Ladies and gentlemen, good day, and welcome to Godrej Consumer Products Limited Q1 FY 2024 earnings conference call. 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, please signal an operator by pressing Star, then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to the management. Thank you, and over to you.
Thank you, Aman. Good evening, everyone, and thank you for joining us today late evening to discuss the performance of Q 1 FY 2024. We have with us Nisha Godrej, Executive Chairperson; Sudhir Sitapati, Managing Director and CEO; and Sameer Shah, CFO from GCPL's management team. Without taking much time, I'll hand it over to Sudhir for his opening remarks, and then we, we'll be happy to take any questions. Over to you.
Thanks. Thanks, Aman. Good evening to all of you. Despite the tough market conditions, our performance in Q1 FY 2024 was ahead of our expectations on both volume and profit growth. At a consolidated level, including inorganic, UVG was 10%, constant currency sales growth was 15%, INR sales growth was 10%, EBITDA was 28% up, and PAT without exceptional was 19%. Operating cash flow was up four point nine times, albeit on a weak comparator. Organically, UVG was 8%, constant currency sales growth was 13%, INR growth was 9%. Working media was up 68% and EBITDA was up around 36%. Our USG was impacted due to price deflation in soaps and the currency translation impact in Nigeria. PAT was behind EBITDA due to higher Forex losses and MAT credit utilization.
This is a non-cash item, as our growth in operating cash flow shows. Our working capital reduction across the board continues to be significant, resulting in exceptional operating cash flow. If one compares these numbers with Q1 FY 2020, a pre-COVID quarter, our reported EBITDA is roughly the same, but with a very different shape of P&L. Our GMs are down 350 bps, and our ATL is up 100 bps. Both these are investments into things that consumers see, but our BTL and overhead are down by a corresponding 450 bps. We think our underlying volume trajectory, while not yet double digit, has significantly improved because of the shape of P&L. Organically, India had a strong quarter with 10% UVG, 6% USG, and around 32% EBITDA growth.
Market conditions in India are tough, and our good performance has been due to a soft competitor on soap volumes, a good HI season in the north, and our market development investments. Indonesia had a strong quarter, despite another round of downstocking in modern trade. Volume was up 12%, 15% constant currency growth, 20% sales growth, 53% EBITDA growth. Stocks in modern trade are now down from a peak of 95 days to around 58 days. This, along with generally strong macros, augurs well for the future of the business. GAUM also had a good quarter, with 3% volume, 16% currency growth, 9% sales growth, and 55% EBITDA growth. These numbers have been affected marginally by the devaluation in Nigeria in the last fortnight of June.
The impact of the Nigeria devaluation will be significant optically over the next few quarters, it merits some understanding. In May 2023, the official market rate was NGN 450 to $1, while the parallel market rate was NGN 750 to $1. We were buying dollars at a weighted average cost of NGN 650 to $1. The delta between official rate and parallel market rate was reflected in a Forex loss line. This accounting translation was happening at an official rate of NGN 450 to $1. With the free float, the naira is now around NGN 750 per $1, it may depreciate further. What we will do is to pass on price increase to end consumers for NGN 650 to $1, to NGN 750 to $1, such that our profits are intact.
We will have to read EBITDA plus Forex loss line item together for the next four quarters, as the Forex loss will move to material costs from Q2 onwards. The earlier guidance on profitability remains intact. Secondly, there will be accounting translation impact from NGN 450 to NGN 750, which will get partly offset by the NGN 650-NGN 750 increase. The balance will affect INR sales growth by about 200 bps at a consolidated level. Please note that there will be no impact on volumes or constant currency growth here. Between NGN 450 and NGN 650, we will not price, and it will be an accounting hit. NGN 650 onwards, we will price for.
This, while in the short term, has makes reading our results a little bit more difficult, in the long term, we believe that it strengthens our competitiveness, as all players will have to now buy at the free floating rate of 750 Naira to a dollar. Hence, we think there will be an opportunity to gain market share. Latam also had a good quarter with 12% volume growth. Let me now share the progress we have made on our strategy, which I had detailed out in our annual analyst meet a few months back. We remain committed to our strategy of category development, simplification, and sustainability. On category development, we have been consistently investing in our brands, with our media investments in India increasing by 125% year-on-year. We have launched an innovative membrane-based air freshener called aer o in the car segment.
