Q1 21/22

Aug 4, 2021

Ladies and gentlemen, good day and welcome to the Q1 FY 'twenty two Earnings Conference Call of Goderich Consumer Products Limited hosted Baxess Capital Limited. As a reminder, all participant lines will be in listen only mode and there will be an opportunity for you to ask questions after the presentation concludes. Please note that this conference is being recorded. I now hand the conference over to Mr. Anand Cha from Axis Capital. Thank you. And over to you, sir. Yes, thanks. Good morning, everyone. And on behalf of Axis Capital, I welcome you all to the GoPros Consumers Q1 FY 'twenty two earnings conference call. Without further ado, I will just hand it over to Mr. Pratik Gantara, AVP, M and A, Investor Relations to do the introductions and take the call forward. Thanks and over to you Prateek. Thanks, Anand. Good morning, everyone. We hope that you're staying safe and healthy. We will be covering today the results for the quarter ended 30th June 21. On the call from GCPL, we have Ms. Niswaba Godrej, Mr. Rishi Srinivasan and Mr. Sameshia. As a customary, we will start with Nisa sharing our perspective on the business and overview on how we are navigating the current environment. Thank you, Pratik. Good evening good afternoon, everyone. I hope you and your families are safe and healthy during these times. Thank you so much for being with us on this call today. We've had a strong start to the year, delivering double digit profitable sales growth. Specifically in quarter 1, we saw broad based double digit growth within the home care and personal care categories. Our overall sales grew by 24% with a 2 year CAGR of 11%. EBITDA grew by 29% with a 2 year CAGR of 15% and that grew by 38% excluding exceptional items. Home Care delivered a strong growth of 14% led by household insecticides. Air fresheners continued to witness sequential recovery, so the overall category continues to face headwinds due to its discretionary nature. Our portfolio in home hygiene is scaling up well. Personal Care continued its strong growth momentum growing by 29% led by personal wash and hygiene and robust growth in our hair care portfolio in Africa, USA and the Middle East. We look forward to building on these categories in the years ahead. From a geography perspective, India grew at 19% with a 2 year CAGR of 12% led by broad based growth within the home care and personal care category. In home care, household insecticides delivered strong double digit growth with the 2 year CAGR also in double digits. Home hygiene witnessed strong demand amidst the second wave of COVID-nineteen. Air fresheners and fabric care witnessed growth on a low base. In personal care, personal wash and hygiene continued momentum with strong double digit sales growth. 2 year CAGRs were also in double digits. Hair Color also witnessed very high growth, but on a low base. Our innovation rate was in the high teens. The scale of our e commerce business continues well. Indonesia delivered a weak performance with flat constant currency sales growth on a base growth quarter of mid single digits. Recovery has also been impacted by the 2nd wave of COVID-nineteen and adverse macroeconomic factors. Our Africa, USA and Middle East business continued its strong growth momentum and delivered a profitable double digit sales growth of 60% in constant currency terms. I'm pleased with the strategic focus and growth mindset of the team. Our consolidated EBITDA margin at 21.3% increased by 90 bps year over year driven by an improvement in Africa, USA and the Middle East and Latin America and SAARC margins. In India, margins decreased by 110 basis points year on year driven by the lag between an increase in input costs and end consumer price increases. This was partly mitigated through scale leverage and employee benefit expenses and other expenses. We continue to have a very healthy balance sheet. Our return ratios continue to move up year on year, while the net debt to equity ratio continues to come down. We remain confident of leveraging growth opportunities to drive sustainable profitable sales growth across our portfolio in fiscal year 2022. I'm very proud of the exceptional agility and resilience with which our team is navigating the challenges of COVID-nineteen across geographies, ensuring seamless supply chain deliveries and responding to shifts in consumer behavior. We also continue to adopt a safety first principle across our ecosystem, supporting our team members, their families and business partners across to get fully vaccinated. As always, our values matter the most at this time. We remain committed to doing our best to truly live the Goodridge way and serving our people and communities. Thank you. Ma'am, should we open for Q and A? Yes, please. Thank you very much. We will now begin the question and answer session. The first question is from the line of Avnish from Edelweiss. Please go ahead. Yes. Thanks for the opportunity and congrats on numbers. My first question is on HI and there are 2 parts to this. So one is you got good benefit of the pandemic in India and now Indonesia in some parameters is even ahead of what India saw in May in terms of the pandemic. So any benefit you are getting either in Q1 or Q2? 