Evening, everyone. We would like to welcome the senior management team of Godrej Consumer Products and thank them for giving us this opportunity. I would now hand over the call to Pratik for initial introductions. Over to you, Pratik.
Thank you, Ashit. Thanks everyone for joining us today to discuss the quarterly performance and the current business environment. The company is represented by Mrs. Godrej, Chairperson and Managing Director, Mr. V. Srinivasan, CFO and Company Secretary, and Mr. Sameer Shah, Head Investor Relations. We'll now have Nisaba share her thoughts on our performance, then we can open up for Q&A. Over to you, Nisaba.
Thank you, Pratik. Good evening, everyone. I hope you and your loved ones are safe and healthy during these difficult times. Thank you for being with us on this call today. In quarter one, GCPL's performance was resilient. Our overall sales growth was nearly flat, and EBITDA grew at 3%. Profit after tax also grew at 3%, excluding exceptionals. As you know, 85% of our global portfolio is household insecticides, hygiene, and value-for-money products. These grew at 9%. Household insecticides and hygiene combined had excellent growth at 20%. While value-for-money products declined, we have seen sequential improvement from April to June and remain confident of stronger performance going ahead. I had previously pointed out that our Indonesia business is very similar to India in product category and strength of its DML, but as an economy, actually, Indonesia seems to be stronger than India at the moment.
I'm happy to report that both India and Indonesia, which account for 75% of our overall sales, grew at 5% each. In India, primary sales mirrored secondary sales in absolute terms, and rural grew much ahead of urban. Dharnesh Gordhon, who's our new CEO of the region, has already got his hands around the business, and we had a strong July, and we remain committed to a turnaround in performance going forward. Our performance in Africa, the U.S.A., and the Middle East was weak, but we have seen sequential improvement from April to June. One of the biggest growth credits for us has been the resurgence in household insecticides, which grew at 27%. We are reaping the benefits of a very strong innovation pipeline and product portfolio serving consumers at all price points.
Consumers are also, at a time like this, extremely concerned about their health and insect-borne diseases like malaria and dengue. We are also investing more behind consumer education on disease prevention. We have been laser-focused on growth and innovation in our hygiene portfolio, which grew at 15%. I'm extremely proud of our teams that we were able to cut down new product development cycle times from months to weeks, and we will continue the agility we saw in launching 35 products. I'm also happy to share that our teams have been on top of their execution game, and I believe we were agile in responding to the supply chain shocks that we faced. We are using this crisis as an opportunity to digitize more rapidly and grow more strongly in channels like e-commerce and chemists.
Working capital days came down by six days, and debt-to-equity ratio also came down to 0.17. As always, our values matter the most at this time, and we are committed to the safety and well-being of all Godrejites and serving our consumers and communities with our full hearts and minds. Thank you. Take questions now.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question, you may press star and one on your 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'll wait for a moment for all the questions to assemble. Anyone who wishes to ask a question, you may press star and one. First question is from the line of Abneesh Roy from Edelweiss. Please go ahead.
Yeah, congrats on good performance in the HI. Some questions I have on HI is, one, how has the illegal incense stick industry done now? Do you have any data there? Second, any impact on out-of-home consumption in HI because people are not going outside? These two are the main ones. If you could also highlight how much is the contribution of the new products launched in the last one year in HI.
Thanks, Abneesh. Thank you for your questions. I'll take the question on illegal incense sticks. I do definitely believe that illegal incense sticks are impacted for a couple of reasons during this time. I think one is, as we've seen that all of us have had supply chain issues and keeping our factories running and getting the right logistics transport and stuff, and costs have gone up. I think they have adversely been impacted by that. The second piece, which you might know, that's happened is that the duty on raw bamboo sticks, which come in from China or Vietnam, the duty has been increased from 10% to 25%. This makes their business much less profitable or more unviable.
I think the other piece is, which I've also been messaging about, we have also got a lot more aggressive in terms of pushing them back, whether it's educating consumers, the PR media we're doing, or through the government and legal means. I think some of that's been playing out, and we will make sure that we use this time to totally push them back.
Yes. One follow-up here. Bamboo duties, clear duty, can they shift to the domestic bamboo sourcing? Does it impact you also in terms of the duty structure?
You can. Yeah, it will impact us also. Indian sticks is a very small part of our business, our HI business. We have other products like Fast Card also, and we have some new launches that are going to happen in this area. I think my understanding is that, yes, you can use Indian sticks, but their bamboo is not of the same quality, which makes it challenging, and the cost would be higher.
My other question is on new products in the last one year and out-of-home consumption, how that has been impacted? Okay.
Yeah, I think, to begin with, Abneesh, we have had a meaningful contribution from Goodknight Gold Flash Liquid Vaporizer, something which got launched regionally to begin with last year, and then we scaled it up. It has had a big contribution to overall HI sales as well as growth. I think out-of-home category per se has been a relatively small play, and over the last two, three months, the consumption has been relatively lower as compared to the recent past years in terms of growth rates.
My second question is on soap. Dettol in the presentation claimed, the global presentation, that they have become number one in India. How do you play in this segment? Dettol is almost like a generic to that segment. Of course, Protekt also can play there, but introducing new brand takes a lot of time. If you could tell what is the right to win for Protekt here, and have you lost any market share because Dettol has become number one, or is it a loss to the rest of the players?
Abneesh, I think to begin with, our scale-up in Protekt health soap has been very encouraging. That's something which got launched during the quarter. We do expect even a meaningful scale-up of it over coming months and quarters and expect it to become very integral to our soap portfolio to begin with. We don't share market share details, Abneesh, so to that extent, it would be very difficult for us to, at this point in time, call out how the share trends have been. The details coming in directionally on market shares are still not marrying in with a lot of internal data points. To that extent, we do feel that our market share is quite stable.
I think the task for us would be to ensure scale-up of Protekt soap as well as continue with our micro-marketing initiatives, which over the last few years have resulted in very meaningful share gains for us.
My last question is on hair color. When do you see growth improving because of the work from home continuing? Second is, how much is the percentage coming from salon and barber shop? Because again, people are using the trimmer, et cetera. They are not going to barber shops, most of the consumers. Specific impact on BBLUNT, because my sense is that will be much more salon-led. Could you discuss on this?
