Bajaj Consumer Care Limited (533229) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q3 FY '21 Earnings Conference Call of Bajaj Consumer hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Manoj Menon from ICICI Securities. Thank you, and over to you, sir.

Hi. Good morning, everyone, and in fact, good morning and good afternoon, depending on where you are joining from. It's our absolute pleasure at ISEC to host the management team of Bajaj Consumer for another results call this time the third quarter FY '21. The company is represented by Mr. Jaideep Nandi, Managing Director, who's just about completing a year in the company; Mr. Dilip Kumar Maloo, Chief Financial Officer; and Mr. Kushal Maheshwari, Head Treasury and IR. Before I hand over to the management for their opening remarks, just wanted to highlight our view on the business and our view on the stock very quickly in 10 seconds. We have been long-standing believers of the Bajaj Consumer value creation story. And we reckon, this quarter is a turning point for both fundamentals and the rest. Over to you, sir.

Thank you, Manoj, and thanks for those nice warm words, and thanks for hosting this call as well. And a warm welcome to all of you for attending our conference call. I am joined by my colleagues, as Manoj said, Mr. D.K. Maloo, our CFO; Mr. Rohit Saraogi, our AVP Finance; Mr. Kushal Maheshwari, our Head of Treasury and IR; as well as some of my colleagues from our management committee. As you are aware, the company reported a sales turnover of INR 242.8 crores for the quarter, with a growth of 18.2% over the same quarter of previous year. The company has recorded sales loss of the first quarter and has been able to end the 9-month period in FY '21 with a positive 1.1% value growth over the previous year. The EBITDA of the quarter was at INR 64.5 crores, which is a growth of 15.8% over the previous year. The EBITDA to sales ratio was at 26.6%. PAT for the company was at INR 58.2 crores against INR 50 crores during the corresponding quarter of the previous year, which is a growth of 16.3%. The Board of Directors of the company has approved an interim dividend of INR 6 per share. During the quarter, the company registered a strong double-digit value growth in hair oil of 16.2% and a volume growth of 18% on the back of various urban and rural initiatives, aided by improving consumer confidence and markets coming back to near-normal. The secondary sales in hair oils having kept pace with the primary have also grown by over 17% for hair oils only for the quarter. And for the overall company, the secondary sales growth was also higher than primary at 19%. We have been consistently investing behind our brands as well as building capability around consumer-centric innovation, market development and strengthening our systems and processes, which I've been talking about to drive profitable growth. This will continue to remain our focus area in the near future. The gross margin of the company was 63.5% as against 66.7% in Q3 of 2020. Out of the 3-point drop -- a 3.2% drop in gross margins, 1.1% was due to a onetime sale of sanitizers, which we felt prudent to liquidate our stocks to institutions at a low gross margin. This would have contributed to about roughly a little more than 1% of our, both sales turnover for the quarter as well as a percentage point of the sales itself. So 1.1% came due to this onetime sale of sanitizers and 2.1% was due to inflationary impact of key RMs, as all of you are aware, as well as changing product and pack mix. Inflation in the commodity prices have been at elevated levels in primary -- in oils. LLP prices shot up due to supply constraint in base oils. Prices of refined mustard oil has also been increasing because of supplying constraint and rising -- in a reduction -- in demand of both soya and crude -- soya and palm, sorry. To offset the impact of increasing material costs, we have taken a price increase of approximately 1.5% in quarter 4 of '21. We will continue to monitor both the price trends in RMs as well as the competitive landscape and take further steps if required to mitigate the impact. The hair oil category as per Nielsen data continued to recover with the total market having declined only by 1.4% in Q3. The growth in rural continues to outpace urban with growth of 4.5% in rural against a decline of 5.8% in urban in quarter 3. The YTD hair oil market also recovered to a decline of 9.4% by value and a decline of 6.3% by volume. Now while the overall hair oil market data seems a little under indexed, and for Q3, in particular, this continue to provide an overall perspective of competitive trends. As per Nielsen, there has been a month-to-month increase in market share in Q3 for us with an ever highest market share of 11.4%, and please note this is on total hair oils as well as in reported in the data of December '20 and a match for December market share of 10.3%, again in total hair oils. For the company, general