2nd is on Maharashtra, what you have done in terms of the jumbo pass card. So earlier, there was an efficacy issue versus illegal HAI. So what is different this time? And any timelines you can share on the disruptive products which are going to come against insulin fix? So let me answer that, Avnish. Hope you and your family are well. So I think in Indonesia, because of the certain ways, we've definitely seen very high sort of pickup in hygiene category, especially in sanitary. In HI, we didn't see as much of a pickup in Indonesia like we saw in India. There's also some amount of destocking going on in many months. So we'll see we'll watch to see what happens in quarter 2 July was a bit better in Indonesia starting off. So we'll wait to see that. On your question on jumbo FastCard, so Fast Card, so why do we believe this is an effective product against illegal infant sick? So Fast Card going for 3 minutes, it works like economic aerosol, so it gives you a lot of active immediately. But what we found was that what consumers like about the illegal insulin stick is that it burns for about 30 to 45 minutes. And then there's some residual effect. So the jumbo cast car actually also burns for like 45 minutes to an hour. And then you have residual effect for about 4 hours. So it is a direct it is directly against illegal incense stick in terms of the job to be done for the consumer. So just one follow-up on this. So weaker HI in Indonesia versus India, that's because of the weaker FMCG sector performance there because of the GDP? Or in India, the new products are doing well? What is that or the base is favorable in India that's why India is growing faster? So the India, the base is very Amish, the base was very high in India, correct? So the base is trending 4 years ago. The 20% to 6%. I think Indonesia does have a certain level sort of off the macro impact. So I don't think you can directly compare to India in terms of what exactly is happening in the portfolio is also relatively different between India and Indonesia. Sure. My second question is in the annual report you have mentioned FY 'twenty one was the busiest year in terms of digitization and digital native brands launch, etcetera. So two questions here. 1, some of the FMCG companies are doing their own e commerce site. And second, they are also investing in digital startups, so FMCG, B2C kind of startups. So what would be your thinking on this from a medium, long term perspective? So we I think we have a dedicated sort of e commerce P and L. We've also got an entrepreneur in residence. We launched Good Miss Me, which is a digital first brand. We have other brands also like Bee Plant, which are very sort of digitally sourced. So we really feel like this is an opportunity. Priority number 1 is to double down in your call on this, but also to build sort of new consumer franchises through this. Sure. That's all from my side. That's very helpful. Thanks. Thanks, Puneesh. Thank you. The next question is from the line of Avi Mehta from Macquarie. Please go ahead. Hi, team. Thanks a lot for this opportunity. I wanted to understand the gross margin comment you pointed towards a lag between input cost pressures and price hikes. Could you help give some sense on the inflation levels and what price hikes are still required to be taken? And a linked question, if you could help us understand from a cost control, because that's been one of our traditional speciality, you've kind of been able to offset these pressures. Would you how would you look at EBITDA margin, operating margin on a y o y basis? Hi, Avi. This is Sameer here. I think the input inflation is largely coming in from palm oil prices as well as crude prices, which are up on a YY basis. We continue to take elevated price increases. If you look at last quarter, the overall price increase in India was close to around 4% to 5%. And if you double click across some of the subcategories, in categories like personal wash and hygiene, the price increases would be in high single digits to even double digits. So we will continue this approach of taking calibrated price increases. It has worked very well for us. If you look at our personal wash and hygiene groups over past few years, they have been very strong. Market share also has been very robust in terms of gaining market share in this category. We would in parallel kind of evaluate pricing opportunities in rest of the portfolio as well as work more hard on cost saving projects. And to answer your question on cost saving projects, historically, they have contributed anywhere between 3% to 3% as a percentage point of sale. And part of that has got reinvested back for group and part of it sort of moves to the bottom line. So that's the approach which we will have. We expect I mean inflationary pressures to continue. Okay. And second was essentially on the HI side. I mean, would it be fair to look at jumbo fast card now as the key the key warriors for instance, it enhance the active base instance, it active ingredient based instance, it kind of takes a back seat. Is that a correct read through or no? If you could kind of on that as well? I don't know. I think that's a bit hard to comment on. Obviously, we have a slew of strategies, but I don't think we want