Ladies and gentlemen, good day and welcome to the Godrej Consumer Products Limited Q2 FY25 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 call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to the GCPL team. Thank you, and over to you.
Good evening, everyone. Welcome to the investor call for Godrej Consumer Products Limited. For GCPL, we will have Mr. Sudhir Sitapati and Mr. Ashish Malpani. We will start with opening remarks by Sudhir. Following that, we will go into Q&A. Now, I welcome Sudhir for his opening remarks.
Thanks. Thanks, Vishal. Good evening, everyone. GCPL has had a good quarter, given the headwinds of oil costs and tough consumer demand in India. Our standalone India business grew 7% volume, 7% value, and EBITDA was flat. Our standalone EBITDA at 24.3% is at the lower end of our targeted band of mid-twenties and is caused entirely by high inflation on palm oil. The already high prices were further exacerbated by the import duty on oil. We think this is a short-term hit, and we will recover the margin through judicious price increases and stabilizing of costs over the next few quarters. Despite margin headwinds, we have not and will not cut media investments. Despite the drop in margins, we have held our A&P at 11.6%.
In fact, if you include rural van operations, which gets captured in overhead, we have, in fact, increased our brand investment by 100 basis points. As it has been our practice in the past, we will not compromise on the quality of our products by reducing TFM in soaps. We have been asked several questions by analysts on structuring of soaps, and while we do not comment on competitor actions, it may be worthwhile for me to spend a few minutes on our own view on structuring of soaps. Bathing bars, as a category, was introduced by the BIS in 1992 . That's almost 32 years ago. It allowed reduction of TFM with a partly compensatory addition of synthetic surfactants. A bathing bar reduces not just insoluble fatty matter, which is used for structuring and not for cleaning, but also good soluble fatty matter.
When the total math on surfactant is done, a bathing bar cannot technically equal a Grade 1 soap in cleaning, lather and softness. A change in quality of the filler may improve peripheral sensorials, but it doesn't change the basic science and chemistry. In benign conditions, consumers may not notice when you reduce CPS and add structurants, but in difficult circumstances, like hard water, consumers do notice. For the last thirty years, we have known of structuring technologies, but we have stayed away from the temptation of the bathing bar category. From two to three share in the early 1990s, GCPL, in volume terms, is now in the high teens, and this is largely due, in our assessment, because of consistent adherence to quality standards. We are not going to revisit this strategy now just because palm oil prices are inflated.
The inflated palm oil prices, coupled with our view on ATL and quality, means that our overall margins and volume growth may be range-bound for the next couple of quarters. But we are sure that if we can continue to hold on to this high single-digit volume growth, despite soaps volumes being under pressure, and I'll talk about why soaps volume will be under pressure, EBITDA growth will follow in a few quarters. I must add that high single-digit volume growth during a period of low soap growth, we grew volumes in soap even this quarter, but it is testimony to the strength of the rest of our portfolio. Particularly noteworthy are the continued growth of air care, the rapid scale-up of laundry, incense sticks and sexual wellness.
Indonesia continued its steady performance with 7% volume, 9% revenue and 17% EBITDA growth, driven by the core categories of air care and household insecticides. GAUM continued to have a weak top-line quarter but an exceptional bottom-line quarter. Organic volumes declined 8%, value declined 10%, but our reported EBITDA and Forex grew at 33%. Our GAUM margins are now 14.5%. On the back of macroeconomic stability returning in Argentina, our LatAm business performed well, with 50% UVG, 46% USG and double-digit EBITDA margins. On both GAUM and LatAm, we are reasonably bullish that some kind of structural change in margins seem to be underway. Our overall growth was 5% organic UVG, 5% organic USG, 8% reported EBITDA and 12% reported PAT.
Our relaunch of HI with RNF molecule is showing clear green shoots in incense sticks and coils, which were launched a few quarters earlier. We are waiting for the results on electrics, which may take a quarter or two for it to be visible, and as we speak, we are going in with a better molecule on aerosol. At the end of this month, our entire portfolio would have been revamped with superior formulations. Overall, we feel that we have stuck to our strategy of holding high single-digit volume growth in India and Indonesia and structurally improving profitability in international markets. We will continue to play on this strategy while volatility in palm oil prices plays out over the next few quarters. Wishing you and your family a very happy Diwali! Thank you so much.
Clearly, and now move to the Q&A part of this call.
Sure. Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask questions may press star and one on your 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 questions. Ladies and gentlemen, we will wait for a moment while the question queue assembles. First question is from the line of Avnish Roy from the Nuvama Institutional Equities. Please go ahead.
Yeah, thanks. Congrats on the 7% volume growth in India. My first question is on the clear green shoots which you mentioned in the incense stick and in the coil. Could you elaborate on that? And is it more in the rural India, where anyway FMCG is seeing the reasonable consumption revival? So how much is it because of the consumption revival? And in the urban India, in the slums, in the lower end of the population also, are you seeing a decent recovery, not just in incense stick and coil? If you could comment on the urban India slowdown in rest of the two, three categories.
I mean, look, as you correctly said, we are seeing a slight bit of reversal in the sense that rural is now growing at 2x of urban. But our urban has still grown reasonably well, and both coils and incense sticks have grown reason, I mean, very well in urban as well. In fact, on coils, you know, we didn't launch RNF across the country. We launched it only in some parts of the country two quarters ago for a variety of reasons. But what we are seeing is, in the parts of the country where we launched RNF is doing better than the parts of the country that hasn't. I think that is pretty encouraging for us for RNF. It has taken six months, though.
So given the fact that we launched electrics in July, we are hoping that by Q4 we will see results in electrics. There's also this thing, to be honest, last quarter we had reasonably good seasonality on HI as well. So there are a little bit of compounding factors, but I would say that the green shoots we're seeing are secular across urban and rural, but I wouldn't call victory yet, Avnish, on this.
And second is, of course, your pricing in incense stick is competitive, but what we generally see is the illegal segment offers more trade margins, trade discounts. So is that a problem, given kirana overall income levels are under stress, so they obviously will prioritize something which gives them more trade commission?