Lastly, we are also planning to in-invest around INR 900 crore in organic manufacturing CapEx in India over the next 18-36 months, largely for volume growth, but also for logistics reasons. On simplification, our partnership with the national distribution in Nigeria is progressing well, and we expect to see the benefits of this as the year progresses. In Indonesia, we have reduced stocks and modern trade from, as I mentioned before, 95 days to around 58 days. Lastly, on people and planet, alongside profit front, we have recently pilot-launched Magic Floor Cleaner, which is an environment-friendly powder-to-liquid-based format, playing in the large and fast-growing floor cleaning space. The understanding of the financial performance of GCPL in FY 2024 is complex due to several factors: the optical devaluation of Nigeria, the inorganic impact of the RCCL acquisition, and the MAT credit we will avail in FY 2024 and 2025.
We therefore believe that the four primary metrics to look at while evaluating our performance are organic UVG, organic constant currency growth, EBITDA, including Forex and operating cash flow, which are largely unaffected by the above. Despite market conditions, especially in India, being tough, we remain optimistic on our full year ambitions, including on Park Avenue and Kamasutra. Thank you.
Should we open the line for Q&A?
Yes, sir.
Right. Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is on the line of Abneesh Roy from Nuvama Institutional Equities. Please go ahead.
Yeah, thanks, and congrats on a good set of numbers. My first question is on the INR 900 crore CapEx. We have seen food companies do a lot of insourcing versus outsourcing. On the other hand, HPC companies like Reckitt, HUL, have been gradually outsource outsourcing. Wanted to understand why we did not think of outsourcing in this, and what will be the long-term ratio we are looking at in terms of insourcing versus outsourcing?
Thanks, Abneesh. Look, while evaluating insourcing and outsourcing, there are three criteria. One is the scale within the industry, and in most of the categories that we operate in, we have a pretty good and high scale within the industry. When you have high scale-- when you have low scale, it makes sense to take the benefit of the scale of the third-party supplier. When you have high scale, it makes sense to do it yourself. The second is really how commoditized or differentiated the categories are. Many of our categories, we feel, are differentiated with enough secret sauce and high margins that merit us doing it ourselves. Soaps is the, you know, maybe an exception here, but it's not an exception to the rule of scale, and most people manufacture soap with scale by themselves. The third thing is capability.
If you have capability like we do in India, one should do it oneself. Finally, is how automated or labor-intensive the process is. The more labor-intensive, sometimes it's better to outsource, but the way we see a lot of our businesses is that the production will be pretty automated. For a combination of these four reasons, we feel that a lot of our growth and logistics related savings needs to come from insourcing. Of course, this doesn't mean that we will completely stop outsourcing. For instance, our coil business in household insecticide doesn't really meet any of these criteria or doesn't meet most of these criteria, and so we will continue to outsource it. I suspect I don't know the exact number, Abnish, on what it will be, but I suspect that the majority of our business will be insourced.
Great! Thanks, sir. My second question is on the massive, simplification, SKU rationalization, and inventory reduction you have done, especially in India and Indonesia. My question is, why was GCPL not doing it earlier? How does this impact your business in terms of consumers getting more choice? Because now lesser SKU, lesser inventory, so in terms of customer choice, obviously it will be lower. Does it impact in terms of, say, market share overall? I understand this could be a lot of tail, but wanted to get clarity why it was not done earlier.
I think the, you know, the defined focus of our business has been on category development, and category development needs a few, because you are convincing consumers to enter categories. The SKU reduction and simplification has been because of a re-emphasis on category development, which has certainly been, I won't say it's a new strategy, I think we already always had it, but certainly, it has been re-emphasized. It does not have an impact on market shares, Abnish.
If anything, the market shares in general for us are very good, both in India and Indonesia. When we, when we simplify our SKUs, what tends to happen is core SKUs tend to have better availability in, in shelves, because the tail SKUs don't block retailer capital, and market shares tend to go up, as have been happening for us.
Last quick question. We have seen in segments where commodity deflation has happened, regional players have come back, so biscuits, detergents, et cetera, even in soaps. How are you retaliating to this? Because your growth rate, of course, the base was a bit soft, but going ahead, do you see that regional players are coming back, so you need to pass it on to the customer? Because overall, you did say many times that demand scenario in India remains reasonably challenging. From that context, how do you see that?
