Ladies and gentlemen, good day and welcome to Bajaj Corp Q4 FY 2018 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 an operator by pressing star then zero on your touchtone phone. I now hand the conference over to Mr. Jay Doshi from Kotak Securities Limited. Thank you, and over to you, sir.
Thank you, Stanford. Good morning, everyone. On behalf of Kotak Institutional Equities, I welcome you all to Bajaj Corp's Q4 FY 2018 earnings call. We have with us senior management of the company represented by Mr. Sumit Malhotra, Managing Director, Mr. Sandip Verma, President, Sales and Marketing, Mr. Dilip Malu, Chief Financial Officer, and Kushal Maheshwari, Head, Treasury. I will now hand over the call to Mr. Malhotra for opening remarks. Thank you, and over to you, sir.
Thanks, Jay. Good morning to all and welcome to the conference call for declaring the results of the fourth quarter and the annual results for the financial year 2017/2018 of Bajaj Corp. With me are Sandip Verma, President, Sales and Marketing, Mr. Dilip Kumar Malu, CFO and Vice President, Finance, and Kushal Maheshwari, Head, Treasury. The company closed the quarter with a turnover of INR 214 crores. The growth in turnover vis-à-vis the fourth quarter of last financial year is 5.01%. Consequently, the volume growth is 5.86%. The EBITDA for the quarter is INR 73.08 crores, which is a growth on a year-over-year basis of 8.56%. The EBITDA to sales ratio remains at a very healthy 34.08%. The PAT and PBT for the quarter is pegged at INR 55.41 crores and INR 70.46 crores respectively.
On an annualized basis, the turnover growth is 2.7%, whereas the EBITDA has dropped by 234 basis points. The stabilization issues related to GST are still a cause for concern. Largely, budgetary support announced by the Government of India for SEZ zones have been claimed as refunds. Unfortunately, the refunds have yet not been accorded sanction by the relevant authorities. Due to the implementation of GST this year, the growth figures on a year-over-year basis are misleading. To put into perspective, even though the growth in turnover as per the P&L is at 5.01%, this is not a like-to-like comparison. The primary reason for this is that the sales value last year is netted after a 14% VAT impact. However, this year the tax impact is because of the GST of 18%.
If the turnover was to be compared on a like-to-like basis, the growth in this quarter is at 10.12%. All the domestic sales verticals which are general trade, modern trade, and CSD have shown a growth in the fourth quarter. The volume growth of the total hair oil segment is still flat. As against the volume growth of 3.6% in the third quarter, the off-take volumes in the fourth quarter have grown by 4%. However, for the Light Hair Oil, the growth in volume has picked up. This is being led by a smart increase in rural volume growth. The rural volume growth of Light Hair Oil has jumped from 0.7% in the third quarter to 5.3% in the fourth quarter. This has led to a volume growth of 5.2% for the complete Light Hair Oil segment.
As against these segmental growths, Bajaj Almond Drops has grown by 7.3% by volume and thereby you will see a gain in market share within the Light Hair Oil as well as the total hair oil segment. The improvement in volume growth of Light Hair Oil and even better gains by our lead brand, Bajaj Almond Drops, has resulted in an all-time high volume market share of 60.1% in the month of March. The value market share has risen to 62.7% for the same month. This coupled with improvement in rural volumes points towards a turnaround in growth of Light Hair Oil segment. Domestic sales are showing continued signs of recovery across all segments. The general trade business is showing an 11.07% growth in business in a GST neutral scenario. Modern trade has added a very good quarter four of this year and is showing a 24% growth in volume.
CSD business is also showing a turnaround and has shown a growth of 5.6% this quarter. The sales in the IB segment or the international business segment is still a cause of concern. Though corrective actions have been taken, turnaround is at least a quarter away. Our initiatives in improving our direct distribution has resulted in reduction in the dependency on wholesale. What is encouraging is that Along with increase in direct reach, the total distribution for Bajaj Almond Drops has risen to 3.9 million retail outlets. This is again a clear sign that with the increase in rural growth, the future of the Light Hair Oil segment will be better in the coming quarters. The innovation center has already started delivering products that are being launched successfully.
After the launch of Bajaj Brahmi Amla Ayurvedic Hair Oil in quarter three of this financial year, we have now launched Bajaj Coco Jasmine in the month of Feb 2018. In the fourth quarter, Bajaj Brahmi Amla, this being the first full quarter after launch, has shown a 39% volume growth vis-à-vis its earlier avatar. Our second launch, Coco Jasmine, has been accepted by consumers in Maharashtra and is bound to show significant uptake and market share in the coming quarter. The big strain in the fourth quarter was the increasing price of crude. This has caused a strain in cost of our freight as well as raw and packaging materials. The largest increase in cost is for light liquid paraffin. As against the price of INR 48.22 per kg in the fourth quarter of last financial year, the price this quarter is at INR 65.45 per kg.