Yeah, Avnish, what we've noticed is that the basic trick here is direct distribution. So when we looked at our shares of incense stick last month, we were roughly about 5% share in incense stick. It was only 10% weighted by distribution of incense stick, but 50% market share in outlets where we've distributed. So in the case of incense stick, it's just a hard job of making sure that the product gets placed in an outlet. And once the product gets placed in an outlet, typically he keeps two products. One, we suspect will be a branded product, which will be us, and one perhaps is an unbranded product, which is higher margins, and this is how we think it will play.
So our single-minded focus on incense sticks is to double and treble distribution, because as we double and treble distribution, our market share will keep going up. As things stand today, we don't have much wholesale demand, so we've done well in incense stick despite wholesale, but wholesale typically takes a year to come. The first demand gets built, retailers demand it, you have to advertise it. So I mean, we anyway are not going to play that kind of trade game. We're gonna play a consumer game on incense stick.
Sure. My second question is on the India soaps, so this quarter both the top two players have seen weak volumes here. Second is there is an urban slowdown across almost every consumption category, not just FMCG. There is slowdown everywhere, so now when you say that next two quarters volume growth for you in soaps will be soft, and I think market leader is also saying almost similar, although they are saying that recovery of the new disruption will take one or two quarters. It's not a specific comment on slowdown. Is soaps now a flattish kind of volume growth for the industry? Because, see, now price growth is happening. Whenever price growth happens, top two players always gain market share.
In that context, shouldn't your market growth in soaps also revive?
I think the value share, value growth will revive, Avnish, because this has a little bit to do with bases and so on and so forth. Sequentially for the last two quarters, we've taken pretty sharp increases in soaps. What we see when we take sharp increases, see, soap volumes for the category tend to be in the two to three range. What we see when we take sharp increases in the short-term, volumes fall. They may even become negative, for a quarter or two. Then, because consumption doesn't really fall, people don't really reduce number of baths. Pipelines thin down, when you take up prices, volumes recover. So we... I mean, this quarter, I must tell you that we grew volumes on soaps. It's not that we didn't grow volumes on soap.
We both grew volumes, value share, volume share, all of it, we've done quite well on soaps. But from past experience, I know that when you, you know, cut your margin, you take up prices, there's an immediate effect on pipelines. There will be a little bit more pressure on soaps, but we hope that the other parts of the portfolio compensate for it, and we roughly remain around this kind of volume growth.
So last quick question on the premiumization of the portfolio and the liquid detergent disruption, which you have done. If you could share some data points in some of the key markets where liquid detergent has been quite successful. And in terms of premiumization, would you be worried given the urban slowdown? Or in fact, premium continues to do quite well. If you could comment on that.
So on laundry liquid, we are very happy with our internal performance on laundry liquids. We have, you know, after many years, because we were essentially, Ezee was a winter detergent, and, you know, we were losing share. It was a specialist detergent. We started gaining share in liquid detergents. We are performing well ahead of our expectations on liquid detergents. It is a pretty big volume driver. It will only increasingly be so, which is what gives me confidence that we may be at this level of volumes despite soaps becoming slightly negative, what I expect it to be for this quarter, maybe again, you know, next quarter. But we still expect it because, you know, laundry detergent has done extremely well.
I don't really feel comfortable right now sharing market share data, et cetera, except for the fact that we are gaining share and doing very well across markets.
So thanks, that's all from my side. Thank you.
Thank you. The next question is from Vivek Maheshwari from Jefferies. Please go ahead.
Hi, hi, good evening, Sudhir and team. My first question is on HI again. On the LV with, so you have, you are expanding it into, you know, across different geographies. In the geographies or regions where you've expanded so far, have you, you know, done consumer checks in terms of whether the consumer is noticing, you know, that the product efficacy is far better than what it was in the past? Can you just talk about any of the feedbacks that you have from the ground?
Look, Vivek, feedback is generally, we launched LV in July. We've also done reasonably well on LV in this quarter, but we have to be fair, it's also been a good monsoon, and, you know, normally when the monsoons are bad, we let you guys know.
So, I mean, it is not fair for us to read into this quarter on the performance of LV, because these things, to really read it, you have to take six months. We have done lots of store and consumer checks. We are very pleased with the consumer feedback on it. Consumers are able to notice the difference, as they will. It's a technical category. So we are very hopeful and bullish on this, but I would say we'd have to just wait it out in all humility till probably Q4 for us to give you a picture on whether it's working or not. Right now, we can say that insight seek is going as per plan, and it is a pretty significant volume driver for us, and it will remain so for the next couple of years.
Okay, got it, got it. And on the, you know, you have fairly, you know, or rather, you have also explained, you know, fairly well on the, on the your position on the soap bit. But, you know, just one quick thing. So, you mentioned about the quality part, but is it that, you know, the fillers can help, you know, from a sensorial perspective in any way? Sorry, you know, it's a naive question, but I just want to be clear. The quality part, understood, but sensorial part, do you think fillers can do better job than, you know, what you have?
So I mean, look, filler technology can do a less worse job than it was in the past. That is possible. You know, you can have a filler that can kind of mask the impact of a filler. That is possible. It's, see, what do the sensorial consumer look for in soaps? It's a simple category, right? They're looking for lather as a measure of clean, they're looking for fragrance, they're looking for long-lasting, and the soap shouldn't sog and mush. On these three fundamental things, a filler can't do anything. It's a filler at the end of the day. Now, if you put a filler which is not very good, that can have a negative impact, so a better filler can less negative impact than a worse filler. But on these three fundamental attributes, how can a filler make an impact?
Got it. Got it. And two really small questions. First is on the, you know, you mentioned about rural versus urban for HI. When you look at the entire portfolio, can you just summarize your views on both the markets?
Sorry, what is the, Vivek, I missed you for a second. What was the question again? Just ask again.
Sorry. What I'm saying is, on HI, you mentioned about rural versus urban. When you look at the overall portfolio, are those comments relevant for the portfolio as a whole, or is there anything else that you would want to add between for rural versus rural versus urban?
See, rural has done better for us than urban, as seems to be the general commentary from a lot of companies. We have also driven rural. As I said, almost 100 basis points of margin we have invested in a massive rural brand operation program, and that is yielding results. So I don't know how much of this is natural rural growth, how much of it is induced by us.
But across the portfolio, it is true that rural is doing better for us. It's growing at 2x urban, roughly.
Okay, and is that all because urban has moderated back also to rural, and rural has picked up and, you know, and has been highlighted by some of the peers of yours?