Yeah, I think there are two things here Abneesh . The soaps category, compared to, let's say, 10 or 15 years ago, doesn't have the same salience of local players as some other categories do, or indeed, soaps did a decade or two decades ago. It's become a pretty consolidated category. Not that there are no local players, but that, that is not the major salience in the soaps category. Our general principle on pricing is, you know, in inflationary times, to absorb the inflation to the extent that we can and protect consumers, and when prices fall, not to kind of make excess profit from those margins. Our margins in soaps at a gross margin level have not crossed our historic levels, and we have been quick off the block in passing soap, passing prices.
We are less, you know, our, our, you know, we've been speaking, Abneesh, our real goal is volume growth, and we are not that, you know, fast. As long as volume growth is good and cash, operating cash flow is good, you know, we're not really worrying all that much about sales growth, and we have been, you know. Certainly, we have passed on prices commensurate with the margins we think we should earn in this category.
Thanks. That's all from me. Thank you.
Thank you. The next question is from the line of Avi Mehta from Macquarie. Please go ahead.
Hi, Sudhir. Thanks for the opportunity.
Hi.
I wanted to kind of just focus, you know, on the Raymond portfolio. Now, this quarter, we have seen almost a INR 45 crore EBITDA loss in this business. A, wanted to understand what drove that sharp, because the sales is almost similar to that. B, could you give your thoughts, because you've retained the guidance of single-digit EBITDA margin for the year, so how do you see this changing what, you know, as we move into the quarters of FY 2024?
I think our Raymond acquisition so far has been quite good. It has been on plan, and we are quite happy with the progress in the integration. The reason for the GSV, gross sales value number in the one and a half months that we bought it, has roughly been the average, despite downstocking at the primary point, which is a distributor. We have had two reasons for a lower NSV sales and low profits. One is take-back of slow-moving inventory, which we had planned to do, so that we can get distributor capital to move faster. Secondly, from the day we have taken over the business, we have started investing in ATL, because we believe that this is a category that ATL will drive business.
These are the two reasons that we have reported the loss that we have and reported a sales growth, which is significantly lower than the gross sales value growth. We maintain broadly what we said we'll do for the year, which was not single-digit UVG, it was roughly the-
He's talking of single digit, EBITDA.
No, margin. I was looking at the EBITDA margin.
Yeah. We, you know, I, I think we, we remain committed to, you know, doing what we've done in year one, because we want to just clean out a lot of stuff. By the end of this year, and certainly next year, our goal is to get to being EPS positive. There's nothing that has happened so far in the business that leads us to believe that our strategy is... You know, there, there's been no surprises in the business so far, Avi.
Avi, just to add, in quarter one, we didn't have over synergies, which will start getting cleared out from quarter two onwards, and hence we remain still confident of, you know, getting close to the ambition of high single digit EBITDA margins on a full year basis.
The way it should be, is this loss should no longer kind of, I mean, it should kind of improve, it should become a profit, and then we kind of reach towards that trajectory for the full year. That's the way I should-- More, the hard work is more or less behind us in Q1, and the impact is largely-
I mean, Q2 will still be a quarter that we will see. In Q2, there will still be things that we are doing to synergize.
Mm-hmm.
I mean, it may not be as, like Q1, but it will still not be life is normal. We hope Q3, and then Q4, we hope, things improve. We see, we, we are currently quite confident of that, Avi. We have... Our general thing has been, you know, put the investments up front, take the pain early-
Mm.
you know, be patient in the results. you know, we've seen it category after category, that's played out, and we see no reason why it shouldn't play out here.
Perfect, that clarifies. Just a bookkeeping or just a simple clarification, the palm oil prices, I mean, it's been, you know, would love to hear your outlook on how you see that kind of trending, and whether there is, as of now, any reason to revisit pricing. That's all to my side.
Yeah, I mean, palm oil prices in the recent past have again, sort of strengthened a little bit, but nothing out of the extraordinary. I think, you know, we will In, in, in normal times, we will prudently pass on kind of reasonable costs to the consumer. If it's hyperinflationary, then things are there, but that's not what palm is looking like right now. It's looking slightly inflationary compared to where it is today, but still significantly lower than what it was last year.