trade grew steadily during the quarter by 17%. The heartening factor in this growth has been the all-round nature of it, with all zones across the country reporting mid-teen growth. The rural registered a good growth of 37% and continued to outpace urban, which also grew by 7%, having recovered significantly from the heavy decline of H1. Wholesale across the country is showing signs of recovery, while retail is coming back to its pre-COVID levels. Our retail initiatives in key markets also seem to be bearing fruit. In the recent months, we observed that the consumers are gravitating towards value-for-money packs and products. As a result, we see a large -- we see a surge in demand of large packs as well as the economy range of hair oils. In line with changing consumer preferences, we have focused our efforts in marketing and distribution of both the larger packs of ADHO as well as overall sales for Bajaj Amla Hair Oil, which is in the economy range. The LUPs in ADHO launched at INR 5 and INR 20 price point have been also to ensure that the entire price point range is completed and has -- and the consumer has a larger choice in terms of price. The company has been investing significantly in rural markets to increase penetration and drive rain selling through Van operations, which has helped increase direct distribution and partially offset the loss of wholesale from urban cities. Through Van operations, we are now directly reaching more than 4 lakh retail outlets covering nearly all villages having population of more than 2,000. In certain states, the coverage is up to villages over 1,500 population. We'll continue to scale up penetration in the rural markets through Van in medium to low market share geographies as well. Modern trade channel has seen recovery of business in the quarter with return of footfalls to the store, though this channel still remains the most affected compared to the others. To leverage the consumer preference towards large scale SKUs, the company has launched a modern trade only ADHO 650 ml pack for the channel in December. Placement of brands like Zero Grey and Amla Hair Oils with more national retailers has also been the focus for the quarter and will continue to be a thrust area going forward. E-commerce business continues with its growth momentum, growing 3x during the quarter and now contributing to 2.5% of the revenue for the quarter with an increase in contribution month-on-month. Being still under leveraged, e-commerce will remain 1 of our growth drivers, and we will continue to heavily invest behind this channel through consumer-centric product innovations, digital marketing, infrastructure and people capability to support the growing demand. International business has grown by 17.6% during the quarter. We have invested in shop product visibility and shop -- and social media campaigns to drive traction across key markets. But as you are aware, this business remains pretty small for us. During the quarter, we continued to -- with the integrated multimedia campaign for ADHO, which has been restaged in September. The new TV commercials, which have been launched during the quarter focused on the improved formulation of 6X Vitamin E nourishment for the hair. The product is being advertised across different mediums of TV, print, social media and YouTube with visibility across modern trade and general trade outlets. The company is engaging actively with influencers and bloggers on various social media platforms, especially Instagram. This has helped us communicate with youngsters, the benefit of hair oils and Bajaj Almond Drops, in particular. Amla Hair Oil has also seen good traction in focused markets, with concerted sales and marketing efforts. The company has supported the brand with print media and consumer offers to drive sales in rural markets of key focus states. We've seen an increase in market share of Amla Hair Oil -- Bajaj Amla Hair Oil to 2.3% in the Amla category in Q3, up from 1.2% last year and 1.6% in the previous quarter of Q2. Bajaj Anti Grey -- Zero Grey Hair Oil, our digital-first brand has been good -- has been seeing good consumer demand, which has been steadily growing over the last 3 quarters. The product has been listed with major online retailers and was supported with digital and search marketing in Q3. To build further awareness and trials for the brand, the brand will now be supported with an influencer-led campaign on social media in Q4. The company will continue to -- continue its journey to strengthen its processes, systems, controls and governance across various functions and overall in the organization and is building a strong management team with clear focus to dial up execution capability. The direction for the business will continue to remain on driving profitable and sustainable top line growth consistently, building on the various growth pillars, as mentioned above. With that, I end my opening remarks and open the session for questions.

