Ladies and gentlemen, good day and welcome to the GCPL Limited Q2 FY 2021 earnings conference call hosted by Kotak Securities Limited. As a reminder, all participant lines will be in the listen-only mode. And there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that conference is being recorded. I now hand the conference over to Mr. Jaykumar Doshi from Kotak Securities Limited. Thank you, and over to you, sir.
Thank you, Faizan. Good evening, everyone. On behalf of Kotak Institutional Equities, I welcome you all to Godrej Consumer Products 2Q FY 2021 earnings call. We have with us Ms. Nisaba Godrej, Chairperson and Managing Director, Mr. V. Srinivasan, CFO and Company Secretary, Mr. Sameer Shah, Head Investor Relations, and Pratik Dantara, AVP, M&A, and Investor Relations. Over to you, Pratik.
Thanks, Jay. Good evening, everyone. We hope that you are staying safe and healthy. Given the exceptional circumstances created by COVID-19 outbreak, we are still presenting the results to you from our respective homes. Please bear with us if there is any technical glitch. We will start with Nisa sharing her perspective on the business performance. Over to you, Nisa.
Thank you so much, Pratik. Good evening, everyone. I hope you and your loved ones are safe and healthy during these difficult times that continue. Thank you so much for being with us on this call today. GCPL delivered a strong performance in quarter two with all our clusters recording positive sales growth. Our overall sales grew by 11%. EBITDA and PAT excluding exceptional items grew by 19%. 83% of our global portfolio is Household Insecticides, Hygiene, and Value for Money products, and they grew by 17%.
Hygiene had an excellent growth of 27%, followed by Value for Money products, which grew by 22%. Growth in Household Insecticides was steady at 6%, partly impacted by supply chain issues due to regional lockdowns in India. From a geography perspective, we have seen positive sales growth across all our clusters. India recorded a strong sales growth of 11%, led by Hygiene, including soap.
Overall, rural grew much ahead of urban. Indonesia delivered a soft performance with a growth of 3%. This was impacted by large-scale social restrictions in the last fortnight of September and downstocking by select modern trade retailers. Our Africa, USA, and Middle East business showed robust recovery with a growth of 10%. We continue to lay the building blocks for sustainable and profitable sales growth in the subcontinent. Household Insecticides has been one of our biggest growth pivots and grew steadily at 6%. This performance was partly impacted by supply chains issues due to regional lockdowns in India. We recorded much higher secondary sales growth in India. We continue to reap the benefits of a very strong innovation pipeline and product portfolio, serving consumers at all price points. We are also investing more behind educating consumers on disease prevention.
We have been laser-focused on growth and innovation in our Hygiene portfolio, including soaps, which grew at 27%. We also showed strong recovery in Value for Money products with 22% sales growth. We continue to have a strong balance sheet and remain more watchful than ever on receivables management. Working capital days have reduced by 12 days, primarily driven by the reduction in receivables across clusters. Net debt to equity ratio also reduced to 0.17. I am pleased to share with you that our teams have been on top of their execution game. I believe we were agile in resolving the continuing supply chain challenges in serving our consumers. We are using this crisis as an opportunity to digitize more rapidly and grow more strongly in channels like e-commerce and chemists. As always, our values matter the most at this time.
We're committed to enabling the safety and well-being of all Godrejites and serving our consumers and communities with our full hearts and minds. Thank you.
Should we start taking questions?
Yes, please.
Thank you very much. We will now begin the Q&A session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Reminder to the participants, anyone who wishes to ask a question may press star and one at this time. The first question is from the line of Abneesh Roy from Edelweiss. Please go ahead.
Yeah, thanks for the opportunity. My first question is on the Africa, U.S., and Middle East business. Very good recovery of 10% sales growth. Wanted to understand how much sustainable is this? Could we expect a double-digit growth going ahead in every quarter? In spite of this, the EBITDA margin dipped 100 and this because of the higher salience of braids. Could you explain why braids has grown faster? Was it a conscious strategy, and when can we see margin expansion in this part of the business?
Hi, Abneesh. This is Sameer here. I think to begin with, as we had shared last time around also that we are sort of laying down the building blocks for a sustainable, steady sales growth. I think 10% sales growth in last quarter was led by West and Southern African markets. We would want to continue with those investments, which have sort of driven growth over there and also sort of seed in go-to-market initiatives as well as new product launches, and hence drive innovation-led growth also over a period of time. One of the reasons why, I mean, the margins have been relatively down on a YoY basis has been higher saliency of braids, and that's partly driven by consumer preference, at least over last three, four months, in terms of shift more towards kind of value formats within hair extension.
We are seeing that shift gradually changing as we see the performance sequentially month-over-month, and hence we don't expect that at least to be the reason, if any, for any margin erosion at least going ahead.
My second question is on HI in India. Sales growth of 4% was well below expectations. Wanted to understand this because this partial lockdown or regional lockdown as an issue has not been pointed out by other FMCG companies, and you must have seen the good growth, I think, delivered by most companies. Your own growth is decent in soap, for example. Why should the regional lockdown impact only this part of the business? It has not impacted, for example, the other listed company grew in this category 20+% . Could you explain that bit, and did you lose out on opportunity because of this?
Hi, this is Nisaba here. Yeah, let me start off by just qualifying that in HI, we were not particularly happy with our own performance. We were really expecting to do better, especially because this trend on health, stay safe, is quite strong. That being said, the stock issue is I think one issue. What happens is that in HI, quarter two and quarter three tend to be the more salient months in the year. As you can imagine, say, meeting demand in quarter one is actually easier than in quarter two and quarter three because your factories had more capacity for a less salient quarter. What actually happened is, and I don't know, I can't comment on other seasonals, but we had a regional lockdown in Guwahati for 21 days where a lot of our HI production happens. That impacted us quite badly.