Perfect. Perfect, Sudhir. That clarifies. Thanks. Thank you very much.
Thank you. The next question is in the line of Vivek M from Jefferies. Please go ahead.
Hi, Sudhir and team. A few questions. First, on the CapEx bit again, Sudhir. This, CapEx INR 900 crore, I don't know, when did we last see, you know, this kind of bunched up CapEx? Just to clarify, when you say that it adds 20% to your capacity, that's really the, that's a theoretical capacity or the real capacity? What I mean by that is, basically, is it because of, you know, you want to augment capacity, or some of this is actually replacing, the existing ones, you know, let's say, because of technology reasons or, or let's say, better logistics? See, there are three things we want to do, Vivek. Number one is, we are bullish on volume growth. We're seeing it, and we have to now plan for volume growth. Number two is, we believe that significantly, and, you know, we had mentioned this in our strategy, that we have to move money from working capital to automation. We believe that our supply chain needs better automation or higher degrees of automation in order to increase productivity. That's number two. Number three is that we think that the logistics footprint of our manufacturing needs to change. A lot of our business is down south, and we feel that we need some manufacturing closer to the big markets of south. These are the three reasons.
Take INR 900 crore over three years, which is about INR 300 crore a year in India, we would normally have put INR 140 crore-INR 150 crore in our, let's say, roughly INR 150 crore a year in any case, for augmenting capacity for this line, that line. It is an increase of about INR 450 crore over the next three years. We are more than recovering for all this through growth and working capital, and our view on savings and our view on ROCE is very good for this CapEx.
Okay. Okay, got it. The second bit, sorry, Sudhir, you explained, you know, this entire Nigerian thing. Can you just explain it again in terms of which all line item it's going to hit over the next few quarters?
Hey, Vivek, this is Sameer here. I think as Sudhir called out earlier, till say around May 2023, official rate of Naira to dollar was around NGN 450, okay? Entire translation was happening at NGN 450 to a dollar, and then dollar to rupee. What has happened is NGN 450 to a dollar has devalued to, say, around NGN 750 to a dollar, which means the entire accounting translation, line by line, you know, kind of translation of each of the P&L line items will happen at NGN 750. That's not a cash impact, it's more of, you know, accounting translation impact, which will get reflected in, say, the overall INR sales growth. That's one, accounting translation impact. The second impact is on inflation.
Earlier, what was happening is we used to buy part of our dollar needs at NGN 450 to $1, and part was at whatever, you know, we want to call parallel market or blue market rate, say, around $700, NGN to $1. The blended rate was around NGN 630-NGN 650 to $1. That NGN 650 will move to, say, NGN 750, which is the rate at this point in time, which means the cost of purchase will increase from NGN 650 to NGN 750, which we will pass it on to the end consumers. Part of it has already got passed on, and part will again get passed on over the next, you know, couple of months. That, we will take care of it by passing on the prices to end consumers.
It may come with a lag of few months, but it will directionally get passed on. That's the inflationary impact, but it will get mitigated. The third is again, more in terms of, you know, grouping, regrouping. What was happening technically earlier is the Forex, you know, line item in the P&L, was the delta between purchase at the open market, say, 700, you know, NGN to a $1, reduced by NGN 450 to a $1. Now, that will start sitting in the materials cost and gross margins, and hence, we should be looking at EBITDA, including Forex line item, for a better comparability in terms of how the trends are sequentially, but more importantly, on a YOY basis. These are the three, you know, different impacts, Vivek, which this NGN devaluation will have eventually on the P&L.
I, I think basically, Vivek, the USG will get affected, because 450 to 650, we won't price for, because that's just an optical change. 650 to 750, we will price, albeit over the next two to three months, so there might be some short-term impact. The second thing is the Forex plus EBITDA is what we should look at. We anticipate about 200 basis points of USG reduction on purely this optics, because 650 to 450 is a 30% optics in terms of USG on a business that is 8% of our-
7%, 8%.
7%-8% of our revenue. That's about 200 basis points on the optics of USG. That's a optical change, it's not a real change. I don't know if that's clear, Vivek.