[Operator Instructions] The first question is from the line of Percy Panthaki from IIFL.

My first question is on your margin. This quarter, you have done about 25.5% kind of EBITDA margins. And there is a cost inflation in your presentation, you mentioned 17% inflation was on a sequential basis. And the price increase you have taken, 1.5%, is not enough to counter this. So just wanted your sense on how you look at EBITDA margins and EBITDA growth, not necessarily from a 1 quarter perspective. But if I look at FY '22 as a whole over FY '21, how do you sort of plan to deliver margins and growth at the EBITDA level?

Good question, Percy, a long question, and some of the questions also have answered some part of it. So first and foremost, as you rightly said, we are not really looking at quarter-by-quarter as far as EBITDA is concerned. Obviously, we monitor EBITDA quite sharply quarter-by-quarter, but more as a target as we have been discussing during our conferences. Our aim is to ensure that we have a profitable, sustainable growth and ensure that the top line drivers, whatever is necessary for driving top line, which would mean that ADHO needs to be ringfenced and also have brands which can also support ADHO. So one of the things that we need to ensure is if we are to get into brands like we have gone into Amla Oils and some of the brands which might come up during the year, we should see that we are able to invest sustainably in these brands, consistently and remain with the brands, not have some of the historical paths where we have been able to get in and not really been able to sustain these brands. So with this kind of a thought process, as we said, we would want to consistently grow -- aggressively grow the top line, while on the other side, ensure that EBITDA as an overall number, as an absolute number keeps growing. While in Q4 itself, we'll still monitor our EBITDA percentages and ensure that it really doesn't go quite haywire, either from a Q3 perspective or on the overall perspective itself. But on a little longer perspective, we are looking at aggressive growth on top line with a EBITDA turning positive year-on-year on a consistent basis.

Right. That's very helpful. Second question I wanted to ask was on the top line growth. So while the top line growth looks extremely robust at 18%, if I look at point-to-point Q3 FY '21 versus, let's say, Q3 FY '19, that growth is about 9%. And if I look at the same thing for Q2, Q2 FY '21 versus Q2 FY '19, that growth is also 8% to 9%. So on a 2-year CAGR basis, the growth is the same as we have delivered in Q2. So is there actually any significant pickup in the industry? Or is this just a base effect?

See analytics wise, you can obviously take a historic data and analyze it, whichever way you want and absolutely you are fair to do that. But if you assume that in 2020, the year it went down or even '19. First and foremost, let's look at what were the growth drivers for the years of '18 and '19. So a lot of these products that we introduced, Nomarks and Cool Almond Drops, et cetera, couldn't really sustain as far as the secondary growths were concerned, right? So in 2020, by the time that you are actually looking at beyond ADHO there are not too many other products, even with the initiative that we were having across, let's say, UP and West Bengal, really speaking, the growth rate had actually gone down. And that time, it was more of protection of ADHO. So coming out of that, now what we are looking at is rather than look at as to which year to be taken as base and how do we do the analysis, we can look at a 5-year CAGR and compare with our peers, et cetera. But the fact remains that we were down. I mean that's an on fact that we were down till the year 2020, and we have to just look back and see how we can recover from there. We can obviously do these analyses, but it will really not help us. We have to look at as to what are our growth story going forward and what we are doing. So 2, 3 things that we are trying to do as far as we are concerned. One is in terms of ADHO, we want to dial-up continuously ADHO, try and see that it is available across price points. As you have seen, we've launched ADHO across 3 more new price points beyond what we've done in the last 2, 3 quarters. So ADHO gets covered. In terms of also distribution, which we have now dialed up, both through our normal -- natural distribution as well as through the Van sales, so we are getting coverage much more. And in terms of social media, et cetera, we want to also get into the newer -- influence the newer customers. So ADHO getting ringfenced, followed by, we want to ensure that there are certain products which we keep adding up. We are not a company where we would be able to support a whole lot, a plethora of launches. We really don't see it that way because we would rather want to stay invested in some of the brands. So you would see in the next few years, launches that are happening sequentially, but something that ideally we would like to stay with the brand. It might so happen that 1 or 2 brands we might not be able to stay with, but our objective would be to stay with the brands. So we would look at the EBITDA and the margins that we are working for each of these new launches, how they're fitting with the ADHO overall margin-wise, whether they fit up into our financial planning, et cetera. So whether our top line deliveries come through that, whether our EBITDA numbers that we expect come out of that on a year-to-year basis, on a quarter-to-quarter basis and then rationalize and basically sequentially launch these products. So this will be the direction. So this is what we want to do. But clearly, top line growth, which, I mean, it might be a little too early to talk about, but targeting at least a double-digit at quarter-by-quarter on -- I mean, against a sequential last year kind of a number for a few years to so, so that we have seen some base, that would be the attempt of the organization.

