Good afternoon, everyone. On behalf of Kotak Institutional Equities, I welcome you all to Godrej Consumer Products' Q4 FY 2021 Earnings Call. I'll now hand over the call to Pratik Dantara, AVP, M&A, and Investor Relations for initial introductions. Over to you, Pratik.
Thanks, Jai. Good afternoon, everyone. We hope that you are staying safe and healthy. We will be covering this afternoon the results for the quarter and financial year ending March 31st, 2021. On the call from GCPL, we have Mrs. Nisaba Godrej, Chairperson and Managing Director; Mr. V. Srinivasan, CFO and Company Secretary; and Mr. Sameer Shah, Head Investor Relations. As is customary, we'll start with Nisa sharing her perspective on the business and an overview on how we are navigating the current environment.
Thank you, Pratik. Good afternoon, everyone. I hope you and your families are safe and healthy during these very difficult times as possible. Thank you so much for taking the time to be with us on this call today. Let me start with sharing an update on the CEO succession plan, which we announced yesterday. Effective October 18, 2021, Sudhir Sitapati will join GCPL as Managing Director and Chief Executive Officer. I will continue to serve our company as Executive Chairperson.
Sudhir's significant experience and passion for building sustainable and profitable businesses align very strongly with our purpose at GCPL. His value-based leadership style also makes him a great fit with our Godrej culture. I look forward to his partnership in unlocking the amazing potential of our company and leading its next phase of growth. Moving on to the business performance update, let me begin with GCPL's performance for the entire year.
Financial year 2021 has been a challenging year for everyone. However, I'm extremely proud of our team members and the remarkable agility and resilience they have demonstrated through these difficult times. During the year, GCPL has grown in double digits at 11% and has delivered an EBITDA growth of 14%. We have been able to drive a resurgence in household insecticides and delivered a full-year INR sales growth of 15%. Hygiene, including soaps, continued its strong momentum and delivered a 24% growth for the year.
Value for money products have witnessed sequential recovery both in India and Africa, USA, and the Middle East, delivering a sales growth of 14% for the year. India also witnessed a double-digit sales growth of 14%, led by strong performance in home insecticides, which grew at 16%, and hygiene, including soaps, which grew at 15%. Performance in our Indonesian business was soft with a constant currency sales growth of 2%. This was backed by steady performance in Household Insecticides and significant scale-up of the hygiene portfolio under the Saniter brand.
Our Africa, USA, and Middle East business saw recovery and delivered constant currency sales growth of 9%. Specifically, in Quarter Four, GCPL delivered its third consecutive quarter of double-digit sales growth. Our growth was broad-based. Overall sales grew by 27%, EBITDA grew by 21%, and PAT grew by 20%, excluding exceptional items. Hygiene continued its strong growth momentum, growing by 38%, and we look forward to strongly building on this category in the years ahead. Value for money products grew by 27%. Growth in household insecticides was at 28%.
We also saw continued strong growth momentum in the household insecticides and hygiene categories and sequential recovery in value for money products. From a geography perspective, India recorded a sales growth of 35%, led by growth across the portfolio in hygiene and household insecticides. Overall, rural grew at 1.4x of urban. The scale-up of the e-commerce channel continues. Indonesia witnessed gradual recovery with a 4% constant currency sales growth and a base quarter growth in mid-single digits. We had steady performance in household insecticides and a meaningful scale-up of hygiene.
We continue to see gradual recovery in air fresheners and are strategically addressing high potential intensity in wet wipes. Our Africa, U.S.A., and Middle East businesses delivered profitable sales growth of 36% in constant currency terms. I continue to be pleased with the strategic focus and growth mindset of the team. Our consolidated EBITDA margins at 20% decreased by 110 basis points year-over-year due to a drop in the India and Latin America and SAARC margins.
In India, margins decreased by 500 basis points year-on-year, driven by the lag between an increase in input costs and end consumer price increases, provisions of slow-moving inventory on a conservative basis, and a one-time variable manpower remuneration reversal in Q 4 of financial year 2020. We continue to have a healthy balance sheet. The return ratios continue to move up as the net debt to equity ratio came down. We are carefully navigating the challenges of the second wave of COVID-19 in India by ensuring seamless supply chain deliveries and closely tracking shifts in consumer behavior to respond to.
We are leveraging our learnings from the first wave and are better prepared to respond to any supply chain disruptions given our ramped up production capabilities. While localized lockdowns impact frontline servicing and the replenishment of outlets is a very short term, the second wave is likely to be a tailwind for the hygiene category. The teams too remain resilient and agile. As always, our values matter the most at this time. We are committed to enabling the safety and well-being of all Godrejites and serving our consumers and communities with our whole hearts and minds. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star then one on their touch-tone telephone. If you wish to remove your status from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the questions queue are coming. First question from the line of Abneesh Roy from Edelweiss. Please go ahead.
Yeah, thanks. My first question is on hygiene segment in India. You launched multiple products in wave one. You also said wave two also tailwind should be there. Could you tell us which are the products where you are getting more confidence and which are the lagging products where you may take a call? Second, we have also seen a lot of consolidation. A lot of the new players who entered are exiting or already exited. Do you see them coming back? You yourself are new in a lot of these segments. Is there a long-term opportunity or is it more of a wave two or wave three opportunity?