See, I think in our case, I won't say urban has moderated. I would say rural has picked up. See, if you look at the composition of 7% growth and leave soaps aside, because soaps vary depending on palm oil prices between minus 2 volume and + 4, + 5 volume. So if you leave soaps aside, which is 35% of our portfolio, let's say roughly just about growing, the balance part of our portfolio is accelerated its growth to 10.
So when we have a time of benign palm oil prices and volumes go up on soaps as well, you know, what I've been saying from the beginning, which is we have to inch as a business towards, you know, double digit volumes. At least in the non-soap portfolio, we've gone there, so I would generally say it's frankly been an improved performance for us compared to our weighted rates in most categories.
Okay. And the last bit, other expenses in standalone are at 20%. One of the reasons is the vans bit that you highlighted. Anything else in that line item?
No, I think it's mainly the vans, which is a very large investment that is being made, which is coming in other expense, am I right, Ashish?
Got it. Got it. Thank you, and wish you all the best.
Thanks.
Thank you. The next question is from Percy Panthaki from IIFL Securities. Please go ahead.
Hi. My first question is on pricing. It's in two parts. So one is on HI, the volume growth is a mid-single digit. Is the value growth also the same, or is it higher by some amount? That's part A. Part B is in soaps. While sequentially there is some price increases, on a YOY basis, is the pricing positive or negative in soaps? And how do we see this going ahead, like in Q3 or Q4 on a YOY basis, will the pricing turn materially positive and that can sort of boost the overall top line of the company?
Yeah, I think to answer your first question, we have some price growth on household insecticides, so our value growth is higher than our volume growth there. In the case of soaps, we have taken sequential price hikes, and because of the nature of it, it doesn't. It's not visible. It is probably the price in this quarter also, but it's just about. Next quarter, or this quarter onwards, we will see significant price growth, the next quarter will be even higher. So we do expect, if we can continue this volume growth even slightly lower, you know, in this kind of 6%-8% volume range, we will see pretty significant price growths in this second half, and we will probably see growth in past the double digits, probably bordering on the teens in the second half.
Got it. Understood. Secondly, on HI, I wanted to understand, see, despite seasonally favorable sort of factors, the volume growth is around 5%. So, I mean, how should we look at this category now? Because, let's say, the seasonal impact here is huge. In the past where the season has been bad, the negative impact has been as high as 5%-10%. So a positive impact, even if I assume it's, let's say, 3%-5%, seasonally positive impact, that's a 0%-2% kind of growth in absence of the seasonality. So what is really wrong with this category? Because we have always maintained that this is a category which penetration is low, premiumization we can do, et cetera.
And now we have put in so many initiatives. We have democratized the HIT liquid at a much smaller size. The HIT also, we had launched at a much smaller size. Now, we have done incense stick, we are rolling out the new molecule, et cetera. And still, if the growth is only a 2% ex-seasonality, I mean, is this an attractive category, or how should we look at it? It's just general consumer slowdown, which is pulling it down?
Not consumer slowdown. See, I mean, it's difficult to say. This has not been a massively seasonal quarter or anything like that. Some slight seasonality is there compared to last year. Typically the one that, you know, really affects us is this Q3, Q4, so a slight seasonality in this quarter. I would say that this category has been growing 1%-2% steadily. I would add one or two percent on account of seasonality and about 2% on account of incense sticks. So I would say that, I mean, that it's really hard for me, Percy, to say how much is seasonal, how much is not.
I would say that mid-single digit volumes and near double-digit value in HI is progress, and, I think these numbers have to get better every quarter, once you start seeing, electrics, et cetera, starting to perform. So I, I would say that that's how we should look at it. We are, we're actually quite happy with the HI numbers this quarter.
Got it. Lastly, on the international business, Africa has done very well with 30% + EBITDA growth, and margins are also up to 14%-15%. What is your sort of medium-term margin target here? Are you looking at a 17%-18%, or is it something else? And on Indonesia, what is driving the top line or the volume growth there? Is it the distribution expansion in general trade, which is doing it? Is it some portfolio expansion, or what is really the main driver here?
I think in Africa, we probably, we're running roughly little short of 15% margin this quarter. We will keep to the high teens. We, then, you know, once you get businesses in FMCG, you know, bordering on the high teens, bordering on 20, then you can single-mindedly focus on growth. So I, I would say that there's still some scope on, Africa to probably expand margins over the next year or two, and that will still be our priority, over the next few years, and then probably move to top line once we've structurally corrected the margins. We've also benefited a little bit in Africa by a little bit more stable macroeconomic situation this year compared to last year, so, and I hope this kind of stays for some time. Indonesia is a, is like India, a pretty good economy.
We are present in two categories, which are still quite under-penetrated. So I would say execution, both in terms of distribution but also increasing media spend, are what is driving these categories. So 7% volume growth in an economy that's growing at 4%-5% in two categories is, you know, what we should consistently get in Indonesia.
Got it, Sudhir. Thanks. That's all from me. All the best.
Thank you. Before we take the next question, a reminder to participants that you may press star and one to join the question queue. Next question is from Kartik Chellappa, from Indus Capital Advisors. Please go ahead.
Yeah, thank you for the opportunity, sir. I have two questions.
Kartik, we can barely hear you. If you could please come closer to the mic.
Yeah. Am I audible right now? Is it clear?
Yes, Kartik, we can hear you.
Okay, great. Just two questions from my side. The first one is on the channel mix. So if you were to break down the 7% volume growth across, let's say, general trade, e-commerce to quick commerce, and probably modern trade, as well as direct distribution, how will that growth rate look like?
See, I mean, look, the general truth, which I think is true for everybody, is let's do the math, right? As I said, rural is growing twice as urban. Within urban, you know, both modern trade and organized trade are growing, I mean, e-commerce are growing in the twenties. The variance of urban may roughly be a third. So there's definitely pressure on urban GT, which I think is across. I mean, urban GT is now facing a double whammy, because partly by the disruption of quick commerce and partly by the slowing or pressures on urban consumption. I would say urban GT is the one that is having a tough time.
Yeah. So my question basically was on urban GT. From a point of view of urban GT ROI, are there any other special initiatives that you need to take incrementally to make it more viable, or has that adjustment already been done for our portfolio? Hello?
We seem to have lost the line for the management. Please stay connected while we reconnect the management. Thank you.