Got you, sir. Just 1 small clarification on the first question. Basically, you said that you will sort of focus on top line and also make sure that the EBITDA sort of sees a growth on a Y-o-Y basis [indiscernible] Yes. But would I be right in assuming that the EBITDA growth would probably be lower than the growth in the top line?

So if -- so let's look at 2 aspects of it. One is the short-term aspect of it is the impact of the raw material inflationary trend. As we understand, most of the increase that is happening both in LLP as well as in RMO is because of the shortage in supplies -- or shortage in supply constraint that we see. Mustard has not got a shortage. But as you saw, edible oils, the other oils have got a shortage globally and hence, the prices. But having -- expecting a bumper crop in mustard, we expect that the RMO prices might soften a bit. LLP will see how it monitors and so on and so forth. So as far as the RMs are concerned, going forward, we'll monitor how competition is reacting because we are in a competitive market space. So we'll keep monitoring them as well as well as see ourselves and see how we monitor our prices, but that is something that we would like to neutralize. The EBITDA, if it goes down as a percentage, would be more because we would want to invest in some of the other brands more for the longer term. And that's where we would do calibrated investments. While we want to invest in the brands, we also don't want to go haywire on investments because we would have a very, very sharp eye on the EBITDA itself, which would mean that over the next 2, 3 years, the EBITDA might see a few percentage points drop, but definitely as an absolute it should be much higher. So that's what -- or absolute [indiscernible]

The next question is from the line of Tejash Shah from Spark Capital.

Congrats on a decent set of numbers, and also to the Board on addressing concerns of investors on dividend policy. Sir, first question is on the demand trend. So if we see the trend across consumption basket, and this is beyond FMCG also in the first 9 months of this year, rural oriented categories have done very well. And mainly at home, but even out-of-home categories have done well, which are rural oriented. Now if you see hair oil, YTD growth is still in negative category -- territory on YTD basis value terms also. So -- and then even in 3Q growth is lesser than 2Q growth, where opening up has actually started picking up. So any sense you can share there that -- what's your read on the category growth first and then perhaps on our alignment to the category?

So first and foremost, as I said, if you -- I mean, ideally, the way we would like to see is that when you get the numbers that come out from the various organizations and with a lag period, you can generally try and sense as to what kind of numbers come out of Nielsen data, right? I mean there should be some kind of a semblance of a match somewhere. Now clearly, we see the Nielsen numbers are a little lagging behind as far as some of the results that we are seeing from the various companies. So 1 thing that I clearly see is that the trends that Nielsen shows that seems to be making sense as far as we are concerned. So whether we look at the overall market, whether we look at the light hair oils market, et cetera, what we internally think and what is coming out seems to be in sense. So whether the absolute numbers, we can take this year where maybe the visits from the agencies, et cetera, may not be as robust. Visiting these retailers to get the data, exact data out, et cetera may not be that robust. We still think that our trends are good enough. So really speaking, going by exact numbers of Nielsen, whether you'd like to do or not, I would leave it to you to decide. But the numbers coming out from the results from the various companies show that the growth might have been a little higher, which might get tracked also as you go forward as corrections keep happening. So this is, as I say, is the first part of the question. Now if you look at urban versus rural, clearly that rural growth story is coming out across everywhere. Why FMCG? Every single -- why even consumer goods in most of the places. And as you see the government, the way the budget has been presented, clearly, that drive of rural growth as we thought in the initial part before the budgets were presented, we thought the rural has already had a large growth. Urban has actually been starved in terms of base. Base correction has happened in urban. So next year, urban growth will at least be equal, if not more than rural growth. Now clearly, it seems that both of these engines will be running. So next year looks to be a pretty good rural demand because there will be money coming into the economy in rural. We believe that rural demand will continue to be robust, while urban would require a base correction itself as the pandemic goes off and which is already we are seeing a trend of it, obviously, not at that level, but clearly, we see that happening. So we will still keep our bets. As of now, if you just -- just very quickly, if I were to give you, last year, as a company, our urban to rural ratio was 56 to 44, now it is 50-50. That is the kind of change that has happened. And going forward, if you ask me, I mean I would assume that for 1 or 2 years or at least a year or so, it might remain very similar to that.

