I harped on it during my opening address, was the rural growth coming back. Sequentially, if you look at it for Almond Drops and light hair oil, quarter by quarter for the last 3 quarters, both have been rising, which means that the total growth of light hair oil and the rural growth of light hair oil has been rising, which is the sign that we were looking for. In my last results concall, I had pointed towards that saying that the trend is positive, and therefore, I believe that light hair oil growths are coming back.
Okay. There's a sub-question here, actually. Is it fair to say that some of the recovery in growth, which the premium oil which you belong to, is also because of the very high ticket price for coconut oil currently?
I don't think you can divide it like this, because, yes, if coconut oil price is the only reason, the consumer would have gone to the lower priced Amla. Why would it come to us? Yes, on the other hand, also the gap between coconut and light hair oil has decreased, and there could be possibly an option there. That's why our advertising communication is focused on converting people from heavy hair oils to light hair oils, notwithstanding the price gap.
Okay. At 9% employee cost to sales, I know that percentages sometimes probably hide more than what it actually reveals. Would it be fair to say that there is leverage for you? Or is it that, let's say, the employee cost for, let's say, FY 2019 and 2020 could also still grow in double digits, that you will not probably get leverage for the next year or two?
Yeah, I'm not too bothered about that. I'm bothered about the leverage we get from this increase in employee cost. If need be, we'll continue investing behind manpower because that's the biggest differentiator between a good and a great company. Looking at our margins, looking at our EBITDA, I think there's enough scope to absorb, if necessary, any further rises. Looking at it from today's perspective, I think we are more or less there.
Sumit, actually, the question here is, when I look at your organization chart today versus, let's say what it was five, six years back, it does appear to be significantly better staffed in terms of line functions, et cetera. The question here is it 70%, 80% of those investments is already captured in this 9%? Or let's say, hypothetically speaking, can this nine be 10 and 11 in the next couple of years?
I think you have used the right word, hypothetically. It depends on how fast you're growing and what is the complexity of your business. As we stand here today, if you look at our kind of a business, I think it's good enough. If you were to take a few acquisitions along the way, you need to buff this up again. That's why I'm not giving you a definite answer on whether 9% or 10% is good enough, whether it will come down with increase in turnover or go up with the complexity increasing.
Understood. Then two small ones. Nomarks, if I understand correctly, now is relaunched as a pure Ayurvedic brand, right? Is that understanding correct?
Yes, perfect.
I don't know if it's a trivia question, but the name Nomarks is English and Ayurvedic, how should I read this?
You can read it like No Scars is English and it's the biggest anti-blemish cream, or Fair & Lovely is purely English and it's the biggest fairness cream in India today. Almond Drops, which is growing in the rural area, doesn't have even a single Hindi alphabet on the whole packaging.
Okay. The context, Sumit, I'm asking this because I presume that Nomarks is a predominantly urban product.
Exactly.
For whatever reason, most of the Ayurvedic brands, what is there in the market, at least the successful ones, has got some sort of an Ayurvedic connotation or a Hindi or whatever name to it. That's the only reason I'm asking that question.
No, you're wrong there. The largest anti-blemish is No Scars. It is actually a steroid-based anti-blemish. It is not Ayurvedic. The second largest, which would be Fair & Lovely, is Ayurvedic, but it's also English.
Okay. Lastly, looking at your annual report, you have given the SKU mix in page number 74. Obviously, we have seen a significant improvement or rather increase in the 300 ml contribution. Is there a big picture there or is it something cyclical which has happened last year?
Okay, Manoj, my request to you is not see individual SKUs, look at buckets. The bucket you should be looking at is the low SKU, which is sachet 10 and 50, the mid one, which is maybe 100, 200, and the large one, which is 300, 500. If you look at that, you'll see the 300, 500 contribution to the overall saliency of Almond Drops is growing, which is a very healthy sign, which means that the entry into the household is in larger volume terms, which means that more and more people within the house are using it rather than just being a sole user. That's the reading you should take into that SKU-wise breakup there.