That being said, we felt this pinch much more specifically in August. July was actually better than August, and then September and October again have been strong. Like Sameer said, secondary growth was also quite good. Our new innovation, Flash, is doing very well. Some of the longer-term trends, this incense sticks, illegal ones are definitely on a back foot and we are doing more work there. We're seeing things like cockroach and rat penetration, aerosol penetration also sort of drive. I think the lockdown, that factory did sort of impact us, and we are hoping to see a much better performance in quarter three on this category.
Nisaba, just two follow-ups. What percentage of our manufacturing takes place in Guwahati in HI? Would you have lost market share structurally because other players could have captured that, and any plans how you get back?
I can't give you the specific numbers of what percentage of manufacturing is from Guwahati. We would have, I think, overall actually probably have gained in shares in electrics, but we might have lost, I think, share in coils and aerosols because of this impact. I don't think it's structural, and don't forget that our shares in, say, aerosols are extremely high, and even in coils, our relative market share is huge. I think we'll focus on sort of our product innovation, serving the consumer, and I think quarter three should be better.
Just last follow-up here, and then I'll move on. Essentially, Guwahati, is it substantial even if you don't get into numbers? There is no price war in HI, right? Nothing to really get worried on the pricing, price war front.
There's no pricing war. I agree that this is not the best performance actually after what we saw in consumer in quarter one. What we're seeing in consumer sentiment. I don't think the lockdown, this factory lockdown and supply is the only issue we face. Like I said, September and October have been much stronger and we're quite focused on growth. I think, the consumer sentiment is a tailwind. This illegal incense stick being on a back foot is a tailwind. We're seeing other non-mosquito pests, like cockroach and rat, and those sort of products are very high demand. I don't think we'll have any supply chain issues in quarter three. Let's see what we're telling you in January or February when we speak.
Sure. Last question, you have done well in overall sales from India, 11% growth. Wanted to understand all these new products on the Health Hygiene platform launched in the last six, seven months. I see very aggressive ads on the print media and other media. Could you give a sense from the numbers, percentage of revenue, or what's the contribution? Which of those are looking promising in these initial stages? Early, but still, if you could give us some clarity which ones are looking more promising.
Sorry, Abneesh, again, I think we will not be able to share the numbers for competitive reasons. What I may actually directionally share with you is hand wash is doing-
No, new product. New product in the general overall basket, right? Last six, seven months or one year, whatever you have.
Sure. I may share, I mean-
No, it's a mixture. Things like disinfectant sprays. We're also seeing things like the toilet cleaners, floor cleaners doing well. Don't forget, Abneesh, some of these categories had quite low penetration even with pre-COVID and were growing at a quite good clip. I think some of those, COVID has just sort of accelerated. It's a good opportunity. We've obviously chosen particular categories and products that we want to, and channels that we want to go after very aggressively. Obviously, we don't want to, like Sameer said, speak about it because of competitive reasons.
Sure. That's very helpful. Thanks a lot to Nisa and Sameer and the team. All the best. Thank you.
Thanks a lot.
Thanks, Abneesh.
Thank you. The next question is from the line of Sameer Gupta from IIFL Securities. Please go ahead.
Hi, team. Thanks for taking my question. Wanted a little more clarification on the HI performance in India. If this is an issue with the manufacturing, then is it right to assume that there would not have been any sales lost at the consumer end? I guess the distributor plus retail channel itself would be around 20 days. To that extent, in the third quarter, there will be some up-stocking impact back in trade because of this issue in HI?
Hi, Sameer. I think as we kind of shared earlier, we had a much better secondary sales growth, right? I mean, as compared to primary sales growth in HI, and the reason for that was at least partly getting impacted by this lockdown-related kind of challenges. It depends. If we feel that the stock levels with our channel partners are adequate, which I think so is the case, then we should see a steady state growth. The point over here is to continue sort of building on some of the new launches, like say Gold Flash or the good work on incense sticks or the cockroach solutions, kind of products to drive a steady and sustainable sales growth.
That's the way we are looking at it. The start has been good. In fact, last couple of months, as Nisaba also mentioned earlier, has been good. Let's see how that kind of shapes up over next kind of few months and perhaps for rest of the year also.
Okay, great. Just to summarize, you are saying that secondary has been higher than primary this quarter, and that gap will not be bridged. It might continue in the same way going forward also.
Absolutely.
Because s ales have been much better.
I mean, growth has been much better than the primary sales growth in the last quarter. Yeah.
Okay. Just another question, if I may. Again, on Africa, the margins, while there is a mix impact, when we had acquired this business some five, seven years back, this business was already at around a 20% margin, and on top of that, we had a wet haircare portfolio, which was even a higher margin. Even despite the mix, what kind of stable state margin should we look at in Africa now, given the competitive intensity where it is and given the demand trends where they are?
I think we have shared this in the past, that strategically, we would want to see anywhere between 300-400 basis points of margin expansion in Africa, at least over the next two to three years, right? Even if you baseline it with, say, FY 2020 margins. We do feel that we have the drivers, in terms of thought process as well as we will get executed, whether it be cost-saving projects, whether it be favorable category mix, whether it be the scale itself. We remain quite confident at least of that expansion of 300- 400 basis points over the next two to three years in the overall Africa, U.S., Middle East cluster.
This 300-400 basis points will be a mix of your leverage, your growth and your margin mix. Is that understanding correct?
Absolutely.
Okay. Thanks, team. Thanks for taking all the questions. I might come back in the Q&A if I have any more. Thanks.
Sure. Thank you.
Thank you. The next question is from the line of Nishad Karkare from Bay Capital. Please go ahead.