to give out place, give out our cards exactly on what we're planning on that. But it's definitely one part of the toolkit to sort of fulfill consumer's needs. Okay. And lastly, if I may, on the Indonesia side, could you give us an update on how the situation has been on ground as of now and how is grow how are growth rates? Have you seen some recovery? Could kind of give the confidence We've definitely seen a better July, although it is on a not so we had a low base last year in sort of quarter or quarter 2. So I mean if you see those FMCG sort of numbers there, the macroeconomic situation hasn't been particularly strong. But we definitely feel Sanitur has been a big success, which is our hygiene brand there and continues to do well. But we are really focused on sort of deep diving because our categories are strong categories even during a pandemic in terms of really focusing on growth there. And I think as the deal comes in also, it will be a big focus area for the rest of the year in terms of getting Indonesia to some new growth. Okay, perfect. Thanks a lot. Thanks for this initial update. Thanks, Navin. Thank you. The next question is from the line of Harit from Investec. Please go ahead. Yes. Hi, good morning. The first question is on the Africa portfolio. So obviously, we've seen an improvement on a year on year basis. But if you look at sequential margins at the EBIT level, you've not seen a material improvement there for this quarter. So I just wanted to understand on the Africa side, we are still obviously much lower than what we were in quarter 1 2020. Is there a gross margin led pressure here because your international gross margins are a bit lower? So I just wanted to understand what's happening or is it higher spend on brand investments that's kind of impacting the overall margin improvement? Hi, Harit. This is Sameer I think sequentially, the major reason for a drop in, I think, close to 100 bps kind of margins in Africa is because of offering marketing investments, and that's the only reason. Also, you have to note that our Africa business has a strong seasonality even around quarter 3 coinciding with the testing season, there is significant kind of scale which comes to play in terms of driving stronger margins. We are very much on track in terms of Africa cluster, which will get played out over the next 3, 4 years in terms of us reaching to kind of mid to high teens margins. So there is any kind of inflation pressure over there, so we are mitigating it through pricing. We are also mitigating it through cost saving programs. And we are very much on track in terms of our desired margin, which will be also, I mean, higher on a YY basis on a premium basis. So, Samu, if I understood you correctly, there are 2 key reasons for this quarter would be higher inflation and the upfront investment, right, for this quarter specifically? Yes. If you are baselining it with Q4, I would attribute it more to the higher upfront marketing investment and little less to inflation because we had inflationary pressures even in Q4. And then it's not that inflationary pressure kick started only in Q1. Got it. And the second question was on the India business. So from a home care perspective, I know you have big plans in home and hygiene. Just seeing some of the competitors who got in this segment about 6 to 9, 12 months anywhere between 6 to 12 months back have kind of retraced a little bit in certain categories. So just wanted to understand how are you looking that space, especially on the home care side, your commitment to this space, etcetera. Does it differ in terms of product categories that you're going to look at, focus on some, focus on not focus on others? So just wanted to know given your start in the launch versus now, how are you thinking about it? Thanks. So Harish just continued to be very strategic portfolio for us, right, the entire kind of hygiene space, one of our most innovative product powder to liquid handwash has been a big success, right, over the last 15 to 18 months. So we continue to invest in terms of creating awareness for the product as well as creating a stronger brand equity. The rest of the portfolio beyond handwashes also are kind of steady. I'm sure you are aware we also launched somewhere during the middle of last year the home cleansing range under brand ProClean and that is also off to a good start. And we will see a lot more from our end in this space. It's not just a tactical kind of strategy from our end to kind of get into this category, but more structural in nature and which in turn is kind of part of our larger expanding the total addressable market strategy over the period of next year, 4 to 5 in India. Got it. Got it. And the last thing, if I may, was on the sequential movement in working capital days. Anything to read into that, the increase or just not much? Yes. I think we need to kind of dissect working capital into 2 components. 1 is the reported working capital, which is what capital into 2 components. 1 is the reported working capital, which is what we have shared and then there is core net working capital. The difference between both of them being the structured vendor financing, 2 things. 