Even sequentially, as against INR 61.22 per kg in the third quarter, this quarter LLP has shown a 7% increase in its price. Even after accounting for input tax credit, the equated price is still at INR 56.38 per kg, which is still an increase of 17% on a year-over-year basis. The refined mustard oil during this quarter is largely flat. After accounting for the input tax credit, the price of refined mustard oil this quarter is at INR 81.44 as against INR 81.68 per kg last year. Nomarks' focus project is now extended beyond U.P. The new teams are in place, and we should see visible results very shortly. During the financial year 2017/2018, Nomarks Cream has shown a 50% growth in turnover nationally. In the pilot state, the growth in volumes is 43%. Even on an annualized basis, the whole brand has achieved a turnover of INR.
INR 24 crores, which is more or less equal to the turnover we achieved last year. The positives that have been witnessed during the fourth quarter are mainly: One, growth in volumes of Light Hair Oil industry. Second, growth led by improvement in rural volumes. Three, continued leadership position of our lead brand, Bajaj Almond Drops. Four, improvement in volume and value market share. Fifth, a healthy EBITDA of 34% despite strain on RMPM prices. Lastly, a marked improvement in distribution despite reduction in dependency of wholesale segment. We are now open for questions.
Thank you very much, sir. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may please press star then one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star then 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. To ask a question, please press star then one on your telephone keypad. The first question is from the line of Abneesh Roy from Edelweiss. Please go ahead.
Sir, thanks and congrats on good volume growth. My first question is on the modern trade. Sir, I see Big Bazaar now offering everyday low price and Reliance Retail is also offering 6% off on most of its products. How has been your growth in this quarter and in terms of margins, because these players are offering a lot of discounts, does it impact your margins in modern trade?
I said, Abneesh, in this quarter in modern trade, we grew by around 24%, right? Which is higher than the growth recorded by the whole company, which means that modern trade as a segment within our company performance is now becoming bigger and bigger. In terms of these big deals and all that, since we are the leader in market share in terms of hair oils, we have a much better negotiation capability there, and we make a sizable margin in modern trade also. These kind of discounts or We normally don't ever offer one plus one, but we do give freebies and discounts on big deals on 15th August and 26th January and all that. But that doesn't really negatively impact our margins. I would rather say that modern trade is slightly more profitable than general trade for us, right.
Sir, to summarize your margins in modern trade versus, say, last quarter and even going ahead, there will not be any substantial difference, right?
No. It's still a fairly small part of my total business. It's currently a little over 7% now. Coupled with the fact that we actually end up making more margins in modern trade.
My second question was on the chemist distribution and of course on Nomarks. In Nomarks, we have been focusing on increasing the chemist distribution. Now in this budget, if you see Government has removed this 15,000 cap in terms of that medicine spend. Now you don't need to show the proof, et cetera. Do you see structurally in the chemist shop consumer buying behavior to shift because a lot of consumers were buying from chemist shop because they wanted to meet the target of 15,000, and now no such rule is there. Is chemist shop going to reduce in terms of percentage of sales to FMCG companies and thereby your focus also, should it reduce longer term, not from one quarter perspective?
I haven't seen any change there. I dare to say that it will not move the needle significantly because if you look at FMCG contribution in FMCG of OTC or MS driven sales is not very large, that you'll see some major shift in growth volumes of FMCG companies there. Also INR 15,000 for a household in a year is a very small amount there. It's not going to cause major disruption here.
Okay. Okay, sir. That's all from my side. Thank you.
Thank you, Avnish.
Thank you. The next question is from the line of Ashi Anand from Allegro Capital. Please go ahead.
Yes, sir, thank you for the opportunity. The first question I had was more at the macro level. I was just trying to understand, if you go back five years, we were seeing a significant shift away from coconut hair oil towards Light Hair Oil. That kind of shift, well, it's good to see some relative growth in the current quarter. I'm just trying to understand, what has happened as compared to five years back, where Light Hair Oil was rapidly gaining shares, and what are the key drivers of the shift? Is it relative prices of copra and other oils? Is it function of rural income and downtrading versus up trading? If you could just give some color on this entire macro shift.
I think it's a combination of everything you've said. I think the biggest thing was that people were moving from coconut to value-added, which continues even today. The only difference is the biggest gainer in value add five years ago was Light Hair Oil. Currently, the biggest gainer is Amla oil, because you would know that we have a very peculiar situation in which a value-added hair oil is actually cheaper than a commodity, which is coconut. Therefore, the inertia to move from a commodity to value add has become less. Coupled to the fact that the rural growth really came down over the last two or three years, first because of bad monsoons, and second because of the disruptions that happened along the way. It's actually the gain that we used to get from coconut reduced and somebody else within the value-add started gaining.