Sure.
We have the management reconnected. Over to you, sir.
Yeah. What I was asking is, with reference to your point on the pressure on urban GT, are there any incremental initiatives that we need to take to improve the ROI, or has that by and large, been done for our portfolio?
You mean the ROI for GT distributors?
Yes. Yes.
Yeah, I mean, look, we have to certainly consolidate, manage the efficiencies. You know, urban GT, very little we can do about, channel growth. We have to make sure that our partners are happy. We have to try and keep rates balanced between urban GT and, organized trade. We have to keep stocks in relative control. So I guess these are the kind of where the drive for efficiency in urban GT, because while it's doing badly, it still remains a very large part of our business.
Okay, got it. My last question is basically on HI. So assuming the current demand conditions hold, and let's say they stay where they are, and in one or two quarters, if our LV distribution is complete, what kind of volume growth can we expect?
See, I mean, this category, honestly, should grow in the high single digit volumes, so you know, it has traditionally been in the low single digit volumes. This quarter, we've done mid-single digits, maybe some seasonality, maybe not, and you know, for us to call it successful, we have to have a few quarters of a high single digit volume growth, then we say, "Look, this is the potential of this business." Couple of percent of pricing and kind of double digits or, you know, 11%, 12% growth is what we should aim for this business. We are kind of on that path. We are just short of double digits value growth this quarter. Another couple of percent we should get, as first LV and then aerosol is where we are relaunching, and they start to pick up.
Got it. Okay. Thank you very much for these inputs, and wish the team all the very best for the rest of the year. That's all from me.
Thank you. Next question is from Rishi Modi, from Marcellus Investment Managers. Please go ahead.
Yeah. Hi, Sudhir, can you hear me?
Yes.
Sudhir, my first question on the soaps front, on a QoQ basis, have we had volume growth or have we seen a volume decline?
We've seen volume growth [crosstalk]
And, uh [crosstalk]
But not by very much.
Okay. And
Which is, I think, significantly higher in the market.
Okay, so you're saying the secondary is higher than the primary sales?
That is also the case, but even our primaries are higher than, I mean, whatever we see, mainstream, whatever we hear, we are certainly performing well.
All right. On the RCCL portfolio, right? So I remember when you acquired it, you said distribution will be the first leg in which you'll get the portfolio ramped up. So, in terms of the number of distribution outlets or the count, how much has it increased post your date of acquisition? I remember you all were, like, 30% below Vini Cosmetics distribution and 25% of GCPL distribution. So today, where are we?
So, you know, on RCCL, I think I mentioned in last call, we've got some things right and some things wrong. We've got the things that we've got right, our sexual wellness is doing very well, our deodorants in organized trade is doing well. In rural, there has been significant increase in distribution. In urban general trade, we made a few missteps in distribution, and in several states, we are now reverting back to a specific channel for deodorants, which we did in the last quarter. So I would say that there's still a little bit of work to be done in RCCL. As a consequence, we will probably be slightly short of the EBITDA number that we had promised at the end of this year.
We had promised, I think, somewhere around, and we'll probably come back to you at the end of the year with exactly what's happening at RCCL. We acquired these businesses, if I'm not mistaken, at about 70 crores of EBITDA. We had said we will do about 145 crores -150 crores of EBITDA at the end of this year. We may be slightly short of that. Not massively short, but we may be short of that.
All right. On the hair color front, I saw you all posted double-digit growth. So just wanted to understand, is it the primary sales and the secondary sales will take off in the marriage season or the festival season, or even the secondary sales is double-digit?
No, I think secondary is also double digit. In general, secondaries have been ahead of primaries in this quarter for us.
Because, like, even if you could explain why is it double-digit? Like, because no other major line consumption has shown strong growth in this quarter. So I'm just trying to understand.
Yeah. Lastly, what has happened is there was a double Shravan month, so we're lapping a relatively low base.
Okay, all right. Understood.
Yeah, unique month. Normally, in Shravan, people don't color their hair in the West. Last year we had two Shravan months, so that was a low hair color base, and so on that we did well.
All right. So, like, it's a one-off benefit or a base effect rather than a longer-term trend, so-
Yeah, but I mean, y es, certainly it's a higher hair color than usual. But as I told you, secondaries are higher, so we may, on the long term, we may be slightly lower than what we are this quarter.
Understood. And finally, on the Africa business, I heard you targeting high teens EBITDA margin. Is this gonna be on the existing portfolio, or you're gonna sell off or shut down a few more businesses and hence get to that margin? Or any plans of selling off any more of the Africa businesses?
Yeah. So I asked it here. So, no, I think, we've done whatever geography restructuring has been largely completed. There are certain other projects which we believe we'll be able to deliver to drive efficiencies in terms of supply chain and other projects. Those will kind of happen. But, no, nothing in, on the grounds of what we have kind of done in the past. So to kind of come to the straight answer, it will be on the existing business. We will obviously add more levers to growth, like FMCG brands, as part of it.
Okay. All right. Yeah, that's it from my end. Thank you.
Thank you. The next question is from Amit Purohit from Elara Capital. Please go ahead. Amit Purohit from Elara Capital, you may go ahead.
Hello.
Yeah.
Yeah, yeah. Thank you for the opportunity, sir. I just wanted to understand on the soap category a bit better. I want to one what would be the share of the regional or unorganized brands in the overall category? And assuming that these players may not be the Grade One soaps what has been their response as of now in terms of given the palm oil prices have gone up? So just one but that's the first part of the question. And do you think there is a likelihood of an increased competitive intensity from them as well as generally the leader is also looking at very aggressive pricing and all? So just wanted to know your thoughts on this.
No, I mean, the regional players over the last 15 years -20 years, in soaps have come down. I don't know the exact number, but I think they're sub 10% now, and they're not what they used to be 10 years -15 years ago. The category has now mainly become the national players.
Sure.
In any case, even this, you know, during high palm oil prices, they tend to become smaller and smaller. It is generally in high palm oil prices, branded players gain market share.
All right. Okay. And they, they would have also taken price increases as of now, this year?
They would have, but normally what happens is that they don't re-enter the market, a lot of local players, when palm oil prices get raised, so they just don't manufacture. Because they buy in small volumes and get a pack.
Mm.