Hi, team. Thanks for the opportunity. I just had one question on the investment side. If we see the standalone cash flows, we see an INR 980 crore investment into subsidiaries, and the consolidated cash flow shows a similar or rather slightly larger debt repayment of about INR 1,200 crore. Firstly, I just wanted to understand which cluster or geography does that pertain to? And secondly, we've in the past never really used the domestic business cash flows on the international side. Just wanted to understand what led to the change in that.
Nishad, Sameer here. As we had mentioned earlier as well, we had prioritized repayment of loan as a good opportunity now to go with. What we have done is the surplus cash that we have in India, we have used it to capitalize these subsidiaries for repayment of the loan. That is what you see as investments from in the standalone cash flows. The change is simply this, that we have the surplus cash, and today the surplus cash locally earns only about 2-3 percentage point if you have to put it in a safe investment. Whereas, when you repay these loans, you are actually able to reduce your dollar cost by 2-3 percentage points.
In the long term, also, we'll have a good balance between repayment of loans and keeping enough surplus to ensure that we have adequate cash for our business growth.
Okay. This is not driven by, let's say, lower than anticipated cash generation in one of the businesses and that required some amount of urgency in debt repayment. Nothing of that sort.
No. In fact, we have actually prepaid some of our loans.
Understood. This will be mainly related to the African debt. Is that correct?
Yes. Largely our debt right now is mostly for the African business.
Understood. Thank you a lot. That is all from my side.
Thank you.
Thank you. Participants, to ask a question, you may press star and one. The next question is from the line of Kiran Naik from Modi Fincap. Please go ahead.
Thank you for giving an opportunity. I would like to know what is our market share in our products for different products we sell?
Hi, this is Sameer here. Again, for competitive reasons, we don't share what is the market share. What I can share with you is what's our market leadership position. For example, in India, in Household Insecticide category, we are market leaders. We are market leaders in hair colors. We are the second-largest player in bar soaps, and we are also market leaders in air fresheners. Similarly, in Indonesia, we would be market leaders both in Household Insecticides and air fresheners. We are either number one or number two, I mean, across categories in which we play in.
Okay. Thank you, sir.
Thank you. Reminder to the participants, anyone who wishes to ask a question may press star and one at this time. The next question is from the line of Chanchal Khandelwal from Birla Sun Life Insurance. Please go ahead.
Hi, team. Congrats on good set of numbers. Couple of points. Firstly, the Indonesia growth. Indonesia constant currency growth is 3%, is on the lower side. Is it because of the new social distancing norm in Indonesia and you lost some days in Indonesia? What's the growth one can expect in Indonesia going forward? Second is on the Household Insecticide. You lost 21 days, refilling may happen in this quarter, what's the category growth which happened in last quarter, what is the growth you are looking forward in terms of the category growth going forward?
Chanchal, hi. This is Sameer here. I think let's start with Indonesia first. I think if we just look at the overall, say, FMCG category performance in Indonesia, I think over the last six months, we have seen close to double-digit decline, right? In that context, we do think that our growth is lower than our own internal expectation, but at par given the overall context. Secondly, we also did see the impact of extreme social distancing norms or version 2, if you may want to call it, which was executed mid-September, and remained till mid-October. Lastly, we also did see downstocking by some of the modern retailers, and that's something which you have seen even in the past. I mean, they downstock and then maybe at some point in time they end up upstocking.
These are the three, four reasons why the performance has been soft. I think at this point in time, I would say we remain cautious in terms of how the overall Indonesia business performance will be, at least in very short-term. Structurally and in medium-term, we remain extremely optimistic of Indonesia's performance driven by multiple growth factors, whether it be market share gains, penetration, new product launches, or even scaling of new category like Hygiene, which has happened over last six months.
Sure. On the Household Insecticide in India?
I think on the Household Insecticide, as we shared earlier, Chanchal, our secondary growth rates were better off than primary growth rates, right? Hence, to that extent we do expect our overall performance should be relatively better. It is difficult to sort of estimate a growth number at this point in time due to multiple-
How has the category grown in this quarter?
I think, the details which have been coming in from tracking agencies have been for a very short period of time. We had paused actually the overall category data. Over the last few months, we have seen category growth somewhere in low to mid-single digit. Again, I think we need to take it with a pinch of salt in terms of how the overall category growth rates have been.
Sure. Just lastly on the Africa business, which is coming from a low base and you have multiple new product launches planned, can Africa be the growth driver going forward with a new CEO in place and things panning out?
Yeah, I think the thought process is to definitely get profitable, sustainable growth in Africa. It's not just about one or two quarters. As I was sharing earlier, the plan is to see steadiness in the overall sales growth. The pivots, basically, which would be go-to-market or new product launches sort of getting executed, the margins profile sort of moving up, the costing programs getting ruled out. It's something which will pan out over a period of time. Yeah, there is no short term without long term and then there's no long term without short term, in a way, right? To that extent, we will see gradually improving performance in African business also here and now and going ahead.
Sure, thanks. That's from my side.
Thanks.
Thank you. Reminder to the participants, anyone who wishes to ask a question may press star and one at this time. The next question is from the line of Jaykumar Doshi from Kotak Securities. Please go ahead.
Yeah, hi, good evening. Thanks. My first question is, you had a fantastic growth in soaps category in the current quarter. What is your assessment of market share in the current quarter, and how do you see the trajectory going into October and November? Any trends that you may have seen in terms of down-trading or any other trends in that category?
Hi, Jay. I think we think our source of growth definitely has been market share gains. Typically, what happens is when you get into high commodity inflation environment, as we are, especially for palm oil, a lot of small local players, they sort of sit on the fence. That gives opportunity to a lot of large players like us to gain market share. Definitely that has worked well for us. Secondly, our micro-marketing initiatives very much continue. Something which has been a growth vector for us over the past 12, 18 months. That has also sort of contributed. Last but not the least, the thrust on health within the new product launches also in soap portfolio has contributed to this growth. We do expect a good steady state kind of performance in soaps also going ahead.