I believe that people prefer premiumization and the brand image we have developed for Bajaj Almond Drops will see a resurgence of this shift from coconut and the low-cost value-added hair oils to Light Hair Oil and specifically Bajaj Almond Drops in the coming quarters.
Okay. Excellent. The second question was really with relation to our overall strategy, with relation to new product introductions. It's good to see a product being launched every quarter. Just wanted your thoughts on are the new product introductions primarily focused on adjacencies around hair oils? Secondly, given the fact that we have significant cash reserves, any thoughts on using that to go out and acquire something to enter, say, different categories altogether to be able to leverage our distribution?
Yes to both. The immediate launches would be in adjacencies of hair oil and maybe the skin care. The future launches could be in other categories, but immediately it will be basically either hair oil or skin care. In terms of using the cash for acquisition, that is always on the card. When will that happen? Where will it happen? I am not too sure at this point of time, because until you really sign on the dotted lines, you really don't know whether the acquisition is going to happen or not. We are actively looking for brands that can be acquired.
Okay. Thanks, sir, for the answers.
Thank you. The next question is from the line of Manas Agarwal, an individual investor. Please go ahead.
Thank you for the opportunity, sir. My question was in line with what the previous question was actually. Just expanding on those, the vision 2020 that you've spoken about in your previous con calls as well, how do you feel like your innovation center is working on, as you said, hair oil products maybe in the coming quarters, you look to launch or evaluate one quarter each. Any other product lines that you started to evaluate? You're saying you're looking at brands that are acquisition worthy. Do we see any movement outside of hair oil? Because this diversification that you're currently doing, we see it as something within the hair care segment itself. What is your outlook on other segments altogether?
Manas, we are only looking at the brands we have launched. Since we probably know hair oils better than the other categories, the fastest off the block has been hair oil. As we move along, you will see us launching or restaging other categories also. We have a whole part of our innovation center working on unrelated categories. You could possibly see something which is not a hair oil, not a skincare as we go along our innovation path. It is not that we are only focusing on hair oil. We have all the streams working day and night to come up with differentiated, innovative products that can be launched successfully. In terms of M&A, yes, we have been.
Let me tell you, the valuations still appear to be a little high, and therefore, we are cautious, because the higher the valuation, the more difficult it is to turn it around. We are actively looking at M&As within India and outside.
Okay. Just a follow-up question on the M&A side. I see that a lot of IPO proceeds are still in the form of liquid investments kept aside for acquisitions. Do you foresee any big acquisitions, and is there any scope for external parties coming in to help you with those? You are satisfied with the cash pool that you have in your deck, you should be comfortable?
This is all very iffy, because until you have an acquisition, you don't know how you're going to fund it.
Correct.
Whether it be a small or a large, you may think of taking external help. External help could be debt or external equity infusion.
help from a PE or VC. This is so iffy that I really can't, even though I want to, I can't give you a definite answer to this question.
No problem. That's all from my side. Thank you.
Thank you. The next question is from the line of Sameer Gupta from IIFL. Please go ahead.
Hi, sir. This is Percy here. Sir, a few quarters back, we had launched a sort of variant of the Bajaj Almond Hair Oil into soaps, saying that the equity of almond can work in soaps for skincare, et cetera. Could you give us an update on that launch, how successful or otherwise it has been? What kind of? Is it nationwide? Is it statewide? Any sort of color you can give on how that launch is progressing and whether it's met your expectations or not?
Percy, I think you've got it all wrong. We never launched a Bajaj Almond Drops soap. It was free along with Bajaj Almond Drops, we were looking at whether that would be accepted by consumers. It was more a kind of a consumer offer with Bajaj Almond Drops and not a launch. We did not launch it specifically anywhere in India or outside. I don't think it's a question of meeting expectations or not. Yes, the results from consumer tests have been interesting, we still need a differentiation, that's what we are really working on because if our soap doesn't make any sense with the MNCs around and their ability to sort of monitor and get cost efficiencies, we as a small soap manufacturer will never be able to make a significant dent.
Therefore, we are still looking at differentiation, we would, in the meantime, keep using it as more of a consumer offer or a trial pack along with our hair oil rather than a launch in individual capacities.
Sir, isn't the almond benefit a differentiation? I don't know if there are too many mainstream soaps offering almond as such.