Hi, Abneesh. Thank you for your question. I think I've mentioned before also, what we're seeing is definitely consumer need to stay protected and clean and protect from viruses or other things has become much stronger. We've seen penetration also grow in household insecticides. What we've done in hygiene over the year and as we go ahead is really double down in products where we feel we have very strategic advantages, whether it's soap, Magic hand wash, and some of the other categories we played in. Last year, we had played a few parts of the business that we launched masks and a few other products that were actually not even relaunching in wave two or participating in wave two. I think we have a lot of learnings also from the last year on which of these products and hygiene that we should focus on.
In terms of soaps segment, market leader in India said two rounds of price hike has happened, around 6%-7%. In your case, last one year, how much is the price hike and are you also planning one more hike and what's the views on palm oil for the year?
Yeah, Abneesh. This is Sameer here. I think we have taken 6 to 7 percentage of price increase in soaps, as you can see in quarter two itself. I think sequentially, our price increase would be to the tune of 3 to 4 percentage. The approach which we have taken is more of a calibrated price increase and which has worked very well for us because we have seen strong growth as well as strong market share gains. That's the approach we will continue also, at least in medium term. This also will be a good opportunity for us to gain market share from a lot of small players because they normally sit on the fence in high inflationary environment.
We try to mitigate, I mean, some of this kind of gap through structured costing programs as well as evaluating pricing opportunities in rest of the portfolio in very short term. The vegetable oil prices are more or less at similar levels. Over next couple of months, we expect those levels to sort of continue. It would be one of the longest sort of runs for vegetable oil prices, I should say, over last kind of 12-15 months now. Let's see over next three-four months eventually which direction it kind of takes.
Sure. That's very helpful. My last quick question. On Africa, any business or any region you have evaluated where it doesn't make sense from a core synergy, core focus perspective long-term? Anything you can share at this stage?
Nothing, Abneesh. I mean, if you look at our play, I mean it's sort of in some of the large markets and the so-called kind of Tier 2 markets. I think geographically and even category-wise, the portfolio looks pretty complete. At this point in time, the entire thinking is in terms of getting those growth building blocks- whether it be marketing campaigns, whether it be seeding in new future growth categories, as well as kind of driving GTM initiatives in most of the markets we are present in.
Sure. Thanks. That's useful. All the best.
Thanks, Abneesh.
Thank you. The next question is from the line of Vivek Maheshwari from Jefferies. Please go ahead.
Hi. Good afternoon, everyone. Am I audible?
Yes. He is waiting here.
Okay, great. A lot of questions on this new appointment. Nisaba, what are the areas that you think should be the priority for the new CEO after he takes over across, let's say India, Indonesia, and Africa? Are there any thoughts on that you can share at this stage?
Sure. I think the main focus, if you have to say, what are the top three focuses would probably be growth, growth. I think there are underlying pieces of how do you get to the growth. I think what we've seen this year, and last year I talked a little bit about getting to double-digit growth, the resurgence in household insecticides. I think we've made a good start to it. My expectation is that he comes in and now sort of takes this to the next level. I think we all know his background in category management. He turned the soap portfolio around at HUL at one point. Really bringing that more category management thinking across the GCPL clusters and strengthening that piece is what we'd really look forward to.
Got it. Second, on your role, you have been the MD for the last few quarters, and before that, in the earlier regime as well, you played an important role on the product launches and the new initiatives. How do you think about how your role will evolve after Sudhir takes charge as the CEO?
I think we'll have to wait to see once he comes in. I'll continue to play the chairperson role and support him. Obviously, ultimate responsibility for governance, asking the hard questions will still fall on me. I'm hoping that I can continue to support him on all the knowledge I have of the company and give him that support, but really let him have a very free hand in coming in and seeing what can be done differently. I'm also looking forward.
My history with GCPL also goes back many years, so over a decade. I really felt at that time when I first came into GCPL, it was a wonderful opportunity to actually look at it with very outside-in eyes. At the same time my father was the chairperson at that time. I had a lot of backing from him to go ahead and sort of make bold changes. I hope I can play that role for Sudhir, where he can really come in with a transformation agenda together and then I can really help enable it.
Got it. One last thing. Since you mentioned about the transformation. Does that mean that, in case if the thought process is to expand and get into newer categories? Let's say you have had 3-3 strategy a while back, you obviously expanded beyond that, the fresheners...
I'm not launching a food business. That was not the point of getting him. No, I think some of these things, in any case, we've transitioned a little bit from three from two. There has been some transition already. I think with him coming out, he'll probably start communicating a new strategic plan. I still think it'll be really sort of doubling down on growth in some of our core categories- be it household insecticide, haircare, this hygiene and air care and fabric care, all quite new categories with low penetration across some of their pieces.
I think he can really come and help ignite on those categories. Obviously, we potentially might get into new categories. There might be acquisitions that come up, but I think it's really what we're looking for is good, strong, double-digit organic growth.
Very good to know, Nisaba. Good to know that you don't want to get into foods. That focus is great. Thank you and wish you all the best.
Thank you.
Thank you. The next question is from Percy Panthaki from IIFL Securities. Please go ahead.
Hi, Nisa and team. Good afternoon. My first question again is on the management change. When Vivek left, I think as a firm, we took a decision that we would not hire anyone else in his place, and you would be stepping into his shoes. Now, within such a short duration after his departure, what really was the thought process behind the change in that sort of decision that we had taken at that point of time?