Yeah, yeah, that is, that is, that is helpful, although I'm, I'm sure we will have some challenge on the modeling, but, but this is, this is useful. The other point was, Sudhir, on the A&P spend. Can you talk about where do you think India and consol will settle at in FY 2024? I mean, it's good to see, you know, a push-up in A&P spend, but where does it settle at in, for both India and international?
Look, I think the India organic business is not very far from competitors, peers, et cetera. The Raymond business is still low, so there, you know, on a weighted average basis, that may go up, but that's because, you know, RCCL is frankly not spending anything on media at all. I think Indonesia probably should go up more. I think it's still low at, what is it, 4% now?
4%.
That's still a bit low. Africa has to be disaggregated a little bit, and, you know, the requirements of hair extension are different from FMCG, but I would probably say that is also a bit low. India organic is kind of roughly where it is, but the other three parts of our portfolio, RCCL, GAUM, and Indonesia, I think. I think the confidence, you see, the thing about investment in ATL is it's not just an ideology, right? It's got to, you've got to invest, you've got to see it. Like in India, we're seeing it, and then we've got to do it, but broadly, that's how it'll go, Vivek.
Really, two very small points. One is on Magic floor cleaner. You know, Sudhir, it doesn't dilute the brand Magic, you know, because from a shampoo to a— sorry, from a, you know, from a hand wash, body wash to a floor cleaner, doesn't that dilute the brand?
I think, Vivek, I'll send you the advertisement for Magic Hand Wash. Maybe just send it to everybody. I think, see, at the end of the day, Magic is positioned as, you know, good for the planet, you know, and, and, and basically, this idea of reconstitution, that you take one small sachet and reconstitute it into a product. Our thinking has been that keep-- that is the core of Magic, and what we have seen is that across the world, many brands that position themselves pretty strongly on the environment and planet, are able to straddle a few categories in home and personal care. I mean, Ecover is a good example of that in the UK.
Therefore, we felt that it was probably better for us to have a single brand in home care and personal care, and Magic is not, frankly, a skin cream. It's a hand wash there, and it's a floor cleaner here versus getting into different brands, and because the mode of communication, and I'll ask Tappan to send all of you the new Magic communication, which is on air. We like it quite a lot. We hope you do, but maybe send the hand wash ad as well. Just send the hand wash and the floor cleaner ad. We think that it makes a reasonably coherent pitch. It's obviously something we thought about, but sometimes you've got to just take a call, and this is the call we took, Vivek.
lastly, Sudhir Sitapati, how big is shampoo hair color as a % of overall category right now?
Shampoo hair color is a fast-growing segment. I don't think it'll be proper for me to give the exact numbers. It's a fast-growing segment within the hair color market, and we are also growing fast. One of the things that we did last quarter was to launch a 15 rupee shampoo hair color in the south of India, and that has been doing extremely well for us. Just as we launched 15 rupee crème in last year, this quarter, we launched a 15 rupee shampoo hair color, which we were the pioneers in the market to do so.
No, no comments on how big it is as, as a percentage of overall hair color category?
Not specifically, but it's a fast-growing segment, Vivek. It, it is material and fast-growing, but you'll be able to find out, and it's not proper for us to tell you what it is.
Got it. Thank you, Sudhir and team. I wish you all the very best.
Thank you, Vivek.
Thank you. Any participants who wish to ask a question at this time, they may please press Star and One. The next question is from the line of Percy Panthaki from IIFL. Please go ahead.
Hi, Sudhir. Hi, Sameer. My question is on household insecticides for India. I'm assuming that the home care is, I think 13% growth, so household insecticides will be like somewhere between 8%-10%, at least, if not more. What I wanted to understand is that, what are the drivers for this growth? Of course, you have launched two new products, the spray and the vaporizer, both in the small units. Is that the main driver? Now it's been some time, so can you give us some idea on whether you consider these two products as successful products, internally based on repeat purchases, et cetera?
Sure. Household insecticide performance has been driven by two factors. One is that it has been a relatively sort of weaker summer, and therefore, the season extended. That, that has been a, definitely a good contributor to household insecticide. There has been some impact on market development. It's still too early to say how much of it is due to the smaller packs. We are quite encouraged by those results. You know, in consonance with heavy advertising, our non-mosquito format has done particularly well. There's been, I would say, market development investments, plus a good season. I mean, I still would say that this is not a category where, in all honesty, you know, we can say that this is really at the potential that it should be.