Every company has almond soap. Almond in the soap is not innovative. It's an age-old thing, if you look at the soaps available starting from Godrej No. 1 to Lux, all of them have almond. Almond in soap is not so innovative. I think almond in hair oil was innovative when we launched it. I don't think it's innovative any longer. It's just the first mover and the ability to build a strong brand that is helping us take forward. It's not innovative. You have everybody from each of our competitors trying out almond hair oils also. Almond is not the thing, as you would know that soaps are a difficult category to be able to sort of make differentiation.
Understood, sir. Second question, sir, on Nomarks. I understand you are focusing more on the cream segment, and I think the creams have grown at 40% plus. Just a clarification, sir. This 40% plus figure, does it include sales outside India? If yes, could you give us the number for the growth within India?
This is the company-wide sales. Unfortunately, because of the way the IB is doing, if you look at sales within India, it's higher than 40%. As we have shown that IB has actually dropped this year, and Nomarks within IB has also dropped significantly. Actually, domestic growth are much higher in the case of Nomarks.
I see. Currently, approximately what would be the percentage split between the different formats of Nomarks, that is cream, face wash, or whatever else you have, soaps?
Currently, 60% comes out of cream. Sorry, now 78% comes out of cream, the remaining 22% comes out of the various other segments. We are not focusing on face wash, which is a large segment, last year it was at around 16%. It's now dropped to half in terms of its saliency within the Nomarks range.
Right. Sir, last question on the hair oils segment. You mentioned that there is a sort of rural uptick that you are witnessing this quarter. How much of that journey of recovery of rural have we completed? Is it like one third of the journey completed, or is rural sort of really come back? Is rural growth currently ahead of urban, or that is yet to happen?
In terms of how much is the journey, I really don't have an answer, because there is no benchmark on how I can monitor what is going to be the final growth in rural in the coming year, say. That is not a question I can answer.
Okay.
In terms of it being higher, at this moment, it's actually equal to the urban growth this quarter, fourth quarter. Therefore, you will see improvement, especially for our main brand, which is Almond Drops, it is actually still lower than the urban growth. For Light Hair Oil, it's more or less the same. Yes, it just started, the commentary I made was that if you look at the way rural started growing around seven, eight years ago, this is the path that it actually took at that point of time. I'm quite hopeful that in the coming quarters, you would see a double-digit growth in the rural, it would start overtaking the urban growth. Logically, there are more people. If the government invests in the rural areas, they will have more disposable income, and so on, so forth.
Historically, say, three years back, rural was running at what multiple of urban?
Four years. Three years, the problem had already started. Four years.
Okay, four years.
The difference was around 10% in the growth of rural versus urban.
That is 10 percentage points, you mean?
Yes.
Wow, okay. That's all from me, sir. Thanks.
Thank you. The next question is from the line of Raghav Behani from Dalal Street Bulls. Please go ahead.
Good morning, sir. My question is with the revenue contribution of different products in the company's overall revenues. Like, the ADHO segment is contributing, I guess, the maximum as of now, maybe around 85%, 90%. Going by the growth in the amla segment and the jasmine segment, do you expect that the other segments will contribute a significant portion over the next two to three years? Do you see any kind of that kind of scenario playing out?
The whole objective of this is reducing the dependence of the almond. Whether it will happen in the next two or three years, I'm not very sure. I think collectively, the new brand launches will reduce the dependency on Bajaj Almond Drops.
Okay. Sir, could you just give me the exact percentage figures of contribution, if it's available?
It's there in the investor presentation. If you go to slide number 30, you'll see that we have given the volumes and of each thing, this is something that we have been tracking over the last many years.
Okay, sir. Sir, one more quick question is that you mentioned about hedging through contracts on the MCX and NCDEX. Is it a new hedging technique that we are trying out for the crude oil prices or something?
No. This is something we started around 2 years ago for mustard oil, because in mustard oil, you can actually hedge mustard seeds, and it would move in proportion to the oil. If you had hedged it properly and oil went up, and therefore there was a negative impact on gross margins, you would make a positive impact on the hedging volume that you had done for seeds. Crude is a very difficult thing. We have been trying in small quantities, but hedging crude is not only dangerous, but also the exposure is very high. We are basically an FMCG company, and therefore, we don't want to get into large-scale hedging of crude.
Okay.
It would be very dangerous for a company like ours.
Okay. That's it from my side, sir. Thank you.
Thank you. The next question is from the line of Tejash Shah from Spark Capital. Please go ahead.
Hi, sir. Thanks for the opportunity. Sir, the first question pertains to the comment that you made in your PPT that volume market share of Almond Drops hair oil has actually increased in overall THO market, but the value market share has not picked up. If I add this with your opening remarks that somehow the premiumization trend this time the trend has not been beneficiary of conversion from CHO, and it has been picked up by low-end hair oils like amla hair oils. Somewhere we are gaining volume market share but not value market share. Just wanted to understand the disconnect between the two.