I think both our BBLUNT and professional business, Abneesh, are very small and sort of very insignificant. Professional business has definitely been impacted. From a BBLUNT point of view, BBLUNT is not actually sold in salons. That's sold in retail, from beauty shops or online. That will have a different sort of trajectory. I think what we're seeing with hair colors is obviously we have seen some amount of sequential improvement. Also what we've realized is that from our consumer research, men seem to be a little bit more shabby at this time or willing to be shabby. No offense to any of the men on the call. Women still want to color, and they say, "We don't want to sit around at home not looking sort of good." We have these value-for-money products that are well-distributed and stuff. We'll see what happens.
This is not a category where the bottom is just totally falling out.
Thank you very much. Sorry to interrupt you, Mr. Roy. I request you to come back in the queue for a follow-up question. Next question is from Arnab Mitra from Credit Suisse. Please go ahead.
Yeah. Hi, good evening, and congratulations on a good result in the context. On the HI business, this 27% growth is clearly a very exceptional number. As people go back to work and second home, which would be happening in June and July. What is the kind of growth rate you've seen sequentially in these months? Are you seeing it settle down at a lesser rate or do you see the trends continuing to hold up at a very high growth rate in the immediate term?
I think it's too early to call out, Arnab, at this point in time, whether the trends are continuing or we are kind of settling down because it's very dynamic as we speak. I think what we have to understand to begin with is there has been a strong reason to buy from a consumer perspective, which has been disease prevention, and we expect at least that trend to sort of continue, and we would be investing, in fact, on that platform, aggressively to ensure that reason to buy is very much intact and growth rates are kind of steady, in the household category, not just here and now, but for many more years to come. We will also top it up with some of the innovations which we have launched over the last six to 12 months.
We'll also see more innovations which will come in the rest of the year. No specific numbers in terms of what are the trends, but definitely, I think, we should continue to see sustainable kind of superior performance in household category, both in India as well as Indonesia for rest of the year.
I would break it up into two pieces, actually. I think some of the growth issues that we were facing, correct. Some amount due to these illegal incense sticks. I think what you will see us is also taking market share. We've also been very aggressive in, say, this Gold Flash Liquid Vaporizer. We're not just saying, "Oh, India's most powerful visible vapors." We've really worked very hard from a technology front to get this product to be much superior, correct. We saw some years ago when we launched a much superior LV, how our market shares really grew strongly. I think one will be a market share, both from illegal incense sticks, penetration with more some of these other burning formats. I think, and we've mentioned it, that we have this full plate portfolio play.
That I think is work we've already been doing and pushing forward. I think we're also, for a category like this, is an opportune, it sounds horrible saying an opportune time, but people are very concerned about their health, correct? Just the way that they're washing their hands or using sanitizers. They do not want to take a chance of getting any sort of sickness and having to go to a doctor or a hospital. I think that vigilance, which we're seeing across categories, improve my immunity, keep me safe, and I don't think that is just going to drop off overnight. I think our job as the category leaders to make sure that we're driving distribution, we are giving customers, consumers the products that they really want and are also educating them on how to keep themselves safe.
Sure. Thanks. My second question was particular to the launches you made in, or the foray you've made into dishwash and toilet and floor cleaners. These are obviously large categories. They have strong incumbents. How should we see this? Is this an extension of what you have in terms of some brands, in a time when these categories are seeing a pickup? Or is it something where GCPL now wants to be a broad-based home care play and therefore has gone through the process of development, thinking through what role you will play in these categories? How should we think about these two specifically large categories in home care?
I think we are kind of broad-based home care, obviously, HI sort of dominates the story. Don't forget, we've also become, over the last few years, the leaders in hair care, very low penetration category with a good sort of headroom to growth. We want to play strongly, obviously, in liquid detergents. Actually, these floor cleaners and all, they've been quite opportunistic at this time. These were categories that we had been sort of looking at, the way we look at it in a country like India is what is the penetration story. Sure, you have very strong competitors in these categories, we feel that the penetration story here is quite opportunistic, it's a good time, both from a penetration viewpoint and what consumers want.
Again, this, "I want to keep my house as clean as possible," is a chance to get into these categories.
Okay, you would say that this is not just an opportunistic foray, but you would think of developing this as a long-term growth vector for the India business.
Yeah, I think any of these categories we're getting into, it's not just opportunistic. Obviously, look, even in a brand like Protekt, we know where one of the products that are really differentiated, where are the products where we have cost advantage or other advantages, and we would probably over-invest in those. It is definitely not just, "Let's do it for six months." I don't think that makes sense for a company of our scale.
Okay, thanks so much. That's very helpful.
Thank you.
Thank you very much. Next question is from Percy Panthaki from India Infoline. Please go ahead.
Hi, good evening team. A couple of questions from me. The first is on the soaps business. Despite a significant decline in Q4, the Q1 numbers in soaps are just about flat. This is very different from what the market leader has reported. They have reported double-digit growth in skin cleansing for Q1. Just wanted to understand what are the moving parts behind this, why are Q4 plus Q1 average decline is in double digits? If you can throw any light, any sort of particular geography or any particular brand. Also if you can share if there's any initial signs of this normalizing and are we going into a sort of strong growth in Q2 or not?
Sure. Kirti, this is Sameer here. I think if you look at our performance, not just last three, six months, again, over the last couple of years, we feel we are very much heading in the right direction in terms of share gains as well as our initiatives, which have been largely micro-marketing efforts as well. I think going ahead, the strategy remains more of the same in terms of continuing to pick up one state, multiple districts, doubling down our 360 effort, to get household, eventually market share gains, presence market then move on. In parallel , as I was mentioning earlier, we have launched Protekt health soap, which we think should be a meaningful play for us going ahead. Not reading too much into the recent past performance, Kirti, as well as July, which honestly has been quite robust and strong for us.
As I mentioned earlier, it's very dynamic. We need to take one month at a time in terms of how we are progressing into one understanding, consumer behavior demand as well as our structural and tactical initiatives. We remain quite confident in continuing this share gain momentum in soaps and also we should see much improved performance in soaps going ahead.
Kirti, in skin cleansing, we would also be in growth. I think it's also how you bucket what products we've now moved away from sharing categories that we have shared in the past. If you plug in some of the other products like hand wash and all in there, we would be in growth.
Understood. Secondly, just wanted to dig a little deeper on your gross margins, especially in the India business. It is nearly 300 basis points contraction in gross margin. Of course there is a mix effect because hair colors decline would have contributed some part to that. If you could just call out what is the extent of mix impact driving this, and then apart from that, the remaining part, what is the reason behind that?
Sure. I think there are a couple of reasons, Kirti, and you kind of already said one is obviously, adverse category mix during the quarter. We did have decline in hair color category, which is our highest gross margin earner. Hence you would see adverse category impact coming in, which also results in lower gross margins. The other is also input cost. While palm oil prices have been higher on year-over-year basis, and we are in the process of taking calibrated pricing changes to mitigate that impact. I think combination of both input cost increase or a lag between actually end consumer price and input cost and also adverse category mix.