It still requires more effort. This has been a good quarter, but I don't think we can call victory yet in this category.
Right. Secondly, on the Raymond's portfolio, just correct me if I'm wrong, but this has been consolidated for one point five months only and not the full quarter. Is that right?
That's right. We took over on May 10th, so really from that day onwards, it's one point five months, roughly, is what it's consolidated for.
Still, like a INR 45 crore sales, isn't that too less, considering that this will be the biggest quarter out of the four for this, and the overall annual sales is like INR 620 crore? On a run rate basis also, it's not even meeting last year's sales, right?
Yeah, firstly, I told you, right, there are two, three reasons for this. 1 is, you're right about the fact that the run rate for this business is about INR 150 crore a quarter, or point five quarter would have been INR 75 crore-INR 80 crore. We down stocked. The distributors here were sitting, you know, we're going to have to further do it. The distributors in this business were sitting at 80-90 days of stock. Our distributors in GCPL sit on 10 days of stock. While we didn't come all the way to 10, we've had to come a pretty large distance in terms of down stocking. The second thing that we have done is we have taken returns, which is negative sales, to a pretty large tune.
Our GSV is lower than it should have been by a little bit because of the downstocking at the distributor point, our NSV has been lower than GSV because of stock returns. You must remember that we have done nothing to this business in the last one and a half months, except to clean up. As and when we see synergies, et cetera, et cetera, we will see these numbers go up. We remain quite confident that what we are doing, because, you know, we are investing in media right now, and sooner than later, we will start investing in distribution once, you know, we are able to bring the might of GCPL onto this business.
We don't think that in the context of that, of the downstocking and the returns, INR 50 crore of NSV for one point five months is a low-- is, is okay.
This downstocking and returns, are they now behind us, or this will continue into the next few quarters?
I think returns are probably more or less behind us. Downstocking will have to continue, because from 90 days, we are determined to bring this down to 10 days, which is 80 days in general trade, not in modern trade, which is you can calculate that, and that we will do, because we think there's a lot of cost that gets trapped because of holding this kind of inventory, which we want to release. That will continue in Q2, but I don't think it will continue in Q3 and Q4.
On a full-year basis, at a net sales level, you stick to your guidance of having a flat YOY?
Yes.
Okay. Okay, yeah, that's all for me. Thanks, and all the best.
Percy, is the question answered?
Yes.
All right. Thank you. The next question is from the line of Jay Doshi from Kotak. Please go ahead.
Hi, thanks for the opportunity. Just a quick follow-up on the previous question on HI. Now, two consecutive quarters of double-digit growth in HI, on a weak base, how should we think about the next two quarters? If I remember correctly, September last year and December last year were a reasonably good quarter for HI, with some shifting seasons. Do you expect this trajectory to continue, or will we-
It's hard, it's hard to predict. I mean, I don't think we were sitting on a weak base, by the way, of HI. I think last year was sitting on an extremely strong COVID base of HI. You know, when we look at POYO numbers, CAGR, which is how we look at numbers, we still think the quarter was good, but it's not on a weak base or anything like that. It is a seasonal category. The seasons have moved, so it moves. I mean, it moves in what I've now seen in two years, is it moves in steps of two months. It isn't, you know, we shouldn't get too excited with one or two quarters of good results. Similarly, we shouldn't get too affected by one or two quarters of, of, not-so-good results.
I, I would say, however, just to repeat this, that we've made some progress on HI, but, you know, unlike many of the other categories, like Indonesia, you know, many of the categories in India, where we feel we're really kind of, you know, on the absolutely there, I think HI, it is still early to declare victory in HI. I, I still remain, by the way, really confident that in the medium term, this will be a growth, accretive growth driver for GCPL, but, but the last two quarters results shouldn't be read as a premature sign of declaring victory in this category.
That's helpful. One more on capacity, if I may. 15%-20% increase in net capacity, does this sort of, also factor in that, you know, you will be moving some of your outsourced capacity or production to in-house, and over and above that, your total capacity outsourced or in-house will also increase by 15%, 20%?