Tejash, since we've been following the hair oil industry, the biggest differentiator this year is the rise in prices of coconut oil. Coconut oil still is around 35%, 36% of the total hair oil in India today. Therefore, disproportionate rise in prices of coconut has actually reduced our value market share. Whereas, coconut has not grown that much in volume as in value. That's the difference between volume and value market share that you see. In fact, some five or six years ago, Coconut used to be half of our price. That ratio has actually dropped over this year significantly.
Sure. Sir, keeping that benchmark consistent, do you think that this year you will take a price hike in the key brand?
We've actually taken a price hike in Bajaj Almond Drops in April itself. What we have done is we've actually increased the price of the larger SKUs, and in the lower SKUs, we have gone back to our original volume. You would remember that we moved from 52 to 53 ml in the same bottle and 100 to 105 ml post-implementation of GST. We've actually reversed that and gone back to 50 and 100. Whereas in the higher sizes, we've actually increased the MRP.
What would be the weighted average price hike?
It's very different because you can't weight volumes. If you look at the larger sizes, we have taken a 5% or 6% price hike.
Sure. Second question pertains to international business. I believe that the business had a very relatively low base, and to see this kind of deceleration is slightly surprising. Just wanted to know if you can share some color on that.
Actually, because we had a low base, deceleration is much faster. All you need to do is one distributor stops buying from you, and you'll see a drop. It's when you have a larger base, your risks are spread over a larger number of areas and consumers, and that's one of the reasons that you see one major The biggest hit has actually happened in the MENA region, where we are growing the fastest. Places like UAE, KSA, the Gulf area, we are actually growing quite well until two years ago. Last year, we first got into problems with the distributors, then with our own infrastructure in place, and that's what we need to get back into place there.
Sure. Lastly, one bookkeeping question. Other income witnessed quite a volatile run rate this year on QOQ basis. If you can guide us on what one should pencil in for FY 2019.
Tejash, as you all know, under the Ind AS, you have to account for mark-to-market losses on the treasury. Actually, the cause for deceleration is basically a very large mark-to-market loss that we have had to put on our books. Not only did interest rates not go up, loan rates also didn't go up. In addition, therefore, we had to book What was the mark-to-market loss that we booked, Balaji?
That was INR 3 crore in addition to the opening loss of INR 5 crore.
We already had an opening mark-to-market loss of INR 5 crore. We have booked another INR 3 crore loss in that. This is actually not an actual loss, so it does not appear on your books as such, but because of the new accounting standard, you have to account for it.
Good, sir. This helps. Thanks a lot, sir, and all the best.
Thank you. The next question is from the line of Jinal Sheth from Multi-Act. Please go ahead.
Hi, Sumit-ji. Couple of questions. Firstly, taking the point about Tejash, where you mentioned the Coconut prices, and since you also mentioned that in this time around, amla, we've seen some downgrading. The price differential between amla and premium hair oils was too high. We've taken a price hike now. Anything that we could see there? Any thoughts on that it could negatively impact us? Any thoughts?
Jinal, you should remember two things, that over the last three years, the construct of the amla market itself has changed. The leader used to be the higher-priced amla, which is basically brands like Dabur Amla and all that. Over the last three years, the leadership has actually been taken by a low-cost amla category which has formed. In terms of volume, that low-cost amla is now bigger than the Dabur Amla volume. There has been a reconstruct of the whole thing. The reason why the low-cost amla sells is basically because of the price. Whereas you fight more in the premium category, where you are by far the leader and you are very large brand. Keeping that in mind, we were very cautious when we took the price hike, and we did not take a price hike across all the SKUs.
It would be only in the larger SKUs, assuming that a guy buying a larger SKU of Bajaj Almond Drops, which is one of the highest priced products, would not be so price-sensitive. Yes, this is something everybody needs to be looking around carefully because as brands other than the low-cost keep on increasing their prices, for example, Coconut keeps on increasing prices and the low-cost amla continues to be at the lower price, this conversion could affect other brands also.
Understood. Secondly, what's the update on how are we seeing things on the wholesale trade channel?
Wholesale has now come back. Consciously, we are not pushing wholesale because it actually has helped us bring it down from a 55% dependency to 34%, 35%, which is good because if your focus is going to be innovation, the larger the dependency on wholesale and lesser the direct distribution will happen even when you launch new brands. Right? On the larger side of it, I think in hindsight, demonetization and GST has actually helped us speed up the innovation processes.
Just to that point, basically what you're saying is, suppose if the rural growth picks up, we might not be able to take full advantage because now we don't want to have too much dependence on wholesale. Could that be?