Percy, I think when we had taken the decision at that time, it was during the pandemic, and I did feel that it was not the right moment to bring in someone from outside at that point, and that I would run the company myself. We also, obviously, in these sort of situations do have some very good internal candidates who have also done the role. We eventually decided to go with Sudhir.
I think the idea was that I would run it for a couple of years and in April 2022, when anyway we were going to split, you had to legally also split the Chairperson and CEO role. We would have a successor appointed by then. Sometimes if seemingly good things are happening to you beforehand, you might as well go ahead and do them. I think that's been the thinking behind this.
Right. On a slightly related note, if I look at the three senior positions in your company right now, that is the MD and CEO, which you recently filled, as well as the Head of Indonesia and the Head of Africa. They are all outside hirees.
Yeah.
Just wanted to understand, did you ever consider or do you think there's a concern in terms of what message that sends out internally? Whether that is a point that you could address in some way because we've been ranked as one of the best places to work, et cetera. We do have a very strong internal bench. In that context, three senior positions going to outside guys. How do you look at that holistically?
Sure. I'm happy to answer that. I think firstly, if you look at those positions before we got the outside leadership, we were actually filled by internal positions, and we'd actually taken a lot of bets on very good young people internally. I think Indonesia wasn't recent, it was four years ago. Obviously Africa piece was one year ago. What then happened is that we've become global as a company quite recently. The thinking was then to get leadership because we had sent people from India to run these geographies and people who had a lot of experience in India.
At some point we felt when these businesses are performing to the mark, and we obviously, as you all know, have to bring a lot of money into these businesses that we wanted sort of very experienced people from those geographies to come and run those businesses. I think so far those calls have been right. I think as long as people internally feel that we make the right decisions, that we equally give people internally a chance. For these senior roles, we do tend to also benchmark from outside.
Thank you. The next question is from the line of Arnab Mitra from Credit Suisse. Go ahead.
Hi. Thanks for taking my question. My first question was on HI. I think last quarter you had specifically mentioned that return of the incense sticks into the market was pressurizing market share again. Any update on how incense stick shares are now doing? I remember pre-pandemic we used to have a low double-digit share in the industry. How has that now settled down at? A related question is a lot of the innovation in HI still seems very focused on premiumization like Goodknight Gold Flash or new segments like the Roach [gel]. Any thoughts on the penetration gain? Do you need a lot more there in terms of your efforts to drive penetration in the low-income segments?
Sure. Let me answer that for you, Arnab. I think incense sticks stay at the same level that they were basically during the year. I think what we saw in Q1 last year was the supply chain shock was so big that they went out. We continue to work very strongly on the sort of the legal and government side. We actually had a very senior person join us in corporate affairs in the group too, and one of his key mandates is to help on this issue.
As you know, about 80% of our portfolio is in the premium segment or say 20% of our portfolio is what we call non-mosquito, where growth has been very high, penetration is very low. Even say something like LV or LMD, penetration went up in the category this year, but it's still at about, I think, 26%- 27%. The headroom and the margin profile in these segments obviously gives us a reason for sort of cheer. That being said, obviously, the burning formats is not something that we still continue to be the market leaders in coils by far.
I think this year I'd mentioned it, I think in a previous call, we do have a few products coming against these illegal sticks that sort of compete directly against them. Our natural incense, we were obviously waiting that registration cycle, which will happen this year. We had launched those natural sticks. They didn't, from an efficacy drop test as best as, were not able to sort of effectively for consumers compete as these illegal incense sticks. I think you'll see More from GCPL this year on the burning formats front.
That's very helpful. My second last question was on these two brands, ProClean and Protekt, which obviously despite H1 was a big year of ramp-up in terms of products as well as the new segment. At a portfolio level, is there anything you can share with us which can help us appreciate what you're doing here in terms of either the exit market share that you have or distribution or absolute shares, which can help us just understand where you are in the curve and how the first quarter has gone, and how we should think of maybe the next three years in these two specific brands which you are scaling up.
Yeah. This is Sameer here. I will refrain from sharing. Sorry, Nisa just got logged out of call. She's just joining in. What I was sharing is, to refrain from giving very specific kind of input. What I can share with you is, strategically- this play of hygiene and extended hygiene within cleansing format is extremely critical for us. If you look at our hygiene portfolio, Arnab, in India itself, last year in terms of saliency was close to around 4%. Also, the cleansing format was off to a great start, and we did say that we anyway had the same sort of plan for in terms of our kind of launches.
We sort of postponed also during the first wave of lockdown. Of course, we will also back it up with more interesting innovation over a period of time to make this play very strategic and hopefully big for us. That's the thinking which we have. Again, these are the categories which are relatively under-penetrated, where we do feel that we have right to win if we get the right product innovation, and in parallel also leverage our distribution.
Does the 4% include ProClean and the sanitizers? I'm just trying to understand what all is counted in that hygiene segment.
Yes, it does include, I think, yes, it does include having both ProClean as well as the entire basket of hand wash and sanitizers under.
Okay. Thanks. That's it from my side. All the best.
Thanks Arnab.
Thank you. The next question is from the line of Avi Mehta from Macquarie. Please go ahead.
Hi. I just wasn't clear on the last question on the burning category. Is this pickup in HI or is the strength in HI largely on the back of categories kind of remaining strong, or is it because of market share changes or the incense stick segment market share changes, especially in the burning segment?
Yeah. Hi, Avi...