My sense is in coming quarter, we should see much improved gross margin as compared to first quarter, driven by this gap between input cost and consumer price getting partially mixed as well as much improved favorable category mix and gross margin expansion.
Right. I was just looking at the palm oil prices. Actually sequentially it has not moved much. On a YOY basis, I see the inflation is actually higher in March quarter versus the June quarter. What am I missing here?
No, I think the changes, especially if you look at the input cost, even on a year-over-year basis, I think in case of palm oil derivatives are still higher by 20% to 25% for Q. Also there is mix change. Also you need to look at the weightages, right? We will have different quarters and different saliency coming in from each of the categories. There are too many moving parts to look into it and just plain vanilla comparison of Q4 to Q1 may not give you all answers.
How long will this margin remain under pressure?
As I shared with you, I think, in quarter two we will see much improved gross margins baseline with 41% gross margins.
Okay, that's all from me. Thanks, and all the best.
Thanks, Kirti.
Thanks, Kirti.
Thank you very much. Next participant is Vivek Maheshwari from Jefferies India . Please go ahead.
Hi. Good evening, everyone. First question is to Nisaba. Nisaba, since I am speaking to you for the first time, post you taking charge as MD, and I do recognize that there is a huge capability factor with you. Still, are there any areas which would gain more focus, or domain which you are looking at for growth business? Just to give an example, if I draw a parallel, when you started the journey of saying, "Hey, Mr. Adi Godrej guided us 10 times revenue over a 20-year period." I know the time is not right to give that kind of guidance, but how you would be approaching things differently if at all, given that now you are at the helm as an incoming head of the company.
Yeah. Like I said before, I was already at the helm. I think the problem with us has been growth. My job is to make sure we grow. I'm not going to give you any guidance on that, but hopefully you'll see what we do this year and three years ahead. I think that is very critical that we get back to best in class growth. I think, and I've said this, that India, Indonesia, very strong businesses, good category portfolios, deep P&Ls. In Africa, I think along with Dharnesh Gordhon, we've already seen sequentially month-over-month things sort of getting back. I think just having a lot of execution strength and making sure that business both needs to turn around in the short term so that we can sort of realize our long-term dreams for it.
I think growth and just execution will be the focus.
Thank you. That is very good to know. The other bit is again on the HI business, the 27% growth that you have quoted. If I go back, this is probably the best quarter that we have seen in several years. I know you wouldn't want to give necessarily a guidance, but what is a sustainable growth rate? Like in the past, if I combine let's say fourth quarter and first quarter together, I get a 2% growth in the business and this is a bit of a base issue. Could you just highlight what will be the medium-term growth target or expectation from this business?
Vivek, hi, this is Sameer here. Again, no, we are not giving specific guidance. The focus just would be to continue with new product launches, scale-up of the recent past kind of flow, as well as continue to invest on the disease prevention platform and look for a more sustainable kind of stable sort of growth going ahead. Household insecticides is close to around 40% of our India as well as Indonesia business. We definitely need to have this category firing on all cylinders. Otherwise, it just leaves two bigger holes for other categories to fill in. The thinking is to kind of double down on this disease prevention platform, new product launches, continue to gain market share from incense sticks here, and carry on with this kind of sustainable growth for the rest of the year. That's the thought process.
Got it. Just a follow-up to that, Sameer. What you have mentioned essentially is the supply side factor. On demand side, we have seen packaged foods companies, for example, being a natural beneficiary of this COVID crisis. Do you also think that HI or not structurally, but medium-term, it alters the growth profile of the category itself therefore?
Yeah, I think like I told you when I think this little bit earlier in the call, I said there are two things. I think our innovation machine, what we've been doing, pushing back incense. I think some of that sort of kicking in. I think consumer demand also to stay safe, manage your health and stuff has been a big shift in the market. Now, I would love to give you a guarantee. It's like sanitizers or handwash, right? The base demand has definitely shifted much higher than it was before. Where will it level off? I don't think any of us can guess.
I think what we will do is to make sure that all the input metrics, education on disease, educational products at a price point, increasing distribution, low cost manufacturing, all the inputs that we can control, we will definitely control. Like I said, say that this is giving us a moment in time on this high demand and say this incense stick being impacted. From an execution perspective, we will do everything that we can not to let this moment in time go, which will sort of benefit the business in the long term. I think when you think of HI, we keep focusing HI, just on sort of all these questions will be very sort of India focused. I think one of the things is that we have a lot of category know-how and knowledge in this. How do we grow exports?
How do we use this time to expand in Africa? I think we're looking at HI a lot more. Obviously, we have a big HI household insecticide business in Indonesia. I think you'll see more holistic thinking also on the growth of the overall category for the company from us.
Great. Good to know. Thank you and wish you all the best.
Thank you so much.
Thank you very much. Next participant is Manoj Menon from ICICI Securities. Please go ahead.
Team, some of my questions I reckon is partially answered, but I literally just still ask for some clarifications, if I may. First, actually, just a medium to long-term thought process on likely consumer behavior changes which you are finding in the market currently in HI industry, which would allow you to diversify or build the non-mosquito businesses.
Sure. Yeah, sure. Manoj, building the non-mosquito-- Hi, and how are you? Good to be on the call with you. I think building the non-mosquito business has always sort of been a focus of ours, and we're seeing say something like roaches, actually. When I talk about sort of disease prevention and educating consumers, roaches are actually something that are known to increase health problems to people, to have asthma, to sort of cause it. Again, sort of lung related and stuff. I think it's at this time, there's always bedbugs or the other insects. I think it's making sure that, again, you have the right product at the right price point and then educating the consumer on it.
I think another thing, Manoj, that we are seeing is that pest control is quite likely that people will want less people coming into their house to do this sort of work because at least till this sort of social distancing remains. We have this product called Hit Anti-Roach Gel, which is a very effective product and actually competes against pest control. I think we will see non-mosquito opportunities also grow out of this.
Okay. Now, only follow from this particular aspect here. Is it something? For example, as a consumer, I'm not sure whether I've actually been exposed to any of these activities. Maybe it's my ignorance. Is it something which you're testing currently? Again, my question is especially saying that even for me, as an outsider or a layman, it appears a great opportunity to build those categories in a time like this, and then those habits will be built on later.