Yes. If you look at it unilaterally, yes. What we have also gone and done is increase the number of distributors we have in the rural areas. We currently more than doubled the number of distributors in the rural areas. Yes, if we had not done that, we could have been negatively impacted, but we saw that and took corrective action at the time of demonetization itself, not now. Most of this is now getting seen as increase in rural volumes. In our case, faster than the Light Hair Oil category itself.
Thank you so much, Sumit Ji. Good luck to you and the company.
Thank you. The next question is from the line of Ajay Thakur from Alder Capital. Please go ahead.
Hello, sir. Thanks for taking my question. I had just one question regarding the growth rate in the Amla segment. How has it been trending? If you can just throw some light on that front, at least for the last one or two quarters.
Not one or two quarters. If you're looking at the Amla category itself, that's actually trending faster than the Light Hair Oil. Like I said in the previous question also, this is the first time you really see a value-added hair oil being priced lower than a commodity. It's growing basically because a lot of conversion from coconut, from unbranded, is moving directly into value-added. Normally, what happens is the unbranded guy moves to coconut, who moves to a low-cost value add, then it moves to a premium. Here, it's jumping the gun and going directly to the value-added hair oil category, in which the biggest beneficiary is actually the low-cost Amla.
Thank you, sir.
Thank you. The next question is from the line of Aditya Sheth from Investec Capital. Please go ahead.
Hi, sir. Thank you for taking my question. Sir, what is your volume growth in skin category this quarter?
Which category?
Skincare category.
I didn't get you.
Skincare category.
Skincare. The category growth. It could be around 21%, 22%.
Anti-marks.
Anti-marks. Actually, skincare, we don't follow. We follow anti-marks because skincare is a huge category with things like moisturizers and fairness creams and all that. We don't track that. We track anti-marks, and we're now focusing on anti-marks, women selectively. That would be something in the mid-20s.
Anti-marks for you was around 21% growth year-on-year.
Yeah.
Is that correct?
Yeah.
Okay. When I see the presentation, sir, if I see the cases sold year-on-year, it has come down from 24,000 to 20,000. What is the discrepancy in that?
There's no discrepancy. What you're seeing is Nomarks as a whole. Nomarks as a soap, as a face wash, as a face mask, as a face pack, and also face cream. If you look at face cream, face cream has grown at 30%, right? Whereas in value terms. In volume terms also, it's grown at a fast pace. Whereas the figure that you are quoting has everything. This is not only skin care or anti-marks, it's got everything in it.
Okay, understood. My second question is, sir, on again, the category cases sold. On the others, what are the products that come under others, where the cases sold have doubled this quarter?
You have things like black tooth powder and low-cost Amla, jasmine hair oil, all those things which are non-focused products which are waiting for some spark in terms of differentiation and then only will we invest in these. These are actually non-investing.
Okay. Any particular reason for them to grow in this quarter?
Very simply, we've launched Bajaj Coco Jasmine, which is a part of this.
Okay, which comes under this. Okay. All right. Okay. Thank you very much, sir. Thanks.
Thank you. A follow-up question from the line of Ashi Anand from Allegro Capital. Please go ahead.
Yes. Hi. Just a quick question on our outlook on margins. We have different kind of winds tripping through. Rising input prices, but we've also taken price increases, and you mentioned value engineering initiatives over the presentation. Just wanted some kind of a sense on how you see margins pan out in FY 2019.
Our aim is to keep margins constant, but at this point of time, we have taken care of that. If the prices keep on rising and we choose not to increase prices of our finished products immediately, you might see a marginal contraction in margin. I think we should be able to manage that aspect.
We believe that if raw material prices remain where they currently are, we should be able to maintain margins based on what we've done so far.
You've shown that superb one chart.
Okay, excellent. Thanks, sir.
Thank you. The next question is from the line of Amit Sinha from Macquarie. Please go ahead.
Yeah, thanks for the opportunity, sir. Sir, quickly, one clarification on the SKUs where you have taken the price hikes are more than 100 ml, right?
Yes.
Is it fair to assume that, in terms of volume, they'll be around one-third of our total volume or somewhere around that?
No. The smaller would be larger in terms of volume. To give you an idea, sachets are 18%, 50 ml would be around 20-odd%, 100 ml is the largest at 26%, 27%.
Okay, sir. That adds up to somewhere around 65%. Still 35% is more than 100 ml.
Yes, you are right. If you see our annual reports, we do give breakup of sizes. That is the faster way of getting dependency. Even in the smaller SKUs, we have not taken a price hike, but we have done a volume correction, which will actually add to our bottom line.
Okay. That will basically, in terms of effective price hikes, I understand it will be difficult to get to a number, but it will be around 3%, 4% in that vicinity.