So the price goes up, then, you know, their working capital and all goes up, so that becomes an issue.
And in the interior markets of, say, probably in north or so region, there these alliances would be slightly higher, right? That's
Mainly the central belt is where they're strong. Chhattisgarh is where they've traditionally been strong and in and around those parts of the country.
Okay, and sir, second question on HI, what was the value growth? You talked about mixing, which is volume growth, so just [crosstalk]
Yeah, we've got a couple of percent pricing, so it's bordering on double digits.
Okay. And, is there, price increase has been in the later part of the quarter and hence, probably some more benefits we will see, in the coming quarters from a pricing perspective, is this-
Yeah, I think we will see in steady state, we will see some kind of pricing growth in household and sector side as well.
Okay.
You know, 3%-4% we should see every year.
Sure. Thank you, sir. That's it.
Thank you. Next question is from Nehal Shah from Ambit. Please go ahead.
Yes, hi, good evening, sir. A couple of questions. First, in case of R&F, you did highlight about the importance of scaling distribution. Would it be fair to say that, you know, improving customer awareness of the superior efficacy is a key driver to gain market share and improve the growth, and how are we approaching this?
Yes, it is. So we have a very compelling claim, which is around lasts for two hours after the electricity goes off. And we have been spending a lot of mass media over September, advertising it towards the end of August, September. Typically, we wait for a month after launching it. So, and we will continue to invest heavily on this so that we can build awareness of the new product.
Understood that. The second question was for Indonesia. We've seen a larger competitor there, obviously getting impacted because of route to market issues. Just in our case, would our initiatives in terms of getting our route to market sorted is more or less done and dusted with?
Yeah, I think so. I think we've had a very successful transition from branch to RD in Indonesia, and I think it's yielding us rich results in terms of distribution.
Sure, sir. That's it from my side. Thank you.
Thank you. Next question is from Harit Kapoor, from Investec. Please go ahead.
Just one question on the margin. So, you know, you spoke on the soaps, you know, cost pressures. I just wanted to know, in India or internationally, is there any other pocket of RM-led cost pressure that you are currently, you know, facing, or it's largely okay, you know, margin pricing should take care of it?
I think it's largely palm oil only. There was last quarter, a little bit on shipping and all, but I think that's been sorted out now. But largely, I would say the inflation is on palm oil. Very recently, actually, with this import duty on palm oil, there's been a very sharp increase. But generally, palm oil is the problem this year.
Even outside India, there's no other kind of large [crosstalk]
No, there's nothing outside India, which is why margins are very good outside India. Profitability is generally good, so there is no major inflation.
Got it. That was my only question. Thank you.
Thank you. Next question is from Jay Doshi, from Kotak. Please go ahead.
Yeah. Hi, thanks for the opportunity. My question is on soaps. Now, you know, you've decided not to adopt the structure and the technology, whereas the market leader has gone ahead with it. So, you know, if we leave aside the current inflationary environment in palm oil and assume that palm oil prices normalize during the course of next 6 months -8 months, even then, you know, the market leader would potentially have ability to offer more grammage per their soap versus what it used to be in the past, which may result in widening of price gap between your product and theirs. Do you think, you know, that would still, you know, with that kind of equation, you'd still be able to gain market share or hold market share like you have done in the past?
Or you would like to maintain the price gap as it has always been, and which probably means that you may operate at a slightly lower margin, you know, on a more, even in the medium-term basis?
So I mean, look, over the last seven years, we have gradually been taking the relative price index of our soaps compared to the market up, and we have only continued to gain volume and value share. So gradually, our brands are becoming stronger, you know, so our general strategy is to give the right value to consumers what we think is the right quality to, you know, command the margins, invest in building brands and, and, and get onto that virtuous cycle. That fundamentally doesn't change, our view doesn't change. It's not like our relative price index to the market has remained stagnant over the last five years.
It has gradually gone up, in fact, pretty significantly over the last few years and hasn't had any detriment to either volumes or value relative to the market. So I think we will be determined by a principle of strengthening, gradually taking up prices as our brands strengthen, giving what we think is the best quality to consumers, doing what's right by consumers, and slightly diverse from what others do.
Understood. That's helpful. Second is, could you give us some more color on, you know, the progress in laundry detergent and the roadmap over the next twelve months? You've expanded in new markets ahead of your original timelines. You know, can offer some more color on what we should expect in the next 6 months -8 months.
No, I mean, look, laundry liquid is a really exciting category, growing really fast, one of the large... It's going to be one of the largest FMCG categories. And I think now with Fab and Genteel along with, of course, Ezee, which is already a big player, we have three brands in the portfolio, and we are going to play laundry liquid seriously. We were pioneers in laundry liquid. And we would, you know, we are going to play this aggressively. This category, I mean, Ezee is a high-margin player, but this category may be margin dilutive. We had to find ways of funding it in the rest of the portfolio. So, but this will be a growth driver for us going forward.
As it is, it surprised us, this year itself, but I think it will continue to be a big growth driver for us. Sure. Thank you so much.
Thank you. Next question is from Sheela Rathi from Morgan Stanley. Please go ahead.
Thanks for taking my question. Sudhir, I just wanted to understand this better with respect to your comment on, you know, rural growth being towards urban growth. In terms of category salience, fair to say that soaps, hair color, and maybe now even incense sticks would be the key driver of rural growth? Or is there any other category which has done specifically well for us in this quarter?
I think most categories in terms of volumes have done well. Aer continues to do well. PKS in terms of volumes continues to do well. Slightly below our expectations, but nonetheless, it's done well. Laundry liquid does extremely well for us. Hair color has done really well. And household insecticide has done moderately well for us. And soaps has been a little bit not disappointing, but what is to be expected in high inflationary times. I think a combination of these put together, Magic has done well for us. Combination of these has given us pretty good numbers.
Historically, Sudhir, what would have been the salience of certain categories in rural? I mean, is the mix changing for us?
Yeah, I mean, I do feel like GCPL's portfolio, except for soaps, is a rural-forward category, in the sense we have traditionally been under-index to rural, and the time has come for us to really expand our rural distribution. So we have put 100 basis points of margins, I think I spoke to you in the analyst call as well, to almost increase a couple of, I think we're now touching 60,000 more villages, and I think 200,000 outlets. So massive rural distribution increase. Again, this is costing us, it's not wildly profitable in year one and two, but we do believe that our portfolio, household insecticide, hair color, creme, aer, all of these laundry liquids, all of these are at tipping point in rural.