Yeah, we already have a relatively large cockroach business. We have our rats, and these sort of rat products and all have been doing quite well. We continue to invest in these products. We also launched a full natural range of HI products with, like, we have this amazing fly product and you can put it on the table. It's completely natural, so it can be around food. Like, flies won't come anywhere near the table for three, four hours. I think we have the full sort of portfolio, and we are investing behind it.
Okay. Just two more subplots to, I think, HI part of the business. One, when I look at the Indonesia overall growth given the higher salience of HI in that market. As we speak, in the short term, is there a different consumer behavior of the Indonesian consumer that you're seeing? Second question is a little forward-looking, is in the context of now Dharnesh being on, I mean, he's being around still since April as a top officer of HI in Africa as well.
Sure. I think the consumer behavior that we're seeing is quite similar across countries, actually. This, I want to avoid dengue, malaria, is sort of very similar across countries. Obviously, people have different sorts of habits. A product category like aerosols is larger in Indonesia as in salience to the category than it's in India. The heightened awareness of health and more keeping my house clean, keeping my environment safe goes across. I think Dharnesh coming on board, and I have been telling people it might be selection bias since I did select him. It's awesome to have someone who's so experienced on the continent, is already sort of driving sales and stuff in the short term. I think for our HI range, definitely from an execution perspective, he will drive that. Obviously, the know-how and stuff comes from GCPL.
We have actually had a pretty successful launch in Africa. I actually took out the details of it from the presentation because more headroom time from whoever in our competition is looking at what we're doing. I'm pretty confident. Obviously, you all shouldn't believe us till we do it because we've been talking about it for a while. I do think we have the innovation capabilities, and I think Dharnesh will come and really help us drive execution, and obviously not in HI and all the other categories.
Got it. Actually, on the HI Africa piece, that's an extremely honest statement. Really appreciate it. Lastly, on the Protekt brand, which has been around for a while, which you are building up as we speak. Just some more qualitative commentaries on, if you can, on the consumer matrices and the access and distribution. Just on the Protekt brand, I'm just trying to understand, get my head around. On one end, there is a market opportunity. On the other end, something which has been there in the market. You had had some very innovative products in context of that brand, et cetera. Just some comments on Protekt brand and how do I kind of think about it, if it fits inside any of you?
Yeah. I think in Pratik, obviously a lot of We have products like hand washes. We have the magical hand wash, which is pretty innovative and stuff. This is again, like a time where the demand is very high for these products. We're going where the demand is. I think we also feel, obviously, there are lots of very strong competitors in this category. Correct. Which is again, say like a Dettol and stuff. It literally stands for hygiene and the category. We do feel that the Godrej brand in itself is very strong and stands for trust. We do feel Protekt, the kind of formulation, perfumes, innovative products, has a lot of resonance with consumers.
We feel that we have cost advantages in some of the product subcategories because, let's say something like aerosol cans and stuff both in Indonesia and India, where because of our portfolios, we're the largest producers of those types of products. We will use our sort of distribution, marketing strengths to build up the category. We've launched a lot of products, but I think our focus will be is, where are we differentiated? Where do we have a good margin profile? We will sort of rely on our strengths in these areas. The other thing we're doing, which you might have seen, is also that, say, in haircare and stuff, we are making sort of category pivots to serve this need of consumers.
Okay, I want to perfume my bathroom, but I also want to be a bit of disinfection. Even in our other categories, we're heightening the hygiene elements. Cinthol is doing very well. It's always actually been a germ protection. Although we've not sort of marketed it on that basis, but we heightened that on the packaging and stuff. I think one is Protekt, and a Goodknight and a HIT, which plays directly into the categories, but also in the other brands, what are consumers looking for at this time.
Understood. Thanks an all of this. The reason I ask on Cinthol is because I was going through the presentation, I saw a snap of Cinthol's Tamil communication, which essentially I understood. I can read little of that. It's, here's how we repositioned Cinthol family sort of positioning. anyways.
I can't read that ad. I'm clearly looking at what they've put in. Manoj, Cinthol has a Tamil ad because the original Cinthol is a very strong brand just in Tamil Nadu and in little parts of Andhra Pradesh also. The positioning of the brand there is different, not different, but it's focused in a different way to the consumer than the brand is in other parts of the country.
Very clear.
We haven't changed the positioning. That's how it's always actually been the original.
Very clear. I think I remember, maybe listening to this 10 years or 12 years back, Mr. Godrej talking about, I think the old Cinthol packaging, I think, has remained for some 30, 40 years, if I'm not wrong, right?
Yeah.
That part of this is certainly.
Yeah. Actually, when we relaunched, Now someone in my team is going to tell me to shut up, When we relaunched Cinthol, actually to look at the packaging, What we did is that we took the whole brand back to the original in terms of the cleanliness, the clean lines and the strength of the brand. Yeah. Sorry.
No, thank you.
Hey, Manoj, we can connect offline on this anytime.
Sure. Thank you so much, and all the best to you and team.
Bye. Thank you. Stay safe.
Thank you very much. Next question is from Harit Kapoor from Investec. Please go ahead.
Yeah. Hi, good evening. My first question was on the advertising spend. Obviously, if you look at the 45 new launches, it's probably the maximum you've done in a quarter in a very long time. Just wanted to get a sense from you is that, do you see a material step-up now in your advertising intensity, or do you still believe that this is more availability focused in terms of the way to sell the new portfolio in the current context? Ad spends have come off quite sharply this quarter.
Hi, Harit. Sameer here. I think we will see generally our ad spend sort of moving up if you are baselining it with last quarter. In fact, we did see sequentially also ad spend moving up, but we also saw substantial reduction in CPRP. It's actually going to be a good mix of higher GRPs and lower CPRPs. We will continue to invest, not just on Protekt and the new launches, but even on other categories, whether it be select part of hair colors or household insecticides as well as soap. We will continue to be in investment mode, but we'll also be value judicious. Categories where we see backend or frontend being a hurdle in terms of getting it to consumer, our ad spend will be relatively on the lower side. Where the demand is normal, we will sort of continue to invest.
Hence to that extent, we will see step-up in our advertisement spend in coming months for sure.
I mean, the better way to look at it is the sequential pickup rather than a YOY look, at least for the next couple of quarters.
Absolutely.
My second question was on the promotional intensity part. As it is been with the other players as well, it has contributed to your revenue growth for the quarter. I just wanted to get a sense of do you continue to see promotional intensity being fairly low in the marketplace given there is the challenges in availability? In that context, this was a driver or a lever you were using to drive some growth and share gain as well. How do you see that in the current context?