Yeah. It would be fair to estimate that number.
Okay. Secondly, sir, on your Brahmi Amla Ayurvedic Oil, clearly the offtakes have been very good. Which are the states which are doing well for you?
Actually, we first launched it in only four states, then we extended it. I think, the Hindi-speaking areas are doing well because like I said, that we are looking for differentiated products which are going to be supported by marketing. Therefore, the advertisement at this point in time is on in the English-speaking areas, which logically will result in faster growth in the Hindi-speaking areas.
Okay. This quarter growth is also on account of expanding your distribution for that product.
That's the only way you grow. You can't have only advertising and offtakes without distribution input. In fact, we have that slide on our investor presentation, in which we've shown you the increase in offtake.
Yeah, it is there. I thought that within a particular state also, there might be some offtake improvement. Last question is on your overall plan for launching one product every quarter broadly. We are sticking to that plan, right, sir?
Yes, you don't think so fast because these are strategies which are thought of over a longer period of time, and therefore you don't go back on your strategy over two quarters. Yes, I can at least see one every quarter for the next two or three quarters.
Okay, sir. Thanks a lot for your time. Thank you.
Thank you. Next question is from the line of Tejash Shah from Spark Capital. Please go ahead.
Hi, sir, a couple of follow-ups. Sir, for the reasons that you have explained in past calls, our employee cost witnessed sharp inflation in last two, three years. For last two, three quarters, the run rate has stabilized at around INR 19 crore per quarter. Should we look forward to normal rate of inflation in this cost line item hereon?
No, you won't because the jumps that we've actually seen in other expenses. You are talking about other expenses, right?
No, sir. Employee costs, sir.
Employee costs. I think more or less that's true. Now you'll see that inflation cost creeping in terms of increase in employee costs.
That non-linearity that we witnessed in last two, three years is behind us now on that.
As I see it now.
Okay. Sure. Sir, second, just for academic reason, you launched Coco Jasmine in Maharashtra. In fact, in the previous question, while answering that, you mentioned that some of the offerings that we are launching now intuitively has much more ready market in Hindi Heartland. Just wanted to understand why Coco Jasmine has been launched in Maharashtra, whereas other launches have been Brahmi Amla has been relaunched and focusing on Hindi Heartland area.
There are two parts of it, Tejash. Logically, you can't launch all the products in one area. You have to launch a product, let it stabilize, then launch another product. If you are to look at markets differently, you will have a different offering in each of the markets. Rather than offering products only in markets, it makes a lot of sense to let one product stabilize and then offer another in that market, and conjugatively look at other markets. For example, today we've launched in Pune, which is Maharashtra. Tomorrow you will see another launch in the east, because we haven't launched anything in the east, and therefore the team is sort of ready to take up extra initiatives on a new product there. I don't see where the disconnect is.
You don't keep on launching in Hindi Heartland because you believe you are strong enough there, and therefore you can keep on adding products. You add products and then let the team take it up and then go forward. Also in jasmine, the biggest area is Maharashtra for coconut jasmine offerings. It's better to go into the largest area and try it out there.
Sure, sir. Thanks. That's it from my side, sir.
Thank you. The next question is from the line of Ankit Babel from Subhkam Ventures. Please go ahead.
Yeah. Good morning, sir. Sir, my first question is now considering the fact that most of the demand-related headwinds are now behind us and there is an expectations of normal monsoon. Sir, this year can we expect at least a double-digit volume growth in ADHO?
We do not give guidance and what you're actually seeing is only the green shoots. Maybe it's a little too premature on looking at a major jump in growth. My point was that I think the worst is behind us. How fast we'll be able to attack the best we ever had is something I don't think we have the visibility at this point in time.
Okay. Sir, secondly, what could be the contribution of new launches in the overall growth for the company, maybe in this year? Is 2%, 3%, 5%?
It's very, very small. This year is not going to be the turnaround year.
Okay. Thank you, sir.
Thank you. The next question is from the line of Abneesh Roy from Edelweiss. Please go ahead.
Sir, just one small follow-up. Sir, in spite of such a sharp inflation in raw material, your gross margins have been protected really well. That's good. Just want to understand that bit on value engineering. What exactly have you done and has competition also done similar things?
I think value engineering is the second biggest cost for being able to maintain. The first is basically buying LLP properly and like I've been indicating in all my conference calls that we actually got a decent strategy on when to buy and how much to stock. A lot of this has happened because we actually stocked up at the time when crude was rising. In terms of value and engineering, not many people can do it because the biggest value engineering that we have done is on our glass bottles. With the new technologies available, you can actually have lighter bottles and therefore cheaper bottles that can be made with equal or better strength in terms of transportation. This is what we have been working on for the last three years and this year saw that benefit come into our margin profile.