So we're quite happy with the fact that rural markets are back, and we will play this game aggressively in rural now.
So this is going to continue for us, now, I mean, even going ahead.
Yeah.
Second question was on incense sticks. You know, you talked about our market share being 50% and stores where we are [crosstalk].
Yeah, not fifty, Sheela, I said that our market share is five [crosstalk].
Shops, we said.
Our distribution is 10%, so in the outlets where we are distributed, our market share is 50%.
Yes, absolutely. So what is the distribution reach currently, and what is our interim target? You know, if they-
Yeah, no, I mean, we have to explain. Firstly, we have to do direct distribution and complete the job on direct distribution. Then, you know, we've got to get wholesale to buy it. That will take some time, so there will be. Over the next 6 months, we will saturate direct distribution. Then once we saturate direct distribution, you know, we'll have to wait for demand to pick up, and then rural will really. See, three quarters of distribution in this category will come through wholesale. So at the end of the day, whatever we do, we get a quarter distribution directly. So that 10% distribution, we can move it directly to 20 or 25. Then to go to, you know, high numbers, we'll have to wait for wholesale, which will pick up. You know, there's a method in this.
Any markets in specific we are focusing here?
No, I'm saying across the country, incense sticks is doing well, Sheela.
Okay.
Initially, it was not, you know, not so well in the South, but now it's picked up in the South. So across the country, incense sticks is a big category.
Okay. Another question was on QC, quick commerce. Do we have a separate... I mean, what part of our portfolio is doing well on QC? Or have we created a separate portfolio for quick commerce? How are we thinking about this strategy?
See, quick commerce is generally beneficial to us. Our margins are higher in quick commerce because pricing is higher in quick commerce. Quick commerce generally is not a long tail business model, at least so far. So, you know, it is the top brands in each category that does well. So quick commerce has been generally accretive to us. Our market shares in quick commerce are generally higher than they are in, let's say, regular e-commerce, because there's no long tail. It's not, you know, in that model. So quick commerce has generally been good for us only.
Thank you.
We welcome the fact that many e-commerce players are moving to quick commerce. We're very, very serious, very, very focused on quick commerce.
Understood. And then last and final question is on India standalone margins. You know, it's in the lower band of our own AOP. Is this the bottom, or can we see some margin deceleration in the coming quarter?
Sorry, I missed that first part, Sheela. Can you repeat that again? Just the first part.
India, EBITDA margins, how should we think about it, going ahead?
I think, you know, it may be around about this level, a little bit here up, and now I don't know, maybe two quarters. So it may be in this between 24 and 25. It's hard to say exactly how much, because palm oil prices are extremely volatile, and we can't respond to it. But I can only say, and the reason I'm not committing is, you know, the easiest thing to do is to cut media to get a target EBITDA margin. That we don't want to do. We would rather drop EBITDA margin than cut media, because we know that EBITDA margin comes back, and then that media helps you in the long run on volume growth. That's why it's a bit hard. Otherwise, you know, it's a balancing number.
You know, if you have a target EBITDA margin to, you know, reduce 11% ATL, it's relatively easy to cut to 2% ATL, but, you know, we don't want to do that.
Fair point, Sudhi. Thank you very much.
Thank you. Before we take the next question, a reminder to participants that you may press star and one to join the question queue. The next question is from Jitendra Arora, from ICICI Prudential Life Insurance. Please go ahead.
Hi, two questions from my side. One over here, we are also seeing something for max in form of spray as well as some powders. Do we intend to launch these? Second, in terms of inventory, how would, and with the cost of this value chain, number of days, how would the quick commerce differ from e-commerce from general case?
In terms of inventory held by the various [crosstalk].
By the entire value chain.
Is that the question?
Yeah, by the entire value chain. Whether you are, storage as a distributor and then, the retailer, and finally. So across channels, how does the number of days of inventory change, and does it make our business more profitable in quick commerce?
So listen, to answer your first question, if it was. I didn't hear it fully, but if it was our laundry strategy to enter powders and bars and all, I don't think our strategy to enter-
The first question was about. I'm sorry. First question was about hair colors, in terms of, other formats like sprays and all, which are very,
I mean, look, you know, in hair color, actually, see our portfolio, while it, you know, is actually, it's very clear that we have to move this category from powders to creme. That is the future. That is how most global countries are. We have a pretty large powder business, and that is actually declining at 15-20%. That affects the growth numbers that you see. Actually, the creme part of the business is growing really well. It gets hit by the fact that, you know, we have a Godrej powder, we have a mehendi, et cetera, which are slower parts. But, you know, we are not looking at defending what is yesterday's categories. We are going to grow creme, and our aggression is really on creme, and distribute for those consumers who want powder, et cetera, be there. So we don't advertise powders, et cetera.
But over a period of time, we expect this country to move entirely from powders to creme, and we want to be the company at the forefront of that. As far as inventory on various channels goes, I'd like to revert to you. I know what it is in GT, which is typically GT carries about twenty days, and our distributors carry twelve, thirteen days. So there's about thirty-two days in the overall channel in general trade. Let me, let me ask Vishal to revert to you, because thanks for asking the question, I should have known the answer, but I don't know how much inventory quick commerce carries for us. I know we tend to carry more inventory for modern trade because demand is more volatile. I don't know the exact numbers.
We will revert to you with the exact numbers, but thanks for asking that question. I also felt, anticipated that.
Sudhir, on hair color, my question was actually moving to more premium format like sprays and all. We have seen more products in the past.
We are premiumizing markets. Yeah, you're right, so we are at cream. One of the things that we as a company have to do is to premiumize hair color. Right now, when I tell you that the bulk of the game is still to move from powders to cream, so we have at least five to 10 years of that value driver remaining in India. But as we do that, we have to think about the future as well. Sorry, I missed your question. There was some disturbance in the line.
Thank you.
Does that answer your question? But we don't have an answer for it. We have to do it. It is important, but not urgent.
Yeah, no, simply, I was asking more because of the fact that in quick commerce we've seen a lot of premium products taking off because of client kind of clientele they are targeting then. So that's why one can start at multiple fronts just waiting for it.
Agreed.
Thank you.
Okay.