Hi. We've done well across all the categories. We've had good growth even in the burning format. Like I said, we still are the biggest player in coils, which is still the biggest segment in burning format. Actually, across all segments- non-mosquito, electrics, every segment showed good growth this quarter, and actually even across if you look at it as a full year basis.
Getting a little more pointed on this. What I was trying to understand is, has there been any change in the competitive intensity from the incense stick manufacturers?
No.
With incense sticks or no?
No.
Okay. The second bit was on your comment on the second wave, this expectation. Are you seeing that change on the ground on the hygiene and on the non-discretionary portfolio? Any changes as yet?
Not so strongly- I mean, April was strong. It was a sort of continuation of quarter four. The expectation is that you will have a little bit of a take-off with some of these categories which have that health, the hygiene, household and pest control having some amount of tailwind and perhaps the discretionary having some amount of headwind.
Given what the situation of the country is and what people are going through, it's pretty hard to predict. I don't know. We normally don't play it, but I don't expect people to be very bothered right now about coloring their hair and things like that. We haven't seen it yet, but potentially in the first half. The other thing we've seen also is that, like the last wave, the wave hits, but then people eventually just go back to some of their normal behavior.
What we have seen in some of these categories is perhaps a penetration shift or a habit shift that would stay, which would last longer. I've given the example of Fair Hand Wash before. Penetration might not stay at the highest absolute levels because penetration went from 12% to 34%, but it's definitely not coming down to 12% again. I think we see some of these trends play out.
Okay, perfect. Last, just a clarification on the leadership change. If I hear you correctly in the start here, the thought is that the focus would be to drive the double digit growth and the portfolio changes or any changes would be something that would be on the table with Sudhir's kind of expertise.
I think what I said is that I don't see too many portfolio changes happening. That's not the mandate that he's coming in with. Obviously, not just because he's a new CEO, but he will because we look at the portfolio, perhaps here's where we want to invest more, double down. Perhaps this is not an area we want to focus on. I think I'll just kind of clarify that I would say most of the double-digit growth would come from our core categories and some of the new categories like, hair care or even this liquid wash, where there's a lot of opportunity because penetration is still low.
Ok, existing categories- o kay, that would be perfect. That's very great. Thanks a lot again, and congratulations.
Thank you.
All the best.
Thank you. The next question is on the line of Percy Panthaki from IIFL Securities. Please go ahead.
Hi. Sorry, Nisa. I'd put myself on mute last time around, so you guys couldn't hear me. Couple of questions on the performance. I'll put them upfront. Indonesia, what really would it take for us to go back to double-digit kind of growth there? Secondly, in Africa, I know that apart from the top-line growth, you're concentrating on margins there also.
Could you give some guidance on what kind of margins you would like to achieve over the next couple of years kind of timeframe, and also in the longer run, what the stable state margin for the geography that you're foreseeing? I'm asking this question in the slightly shorter term context, where sequentially we've seen a dip in EBITDA margins in Africa between Q3 and Q4.
I'll answer the Indonesia question, of course, and then I'll also ask Sameer Shah to jump in on Africa as he's someone who's worked on that quite closely. I think in Indonesia, if I see it, the growth has been disappointing this year. I think FMCG as a whole in Indonesia has not been particularly well, but, you know, l et's put that aside. I think where we've done exceptionally well this year is building this sort of INR 100 crore plus hygiene portfolio in one year, and it's been quite strategic.
The products have been quite strategic in areas where we have competitive advantage. I really feel that this is a nice new growth lever for the Indonesia business. HI was relatively good, but again, can be pushed. In HI, we have a new sort of, what we call long-lasting cheaper burning format launch, along with this big GT push. We're also doing Magic Hand Wash and bar soap there. I think some interesting growth levers. I think this wet wipe suite mostly dropped the ball on this year, given what happened with the competitive intensity.
We must really recover that business going forward. Even in hair care, double down in sort of the growth pivots which we had planned even before COVID. I think if the recovery happens in some of these categories and we double down in growth in some of these areas, we should see a good recovery.
Okay.
Great. Percy, I think your question on Africa margins, we had shared that over the next few years, we would want it to be sort of mid-teens to high teens. These levels are what we would kind of plan for. Of course, it's going to be a journey, and this will track shape over the next two to three years. If you look at the current year, I think we'll end the year with close to around 10% margin. We need to also dissect the current year into two halves. First is quarter one, which was a washout because of COVID, and then quarter two to quarter four, which was actually very strong.
We did growth rates to begin with 20%+, and even in terms of margins, close to around 11.5%, up by, I think, 150 basis points. That's the plan. I think it will be driven by scale. It will be driven by cost-improving programs. It will be driven by favorites in category or format plays. These are going to be the larger drivers to that. In terms of sequential margins, what we have to understand is there is a big seasonality in Africa business, especially in quarter three, which is the festive period, and hence in quarter three there is significant scale leverage as a result of which margins historically and also going ahead will be higher compared to any other quarter.
Quarter four tends to be seasonally weakest quarter, and hence there is relative to quarter three, a scale deleverage, and hence overall margins will be lower in quarter four compared to quarter three. If you look at net margin and that kind of a metric, which we track internally sequentially, in fact, in quarter four, the net margins, which is your gross margins reduced by the trade and marketing investments, were higher, I think, by around 100 basis points compared to quarter three. The entire relative drop is completely driven by change, which in turn is completely driven by the seasonal kind of function attached to the categories in there.