Right. Any thoughts on price increases? How do you see overall, given inflationary environment, what are your plans to protect profitability for the portfolio?
Yeah, that's honestly not too much of an issue, because we leverage our portfolio. We will also sweat more on cost saving kind of initiatives. We would also want to be gradual and calibrated. We have taken some price increase at the flag end of quarter. That sort of already is in market. We would be striking a balance between price increase as well as volume growth in this category.
Right. Is the growth trajectory sort of likely to continue in October, November? How is it trending?
Well, I would not want to hazard a guess on that front. As I said earlier, the intent would be to continue a steady state, sustainable growth momentum even going ahead.
Right. If I may ask one more question. Hair colors recovery has been fairly impressive from 1 Q to 2 Q. How is it trending? If you can give some color on what are the trends you are seeing, and how should we expect it in third quarter, fourth quarter?
I think-
Will that sequential improvement continue given that-
Yeah, I think the sequential improvement should continue. We also had an extremely strong October in hair color. I think Durga Puja, Diwali. It's a sort of festive time, even though people are not fully going out. I think hair color, we should see sequential improvement, so we're quite confident about it.
Thank you. That's it from my side.
Thank you. Reminder to the participants, anyone who wishes to ask a question may press star and one. The next question is from the line of Rohit Dokania from DAM Capital. Please go ahead.
Yeah. Hi, good evening. Thank you for the opportunity. Two, three quick ones from my side. Can you talk about what has been the secondary growth in HI in Q2? Is it possible to quantify that? Also if you can talk about what kind of sort of exit growth did we see in HI, let's say in the month of September?
I think again, for competitive reasons, we would not want to share a monthly sort of growth. On secondary growth, what we can share is it was in double digits, low double digits, kind of thereabout. The momentum in September and October was good. The task on hand is to continue that momentum for rest of the year, as you mentioned earlier.
Okay. The last question from my side is, the difference between sort of value and volume, 5% versus 9%. Is it a mix layer improvement or which segments are contributing that? Could you please highlight that?
Yeah, part of it is one broad-based, across most of the key sort of categories. Second is there is plain vanilla pricing. In fact, also there is sort of mix impact, whether it be category mix, because every category will have a different realization compared to the other categories. Within categories also, kind of formats and brands which would have a different realization, and hence its own impact on the overall, kind of value volume equation.
No one category is basically-
No, it's very broad-based. It's quite broad-based.
Thanks a lot on all the questions.
Thanks.
Thank you. Participants to ask a question, you may press star and one. The next question is from the line of Richard Liu from JM Financial. Please go ahead.
Hi. Thank you. Hi, Sameer. Hi, Nisa. I got three questions. The first one is slightly philosophical. I just heard your comment regarding Africa has now done well, but Indo, you are a little tentative in the near term, et cetera. If I look at the last many years, I think this has been really the story, right? The good work in one country is offset by some of the other issues in some of the other countries. Nisa, this question is for you. You, like a lot of the other Indian-born FMCG companies also have taken this call that you want some share of revenue coming from foreign geographies.
I guess the intent of that was for them to be growth accretive to the Indian growth. If you look at all the companies that have this international exposure, it didn't really pan out that way. I would say that international operations have actually taken away from the Indian growth rate. Given a choice, would you still be as gung-ho about these foreign operations as the Group has been when it started out on this journey? I'm just asking in the context of the kind of volatility of growth that we've been seeing of late.
Yeah, sure. Thank you. I think it's nice sometimes even on these quarterly calls to be asked about something that we think about all the time. Actually, thank you for your question. I think, Richard, if you look at a country like Indonesia, I would say by any sort of parameter you look at it has been a very successful sort of M&A, and I think it'll give us growth for many years to come. I still very strongly actually believe in this Africa story because I do think there is value for money product, good distribution, low cost manufacturing, is something that transfers to there. I think in the last few years, definitely, the performance has really not been up to the mark.
There are macro challenges. If we're honest, there are macro challenges all over the world all the time, COVID sort of adds to that. I think we are committed to making this business work. We do feel that this has very strong long-term potential for GCPL. We also understand that there's no long-term without a short-term. We are working extremely hard to really acknowledge where we've misstepped and where we need to put the fixes. I've, in the last few months with investors and all, talked about getting someone like Dharnesh Gordhon, who's a very experienced South African leader, who's very experienced in operating on the continent. I'm feeling quite confident that we will turn this ship around. Look, one quarter of 10% growth, it's not like we're having a party, I can assure you of that, correct?
It does give us a bit of horsepower. Quarter one, as you know, in the Africa business was not good. It does give us some horsepower to say, "Let's finish this year strong. Let's put all the changes we need into place and tighten our belts and get this done." I do think the potential is there. I've spent time in these markets. There is a lot of opportunity similar to India, especially in the big markets like Nigeria and South Africa. Yeah, I hope to be delivering consistent performance in Africa quarter-over-quarter going forward while increasing profitability.
All right. Thanks, Nisa. Okay. My second question is that, if I look at the LatAm margin, they seem to have structurally gone on the higher side. Sorry, my definition of structurally is actually just two quarters, the last quarter and this one. We've been seeing very good margin from LatAm, something that we've not seen for a long, long time. What are the reasons for this?
I think there are a couple of things, Richard, which teams have been working on ground. One is very structured, sort of cost-saving initiatives, something which we've seen in India over the last five, six years, is what got cross-pollinated to the Latin American business. That is sort of resulting in significant margin expansion. The other is scale, right? If you look at the sales growth over the last many quarters now, it has been quite steady. That is also kind of driving scale leverage, which in turn is resulting in meaningful kind of margins. Again, I think we remain very confident of continuation of strong, profitable kind of sales growth in Latin American business even going ahead. As you very rightly said, and that's the reality, that it's more structural in nature and hence, sort of here to stay.