We move to the next question. Next question is from Percy Panthaki from IIFL Securities. Please go ahead.
Hi. Thanks for taking the follow-up question. I just wanted to understand from you how you're looking at the consolidated EBITDA growth for the second half. Like this quarter, you have done 8%. Would it be a fair target to sort of expect the same in second half? The reason why I ask this is that your base effect in second half is more adverse compared to what it is in first half. Is that like a normal seasonality and therefore the YOY growth should continue, or the YOY growth will dip, given that the base effect is getting more adverse?
See, this quarter, which is Q3, last year in India, we had close to 29% EBITDA on our base, which is an exceptional, unusual quarter. So this particular quarter will have very poor EBITDAs in India. But the next quarter, which is Q4, we should get back to pretty good EBITDA. Because I think the percentage EBITDAs may remain roughly where they are or go up a little bit, we hope, providing palm oil prices remain at this level and don't further inflate, which you never know. So if that happens, Q3 will be tough on YOY on EBITDA. It's simply because of the base of India of 29%. Q4, if I'm not mistaken, we again sell to about 26%, 26 .5% last year.
And then I'm hoping by Q4 we start to see some sequential improvement in EBITDA because we've taken one round of pricing. We hope that after Diwali, perhaps palm oil prices may soften, et cetera, et cetera. So I'm hoping Q4 is better.
Understood. Although my question was on the consolidated EBITDAs, Sudhir.
Yeah, on the consolidated EBITDA, we will have better margins. In Q3 generally one does better because it has higher you know seasonality there. So I would say that this quarter consolidated EBITDA margins will be significantly lower than what it was in the previous quarter, which is Q3. Q4, it may be higher than, but between the two quarters, maybe round about what we got in the first half, maybe a little less.
Got it. Got it.
Yeah, between Q3 and Q4.
Okay. I also just wanted to understand on the import duty you mentioned. See, well, my understanding was that the import duty is on palm oil. It doesn't really affect PFAD, which is what you import.
See, we use CPS, which is crude palm stearin, is a large component. Import duty is on palm oil and on crude palm stearin, firstly. So there's 20% incremental duty on CPS, which is a large part of the basket. What has happened as a consequence of the import duty on stearin, and I don't know fully why, but I can hazard a few guesses, is that palm oil has also moved up. Not to the same extent that crude palm stearin has moved up, but it has also moved up, partly because I also read that imports in September of palm oil in India crashed. A lot of PFAD is a by-product of CPS in India. So if you import less palm oil, PFAD falls.
So while CPS inflation has been to the tune of, just in the last two months, 25% sequentially, PFAD has also gone up by about 10% sequentially. So not the same as, CPS, but has also gone up. So the overall market has gone up pretty sharply in the last two months.
Okay, understood. Understood. So with the price increases that you're taking, will you be able to offset the impact of this incremental inflation you have seen in last 2 months , 3 months? Or we should see that, margins can actually fall further, versus the margins that you have actually clocked this quarter in soaps?
We're a bit of catch-up game, so even in the last quarter, in Q2, you know, inflation had happened. We've been following where we entirely take it. We're taking it again this quarter, next quarter, we again take it. So I would say that it's really hard for me to give an exact number, but I would say that we are behind inflation, but I mean, I hope to be kind of as behind as in the past, not to widen that gap unless there's a further increase in CPS, then, you know, we can do little bit, we can't do much about it.
Got it. Got it. And lastly, just wanted to understand this rollout of distribution, both of incense stick as well as, the new LV. I mean, at least in the direct distribution, which you are already tapping, why should it take six months to roll this out? I mean, this should be near immediate to roll out in the outlets where your salesperson is already going with just one or two more new SKUs. Hello? Hello?
The management line has dropped. Please stay connected. We're just reconnecting the line for management. One moment. We have the line for the management reconnected. Over to you, sir.
Yeah. Sir, I'll just repeat my question for you.
I got the question, Percy. So LV is the LV, the time is not six months because of distribution. LV is 6 months because when you make a new product, the logistics and all take some time, like in the case of coil, it's not a distribution issue. In the case of incense sticks, somebody asked a question that the margins that we're giving to trade is a lot lower than what the locals give. So there is some kind of trade resistance, you know, and we have roughly covered half the outlets we want to cover with incense sticks. In a couple of, you know, you know, you are selling it at 25% more premium to a local agarbatti.
So it's not an easy thing that they're already keeping you or they're keeping the category or selling the category, so it's a slightly slower burn than, let's say, LV will be.
Right. But even in LV, I understand it's not a distribution issue, but I really don't understand what is the hesitation from the trade to take the product, because it's the same Good Knight-
There is no hesitation from the trade, Percy. There is no hesitation for the trade to take LV. There's no distribution problem on LV. I'm just saying that the consumer cycle for noticing a new product and then acting on it is not immediate.
No, so if the consumer runs out of the old LV, then what the-
The new LV.
Are you supplying both?
We're not supplying both.
So then, I mean, I understand that it will take that much amount of time, let's say a month or month and a half, till the old product gets over. But after that, he will have to buy the new LV. He has no other option, right? Unless he goes into some completely different brand altogether, no reason to do that, right?
Of course, they have to buy the new LV, but for new consumers to switch from other LVs to our LV, or for consumers to switch from agarbatti to our LV, on the basis of advertising, will take some time, no?
Okay. That I got. Okay.
That's the top. There's no distributive problem on LV. There is a slight distributive problem on incense sticks. That one I'm quite bullish about. I mean, we are basically meeting our plans and in fact exceeding it. But that is not, everybody is not going to keep our incense sticks just because we are the first leading incense stick in the market.
Right. Right. Yeah, very clear. Got it. Thanks, Sudhir. Thanks a lot.
Thank you. The next question is from Rishi Modi, from Marcellus Investment Managers. Please go ahead.
Yeah, I had a question on the taxation piece. So if I remember it correctly, we still have INR 200 crore tax benefit in this year, right, from the Himachal Pradesh factories, and from next year, we move to the 25% regime. Is that correct?
That's right. So this year we are under the old regime, and we are getting fiscal benefits, and next year we intend to move to the new regime.
On the subsidiaries piece, right, I see we have, like, INR 380 crores of deferred tax assets, INR 330 crores, close of FY 2024. So are we going to be able to set off our profits against that? Or it's, there's some issue in terms of geographic rules or regulations which won't allow us to set it off?