I think it's going to be a mix of availability as well as eventual scalability from our end. My sense is, at least in very short term, this may continue. Of course, driven by mixed impact also across categories. However, the larger point is, my sense is we should continue with this pricing-led growth, whether it comes in from lower trade, sales promotion spends or category mix or even premiumization. I think the whole of last year, especially for India, we just see a mismatch between value and volume. I think in Q3 call, we did call out that FY2021, we should converge on to value and volume. My sense is the way FY2021 is shaping up at this point in time, we should continue to see a pricing-led growth.
With, of course, different drivers to it for full year, which will be backed with sustainable stable volumes growth also.
The last one was on the rural side. I think in your initial remarks, you mentioned that rural has been far ahead of urban. I just wanted to get the sense of how you're thinking about the portfolio currently, given that for the India business, rural is still sub 30%. How do we capture this opportunity in a larger manner? What would be the key categories or products that is looking at to use this opportunity?
Yeah, I think rural will continue to be a big growth sector for us. Always has been, because not just of having around 60% of our play in rural, but also because of lower penetration in categories like hair colors as well as household insecticides. Those categories have relatively low penetration in rural markets. We have the portfolio. Whether it be hair colors, we have powders or whether it be household insecticides, we have the burning formats. We have portfolio to recruit consumers, we have portfolio to upgrade consumers, and we will continue to build and double down on our distribution also. Rural has been, and I'm sure will continue also to be one of the lead growth drivers for us, Harit.
Okay, that's it from me. I'll come back for more. Thanks.
All right, Harit.
Thank you very much. Next question is from Latika Chopra from J.P. Morgan Chase & Co. Please go ahead.
Hi, Nisa and Sameer. Thank you for the opportunity. My question was more medium term. Nisa, you mentioned execution and growth is key for you, that would clearly support revenue growth. What are your thoughts on the margin front? Considering over the last few years, the growth in domestic and maybe for initial few years, even in Indonesia was subpar, we continuously saw a momentum on the margin front. Are you willing to invest disproportionately higher to drive this top-line growth and want to keep margins more or less stable? The focus is going to be still on opportunities which we are very keen to evaluate when you take your decisions on the top line?
Hi, Latika. Sameer here. I think the thought process is very clearly to drive sales growth, whether that be driven by new launches or distribution or communication strategies. If we see opportunities of disproportionate growth, we won't even shy away from having upfront investments. My point is that once you have a sustainable scale, you will see a natural fallout of it being a margin expansion. It's not either/or, I mean, to begin with. At least internally, even as Nisaba mentioned earlier, the big focus is driving across categories, across countries. I think with that in place, we should see margin expansion, not necessarily again quarter after quarter, but at least on a 9-12 month view.
Sure. Just on Indonesia, I remember your chalked out plans around expanding your product portfolio into more hair care categories, post-wash hair colors. Then, of course, there was this discussion around tapping into more markets in Southeast Asia using Indonesia as a hub. Any color on the strategic initiatives on that front, please?
I think to begin with, at least over last six to eight months, the push in terms of the hair care space has honestly taken a little bit of a back seat. While we remain extremely committed to scaling it up, because overall growth opportunity itself in Indonesia is quite a big one. We will continue to invest on new brands as well as getting new product launches within the larger hair care, skin care space. Also in Southeast Asian markets, we are exploring exports model. It's not just plain vanilla exports model, but also model where you have some feet on ground in terms of creating brand awareness alongside maybe strategic distributor arrangement to lead the entire go-to-market initiatives. That's what's happening, Latika, as we speak at this point in time.
Sure. Thank you and all the best.
Thanks, Latika.
Thank you very much. Next question is from the line of Richard Liu from JM Financial Services. Please go ahead.
Hi. Thanks for taking my question. Hi, Nisaba. Hi, Sameer. Can I get your perspective on what you think is going on at Strength of Nature? The reason I ask is that this is the third write back of the earn-out liability since acquisition. Of the INR 800 crore odd earn-out that you originally estimated when you acquired it, half of it is already now written down. Can you just help us understand how much of your original forecast has changed that earn-out? On a related point, Nisaba, if I may, with Dharnesh at the helm now, what are the kind of changes to strategy that you envisage for SON in particular and also for Africa in general? Thank you.
Hi, Richard. Let me take the first one, and then I think Nisa will share her thoughts on the second one in terms of strategy. I think we've shared this in the past that we had conservatively taken a higher EBITDA as well as financial liability in the balance sheet for our erstwhile promoter to have enough skin in the game. Right? That was one thing which we had called out all year. Honestly, the performance has been relatively weaker here compared to even our own sort of internal expectations. That's where we are working towards in terms of just scaling it up to begin with, kind of driving sustainable growth but also driving sort of efficiency from the business.
Yeah. To add what Sameer said, I think the Strength of Nature business was strategic to our overall sort of Africa portfolio because it helps serve consumers on a full scale of what their hair needs are. We have the extensions through Darling and through Strength of Nature, we got all the know-how on styling products, relaxers, care products. The truth of the matter is that we've executed in that business very terribly. I think in Africa, I think there's two paths to this sort of turnaround on both growth and the bottom line. I think one is there are some strategic choices to be made, but I think those are not that difficult because we have some good categories.
We mentioned that we need to build out something like HI, which is a huge strength for us, and where you find actually not the kind of innovative value for money products that you find in India. I think while there will be some portfolio choice making, I think our execution needs to sort of get much, much stronger. I think that's where sort of Dharnesh comes in because through his vast experience, he was the head of South Africa sales for Nestlé. He was the CEO of Nestlé Nigeria. I think his on-the-ground knowledge, whether it's from pricing to GPM, to how to run the factories more efficiently. I think that's really what we need to be doing much more strongly.
I think the other thing that would possibly be positive that even while the last couple of years in Africa, performance has not been good, we've not been sitting with our legs up, not doing anything about it. I think from a product portfolio strengthening the team, there has been quite a bit of work going on. I'm hoping Not hoping, we need to make it happen. I'll tell you, taking over as CEO of the company and having a strong operator who knows the market in and out definitely lets me sleep a little bit better at night. I think in my mind, it's actually more execution than strategy for that business.
For sure. Thanks so much. Sameer, a follow-up on this, if I may. The earn-out liability that you originally provided, that has now halved, right? I mean, if you consider the three round of write backs that you took. Does this also mean that your expectation from the business in terms of, let's say five, six, seven years profitability, is actually half of what you originally estimated?