Understood. Yeah. This mid to high teens versus your current levels around 11% or whatever that is- t hat's about 600 basis points, four points kind of expansion over three to four years. Do you think that's going to be back-ended, or should we expect linear 200 basis points or 150 basis points every year?
Yeah, I think, no, definitely it's not going to be back-ended, right? You need to kind of demonstrate that right from the word go. I think we will see it quite evenly spread out. Internally, the way we are thinking of it is, honestly keeping it more front-ended than leaving it too late in the day. Definitely it's not going to be back-ended. I mean, it will be more evenly spread out across the years.
All right. Thanks a lot, Sameer and Nisa. Thanks for the second opportunity.
Thanks.
Thank you. Stay safe.
Thank you. Next question is from the line of Harit Kapoor from Investec. Please go ahead.
Yeah. Good afternoon. Just a few questions. First thing, you've mentioned in your presentation that the innovation rate is in high teens for this year. Could you just frame that and probably give a sense of either on a global level or on India level, innovation rate as a % of business, how that's going to track?
Yeah, I think the rate is very high. This is the 18% number that's on India. It's very high, specifically driven by this Gold Flash new machine that we have. I mean, that is our biggest product category. As we mentioned before, what we did is that we actually replaced, because we believe in this product so much and think it's so good, removed all the other machines we were selling and have kept this as the sole machine in the market.
Okay. As a proportion of business, you're saying that how much would the innovation rate be in terms of the last one or two years? That'd be low single digits, mid-single digits?
Yeah, it would be like mid-single digits. Depends on year-to-year because we calculated an innovation for three years. It would depend year-to-year.
The second question was on India margin. This year has been challenging, the second half also because we've seen a sharp inflation in vegetable oil. Could you just give a sense of what are the other categories in terms of inflation in India and how do you look at the medium-term margin, especially since you're talking about a calibrated approach? Specifically, FY 2022 versus FY 2021, are there enough levers for you to kind of hold the margin at these levels or just want a sense of how you're looking at it.
Hey, Harit, this is Sameer here. I think, the drop in gross margins, especially if you look at also food, was because of, one, increase in vegetable oil prices and the lag between increase in input price and then consumer price. I was watching your earlier strategy has worked very well for us in soaps, reflected in strong growth as well as market share gains. We'll continue with that strategy. We have seen relative increase in food prices also. It's an indirect derivative, but we'll be able to mitigate any increase in food prices.
We are also evaluating opportunities on pricing in rest of the portfolio beyond soaps. Let's see how that shapes up. In the interim, we'll be also judicious and smart in terms of our spendings, right? Whether it be trade promotions, field promotion, or even marketing investments, to see how this overall kind of margin profile shapes up. Last but not the least, let's see how the overall commodity inflation, especially in vegetable oil itself, is kind of going to shape up.
I mean, at least for the next 12 months, we do feel that prices should remain at this elevated level. This has been a good long time of last kind of 12 to 15 months, which is at least unusual compared to some of the previous cycles where these prices have been at such an elevated level for so long. Let's see how that eventually kind of moves ahead. Our sense is, at this point in time, of course, too many variables and moving parts, we should be able to sort of maintain our margins in India on a year-to-year basis.
Okay. Thanks. That's fine. Thank you.
Bye, Harit.
Next question. Next question is from the line of Latika Chopra from JPMorgan. Please go ahead.
Yeah. Hi. Thanks for the opportunity. I have two questions. The first is on the other businesses of India portfolio, which accounts for roughly 15%, and I believe this will include Protekt, Clean & Care, and Ezee. Could you give your sense on the distribution footprint for these brands today, and how do you see that scaling up?
The second question was on Indonesia margins, which have seen a healthy improvement despite whatever is happening on the top line. Do you anticipate or see scope for further improvement here on these margins, or would you choose to reinvest some of these gains back into driving the top-line growth momentum? Thank you.
Hey, Latika. This is Sameer here. I think if you look at the entire basket of other categories, as you rightly pointed out, it's actually a mix of air fresheners and liquid soap and the new-age hygiene format. These are categories which are relatively under-penetrated and hence significant opportunity in terms of distribution. It's not just distribution, it's also going to be You know, product innovation, which will get new consumers recruited into this category.
Since we are at overall GCPL level, widely distributed 6 million outlets, 1.3 million, 1.4 million outlets, with the direct reach. I think distribution is quite good. We can very easily sort of have cross-sell of categories and brands within our portfolio. It's going to be a combination of both, I mean, to answer your point, in terms of driving strong, sustainable kind of growth in some of these emerging basket of categories, going ahead. In terms of Indonesia's margins, I think to begin with, 35% is what was the margin in Q4.
My sense is for FY 2021, our margin could be holding around 27, 28% mark. Still, we feel there is opportunity in terms of expanding margins. If you track some of the listed FMCG companies, the margins were around 30%. I think a combination of driving sustainable sales growth and continuing good work on cost-saving programs, getting favorable category mix will be the drivers in terms of scaling up Indonesia margin in kind of years to come.
Sure. Thanks, Sameer. Any sense of the reach of Protekt brand today in terms of number of outlets?
Sorry, Latika. I mean, we want to keep it a little inward at this point in time. We'll be very happy to share more details on some of these emerging baskets going ahead.
Sure. All right. Thank you.
Thank you, Latika.
Thank you. The next question is from the line of Shirish Pardeshi from Centrum Capital. Please go ahead.