What has changed in terms of that helping the growth profile in this country? I would think that of the three geographies, this was probably the most volatile, and this seems to have really settled for the better.
Yeah. Directionally, what has worked for us is strong volume growth and of course, the pricing growth. Pricing, you have to be kind of clear as whether it's plain currency depreciation-led kind of pricing impact or it kind of mix as well as tactical pricing kind of growth. That's I think one thing. Again, the route to market initiatives and new product launches have all sort of contributed to this growth, both in Argentina as well as in Chile.
Hey, Richard, I wish I could say there was a magic wand and we did something magical, then it turned around. I think sometimes it's also from a management perspective, getting your act together stronger, correct? I think like Sameer mentioned, managing GTM, expanding it. We've done a lot more work in general trade there, managing working capital and receivables much stronger. Actually, the CEO of Argentina has also become the LatAm head and is fixing a lot of these things in Chile also. I think it's just also stronger operational management.
Okay. Last question, if I may. I am sorry this is a little arithmetical. This 83% of the portfolio that has grown 17%, does that necessarily mean that the balance 13% has declined by 20% or something like that? I saw you write 9% on one of the slides, but I am not sure that mathematically added up.
The rest of the portfolio has declined, of course. In terms of math, we can pick it up offline if you want.
Did we make a mistake in our slide?
I hope not.
I'm sure not. I mean-
Thanks, Richard.
Thank you very much. Thank you.
We'll get back to you with an exact number.
Thanks, Nisa. Thanks, Sameer.
Thanks.
Thanks, Richard.
Thank you. Reminder to the participants, anyone who wishes to ask a question may press star and one. The next question is from the line of Latika Chopra from JP Morgan. Please go ahead.
Yeah. Hi. I'm sorry I joined a little late. Not sure if this got discussed already. Just a quick one on the India HHI portfolio. You reported a 4% growth. We understand there were some production-related issues. If you could comment on how do you expect the category growth rates to really pan out going forward, and how confident you are that this growth rates for you in this category could sustainably run at double-digit levels. If so, what sub-segments will really drive that? That was the first question. Secondly, on Indonesia, do we expect a low single digit kind of a growth to continue in the short run? Thank you.
Hi. Yeah, welcome. We did get asked a lot of questions on HI, but very happy to answer yours again. I think from a category perspective, like I mentioned earlier, we remain quite confident. I think a few things that are happening, we also mentioned earlier that our secondary sales were stronger. September and October were also stronger. I think looking slightly forward, I think this focus on sort of health is very important now. I think people are more conscious and paying more attention, want to protect themselves. We're seeing a big uptick also in non-mosquito formats like cockroach and rat. We're seeing a format increase in penetration and in demand for formats like aerosol, where we have very large market shares. I think we talked about this previously, the illegal incense sticks. Duties have changed from 10% to 25% on incense sticks.
I think that t hose players, and we are also reacting strongly to them, both from the supply chain side and the consumer side. Our new electrical liquid vaporizer , which is much more efficacious than the last generation one, is doing well. The consumer feedback is extremely positive. We do feel there are enough of these tailwinds to be confident about. In terms of Indonesia, I can't give you guidance on the growth. I think from a macro perspective, from a lot of the geographies we operate in, we have seen some of this COVID-19 impact and all playing out quite strongly there. The business has good plans, growing out a new Hygiene brand, doubling down on insecticides. I think it will be a tough year for the business overall.
Sure. Thank you.
Thank you. Participants, to ask a question, you may press star and one. The next question is from the line of Rohit Chordia from White Oak Capital. Please go ahead.
Hi, good evening, Nisaba, Sameer. A quick couple of questions. One, if I could get comments on trends in some of your new categories, air fresheners and all. Second, you seem to be also launching a few new variants in your liquid detergent portfolio. Now that market, during the pandemic, I think the category has seen some uptake. Are you getting more serious about that portfolio as an all-season portfolio instead of just being a winter one? The second one is on the balance sheet side. You're seeing the receivables number come down for most FMCG companies this quarter. Is this to do with lower salience of modern trade and CSD right now? Does this normalize as these two channels recover? Those would be my two questions.
Okay, Rohit. First of all, congratulations to you on the new role. I think, to begin with, air freshener category has been sequentially improving, as we can see from the overall category growth numbers. Of course, I think the overall performance for us also has been largely impacted by the overall slow category growth. That's improving sequentially. We remain hopeful that this gradual improvement will continue even going ahead, although at a slower pace than perhaps the recovery, at least which we saw in hair colors for us. Liquid dets for us, historically, has been more of a winter care portfolio. The attempt with these new launches is to make it more of a 365-day play. That's where these new set of launches and the related inputs and investments are sort of going in the market at this point in time.
On the balance sheet front, actually, if you browse through the balance sheet matrix, which we have shared, we have seen close to 12 days of working capital reduction. A big part of that reduction is coming driven by receivables. Again, for us, it's quite broad-based. It's coming from most of our countries, whether it be Africa continent, whether it be Indonesia as well as India. Right? I don't think so, at least for us, it has been only driven by slow modern retail channel sales, because part of that has actually got offset by online, which also has relatively high credit for you.
Understood. Could you talk about your e-commerce salience and how much has it grown?
I'm sorry, I didn't get your question.
The e-commerce salience in India and how has that channel grown on a YoY basis?
For us, our salience in India for e-commerce was around 4%-4.5%, and the business has more than doubled for us.
Excellent. Thank you very much and all the best .
Thanks, Rohit.
Thank you. The next question is from the line of Percy Panthaki from IIFL Securities. Please go ahead.
Hi, Nisaba, Sameer, and team. Good evening.
Hey, Percy.