Sir, what is the stock you have of the year lower raw material or is it largely over because you have taken the price hike?
Our stock's three years. Even we still have a lower cost than what is currently available. To give you an idea, the current price would be close to around INR 74, INR 75 per kg. We still have stock that's around INR 70 odd per kg.
For INR 74, is the price hike taken or?
Yeah.
Sir, secondly, follow up on that. In some of the places, for example, Mumbai plastic ban has happened. Does it impact your LPs, for example?
It hasn't been accepted. If you've been following the trend, it's been reversed by the Government of Maharashtra itself and the discussion is happening on how to do it especially for non-food items which we fall under.
You don't expect any big impact in Mumbai, for example?
The last 30 years I've seen this happen twice at the cost of sounding negative, I don't think it will happen in a hurry.
Sir lastly, e-Way Bill when it happens within a state then do you expect some disruption? I understand in April not much of disruption, but in the second phase you expect some disruption?
No, I don't. I think in our kind of a thing we were very well prepared and we were able to put it into our ERP system. Actually the April thing went seamlessly and we really didn't have any kind of disruption. Even today we are prepared for within the state and we have armed our depots and C&F agents in such a way that they will be able to move into this as and when it's enforced.
Sir how do you see media inflation? I understand lot of new products but from a media inflation perspective is it likely a big concern FY 2019?
Oh yeah. See, if you look at it normally media has been fairly stagnant. This year we expect it to go up by around 5-odd % which can be absorbed in our overall price increase that we have done.
Okay sir. That's all from my side. Thank you.
Thank you. The next question is from the line of Tanmay Sharma from Jefferies. Please go ahead.
Hi sir. I have only one question. On margin you said you would be able to maintain the margins at the current levels if the crude and your LLP remains. Sir, my question is why don't you think we should be ready to forego some of the margins currently considering that we are at close to all-time high margins and considering the hair oil category. Instead of taking a price hike we could have been more aggressive and we have benefited from the fact that commoditized oil is increasing and take more share from there instead of focusing more margins and rather foregoing some margins for that. This is the only question I have.
See, I think you're right but when you forego margins you also risk yourself open for competition coming in and overspending you. Therefore, even though we have taken a price hike like I said it's been only on a few SKUs and not across the board and therefore even though If we have to take a 6%, 7% price hike across the board, we didn't do it. We have taken that into consideration. In fact, in one of the previous calls, I said that we would like to maintain margin, but not at the expense of volume. This is the philosophy that we have actually followed here.
Okay. Sir, because as you said, media inflation is also going to be only 4%, 5%. Where will the-
of 18%, not 18%, 9%, which is approximately the percentage of advertising to sales that we have. It is going to be 4%, 5% of 5%, which is less than half a percentage.
Okay, sir. That is it from my side. Thank you.
Thank you. Participants who would like to ask questions may press star then one. We take the next question from the line of Amit Kumar from Investec Capital. Please go ahead.
Yeah, thank you so much for the opportunity, sir. Just a quick follow-up on my side. You sort of mentioned that Jasmine product, Maharashtra is by far the largest sort of state for Jasmine hair oil. If you can just highlight two, three other states which are big on this form of hair oil essentially. The second one was the Bajaj Coco Jasmine product that you have launched. How should we sort of look at differentiation versus the current products? Parachute has a Jasmine offering, Dabur through Vatika, they have a Jasmine offering. How should we sort of look at differentiation in this particular product versus what is sort of already available in the market?
If you read the presentation, we have put our stance right up front saying that the differentiation we are offering is reduction in breakage, and this is being clinically tested. This is not a claim that is sort of drawn out of the hat. That differentiation, we believe, is strong enough to get a change from the current hair oil users. Today, hair fall and frizzled hair and all these things are becoming much more of a top of mind for consumers, especially ladies there. Right? Yes, we have been very careful in what we are saying, what we are advertising is being backed by claims which are backed by clinical trials, and that's what we are looking at. In terms of markets, Maharashtra is the biggest, followed by West Bengal and followed by Andhra.
Actually, intuitively, you would think that since it's coconut, it would be very big in the south, that's really not the case there.
Okay. Understood. Thank you. That's it from my end.
Thank you. Ladies and gentlemen, as there are no further questions from the participants, I now hand the conference over to the management for closing comments.
Thank you. Thanks a lot again for logging in, and it's always very encouraging that we have such a lot of participation in our investor calls. Even outside the investor calls, if you have any questions, you can send an email to our investor relations department headed by Vishal. Thanks again, and meet you after the next quarterly results.
Thank you very much, sir. Ladies and gentlemen, on behalf of Kotak Securities, that concludes this conference.