I think earn-out to begin with is more of reflecting the past performance, right? Then it's not necessarily an indicator of how the future performance will be. Also, if you see the recent past, kind of financial liability, it's just sort of 6% if I'm not mistaken, from what it originally was close to around 30%. Yeah, it's more reflective of how the performance has been over last kind of three years, which we shared that has been relatively lower than our own internal expectations. It's not at all reflective of what the future performance will be.
Okay, got it. Thank you very much. Wish you all the best.
Thanks, Richard.
Thank you.
Thank you very much. Next question is from Amit Sinha from Macquarie . Please go ahead.
Yeah. Hi. Hi, team. Thanks for the opportunity. My question was on the cost structure of both the India business and the Africa business. Last quarter, you had highlighted that on the cost management side, there will be accelerated savings, at least, which you will initiate. I understand that this quarter there could have been some incremental cost coming in from foreign because of the business environment, et cetera. I just wanted to understand from a year's perspective, how should we look at the overall cost structure, both in the India business and Africa business particularly. Obviously, there is a deleverage disadvantage during the quarter. Even on an absolute basis, I don't see a significant cost savings in the consolidated financials. I just want some perspective there. Thank you.
Hi, Amit. No, I think we should see kind of meaningful cost reduction in SGA expenses, right? Across the board, not just India or African markets, Switzerland, Indonesia. I think in the last quarter, some of the reductions are getting offset by some sort of one-off, especially in India, which have been sort of some cost. In absolute terms, we have seen significant reduction on a year-over-year basis in the controllable SGA spend across countries of our operations, and that's something which we will also continue going ahead. Experience over last three, four months has taught us many things that we can work virtually, need not necessarily excessively travel and stuff like that.
We are taking all those kind of pieces into our ways of working going ahead, and essentially that will get reflected in the overall cost, how they will pan out from annual years from hereon.
You said there is some one-offs in the cost.
In India business, in other expenses, we did have a couple of one-offs, which were provided for fixed assets and providing for one-off customer balance.
Understand. Okay. My second question is, you have highlighted in the results that there is a sale of certain brands within the group entities. Just wanted some details around that.
Yeah. This is basically.
Sir, can you hear us?
Yeah, I can hear you.
Sorry, Amit. No, this is basically kind of intangible sales, which also happened in the Q1 of last fiscal year. Honestly, nothing different this time around. It's a sale of certain companies from SPVs, eventually to Indonesian-based kind of entities, because it's eventually the assets which belong to the Indonesian kind of business. We saw that actually and that creates basically a different tax kind of asset because we do get those tax benefits for a period of time in Indonesia or the recipient country. It happened in Q1 of last fiscal year, Amit, and it also happened sort of in Q1 of this fiscal year.
Sure. Thanks a lot. Thank you.
Thanks, Amit.
Thank you very much. Next question is from Abneesh Roy from Edelweiss Financial Services. Please go ahead.
Yeah, a few follow-up questions. One is, how has been the mix with HI? You mentioned India mix overall margins were impacted. Within HI, has coils grown faster? Has the lower end of HI grown faster? Is that the reason why rural is also doing much better?
I think if you look at our format mix, Abneesh, within HI categories, we did see very strong growth in burning format as well as in electrics. Aerosol is actually into two halves. The mosquito part of aerosols did do quite well. We had significant back end supply chain challenges in the HIT's part of aerosol portfolio, which sort of struggled just because of the back end supply chain issues, but those have got resolved, and we have seen again, meaningful growth coming in that part of portfolio also over kind of past 30 to 40 days now.
Does it impact the HI margins? Is the HI margin down YOY in India?
I would say yes. In quarter one, yes, because of adverse format mix, which we had in household insecticides category. That to me, gets more than corrected now in the coming quarter. Also one of the reasons why we will see better gross margins declining with quarter gross margins.
My second question is on CapEx in India, Indonesia. You are seeing very good growth in HI, plus multi-channel new products. Are you outsourcing these currently, and what is your plan to insource in medium longer term?
Yeah, it's very dynamic, Abneesh, to begin with, and there are different models from purely insourcing or outsourcing or hybrid ones, actually, right? We have historically shared this that none of our categories, barring soap, are very capital intensive, right? To that extent, even in terms of scaling up or having new launches, assuming for the moment that we are insourcing it, we do not expect any meaningful kind of capital expenditure, whether it be India or Indonesia in rest of the year as well as three years after.
My last question is to Nisaba. Multinational companies are exiting the fairness word, not specifically the proposition, but obviously Fair & Lovely and all those. You do have a soap called FairGlow. I do see it on Amazon selling. It is not a focused brand, I understand that. With these changes in the sector, would you scale up in terms of aggression? Maybe not just in soap but in between medium, longer term.
No, we wouldn't. Actually, we didn't invest behind FairGlow or we moved away from that brand for the very reason that other companies are doing that now. We had done it a while ago. Actually, even though it's a minuscule brand for us, we're actually sort of changing the name. Even on the minuscule brand that it is, changing the name from fair to something else. No, we don't want to take advantage of the situation. We think it's the right thing for the consumer, for us all consumer product companies not to be doing this.
Okay. This was quite helpful. Thank you.
Thanks, Sarvesh.
Thank you very much. Next participant is Shirish Pardesi from Centrum Broking Limited . Please go ahead.
Yeah. Hi, team. Thanks for the opportunity. It's a phenomenal growth which we are seeing in household insecticides. Would you be able to share this growth is more of a pipeline filling or ahead of season loading with lot of promotions, or it is a natural demand which has come up in this quarter?
Yeah, I think we're happy to report that it is natural demand. It is one of the other things, frankly, like Sameer sort of mentioned, in aerosols and stuff, we didn't have enough supply earlier on in the quarter. There is a high consumer demand. People do not want to get sick, and they want to protect themselves. Sameer, do you want to add something?
Hi, Shirish. Just to add in further what Nisaba mentioned, not just for HI, but even for rest of the portfolio and the India business, primary and secondary sales mirrors largely. There has been absolutely no change in a way between primaries and secondaries, from our end in the first quarter . It has been all sort of consumer kind of demand consumption led.
Sameer, if I understand correctly, the rural is driven by the burning format and urban is more of a electric format, which is driving this kind of growth?
That's right. As I mentioned earlier, we did see very strong growth both in electric as well as kind of burning format. Actually nothing much to pick and choose in terms of growth rate between both those formats. Rural, I would say it's also alongside kind of burning format upgradation play, right? I mean, consumers do sort of upgrade from incense sticks perhaps to coils and then gradually from coils to kind of electric right over a period of time. That's the other growth vector also, I mean, which is very evident.