Yes, this factors in the fact that as we increase our capacity, in many of the categories, we are realizing that when we, you know, we, we outsource it because of some seasonal demand, et cetera, We find our manufacturing is more effective, so this includes the volume growth and the insourcing of capacity that is currently outsourced.
That's helpful. Thank you so much.
Thank you. The next question is from the line of Sheela Rathi from Morgan Stanley. Please go ahead.
Thanks for taking my question. Just one question from my side, Sudhir. This is in respect to the ad spends again. You know, we are at about 12.5% of ad spends for the India business and about 9.4% consolidated. Probably we would be the highest in the FMCG space this quarter, from a percentage of sales perspective, and on an absolute basis, also, significantly higher, almost, you know, doubling on a year-on-year basis. Do we think we can sustain this, and what is it, you know, where we see that these kind of spends will be going into, if you could elaborate?
Just a follow-up on that question itself is that, you know, does this incorporate the high teen EBITDA growth, which, we have called out, you know, during the strategy meeting, last quarter?
I mean, Sheela, two, three questions here, so let me answer it. I think, you know, it's not, there's no right number and all for advertising numbers. I mean, I mentioned it earlier that we certainly are on organic India business, round about what a business of our profile and our growth profile should have. Look, if there is good return on investment to be had on media, we're not going to stop at a number because it's 12.5. Similarly, if we find some of our business over a few quarters not giving return on investment, and we have to scale back and get it back, we won't do it. I mean, we, we won't hesitate from doing it. So it's not a specific number.
I think the important point, Sheela, is to look at what, you know, I had read in my note, which is compared to three years ago, same quarter, or four years ago, same quarter, which was a pre-COVID quarter, our GMs are down and our ATL is up. Our EBITDA is actually greater or equal to what it was, which means there's a fundamental and a volume growth trajectory, while I think 10% does have this element of good HI season, is higher than our volume growth trajectory in the past. This model is broadly working. We will now, you know, keep calibrating it as we go along. I mean, ultimately, we are investing in, in ATL to drive volume growth.
We'll keep calibrating it up and down, but in India, I would, you know, as I answered, I think, Vivek, the, the number broadly, roughly seems in the vicinity, but it's not from any other parts of our business.
Understood. On the EBITDA growth number, EBITDA will continue with the same?
No, I think we will continue. I think, you know, if volume growths come, we're efficient on costs, and, you know, we're simplifying our business. Volume growth always leads to good EBITDA growth. We will, I mean, you know, there's no such thing as, again, a right EBITDA. Gross margin is important because gross margin is value to consumers, and sometimes if you cross a value, some kind of threshold on gross margin on existing categories, if it comes because of mix, it's great. You know, it can, you know, it, it can have impact, but, you know, we'll continue growing EBITDA as long as we know volume growths are coming.
Understood. Thank you.
Thank you. The next question is from the line of Jitendra Arora from ICICI Prudential LIC. Please go ahead.
Hi, good evening. Just, a curiosity that whenever, let's say, we are launching a new SKU at a lower price, like we did in the hair color and the shampoo and also in the aerosol, how do we calibrate, the volumes for the existing SKUs, given that, some of the users may shift to this new SKU?
I mean, look, our general view on this in India is in underpenetrated categories. I think there's a question of how penetrated a category is. Underpenetrated categories, when you launch an access pack, you, the upgradation that you get is far in excess of whatever downgradation you have, A. B, the downgradation that you have tends to be in the first 12 months of the launch, whereas the upgradation that you get tends to be for a much longer period. That's because, you know, those consumers who are value-seeking and want to downgrade, downgrade often the first year. There are a lot of consumers who don't want a small pack. I mean, you know, if you think of most of us, we don't necessarily buy the smallest pack, which is the best value per ml. You know, we buy what's convenient.
These are the two trends that we see in India.
Okay, thank you.
Thank you. The next question is from the line of Abneesh Roy from Nuvama Institutional Equities. Please go ahead.
Yes, basically, my question is again on HI. You have done these LUPs also, you have said that still a bit early to celebrate. What exactly is needed here? Because earlier you have done very disruptive products at 15 rupees, say, in the hair dye, or say, in HI also you have done, in terms of the powder to liquid, et cetera. Here, what is the missing link? Will it be much more efficacious products at much lower price point? Because currently, the 35 rupee or the 50 rupee LUP in HI is more of a smaller version of the existing product. It is not more efficacious. Is that the missing link?