1 is directionally we are taking calls to kind of reduce down our structured vendor financing because it's no longer EPS accretive, especially lender financing because it's no longer EPS accretive especially on this low interest rate kind of regime. So we are kind of going to pull down and that's going to be the big reason for kind of drop in our overall net working capital. However, the core net working capital continues to be extremely robust. In fact, even in Q1, on a Y o Y basis, our core net working capital has come down by 5 to 6 days. The other piece also which got paid out from net working capital perspective in Q1 was higher filter for inventory because of the second wave and lot of related uncertainty, we were very upfront in terms of ensuring that we have adequate inventory right from raw materials, packaging materials to even finished products. So directionally, the inventory values also moved up. So it was kind of driven by both lower structural vendor financing as well as upfront buildup of inventory. PayPay. The next question is from the line of Vivek Maheshwari from Jefferies. Please go ahead. Hi, good morning everyone. Two things, first on the A and P spends, what is your outlook on the A and P spends, Vishal, come down quite a bit? So, Vivek, hi, this is Sameer here. I think if you look at E and P spend in India as a percentage of sales in Q1, they're hovering around 5 to 5.5 percentage more, right, which is relatively lower as compared to our average percentage to sales. Couple of things, one is in the month of May, we had taken a pause because of second wave and all of uncertainty. That has resulted in a relatively lower A and P spend. The other piece is to look at A and P spend aggregated with trade investments, especially with customers and more so with the pricing investments because we are also taking calibrated price increases at this point in time and not passing on the full input inflation to the end consumers. So when you look at basket of all three put together, which is advertisement spend, trade promotion spend as well as pricing investment, the aggregate basket has gone up as a percentage of sales and the increase has been much beyond overall sales increase. So it's more of balancing also at this point in time and maybe in medium term because we are in high inflation environment is something which we'll see so on kind of working towards. Okay. Got it. Got it. And second, Sameer, can you give exact growth numbers for soaps, hair colors and HI in India? So, Vivek, I mean, we had shared in our disclosure changes last time around that we would be sharing kind of directional growth. And I think the directional growth are sort of big then. So to give you an idea, I think housing in Texas has had very strong double digit growth and even the 2 year CAGR was in double digit. Ditto was the case for personal wash and hygiene in which actually bath soap is bigger kind of contributor. And one hair color had a very strong kind of growth although on a low base and 2 year titles were kind of also relatively lower, but we are seeing sharp recovery in hair colors in June July. So largely all the 3 categories, I mean subcategories have been kind of strong double digits and pretty well placed at least on a 2 year casual basis, especially when it comes to housing safety side and personalization RG. Okay, got it. Sameer, one suggestion, look, if you yourself analyzed the last 12 quarters performance, the disparity between the 3 categories has been or 3 key segments has been very, very high. It will be useful if you keep the disclosure at the same level. I mean, I think it will help allow us to appreciate your performance much better because when you say double digit, if everything is double digit, that doesn't really help because 12% is also double digit and a 25% is also double digit. So my request is if you can continue with the same disclosure level, at least in the presentation, I mean, you have a new segment, that's fine. But if you think it's precise number, that will really help because the volatility in your performance has been very, very high. And that will really help when the 3 categories are behaving very differently. So, yes, it will be Malo Oravet. I mean, thanks for your feedback. I think the intent remains to sort of share a lot of details on our subcategory performance, including a lot of initiatives. So that's Sure The next question is from the line of Manoj Menon from ICICI Securities. Please go ahead. Hi, team. Very good morning to all of you. And congratulations to Sameer on your promotion. Super happy to hear that news. I have only one question to Nissan team. See, given the fact that consumers spent a lot much more time at home in the last 12, 15 months, etcetera, 2 sub questions there. 