Okay. Understood. Thanks, Sumit. Thanks, Sandeep, and all the best.
Thank you.
Thank you. The next question is from Manish Poddar from Renaissance Investments. Please go ahead.
Hi, sir, I had few questions. Actually, just wanted to compare, let's say now going ahead, when I compare the LLP prices, let's say in Q2 FY 2018, in the presentation which you all share, the LLP prices mentioned up there is INR 51.8.
Yes.
Would it be right to compare that INR 51.8 now incrementally to the INR 60.46, which is now the landed cost adjusting for the ITC?
Yes, you're right, because at that second quarter of last year, GST has already come in. Right? Therefore you're comparing like to like.
About a 17% kind of an inflation up there.
Yeah.
Okay. Just on this cash position now, we've been holding cash for quite a considerable period of time. Do we have a time limit, let's say, till when? I understand we'll be looking for acquisition. Is there a time limit, let's say, by FY 2019, and if we don't get the cash then, if we don't get an acquisition, we would look at distributing cash or something like that?
We've been distributing cash. If you look at our dividends, that's the distribution in cash. The only other thing I can do to deplete from my cash balance would be what? Buyback. We are not looking at buybacks at this point of time. Coming to your main part, which is acquisition, we are not desperate for an acquisition, because we know that we could easily make a big mistake there. We'll be cautious when we analyze acquisitions. Now with our confidence in improving distribution, one, second, launching brands and being able to support brands in meaningful ways, I would say the chances of an acquisition are much higher now than they ever were.
Okay. Just one small bit. On this Ayurvedic oil category, is there any trends which you're seeing at household level which you'd like to call out?
Obviously, with the entry of people like Kesh King and Patanjali and Indulekha and all that, it's become an exciting category. One of the biggest issues we have in hair oil is it's a very unglamorous category. All of these Ayurvedic hair oils are making it a little more meaningful in the consumer's mind, and therefore, I think it's a place you should be in.
It's still an and product. Let's say, when I compare your product, not let's say with a Parachute, but let's say when I compare your product with Ayurvedic hair oil, it's still an and product and it's not a or product at household level.
Yes, it is an and product. Medicine is always an and product. It's not or. You don't lose your regular hair oiling habits because you buy Ayurvedic.
Okay, fine. Thanks.
Thank you. Before we take the next question, a reminder once again to our participants that you may press star and one to join the question queue. The next question is from Ashish Anand of Allegro Capital Advisors. Please go ahead.
Yes, thank you for the opportunity. The first question is, in one of our previous quarterlies, we had spoken of the shift from coconut hair oil actually happening more towards amla versus almond.
Yeah.
I just want to understand, has any of this changed or is that trend kind of still continuing?
In fact, if you recall Manoj's question, one thing he alluded to was the increasing prices of coconut improving the shift between coconut and other hair oils. What has actually happened over the last two quarters or three quarters is that because of rise in coconut prices, the difference between Parachute and the other hair oils is actually reduced. Right? Therefore, conversion has speeded up in terms of volume terms there. Earlier on, it was going largely towards the amla segment. I think over the last two quarters, it is coming back into the light hair oils also. Yes, the larger shift is happening towards the low-cost amla.
Okay, excellent. The second question is, when we are looking at the improvement in volume growth, especially in rural, I'm just trying to understand how much of this could be partly explained by a base quarter that was impacted by GST.
We are talking of off take, GST did not affect off take. If you go back, you will see that the off takes were still there. The growth was still there in the first quarter of last year. What you're most probably confusing with is, you're confusing turnover with off takes. GST affected turnover because there was a decrease in stocking through your pipeline. The consumer didn't have any effect of GST. If at all, the consumption would have gone up because prices went down after GST implementation.