Yeah, that's, that's probably right, Abneesh. I mean, if you look at some of the molecules that are available in China, and which are illegally coming into India, through incense sticks. Incense sticks is really the carrier of it. These are much cheaper, high-efficacy molecules. There is a lot of... They have not been registered in India, but there is definitely a, a dimension to the issue.
Right. Second question is on the India business, e-commerce plus modern trade. Broadly, if I see the FMCG pack, most companies are in the 20%-30% range. Of course, FY 2023, 2022, there has been a big growth. What is the number for you, and in Q1, how has been the growth rate in these two trade channels?
Well, these two trade channels have, like for most companies, outgrown, general trade. We don't measure and we don't track salience of these, Abneesh. We track availability of our products in modern trade, you know, visibility and ease of search in e-commerce. We are very, very particular about maintaining, price parity across channels. We have realized that, you know, getting too worried about, salience of channels is not very, productive in the medium term. These channels are growing faster. You know, e-commerce is growing faster, and modern trade is growing faster than, general trade. We don't we so in fact, we kind of move away from having targets or salience of these.
Right. Last quick question: Your earlier company has been doing, innovation in the manufacturing in terms of nano factories. I understand that's much more relevant for, small batch size personal care. In your own personal care, is it relevant or, because you're doing a big CapEx of INR 900 crore CapEx over three years, but from a nano factories perspective, what's your, thought process?
I mean, look, you know, the, the, the definitely the need of GCPL's CapEx has to be, to be more automated, larger lines, internet-enabled lines, more productive factories. I mean, our strategy has been to simplify SKUs, growing categories with larger SKUs. I don't know about other companies, and, you know, that it's not necessarily true about all categories and all companies, but our game is category development through, through a fewer SKUs. We really want to get, you know, scale production at the lowest variable cost. That's what our manufacturing strategy is. It will have to be tech-enabled and pretty high tech. I think that is true of all new CapEx, but, you know, we are not in the business of having many small SKUs.
Okay, one follow-up I had on Indonesia business. New leadership in place, you have done huge simplification there. The modern trade distribution, also a lot of, work in progress. Here, are you, are you confident that most of the issues are now resolved, and next one to two years, this could be growth accretive on a console basis?
Yeah, I think so. I mean, look, I don't know the answer to that. I know that our business is now running really well. I know that we are gaining market share. How Indonesia will therefore grow is anybody's guess. From what we see, both in terms of macros and what we hear on Indonesia, you know, the nickel boom, et cetera, it does look like this is an economy that, you know, is, is going to be a, a fast-growing economy. If we have the right capabilities in Indonesia, I would bet that this would be a certainly a value accretive business to us, probably a growth accretive business as well. I don't know about growth, actually, but certainly value accretive over the next few years.
Yeah, my question was on capabilities only. Are most of the issues now resolved?
Yes.
Okay. Okay, that's all from me. Thank you.
Thank you. A reminder to our participants, please press star and one to ask a question. The next question is on the line of Kaustubh Pawaskar from Sharekhan by BNP Paribas. Please go ahead.
Yeah, good evening, sir. My question is on the, consolidated debt. What is the date on our books now?
Hi, Kaustubh, this is Samir here. I think if you look at, net cash, basically, we would be, I mean, you know, largely net cash as of June end. I think during, Raymond's acquisition, we had called out that, you know, with Raymond's acquisition debt on books, we would be net cash somewhere mid of the year, but I think that has come two to three months, you know, beforehand. To answer your question, we are already in a net cash position. It's marginal number, but still net cash as of June end.
Okay. Okay. The CapEx, which we are planning to do of INR 900 crore, will it be largely funded through internal approach, or you are planning to take any debt?
I think it will be a mix of both, you know, internal approvals and debt, depending upon what's commercially more viable for us. Also, please remember, we have a very strong cash from, you know, operations, right, demonstrated over last couple of years, and we expect that momentum also to continue over the next two to three years. You know, funding this CapEx over a period of next three years should not be an issue as such.
Okay. Thanks.
Thanks.
Thank you. Ladies and gentlemen, that would be our last question for today.
Thank you.
Thank you. On behalf of Godrej Consumer Products Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.