No, so there are certain regions where we have a different tax benefit, and we are utilizing some of them. It will take on the, it's obviously on that geography's profit, so it will take a while to use it, but we are using the different tax benefit in a few geographies.
So we can use the entire INR 330 crores that we have recognized over-
That's right.
Whatever years?
That's right. That's right.
So, just, like, if I'm looking at tax rate, we're paying 30% tax rate right now in the PNL at least. So, like, I just wanted to understand, I was under the impression that we normally used to pay around the 20%-24% mark. It's jumped up to 30%. So just, is it like we're gonna set it off in the second half of the year, or?
So on the tax rate, you know, last year effective tax rate was around 29%. This year, we had guided that we move up around 100 basis points. So we've come to 13.9% with the guidance we gave in the investor meeting. And next year, we expect this to go down when we move on to the new tax regime. So we should see a reduction of around 350 basis points -400 basis points next year. Having said that, while the effective tax rate is 30%, our real cash tax rate is much lower, yeah? So that's more closer to around. I would say 14%, that will be more like 18%, 19%.
So there is a huge benefit on the cash back which we are getting, but actually from an accounting perspective, we have to account it in our P&L.
Okay. Okay, got it. Got it. All right, thank you.
Thank you. The next question is from Kunal Vora from BNP Paribas. Please go ahead.
Yeah, thanks. How should we look at Africa and LatAm revenue growth from here? LatAm especially was strong this quarter. Has been exceptional there?
No, I mean, actually, you want to answer that?
Yeah. So I think LatAm this quarter we had some good innovations in the market, and hence obviously the growth has been very strong. So we have launched a new personal insect repellent. We've got a strong number which we did as we did a loading in one country. So we genuinely had a good number in LatAm, but it won't be sustaining this kind of underlying volume growth in for the full year.
Yeah, I mean, look, it won't sustain 50% all, but I, I'm going to LatAm next month. But the, the kind of inflation that consumers were seeing in the past seems to have reduced. There seems to be more stability in Argentina, in particular. And we have been launching some organically, you know, some new categories every year. So actually, our Argentina business, you know, if this macroeconomic stabilizes, may be quite a jewel business because our portfolio is a good portfolio. Providing currency is stable and, you know, we're able to take out money, which we're still not able to do, that business may surprise us in the next few years if things are going the way they are.
How is Africa in the second half?
So, Africa, you know, even last quarter, we had guided that some of the short-term actions we need to take, and that will be like two to three quarters. Fundamentally, there is no issue in terms of offtake or market share from a relative performance point of view, but we are taking actions on now stocking in the trade, and that will kind of continue for pretty much Q3 for sure. Hopefully by Q4 we'll be back into the positive territory.
Understood. And second, on the review, are you looking at different agreements within the current head of like lasting two hours of power, those fully communicates the effectiveness? Or would you like to have a clear messaging that this is more effective to the consumer?
Yeah, I mean, look, you know, these are all ways of saying it's more effective. These are well-tested communications, and generally, if you go and tell people, "You know, I'm more effective, I'm three ti- three X more powerful," you know, they've heard these things. It's, they, it's not the first time they're hearing this on TV. So we have to always find creative ways in which we communicate efficacy. In fact, one of my other brand managers came in last week, showed me an ad, where he went to a shop, and the shopkeeper was telling him that, "You know, consumers are saying, they don't want the old LV, they want the LV, where the electricity lasts.
It works after the electricity goes off." So I actually think it's quite a creative and catchy way of saying it's more powerful, rather than saying it's 2x more powerful. So that becomes a little bit like boy who cried wolf, you know, in our kind of business.
But can this reduce the usage? I mean, can the Indian consumer who might have been using for-
No, this is just a metaphor. You know, these are all metaphors for effectiveness. It's just a different way of saying 2x more powerful. It's not to say that, you know, switch it off when the electricity and switch it back. People don't use it like that. The way t hey decode communication like this is, if it can last for two hours after the electricity goes off, it must be a lot more powerful. That's how they decode these messages.
Understood. Understood. Okay. And just lastly, can you provide size of liquid detergent, hair colors, hair care? What will be the approximate revenues from there?
I don't think we give that number, to be honest. Maybe at the end of the year, we'll give you some indication, but I don't think that is a number that we share. No, we only share it at personal care and home care level.
Understood. Okay. That's it for me. Thank you.
Thanks, Kunal.
Thank you. A reminder to participants that you may press Star and One to ask questions. The next question is from Saurabh Jain, from HDFC Life Insurance Company. Please go ahead.
Yeah, hi. Thanks for the opportunity. Just wanted to touch on Indonesia margins. So basically, I think, the aspiration was to take it to mid-20s. So we were there for the last two quarters, but this quarter, again, we are 19%. So any comments on that? What is causing that drop QoQ margins?
So, you know, this quarter has been, there have been some related phasing of certain spends. And hence, it's not the margin level, which fundamentally we operating in this year. So you will see the full year margin there in Indonesia this year to be more than what the Q2 margins are. We are on a margin improvement journey, and we should be seeing an improvement in margin this year.
Okay. And second one is, can you just call out the revenues from the Raymond consumer portfolio this quarter?
I think we're not, what we'll do on Raymond's is, you know, we will give you, at the end of the year, a consolidated view of the performance. So, you know, we don't want to give too many sub-category level pieces of data now. But suffice it to say that we think that this has great potential. It is value accretive. We certainly think we've created value in the last one and a half years. It's a little bit lower than what we would have wanted to do. We'll give you the exact number at the end of the year.
But is it fair to assume that it will be more than 10%, because you have reported both volume on deodorant and facial wellness to be in double digits?
Yeah, I mean, it is double-digit volume growth, so it's generally, yes. I'm saying we're growing well only. It's a growth accretive, part of our business, not growth dilutive.
Okay. Thanks a lot. Yeah, that's it from my side.
Thank you very much. In the interest of time, we'll have to take that as the last question. I would now like to hand the conference back to the management team for closing comments.
Thank you, everyone, for attending the call. We hope we have been able to answer all queries. Please reach out to us on our investor relations contact details for any further queries you have. Thank you and good night.
Thank you very much. On behalf of Godrej Consumer Products Limited, that concludes .