Okay, excellent. Sumit, that's very helpful. Just lastly, in terms of if you're looking at margins, one, we have certain raw material price pressure. We're looking at increasing both R&D and I'm assuming A&P spends on our new product or launches. Is it possible to give a one to two-year kind of an outlook on how do we see margins moving?
Normally, we don't give guidance in these kind of a thing. I think in my opening address, I said that if crude continues to rise, our margins will be under stress, not because of cost of investment in R&D or A&P. That can be managed. The thing that can't be managed is the raw material and packaging material prices. You would realize is most of our raw materials and the packaging materials are directly or indirectly related to the price of crude. That is something that will affect us, and we might have to take a price increase there.
Okay. Just a small follow-up on that. In terms of how much was the price increase that we had taken in April, how much of an assuming raw materials stay where they currently are at, how much of an incremental price increase would we need to take to be able to maintain current levels of gross margins?
I won't answer your second question because it's forward-looking. In terms of that, if you take the increase in price and the decrease in volumes, the equated price hike in April would have been around 2.3% or 4%.
Okay, excellent. Thanks, Bhavesh.
Thank you. The next question is from the line of Aman Batra from Goldman Sachs. Please go ahead.
Yeah. Hi, couple of questions. Just understanding a bit more in detail on this other income where you're taking this mark-to-market hit.
Yeah.
What was the gain that you took into the balance sheet when you restated in June?
Around 2.54% on mark-to-market. Not percent, INR crores.
INR 2.79 crores.
INR 2.79 crores in first quarter of last financial year, mark-to-market gains.
Okay.
this time it's minus.
5.4
5.4%.
This would be a one-quarter phenomena or when transitioning to the IND AS, you would have taken a larger gain, is it?
No. It's basically at the last day of the month, if you have to sell your corporate bonds, what kind of gains or losses you would take. That's got nothing to do with the IND AS.
Okay. Understood. These are essentially held to maturity for your investments.
It's notional. If I don't sell, I don't actually incur these losses.
Right. Understood. The second thing was on Bajaj Brahmi Amla. I mean, probably I might not be reading correctly, but have the reported revenues from Bajaj Brahmi Amla declined over last year and previous quarters?
Aman, looking at revenues, you would see a different picture. Looking at offtakes, you would see a 20% growth in offtakes. Revenue is a mix of quite a lot of things. Last year we had CSD. This year we didn't have any CSD Amla. It's not there in CSD. It's a mix of many other factors, not only offtakes. What we are looking at for success in our brands is the change in offtakes.
Okay. The last thing was on more on the slightly longer term. I believe the ESOPs are being issued. At what price are being issued to the management?
Let it get passed, Aman, then we can share it. It's not yet been passed. The AGM is on the 23rd.
Right
Post which the NRC will approve it, then only can we talk about it.
Okay. Thank you.
Thank you. Next question is from Amit S. from Macquarie. Please go ahead.
Yeah. Hi, sir. Thanks for the opportunity. Good set of numbers on the domestic side. My first question is, your employee cost has gone up on a sequential basis from the fourth quarter of FY 2018. Any particular reason for that?
More people, more capable people, building second line.
Okay. In the domestic franchise or because you have
Both. Domestic, R&D, also international business.
Okay. I'm not asking for a medium term kind of a thing, but this number will continue to go up over this year?
Absolute obviously will go up, once the efficiencies start coming in, the percentage will be stable or maybe decrease as we go along.
Sure. Secondly, sir, on the international business, in the presentation you have mentioned an ambition of INR 100 crores by 2020. Just wanted to understand the roadmap. Which are the countries where you are looking at the growth prospects, and are you also expanding in the additional countries?
One thing we realized along the way is until you have a managerial bench strength, you shouldn't get into too many countries. One of the biggest change in strategy is look at a fewer countries and invest in these countries. Trading is not what we would like to push as we go along. If you look at the countries that we are strong and we would like to invest in, are obviously the larger areas like Nepal, Bangladesh, the Gulf region, or new countries like Indonesia and all that, where we believe that there is enough potential for our kind of products, both hair and skin care, where investment will give you returns. In terms of number of countries, I don't think you'll see a massive increase in number of countries where we would be participating in.