I think one of the penetrations of liquid vaporizers to the electrics is much, much lower than the overall category. It would be lowest in sort of rural. One other thing we need to think about is how is electrification also changed in India over the years. In burning formats, whichever ones they are, the main reason for people's upgradation is obviously electrics are more put down price, although on a four-night basis they work out quite economical if people do want to avoid smoke. Correct? There is a strong sort of upgradation story there. Definitely there is a long run to that in rural India.
Thank you, Nisaba. My related question on this, if we have say value growth of 67%, how large would be a volume growth in this in HI?
I think for us there is nothing much to choose in the last quarter, Shirish, in terms of value and volume. I think again, value and volume growth could largely be more of the same.
Okay. One question on HI business to Nisaba. What is the penetration level and what is the lever we see in terms of penetration growth in India versus Indonesia? If you can specify what is the penetration level?
Shirish, I am going to give you the exact numbers right now here. I think, obviously rural penetration is behind urban penetration. Say something like liquid vaporizer penetration in urban India would be much ahead of what it is in rural India. Our business has always been on this coil upgradation sort of business. I think having this new liquid vaporizer in our portfolio was much needed because I think the efficacy ask from consumers has been going up, right? They are actually saying we have more of a product problem. Mosquitoes are getting to be more sort of resistant. I think this highly efficacious LV product will sort of let us drive penetration.
Any thoughts on Indonesia?
Indonesia, again, it's a similar story that aerosol penetration would be sort of behind coil penetration. It's just always an upgradation story. I think in these markets still, value for money sort of really matters. While you upgrade consumers, you still need to give it to them at affordable prices is what we're good at. Actually, what we're seeing, electric now in Indonesia is growing very strongly. That's also a very good opportunity for us.
Okay. My last question on the new products. Not this one or two quarters. Where do you see these new products and you really have done a phenomenal work on this. Where do you see these new products maybe after three, four, five years, in terms of size and scale?
Which ones are you referring to? Nature or-
Yeah, Nature.
I think we see these as extremely big sort of opportunities for it. They really the sort of value for money, high on sustainability. They have a good margin to us. We're really clear that there's a very large opportunity to build them out.
Okay. All right. Wish you all the best. Thank you.
Thank you.
Thank you very much. Next question is from Percy Panthaki from India Infoline. Please go ahead.
Hi. Just a follow-up from me. Sameer, you mentioned that the primary and secondary for this quarter is the same. If that is so, it means that at the end of March, was your pipeline normal? If it was normal, what was the reason that Q4 saw this decline?
I think Q4 what we had mentioned, if I get it kind of correct, we had primary decline of around 17%-18% and secondary decline of around 12%-14% sort of percentage. I think if you look at our kind of distributor inventory, I would say it is relatively on the lower side, especially as of June end compared to at least what it has been over past sort of few years. I think the way to also look at kind of combined quarters is that's what you are kind of moving towards is seasonality kind of things attached to the categories because at times some of the categories are seasonal and once you're out of the season, and the customers sort of don't want to sort of come back.
Of course, there were sort of ups and downs in terms of distributor stock, especially because of the supply chain disruptions in the back end and front end. We wanted to sort of keep kind of distributor stock as much low as we can, which is what we did, I mean, as of June end. If it turns that, I mean, the supply chain is perhaps going to be disrupted again, we will kind of be again very dynamic in terms of ensuring that there is no eventual kind of sales loss, whether it be services to the channel partners or even end consumers.
Sameer, March obviously was a little lower than normal in terms of the distributor inventory, and you are saying that June is continuing at that low level. Is it that you are comfortable with this level and this is like a permanent cut in the distributor days or is it that you haven't got a chance to fill in the pipeline and therefore in July, August or somewhere in those months, you will actually see some amount of distributor inventory fill in?
Well, I think for us, I mean, distributor inventory will be more driven by any supply chain disruptions, especially if it has to move from June-end sort of level, right? That's going to be the single largest driver for distributor inventory based on the June level, kind of move up from here on. As I told you, I mean, the distributor level in June was relatively on the lower side compared to the averages of last kind of 18 to 24 months per se.
Understood, Sameer. I'm just saying that a lot of people are taking opportunity of this kind of disruption to sort of relook at their entire business model. If they believe that it is possible to sort of do business at lower inventory levels, they are saying, "Okay, we do not want to fill in the pipeline anymore. Whatever cut has happened, we are comfortable with that level." I'm just asking, are you comfortable with the June level or do you plan to sort of take it back to a more normalized level, which was there pre-COVID?
At this point in time, we are quite comfortable. I mean, the June level also keeping distributor stock at a much improved ROI for our channel partners, right? Which is also extremely important in terms of handling channel partners in such tough times. Yeah, my sense is we should stick to those levels for rest of the year. Unless, I mean, we see again some disruption happening on back end, kind of front end.
Right. One last small sub point on this, that while for the overall India business, the primary and secondary were equal, was it different for any of the main categories?
Yeah, I think there would have been some mismatches, I mean, across categories. I would say nothing too kind of meaningfully different per se. I mean, you are across categories. I mean, it would not be sort of exactly mirroring all the kind of categories in which we sort of play in.
Sure, but nothing to call out?
No, nothing to call out.
Okay. That's all.
Thanks.
Thank you very much. Next question is from Sangeeta Purushottam from Cogito Advisors. Please go ahead.
Yeah. Hi. Good evening. Thanks for taking my question. I was hoping you would paint a little bit more color in terms of how you expect the performance of the Africa business to shape up in the months to come. What are going to be the key initiatives being taken there to turn around the business.
Hi, Sangeeta. I think to begin with, as Nisaba was kind of mentioning earlier, execution is going to be the key sort of focus area, right? Also our thought process is to drive gradual recovery to begin with on the sales growth, the drivers for that would be market initiatives, select launches. I think also one other thing which we should kind of remember, that's something which is kind of playing out in June and July, at least, is a significant competitive advantage, especially in dry hair portfolio for us, multiple African markets, right? Because the competition over hair is more of import and kind of sales in the market competition. It's not really at least some part of it. Hair backbone, especially on supply chain, is very disruptive at this point in time.
We are seeing that getting played out, especially if you look at June, wherein the performance was really flattish on sales, as well as in July, wherein the performance was quite kind of robust to begin with. That is the core of how do we play this over a period of time. Execution to begin with, go-to-market initiatives, kind of launches, scale-up of wet hair portfolio, scale-up of household disinfectants over next sort of years. That's the way we are. Again, very tight control on costs. These are the four, five kind of drivers which we are sort of working now on.