Hi. I joined a bit late, so I'm sorry if these questions have been asked earlier, and if they have, then I'm okay to look at the con call transcript.
Can I get your question, Percy?
Yeah.
Go ahead.
My first question was on the Africa margins. I think they have compressed YoY this quarter. Just wanted to understand what is the reason for that compression, and how do you see it going ahead? What's the outlook for margins going ahead?
Yeah. Hi, Percy. This is Sameer here. I think the major reason for compression in Africa's margins was higher growth in braid. Braid has relatively lower gross margins as compared to the other formats. I think going ahead for rest of the year, we remain quite confident of margin expansion in Africa due to the multiple pivots. One is we are seeing gradual shift in the format saliency, and some of our cost-saving projects are now kind of reaping us rich dividends and expect it to have a meaningful contribution the rest of the year. At least at this point in time, we remain quite confident of margin expansion for both the quarters in Africa.
Just a sub-question here. If the increase in braid salience has got to do with the poor economic situation, then that is not going to reverse so soon, right?
We are seeing those trends, Percy. It's not like it continued throughout the quarter. It started that way, and it's not just kind of poor economic situation, but also salons opening and were sort of closed in lockdown, because sort of formats also have its own kind of interlinkages. Right? We have seen that shift. Almost every month over last three, four months, and expect also that shift to continue. At least that reason, which was one of the major reasons for downtick in margins will no longer be as prevalent as it was at least over last five, six months.
Understood. On wet hair care, I just wanted to understand, in Africa firstly, whether it's a similar impact of COVID-related economic disruption in wet and dry hair care, or are they impacted slightly differently? Also the wet hair care portion in U.S., is that impacted or there you don't see any significant impact?
No, it's a very complementary category, right? The impact is there very much. It's difficult to decipher whether the impact on dry hair was different from on wet hair. It's complementary category, I'm assuming both of it would have got impacted more of the same. In U.S., we have seen sort of much improved performance. The performance was extremely soft in the early part of the year. Over last two, three months, we have seen good, steady to strong sort of performance. We expect that also to kind of be [foregoing it]. We were also kind of constrained with some of the backend supply chain challenges in U.S. market, and those are also largely sort of behind us. We do expect the wet hair performance generally in U.S. also to be better going ahead.
Okay. Lastly, this Household Insecticide launch in Africa, can you give me any updates on that? Which countries have you done it? What is the initial feedback? What is the future rollout plan?
Well, I think it's a big category. We have talked about it in the past. We have started our journey with aerosols launch in Nigeria. We would want to sort of continue to invest, have the learnings. As you are aware, this is a category which also needs two, three years of background work in terms of registration and product launches readiness. In the different markets you want to get in, which is sort of happening as we speak. I'm sure we will talk more about it in the coming quarters and years once it sort of reaches to scale.
Okay. This initial learnings, et cetera, anything that you would be able to share at this juncture?
Too early, Percy.
Okay. That's all from me. Thanks, and all the best.
Thanks, Percy.
Thank you. The next question is from the line of Prasad Deshmukh from Bank of America. Please go ahead.
Hi. I have only one question, actually. There is a sharp rise in e-commerce, as you mentioned. If I have to look at the advertising industry per se, print media also seems to be struggling because of lack of readership. I was wondering how your advertising spends now are adjusted versus pre-COVID versus post-COVID in terms of mix, say TV, print, and digital. How do you think this will trend here on?
Hi, Prasad. I think directionally, our spends on digital have been kind of moving up. Not just in current kind of environment, even whole of last year. It also is very dependent on the category. It's not like all the categories can be digitally sort of advertised because you have to also look at the target audience which you want to sort of connect with. Yeah, directionally for us, I can share that our digital spends have actually moved up, continued to move up over last couple of years, and that trend, I think, will continue also going ahead.
If you were to quantify how much percentage would be digital, how much would be, say, TV now versus, say, a year back?
Well, again, I think we would want to keep some of the kind of details a little more-
Okay. No problem. Just one comment then. As far as the ROI is concerned on digital spends versus, say, print media spends, how much would be the difference at the industry level also should be fine?
I think, again, to be honest, Prasad, most of the marketers do grapple with ROI investments, whether it be on traditional media or whether it be on kind of digital. There are different metrics in terms of clicks and then click conversions and so on and so forth. To be very honest with you, at even industry level, the ROIs on different marketing mediums are still not very good.
Got it. Okay. Thanks a lot.
Yeah. Thanks, Prasad.
Thank you. The next question is from the line of Vivek Maheshwari from Jefferies. Please go ahead.
Hi. Good evening, everyone. Just one question. If I just look at the performance till December, leaving aside the impact of pandemic, the last eight quarters, if I look at, let's say, HI, the lowest number is -6%, the highest is +17%. Soap is -4%, +26%, and hair color is -4%, +33%. In general, by design, FMCG businesses are more stable and more predictable. So, over the medium term, what will it take for growth in a tighter range? Because the last eight quarters were not really marked by any of those one-offs. Demonetisation GST was far before that, and pandemic is only from March of this year. So what will it take to have more predictable and a tighter range from a growth perspective?
For one, it would be good not to be dealing with COVID, because you said GST and all are not part of this range that you've described, but COVID has definitely been there. I think that has some impact. I think that being said, I would agree with you that FMCG needs to be more of a steady business. I think as we go ahead this year, we do feel that we will have more steady growth and focus on keeping growth in the double digits. I do think in the past, and we've talked about this, that the sort of past couple of years have not been the strongest for GCPL. We have been putting fixes in place. We have seen sort of market share gains.
We are dealing with COVID right now, I think pretty successfully. Hopefully we will see more steady growth going ahead.