Doing more consumer-facing work, I think you will see more of this happening in the three or four countries that I mentioned there.
Okay. Lastly, on the A&P side, is it possible to give a breakup on the kind of incremental spend which you're doing on your new products, for example, Brahmi Amla and Coco Jasmine?
I would not like to break it up by brand.
Okay. Thanks a lot, sir. Thank you.
Thank you. Before we take the next question, we would like to remind participants once again that you may press star and one to join the question queue. The next question is from Jinal Sheth from Multi-Act. Please go ahead.
Good morning, Sumit Ji.
Good morning.
Just digging back the comments that you were discussing earlier about coconut price going up. There I just was slightly confused where, are we seeing that conversion because of the price gap reducing or also where we are seeing a demand uptick? Just some thoughts on that.
How can we separate both, Jinal? Obviously, there is a demand which will force the conversion. Both things are actually the same thing because conversion happens when there is a demand. The demand may happen because of improved communication, higher disposable income, reduction in prices between the two competitors. After all, it is obviously led by demand.
From what I've understood with our conversations in the past, where when there is usually a slowdown, people are downtrading. Here, because obviously the Parachute prices have gone up. I'm not sure if that uptrading is happening or it's just because of the Parachute prices going up.
See, in bad times, normally what happens is, since it's a no-name category, the conversion itself slows down because people are not willing to take the jump between shifting brands. Yes, high inflation also causes downtrading would happen from coconut to low-cost amla in any case. What is happening is your low cost is also growing but at a lower pace, light hair oil is picking up, which means that the economy and therefore in the economy, the disposable income is now becoming a little better, people are willing to take this choice of buying a little higher priced product.
That is why your positive commentary. If it was for other reasons, you wouldn't have been as positive as what you are suggesting.
Yes. This is for the last two con calls, Jinal.
Correct.
I called it out last con call, and I'm calling it out this con call.
Fair. Okay. On the second question, I just wanted to understand where, even on the exports and even on the Nomarks, where we are saying that we've tried out the trade pipeline to support the relaunch. Is there a change in distributor?
No. See, we had a whole packaging in the pipeline. Normally, when you restage to the size that we have, we have actually changed everything in terms of look, feel. If I put both of the old and new, you won't recognize the product. It is always better to try out the pipeline. Pipeline would normally mean your manufacturing units, distributors, wholesalers. Sometimes because you can't normalize it across everyone, there are some retailers that also get stocked out. At that point of time, you start losing offtake. Offtake has gone down because obviously the trying out that we did has affected stock in the retail areas. Possibly a consumer who went asking for Nomarks did not get it in the retail.
Understood. We expect this to normalize in the next one to four quarters.
It's already happened.
Okay, fine. Just lastly, what's the update on our premises in Worli?
Now that's a sore point, Jinal. We still have a few more permissions to get. Maybe when we meet, I'll take you through it.
Perfect.
Something that I was never exposed to, after getting exposed to it, something I don't understand at all. It takes so much time. I imagine to even remove the debris that we have created because of excavation, you need permissions, and that permission takes two months.
Okay.
Yes, if we would like it, we would like to move in tomorrow, but we can't because of the various permissions that are not there.
Fair enough. All right. Thanks.
Thank you very much. That was the last question in queue. As there are no further questions, I'd like to hand the conference back to the management for any closing comments.
Thank you for logging in onto our conference call. I think the last three quarters have sequentially been better and better. I'm sure that we will be able to continue this growth trajectory, not only because of the external factors, also because our team is now becoming much stronger and stronger and much more organized. That would help us grow faster than the market and definitely faster than the hair oil industry. Thanks a lot.
Thank you very much. On behalf of