Hi, good afternoon, team, thanks for the opportunity. First of all, hearty congratulations that at least the market has cheered the stock based on performance today. I have a couple of questions. In my mind, I was thinking, I mean, though we have said, you have taken about 7% price increase on soap. Would you be able to share what is the weighted inflation we are seeing in HI in terms of cost inflation and on soap, and how much we have reflected the price?
Hey, this is Sameer here. I think in soaps, if you just look at vegetable oil prices, because the replacement rate, I think it's up by anywhere between 40%-50%. We have taken price increase of around 7%-8% on sale price. Theoretically, if we had to mitigate with our coverages at this point in time, the entire impact, it would still call for 10%-15% price change. In Household Insecticides, at this point in time, as I was calling out to earlier, we are not too worried about inflation. Yes, there could be a food impact over there, but I think it will get more than mitigated through driving favorable format mix as well as taking selective price increases in some of the formats within the category.
Okay. Just the next question on the follow-up. These two categories, it would be helpful if you could give the annual number in terms of market share.
Well, we were saying directionally that we are the second-largest soap manufacturers in the country with low teens kind of market share. In household insecticides category, we are nearly half of the market in terms of our market share position.
Okay. Okay, Sameer. My next question, last question on the Indonesia business again. I think we have seen you have taken lot of activations in terms of distribution, and you have also taken some tough intervention. Like you have taken Saniter soap, last quarter. My broader question is that again, where do we see Indonesia three years from now? I mean, there are a lot of expectations, hopes, which were built, and there is some things which are changing. Is there any confident answer, if you can provide, that is it a price problem or is it a distribution problem or it's a overall economic problem?
I don't think - firstly, I think Indonesia, we've been in the business for 10 years, so I think it's been a very successful acquisition. The categories are very highly overlapped with what we do, and we have very strong relative market positions there and a lot of growth opportunity, whether it's through HI or this new Saniter brand. I think as an economy, Indonesia, ever since we've been invested, has also done quite well. I would say in the past year, there has been a macro impact if you look at over here, sort of results that we get.
They haven't been enthralling. That being said, we haven't been quite open, say, on wipes. It's not been a great show. On something like hair care, we've gained share, but we are again, we are 50% of the category, so we need to be actually driving category growth. Although in hair care, we've seen all over discretionary categories during COVID have been. I am very positive about our Indonesia business. Again, if you look at the strategic position of the business, it's a scale business, high margins, good relative market share, strong brands. I think we can be confident about this business going forward.
I completely agree with your thoughts on that business. My only worry is that for 10 years we have seen at least many cycles of growth and downs. I think that's one of the important things when I go back 10 years before when we acquired Megasari. I think it keeps on worrying that some or the other we have some disappointment there. Is it that you guys are continue focusing on that business or we will divest at some point of time?
No, we'll definitely not divest Indonesia business. I think let's be practical about business. You guys come here and ask us every quarter about what's happening. There are business cycles, right? Even the best companies sort of don't grow. I know how much you all hold HUL and Unilever sort of as the gold mark. If you look at Unilever's results in Indonesia, they haven't been particularly strong this year.
Please don't get me wrong, I'm not trying to be defensive about our business, and I do think that perhaps there were things that we could have done better internally, but certainly there's no question of divesting that business. Certainly in our eyes, that's been a very successful value accretive and wonderful acquisitions by any sort of measure.
Nisaba, don't take me wrong. I'm not trying to push you to sell the business. I'm only saying that do we have a complete handle on that business?
Don't worry, I don't think you can push me to sell the business. I'm just remarking- p lease feel free to ask your questions and all your questions actually make us much stronger as a company. I was just commenting on the fact that I actually think Indonesia is a strong business, and over this three-year period that you spoke of, that I actually think it will do well and no, we're not thinking of divesting it.
Thank you, Nisaba, and thank you and all the best to you.
Thank you.
Thank you. The next question is from the line of Manoj Menon from ICICI Securities. Please go ahead.
One question only from my side on India's Insecticide business. Rather, I would say the mosquito repellent business. Given that we are at somewhere in the 50% share, also given the context of the competitive landscape which has been around for the last two-three years, I'm just curious to understand whether as a company you have pushed the market share driver opportunity as much as you would have wanted to. In the context of the thought process that is it just that you have better margin uploads or if there are any other constraints. Otherwise, given the competitive landscape, a logical assumption from outside would be that you should be at a far higher share than this.
Manoj, I'm not sure I fully understood your question. If you break up Household Insecticides, if you look at things like electrics or aerosols, obviously our shares would be much, much higher there than it is in the burning formats. As a market leader, I think we have to play all segments of the market. I think the opportunity as we see is that Let's say something like aerosols, penetration is less than 5%. I think non-mosquito penetration is about 8%-9%.
I think the opportunity is to play all formats and probably have a blended approach to growth. I don't expect our burning format, even with these new innovations. Maybe if the new innovations are HIT that will change. We'll see that burning format should grow in sort of mid-single digits and you drive all the double-digit growth through the other parts of the portfolio. I hope that answers your question.
Sure. Thank you, Nisaba. Where I was coming from, maybe I was probably wrong in phrasing it. It was partially a follow-up. What I'm thinking of was - if I look at HI as an overall category, I was just looking at it like that. In the next, let's say, two, three years or even five years, do you see there a share gain vector as an aggregation for you to grow?
Given the context that you are being the only player. I mean, that's extreme, honestly. Or let me put it this way, you have been probably the player who has always been the most innovative in the HI category, particularly your shares appears to be a little underindexed versus where it should be given the awareness, availability or share build.