Sure. Nisaba, the context also is because the numbers that I just read out are actually till December of last year. That's why I left March number because those were also impacted by COVID-19. Again, just a follow-up to that. Let's say if you look at the first and the second quarter, I don't know if you have covered this already on the call since I joined late. Let's say first quarter, I did not get an impression that HI will go down all the way from 27% to 4%. At that time, the feeling was that that 27% is more like there is no one-off, there is no channel restocking, et cetera. Conversely, soap, you did indicate that there will be a pickup and things are getting better, but from -2% to +18%. Again, those volatility actually is something which worries me the most. Any thoughts on that?
I hope you're not complaining about the -2% to +18%. Definitely, I don't know when you joined this call because it seems people are joining at different times. We did sort of talk over the HI piece that we were also expecting to be in double digits in this quarter on HI. There were some supply chain issues. There were some other issues that sort of impacted us. Our secondary growths were better. September and October were better, and we're looking towards sort of better growth in HI going forward.
Got it. Wishing you all the very best, Nisaba and team.
Thank you. The next question is from the line of Amit Sinha from HDFC AMC. Please go ahead.
Yeah. Hi, team. Thanks for the opportunity. I have just one question on the Indonesia business. If I heard you correctly, basically what you pointed out is that this year is going to be a tough year for the business overall. While I understand and I have been listening to the commentary and clearly there have been extreme social distancing norms which have been implemented in the country. Till last quarter, your commentary on the country's business overall, given that you have been doing extremely well on the HI portfolio there was sort of kind of positive if not very positive. Wanted to understand, is there anything more from a business fundamental perspective which is changing from the portfolio point of view and from the country overall macro point of view.
I don't think anything's changing. Our growth in quarter one in Indonesia was 105. In this quarter it's 103. We were obviously very pleased in quarter one with both India and Indonesia being at this 105 growth considering most companies were in de-growth in quarter one. If you look at Indonesian companies even in FMCG, they are in de-growth in quarter two also. Relatively 103 is good. You all are asking how the market conditions are. It looks quite tough is what I said. Given what's happening in Indonesia, still pleased. We have a big hair care business there. We are seeing the pressure on hair care both in India and in Indonesia. It is not one of those categories that has tailwinds in these emerging markets. They are pieces that we're working through, correct?
By making it fresh and sanitized and things like that together. I don't think my optimism on Indonesia changes or has changed at all. It's a tough year, meaning I don't necessarily see us jumping to double-digit growth next quarter is what I meant.
Understood. Okay. It was more of a general commentary on the macro, not exactly for your-
There is that. I think the business there is very strong. It is a resilient business. I do think it's a tough year for all businesses. I think if you look at other Indonesian companies, you will see that also. India is actually, the surprise has been that India, in consumer products, has actually recovered quicker and faster than expected. I would have expected Indonesia also as the economy would have recovered in a stronger way in quarter two, but that hasn't happened.
Yeah. Thanks. All the best. Thank you.
Thank you. The next question is from the line of Avi Mehta from Macquarie. Please go ahead. Avi Mehta, your line is in talk mode. Please go ahead with your question.
Hi. Sorry, I was on mute. I had just a question on the margin front. Do you have any target that you can share on cost savings that you have planned and any plans around that, how you're going about it given the current macro environment? Not just on cost, but also on the SKUs, any rationalization, any thoughts on that front would be useful.
Hi, Avi, this is Sameer here. I think, the cost-saving programs, and then as I was sharing earlier, have also been cross-pollinated to African markets as well as Latin American markets. On an average, we do see savings anywhere between 4%- 5% of sales coming in. Of course, part of it gets reinvested back for growth and part perhaps kind of goes to the bottom line. That's the way we are looking at it. In India, we are perhaps in the sixth or seventh year of this program, whereas in Africa we have just started this journey, this fiscal year. That's the way we want it to be more of sort of continuous excellence program, right, which carries on for many more years to sort of come in.
SKU rationalization is important. We have sort of done that in a couple of African kind of businesses at this point in time. Not just from cost savings perspective or simplifying your back end, trust me, it also has kind of immediate impact on the kind of driving sales from your other SKUs. You free up a lot of kind of time and bandwidth of your frontline team members. We've done that. In India also, we do that at regular intervals. We keep on sort of revisiting this kind of SKUs, including the rationalization part of it.
Okay. Sameer, just from given the current palm oil prices, how is that kind of trending, and is there any pressures that you're witnessing with it, or how are you kind of looking at that space?
Again, honestly, I am no expert on palm oil pricing trends. The [CPO] prices CIF at this point in time around 750-ish level is 35%, 40% up. We have taken some pricing action at the flag end of the quarter. We are not too worried about its impact on gross margins. We think that it's a good balance between driving volumes growth, having competitive advantage as well as ensuring that there is not much erosion on gross margins front. That's the way we are looking at it. I think we are comfortably placed in terms of our covers as well as the pricing calls which we have taken.
Okay, perfect. That's all from my side. Thank you very much.
Thanks, Avi.
Thank you. The next question is from the line of Harit Kapoor from Investec. Please go ahead.
Yeah. Hi, good evening. I just had one question on the new product launches. If you could just help me understand in India, what would be the proportion of growth coming from NPD? A follow-up on that is, now you're about three, four months from the spate of launches that you had done. In your early opinion, which ones do you think are more here to stay, and which do you think are more tactical just to take advantage of the macro? Yeah, that's it.
Our innovation rate this year is very high in the very high double digits, but that's also because we have this new Flash, the new liquid vaporizer machine in India. This is probably our highest innovation rate here. I don't think we've ever been this high. That would be on the innovation rate. Again, for, I think, competitive reasons, I don't think we can share which are the sort of new products that are going to be- I don't think too many of them are tactical. I think some of them you might— we're seeing like hand sanitizer, if you play it just without a differentiation is becoming a very commoditized and very local-driven market. It's not just new, I think, products, it's already products that were there. If you can bring differentiation there, good pricing and good distribution, lot of opportunities. Unfortunately, can't share exactly which ones.