That should result, I mean, at least what we think in terms of gradual recovery, I mean, in Africa U.S. business for rest of the year and make it a strong base for us to kind of take the growth to the next leg over next kind of few years.
Supply chain of your competitors who are importing products has actually helped you because your supply chain has been relatively intact. Has that helped you gain share? That's one question. The second thing is, you're talking a lot about the execution challenges, but the business has been in the portfolio for a while. What exactly have been the execution challenges, and why has it taken so long to fix them?
Yeah, I think to begin with, I mean, on your first question, we do have kind of on-ground manufacturing setups as compared to a lot of our competition, which sort of imports, and that kind of is a significant competitive advantage, which is playing to our favor at this point in time. I think execution is basically basics, I mean, to sort of begin with. It's not that we are discovering it here and now. We have been, I mean, investing pieces over past kind of period also. There is a renewed focus and more so kind of precise the dos and don'ts in terms of how do we go at executing a lot of this kind of tactical as well as medium strategy, which we have kind of restarted out on ground.
Whether it be go-to-market initiatives, whether it be within go-to-market say channel kind of prioritization, feet on ground and leveraging technology and stuff like that. Whether it be even launches, how do we go with some of the launches, the pricing and the margin profile of it. It's all that we are sort of kind of pitching in and sort of making it happen kind of on ground rather than just being extremely prescriptive, I mean, to each of those sort of local countries at this point in time.
Am I just trying to link a more before and an after picture? I mean, many of the things you're talking about should be like a normal part of running a consumer business, and I'm sure you're doing a lot of this in India, in Indonesia, the other markets where you've been successful. I'm still not getting a handle on what were the challenges. Was it a leadership challenge? Was it an issue of not having the right people in place? What exactly was it that went wrong, and what is it that's going to be fixed now? Hello. Hello. Hello.
Ma'am, one moment. Nisaba, can you hear us?
Yes, Niro, I can hear you. I thought Nisaba wanted to sort of comment, but I think she has just got sort of disconnected. Okay, let me just take the question, Sangeeta, for you. I think it's a mix of kind of many things, I mean, which we are sort of working upon, having realized, I mean, the experience of past at least few years, right? Right from whether it be kind of sourcing to kind of manufacturing efficiencies to even go-to-market. Again, it's not like everything in one country or sort of-
What are you all doing? Am I in or no? Yeah, I'm in now. Okay.
Yes.
Sorry, can I come in? Sorry, I've been trying to get back on this stuff. I think the execution challenges have happened in the Africa business over the last couple of years. I think some of our execution challenges even in India have been over the last 18 months or so, we're seeing a turnaround on that. You're obviously running a company. We're not sending rockets to the moon, it is some sort of basic stuff that we've not got fully right. It's a mixture of leadership. It's a mixture of getting your GTM right. I think there's a lot of pieces to that. We have a new CEO in Dharnesh Gordhon, who is very experienced on the Africa market, this actually tells you about our commitment to the geography and what we should do.
Look, I've been sharing the bad news and stuff, but the bad news has not been there for 10 years. Bad news is from the last 18 months to a couple of years, and we're pulling up our socks, rolling our sleeves, and getting it done. To the best of my capabilities or this company's capabilities, I'm not going to now say, "Oh, COVID came, and that mean we sort of couldn't grow." I think the idea is just focus on growth, make sure we're brutally honest with ourselves. It's not like this illegal incident did happen to us. It is a difficult situation, where perhaps from an execution point of view, we hadn't pushed back hard enough. We hadn't brought our full muscle to it. That's what we really are trying to do at this time.
I think some of it might be leadership, some of it might be other things. I think it's also our attitude at this time is to say, we don't want to externalize things because they're always external issues, including a global pandemic. We are a strong company. We have strong categories that consumer wants, and let's go for growth.
Once you've set the business right, would you be introducing the HI products in Africa post that, or is that going to be in parallel?
It's going to happen. It's happening right now. Like I said, we took it off the slides because we didn't really want to fully tell our competitors what exactly we were doing. We're at it as we speak.
Okay, great. Thank you.
You're welcome.
Thank you very much. The next question is from Sejal Kathuria from Anthem Investment Advisors. Please go ahead.
Hi, team. Thanks for the opportunity. Most of my questions have been answered. Just one, which is slightly medium to long term. I understand that as an organization today, our focus is firmly on driving operational efficiencies and on earnings growth. We got that message in the annual report, and we've been hearing through yourself, Nisaba, Sameer. That's very encouraging. On the back of that earnings growth, hopefully using our better innovation engine that kind of offers or formulates the products that benefits the bottom of the pyramid consumer, where the majority of our consumers are internationally, and give them those products, superior quality products at a price point which is very appealing. That kind of gives our business some stickiness. My question mainly is around the return on capital on a consol basis.
Can it revert back to where it used to be or close to that before we started diversifying internationally? Driving earnings growth and making the balance sheet leaner, perhaps by a sort of fast de-leveraging. What aspirational target do you have, maybe on a five-year basis, for this consolidated ROC?
Sure. I think to begin with, we are quite focused in terms of driving ROCE. No targets, to be honest at this point in time. Of course, the ROC as what we see today, which was around sort of 19%, is also deflated because of the capital employed or the capital which you invested, right? I mean, in buying out the business. Operating ROCE would be close to around 60% range plus. I think what is important to keep in view is the levers of ROC, which is capital employed, whether it be capital expenditure or working capital, which we are kind of working towards in terms of improving, and as can be seen also in our results for the past couple of years. As well as margins, right?
I mean, margins not just driven by cost levers, but also margins which are more sustainable and driven by sales growth levers. There is absolutely a big focus in terms of driving ROCE up, focusing upon some of these key levers, as well as a reduction in working capital.
That's helpful, Sameer. Just to clarify, directionally, our aim is to drive the margins upward. We, of course, cannot quantify what this number would be, let's say, 2025. Given the fact that we accept the mistakes and we are putting in place the remediation plan and the message is very clear, even on the annual reports and several places. Directionally, I think come 2025, it should be a much better than leaner business. Is that the message we can basically give away?
Absolutely.
Thank you so much, and all the very best.
Thank you very much. Ladies and gentlemen, that was the last question for today. I will now hand the conference over to the management for closing comments.
Thank you all for taking the time out for the call. In case of any important questions or additional inputs, feel free to revert to any one of us within the investor relations team. Thank you so much.
Yeah. A big thank you for being with us on the call today, and we look forward to continuing talking to you and please stay safe and stay healthy.
Yes.