1 on the insecticides, non mosquito part of the portfolio, how that would have trended? And anything directionally which any insights or anything which could make this non mosquito part grow faster? Secondly, the same question, if I can extrapolate to Air Care also. While I understand that in India, significant component of Air Care is still out of home. But again, to sub top, was there an opportunity to actually push a little bit more on Air Care in the last 12 months or even in the next 3 months, 6 months? And again, any insights which will allow these two segments to grow much faster versus the trend they were trading in the past? Thank you. Yes. Hi, Manoj. Thank you for your questions and hope you're well. I think on non mosquito household insecticide growth has actually been very robust. And this is we see great opportunity for this in our for this in our portfolio. And we see things like anything you could do with cockroach, very highly correlated to advertising, correct, present the problem and present the solution to consumers. So and penetration is quite low in these products. So we see a huge advantage. We also see that things like we could more effectively compete against things like pest control because people don't necessarily can avoid people coming into their house. So I think this is definitely a growth opportunity. Similarly, in air care, Manoj, penetration is sub-five percent level. So great headroom, good products and good advertising, great headroom for growth, correct? Air care obviously is discretionary during the pandemic. We've also seen that people have been doing more cleaning, so I was cleaning my bathroom with a fragrant floor cleaner 3 times a day, then and I'm not having guests over, then air care is becoming a little bit discretionary. But we do see it bouncing back. And we're very focused with having the right products, right advertising and right level of investment that both these areas are definitely very exciting growth opportunities. Thank you. Thank you, sir. One follow-up, if I may. What I was just trying to get at was any incremental insights which you had picked up in the last 12, 15 months or which includes quantitative and qualitative both? Quantitative could mean, let's say, household penetration increase or anything of that. No, household penetration so in household insecticides, household penetration has actually gone up across all categories, right? So even in electrics and stuff, we are seeing people we are seeing this need to protect themselves, correct? And we're seeing HUGO and Scentracers also do well because we have this full sort of portfolio of products. I'm just I was commenting that the low penetration in the non mosquito segment also gives you a lot of headroom and sort of many years of growth. AKI explained qualitatively what we've seen happen in COVID, correct? No guests coming and using a lot of other cleaning products. So it's become a little discretionary to me. We see that trend reversing as things sort of open up and with the we have the right product, right advertising. We're quite excited about this re launch of Air Pocket where we've made it sort of Power Pocket, which is and it has some germ kill ability, last longer. So that's important. I think also in Air Care, as travel improves and we have a new launch lined up for cars also at a very interesting price point. So yes, I think with the right product portfolios and the right advertising and investment, both these categories have long term growth opportunities. Sure. And lastly, on HAI launch, which you had done in Africa a while back, I just saw a mention in the presentation about Nigeria, etcetera, but some commentary would be helpful. Thank you. And that's the last question. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Yes. So Manoj, I'm glad to report on that, but it's doing really, really well in Nigeria, well beyond our expectations. And this is something that we do have to really strongly build out on because the incidence of malaria and things like that is highest since the African continent actually. So and we have started disruptive products there. So we're looking forward to good growth and building that category out. Okay. Sure. Thank you. I'll actually take it offline with Samir and Pratik. Thanks, Nisha. Thanks. Good luck. Thank you. The next question is from the line of Aditya Gupta from Goldman Sachs. Please go ahead. Hi, good morning, everyone. First on the innovation pipeline. So generally from products being in a concept stage to a commercial launch, is there a ballpark number you can share? How much time does it take for a commercial launch and then maybe to take it national to it for it to become meaningful in the portfolio? So what we saw in the pandemic, we were doing it literally in 4 to 6 months. It really depends by category, correct? So to say in something like household insecticide, which is one of the issues we also had with combating illegal incentive is that you have a 3 year registration. Your product might be ready, but then it fits with the CIB to get registered for 3 years. So from sort of ideation to end date really depends on which category it is for us. Got it. And feeling that you've been launching new products across the home cleaning segment and is there a potential for the contribution from this new pipeline to increase from the mid single I think where we are to maybe Yes, most definitely. I mean we've seen with Sanatho in Indonesia become a very big brand for us. So I think we've seen Magic Salient as part of our sort of overall personal wash and hygiene growth. So we definitely see I've been commenting in terms of sort of resurgence of household insecticide, one of our key categories, which is about 30% globally, and that hygiene is