Got it. If I can just ask one more. For the India business, again, if you could just give me a sense of what the kind of recovery trends for the hair color business, as you've already seen, you did see -5% for the quarter, but through the quarter, as exit rates go, how are you kind of seeing that now?
Yeah, I think we're seeing sort of a positive in October, was very positive in hair color. We are seeing that category come back into growth.
Good job. Thanks, and all the best.
Thank you.
The next question is from the line of Manoj Menon from ICICI Securities. Please go ahead.
Oh, hi, team. Like what Percy mentioned a little earlier, sorry, I also joined a little late on the call. I'm actually recording it. I want to listen to this after. I have two, three questions, actually. The first is, if you covered it earlier, I'm sorry for that. Could you just comment about the primary and the secondary sales on insecticides and soaps? That's the first question.
Hi, Manoj. The secondary sales growth in Household Insecticides, as we shared earlier, has been much higher than the primary sales growth. In soaps, it has been marginally higher than the primary sales growth.
Oh, that's great, actually, from a soap's point of view. Is it double digits? Sorry, again, apologies if I missed that number. Is it better? Is it significantly better or is it closer to the reported 4%?
No, it is low double digits.
Low double digits. Okay, understood. That's very clear. Point number two, some qualitative commentary on the new category entries, whether it is home care, whether it is body care, will be helpful. What's the consumer feedback and where are you at this point in time?
I think it's too early to call out. We have had kind of slew of launches. Whether it be in Hygiene and again, within Hygiene, into disinfectants and veggie wash and even into bathrooms cleaner and floor cleaners and toilet cleaners. Honestly, too early to call out at this point in time. The start has been good, is what I can share over last three to six months. We continue to invest because the point is not just to have a tactical play but make it more structural and a key growth vector for us over a period of time. Maybe at the right point in time, once we get sufficient scale, we'll be very happy to share more details on the same, Manoj.
Understood. Point number three, that's the last question. Any material changes in the market on the trade margins, consumer discounts, essentially more on the BTL side and not really the ATL part of it.
It continues to remain on the lower end, though I think it has gradually moved up compared to the first quarter year levels. Still significantly lower on a year-over-year basis. You can see that from our disclosures also. In terms of, it has added sort of 2 percentage to our overall pricing for the last quarter. Yeah, that's where we are. A little higher than first quarter, but yeah, still lower on a YoY basis, and maybe that trend also continues, at least for rest of the year is my view.
Got it. Thanks, guys. All the best. I'll connect up with you. Thank you. Good day.
Thanks, Manoj. Take care.
Thank you, sir.
Thank you. The next question is from the line of Ayaz Motiwala from Nivalis Partners. Please go ahead.
Yes, hi. Good evening. Thank you for taking my question. Before the question on hair color was asked, I was almost wondering if you're in the business because no one for the last 45 minutes asked this question on it. Thank you for clarifying that. The related question on hair color is, will you take some of the Indian businesses like you're taking HI to Africa into other parts where you operate, principally in Indonesia, focus on hair color or related such businesses of India into that geography? That's my first question, please.
Yeah, we have a brand called NYU, which is our hair color similar to Expert Crème in Indonesia. We also have quite a significant hair color business in Africa. Focus is mostly in South Africa, has been sort of expanding. Hair color is definitely a global category for us. Obviously, the Latin American businesses is heavily skewed towards hair color.
Sure. Just as a learning on the Indian context, you've been in this business for a while. Do you see this business evolving into a much larger sort of business from a category point of view and you being the big leader there-
You see. There's been a launch that I've been actually very excited about this quarter, which is not in Hygiene or in Household Insecticides, actually, but in fashion hair color. Globally, the market, there's obviously a gray coverage market, and then there's a fashion hair color market. While in India, it's mostly been a gray coverage market. We think the time is extremely ripe for fashion hair color. I think COVID actually sort of, that trend, COVID will push it forward because with people wearing masks, they're not doing lipstick and some of the expression from the lower half of the face. The upper half becomes very important and fashion hair color can play a strong part in it. We have an extremely good no-ammonia innovation in fashion colors. It's quite hard to get that sort of bright vibrancy without ammonia. The formulation is fantastic.
Again, it's at a value for money. It's at INR 40, above the main SKU, significantly above, still really value for money for that category. We're quite encouraged by the early results, we think this could be something very interesting for the market. One of the things, obviously, there are other things, definitely building fashion and not just gray coverage is an interesting opportunity in India.
That's very helpful. As you brought it out, sort of fashion element to color. Is there a natural overlap on that? Is there a trend there? Is that going to work in favor or against you on the hair color side of the business?
On the what? Sorry.
On the hair color side of the business. Is that al so a natural tailwind building up, is that going to affect your business positively or negatively?
I think so in ways that we have a lot of natural ingredients in the hair colors. Also, we have the biggest natural hair color brand, which is our Nupur Henna brand. You'll see more things from that brand being launched. I don't see any negative impact on hair color. Fashion is an equally important trend as naturals, let me put it that way.
Sure. Just a small quick question, to the point that, Sameer, you answered to an earlier question. You said BTL has actually added 2 percentage points to your top line. Is what I heard correct?
That's right.
Okay, that's great. I appreciate your time and thank you very much. Have a good evening.
Thank you so much.
Thank you. As there are no further questions from the participants, I now hand the conference over to Mr. Pratik Dantara for closing comments.
Thank you, everyone. With that, we would like to draw this call to a close. Thank you everyone for your participation and have a great evening. Stay safe and stay well.
Thank you so much.
Thank you.
Bye.
Thank you. Ladies and gentlemen, on behalf of Kotak Securities Limited, that concludes this conference. Thank you for joining us, you may now disconnect your lines.