No, I think our shares are quite high, Manoj, actually. In some formats they're very, very high. I do think there's an opportunity for share gain as you look at this Gold Flash in terms of product innovation and stuff. We should be in the sort of medium to long term gaining share in that category. I think where our share is still very high, very, very high double digits is burning format. Obviously if you have a product coming against incense sticks.
That could work really well. We are also relooking at some of our coil strategy. There's products coming in there. You could potentially see market share growth. Manoj, my bigger focus on the 50% market share would be really driving penetration. Correct? Because you want more people protecting themselves from insects.
I think that is really the opportunity if you get it right. Like I mentioned, LMG LV is at 25% sort of penetration. How do you drive that up? Maybe when I talk about the growth goals, I will put that on Sameer's thing. It's a very profitable category. It's one of our biggest. How do you drive that 25% to 50% penetration?
Just one follow, then the last question. On the Magic Gel launch a couple of years back which is essentially the cheapest cost to take advantage of the increased electrification in villages. Just the top-line focuses as well as the learnings from that. I think we have visited the category this week. How do you think about the...
You're talking about the Magic, as in Magic Hand Wash?
No, I was talking about the Magic Gel. Essentially, the cheaper electric format.
Oh, Power Chip.
The Power Chip, yeah.
That launch actually failed, Manoj. People were peeling the Power Chip off. We corrected it. Since we had Gold Flash that came about, say, 18 months ago, we only wanted to focus on this piece one at a time. That's something that you might see us bring back or again, look at pricing in the electrics category to drive penetration.
Got it. Thank you.
Thanks so much, Manoj. Stay safe and hope to see you soon.
Thank you. The next question is from the line of Binoy from Sunidhi Securities. Please go ahead.
Yeah, thank you for the opportunity. This question is on the LATAM business. Now, this business has been challenging for us since the past two to three years. We've tried to correct it, and then there are certain macro factors which pulls it down. I understand that there are cross-pollination opportunities which this business has brought for us. Nonetheless, in our overall consolidated sales mix, it remains very small. Is there any thought to do away with this business?
Thank you for your question. Actually, over the last three years, this business has performed very well. If you look at the rates, both top line, we had a 17% in INR for this business, and EBITDA was like 200-something percent growth. I would disagree that it's not done well in the last couple of years. If I look at the last sort of five years, yeah, I wouldn't say that it's done particularly well. I'd rather not comment on any sort of acquisitions and divestments on a call like this. Thank you for your question.
Sure. Second quick question is on the debt repayment. Will that continue in FY 2022 as well?
Hi, Binoy, this is Sameer. That's the plan. We did see significant reduction in debt and the net debt equity ratio coming down to 0.07. I think in very short term, the thinking is to sort of continue with that strategy of repayment of debt. Whatever is left on the books at this point in time.
Is there a target as to where we want to reach in terms of the gross debt level? Because right now, in terms of the ratio, we are in a very comfortable space. Plus, we are almost net debt-free.
Correct. Yes, as I said, we would want from a free cash flow, you will have multiple avenues. One is to kind of deploy it for growing organically through CapEx or even inorganically. The other would be kind of rewarding your shareholders, third would be repayment of your kind of debt and gross debt to sort of become zero. That's the plan. If it's very good, the debt, I think, will keep on sort of coming down.
Sure. Thank you.
Thank you. The next question is from the line of Prakash Kapadia from Anived Portfolio Managers. Please go ahead.
Yeah, thanks for taking my question. First of all, I want to touch is comment on the rural markets in India. What kind of challenges are we seeing? This time, Q4 is far more dependent on rural as compared to the last year. What is the outlook for rural?
I commented earlier, I think that April has sort of been a continuation of Q4. We'll have to just wait and watch and see what happens. The situation is so dynamic on the ground and so different state by state. It's very, very hard at this stage to comment on rural. Sameer, you have something to add?
Yeah, absolutely. I think, Nisa, the other point is, while, yes, the number of infections and cases have been relatively higher this time around in rural and small towns, but we also are expecting a good monsoon. Again, this bit reverse migration should perhaps offset any kind of negative impact coming out of it. As Nisa said, it's too dynamic and choppy, but in a way you see tailwinds as well as headwinds, right, in terms of driving steady state. Our view is, let's see how at least next few weeks and months kind of shape up. Directionally, I think the recovery which we have seen in rural over half year should also continue going ahead.
Thanks a lot.
Thank you. The next question is from the line of Kiran Naik from Mody FinCap. Please go ahead.
Thank you for giving me an opportunity. I have two questions. First is, do the company have some SKUs in small sachets like we sold in rural and urban areas? Any new products will be launched in the financial year 2021- 2022?
Thanks for your questions. We do have very strong product pipeline, and we will continue to see lot of new launches coming in from our end. We were talking earlier of the innovation metric, which is a good metric to track kind of new product launches, and that will continue to be very robust.
Going ahead, yes, we do have kind of very smart price mix architecture strategy, and you also see lot of sachet kind of offerings from our end, whether it be in hair color portfolio or whether it be even in the handwash portfolio, the powder-to-liquid handwash sachet, which was available at INR 15. That helps us driving penetration in general and also gets us kind of consumer base in small towns and rural markets. That strategy also will continue to be a strong growth vector for us in coming years.
Thank you.
Thank you.
Thank you. The next question is from the line of Nilay Shah from Moon Capital. Please go ahead.