also 26%, 27% overall for us. And there are many opportunities to grow this category part given the pandemic. Got it. And just one more on A and P spend again. So I mean if I look 3 years back in the India P and L, this number used to be north of 11%, 11.5%. And even if you leave out the Q1 in fiscal 2021, this was a 9 ish kind of a number. I mean, it's a play between gross margins and EBITDA margins like Sanit mentioned earlier. But is there a structural savings of 100 basis points that you guys have squeezed out? Or if GMs go back to early levels again, this number is likely to go back to a I mean, yes, 11% kind of a handle again? Hey, Ajith here. This is Sameer here. So no, I think by our kind of growth vectors, which is innovation and creating a strong kind of pull for the product, we will continue to invest, I mean, very shortly on advertisement spend. And there is no way sort of measure to reduce from A and P spends to kind of manage quarterly margins because it doesn't work out in medium to long term. I think what is important to note over here is it's a bit of balancing, right, especially in Q1. We will see, I mean, A and P spends, period of last 12 to 18 months, we have also again done very serious kind of cost saving program, especially on A and P spend CPR fees in terms of having a healthy mix between traditional channels to digital channels, right? And also having overall mix between kind of print as well as new media. So all those will kind of come to play, but we will continue. I mean, that whatever is the right kind of quantum of investment to drive our growth in the medium to long term. Perfect. Very helpful. Thank you and have a good day. Thanks, Aditya. Thank you. The next question is from the line of Harit from Investec. Please go ahead. Yes. Sorry, I just had a follow-up. So I just wanted to understand your outlook for the year for margins. I know it's a tough one because you have several moving parts. But is the cautious that in spite of the sharp pricing, the sharp iron inflation, you can look to maintain your margins in a certain band in the way you have done in quarter 1? Is that the way you look at it? Hi, Arav, this is Sameer here. So I mean it's very dynamic, right, at this point in time to call out as to how the margins will evolve. In turn, it is dependent on kind of input inflation and how the second wave or third wave eventually kind of turns out to be. Honestly, quarter 1 template is perfect template, right? I mean, we did see a gross margin contraction, scale leverage, cost sales program mitigated good part of it. And then whatever was the kind of remaining pull got mitigated by leveraging our international kind of portfolio. Let's see, I mean, on a full year basis where we end on margin, I think the focus internally is more in terms of driving kind of sustainable, strong, fully double digit kind of sales growth. And my sense is if that happens, assuming an automated inflationary environment, we should be there on margins. I mean, we are not too overly worried at this point in time, taking a little larger time period of 9 to 12 months and there will be significant scale leverage also which will sort of come in. So we are at this point in time not to overly worried on a full year margin. We'll see I mean how it shapes up more appeal that side. This time. The next question is from the line of Vishal from Philip Capital. Please go ahead. Yes. Hi, team. Congrats on a good set of numbers. I have two questions. First question is on Mr. Magic Anwosz. If you can provide some more color, what is the size as of now, distribution reach and how much more room could be covered? And how is the new campaign of 1 hand wash equal to 3 folks working for you? And second question is on Jumbo pass card, pricing of Jumbo pass card versus illegal infinities and your infinities as well? I didn't get the one on jumbo, Kartik, and I didn't hear. On Magic Handwash, I cannot give you the details to competitively to ask for, but it is doing very well. We've got very good volume sort of market share, and we continue to focus on the insights that handwash is more hygienic to use, more comfortable to use than bar soap and this price point is definitely a disruptor. Okay. Anything you can provide on distribution front or there's a feature as of now Mr. Manjik? No, sorry, can't share that. Okay. On the second question was on pricing of jumbo pass card versus illegal interest expense as well as your interest expense. So what is the pricing differential that is there? The pricing is similar. At least INR 10 or INR 15 for INKAR or the second line? INR 10 for 10 cars, yes. Okay, great. Thank you. I believe in legal terms, it's going to have a very fixed MRP because I mean they Margins are very, same margins are higher. Okay. Thank you and all the best. Thank you so much. Thank you. I would now like to hand the conference over to Mr. Pratik Dhanda for closing comments. Over to you, sir. Yes. I'd like to thank everyone for joining the call today. With that, we'd like to draw this call to a close. Stay safe. Stay well. Thank you. Thank you. Ladies and gentlemen, on behalf of AXIS Capital Limited, that concludes this conference. Thank you all for joining us and you may now disconnect your lines.