Thanks. Just one question for me on dividends. Just curious to understand what are the thought process of not giving out dividend this year. The context of this question is, there were some talks last year that going forward, international business debt would probably be paid down from the international business cash flows. Given the strong positioning of the company in terms of cash and the recent performance this year, what is the reason for not paying any dividend?
I think-hi Nilay, this is Sameer here. I think the intent was if, at least in the uncertain times that we were, at the start of the year, to see a mix of deployment towards repayment of debt as well as sort of funding organic growth CapEx, also evaluating in parallel any inorganic growth opportunity and alongside reward shareholders. I think the strategy which we chose was during the course of the year to sort of use the cash for repayment of dividends. A lot of cash also from our international businesses gets upstreamed.
That in a way sort of is getting used as we speak for repayment of debt, which was largely taken to fund those international sort of businesses. We'll continue with that approach, we'll continue with that mix in terms of ensuring that the debt goes down. If there is any kind of interesting inorganic growth opportunity, it could get deployed towards that as well as in parallel ensuring that our shareholders continue to get rewarded. It's going to be a cocktail of all of these three, Nilay, in terms of deployment of free cash flows.
Okay, thanks, Sameer.
Thanks, Nilay.
Thank you. A reminder to participants, anyone who wishes to ask a question may press star and one now. The next question is from the line of Abneesh Roy from Edelweiss. Please go ahead.
Yeah, Two quick follow-ups. One is on chemist channel and e-commerce. How do you benchmark those against the market leader? Both are very important in the current context. How do you shape up with what the market leader?
Hey, Abneesh. Both of these channels are kind of growth channels for us. I think chemist was a big GTM initiative which the team took last year, and I think they have done a fantastic job. I think in the channel, we saw close to 20%+ growth in whole of last year. I think that's shaping up very well.
We will very soon get into the phase II of our Project LEAP, which is go-to-market initiative in India in the current fiscal year. Again, chemist piece within that is the key kind of GTM initiative. In terms of e-commerce, we had a great year. Again, in terms of saliency, we are close to around 3% range, marginally ahead of the 3% mark, and it continues to sort of fire on all cylinders. That also is going to be a very important channel for us, not just in current times, but also for many more years to come ahead.
Next question on direct reach for India. What would be the target next one, two years? Any updates you can share with us?
I think it's going to be a mix of both, Abneesh. As of now, we reach close to around 1.3 million outlets. It continues to see an increase. Historically, we have seen anywhere between 6%-8% increase in the direct reach. For us to reach, it's also not just direct reach, but increase in the outlets in which you sort of reach out. It's going to be a mix of both increase in direct reach as well as how do we increase our throughput in the existing outlets. That's going to drive overall penetrates for us.
Sure. Thanks. That's helpful. Thank you.
Thanks, Abneesh.
Thank you. The next question is from the line of Binoy from Sunidhi Securities . Please go ahead.
Yes, thanks for the follow-up. This question is on the recent hire of Sudhir Sitapati. Nisaba, you said that in the opening remarks that the top priority is growth and doubling down on growth. Now, when I look at GCPL as a franchise, we've done extremely well. Execution has been very well improved over the past one year. Second is that on the product innovation front, we've been an industry leader. We have a portfolio which straddles the pricing pyramid. Where do you think Sudhir would really add value, just to get a better understanding on which are the areas where you're looking at him adding more value?
I think like I said in the beginning and to answer your question, I think what I said in the beginning, same category management. When you look at our household insecticides, it's 30% of our portfolio. It grew 15% this year. If I look at the last five years growth, is below what our aspirations would be for this category. Correct? We had a very successful launch in Nigeria this year on household insecticides.
When you have these product capabilities, you have this know-how in this category, how do you really sort of build on that in country after country? I'm looking to him to bring some of those category management marketing skills to really sort of build on that. I know the market has responded very positively. I can't account for how the market responds to these things or news, for something that's not even happened yet. Really, it's not like- I have a very, very high respect for Sudhir. I've had wonderful interactions with him and got wonderful feedback.
Frankly, today what enthused me was much less the sort of market reaction. Worked with him in the past who know me, who have sent really strong messages of support. What GCPL does is not only about Sudhir. It's Sudhir coming in along with the great team we have, along with the strengths we have, and really building on it. I think What I look forward to him is he has very good experience. He's worked on categories, transformed categories. To use his leadership skills, to use his insights on consumers, and come with our wonderful team and grasp onto this sustainable growth path. That is how I am thinking about it.
Just one follow-up on this. Are you looking at any changes in the go-to-market or distribution with him also coming in?
Sure. Look, see, when someone comes from the outside, he will come with an outside-in sort of perspective. Correct? I think the best leaders, the ones who transform the best, very clearly understand where are the strengths of the company. What must I not touch or what must I nurture really well? Where are the things where I see more efficiency or productivity? For a consumer products company, go to market is our lifeline. I'm sure he comes and study these in the different markets and have value to add in that area also. Also, across the company, as a CEO, you can't be just adding value on category growth. You have to be looking at it from sort of all lenses.
Sure. That's very helpful. Thank you.
Thank you. That was the last question. I would now like to hand the conference over to Mr. Pratik Dantara for closing comments.
I'd like to thank you all for joining the call today. With that, we would like to draw this call to a close. Stay safe, stay well. Thank you.
Thank you so much, everyone. Take care. Bye.
Thank you.