Yes. Sure. Sir, second, on gross margin, you elaborated at length on the pressure points there. But the proportion of traded product is still very high and trending higher despite falling tendency of sanitizer. So if you can give some insight there on -- is there any change in sourcing policy?

So we are -- sorry, you are asking why traded products are higher? Is that the question?

Yes, yes.

So what we are doing is, as you have seen that our budgetary support in terms of Dehradun and Paonta Sahib both have gone off, right? Dehradun went off in May of 2019, and Paonta Sahib went off in March of 2020. Now we have a plant where we are getting the budgetary support, which is at Guwahati, which is physically, obviously, far away. And if we wanted to service the markets which are in the Western part or in the Northwestern part of the country, which is that entire belt of, let's say Gujarat, Rajasthan, Madhya Pradesh and so on and so forth, we thought that it'd be prudent to have a facility which is closer to these parts. So we have now put up a facility in Baroda, which we have scaled up in the last quarter or so, where ADHO is also being produced other than AHO, which is getting scaled up, which is also third party. That itself is making sure of that. So these are all B2B businesses. Yes. That's where we see this growth. So this is what makes financial sense for us, in terms of manufacturing.

Okay. And sir, lastly, on dividend policy, so it has increased Y-o-Y. But it is still lower than our long-term average. So if you can give some sense or guidance on where would we like our dividend payout to settle at?

Yes. So first and foremost, as you would be aware, there is no actual formal dividend policy for the company. While there was guidance earlier, much earlier, maybe a little more than 5 years back, the guidance was about 1/3 of the profit would be shared. So that was roughly the guidance, then it went up to INR 11 to INR 14 per share. So obviously, numbers went up. Last year was an aberration. I had said that it would be an aberration, and we're also taking views of all of you guys that you have spoken to me during the various conferences, take it up to the Board. And that is what we did in this Board meeting and the Board has come back with a INR 6 dividend. And please understand this is an interim dividend. It is not a final dividend as well. So I would suggest that let's wait for the entire year to go by. Let's see how the dividend comes out for the year. As a policy, I think we'll still -- I don't think we would want to put a policy around there. But the cash utilization, as you said, while on 1 side, we'll have some cash looking at some of the future growth opportunities, whether be it in terms of setting up our own manufacturing, robust manufacturing plants, which is for the reason more forward-looking in that sense. Whether be looking at opportunistic M&A options, which might be there, et cetera, and some of the growth drivers we might have, we would still look at a chunk to come out as a dividend. So let's wait for the year-end to come up.

The next question is from the line of Abneesh from Edelweiss.

Sir, congrats on good numbers. My first question is on e-commerce. So you yourself said that your 2.5% is lower than other companies. I wanted to understand for hair oil category also will you be under-indexed versus your peers? And what are you proactively doing? And any update on just e-commerce only products?

Okay. Good question, Abneesh. I mean that's a favorite subject of ours. Though I personally think at my age, e-commerce is not what we understand well. So we -- but clearly, this is an area of growth and something that we need to invest in heavily. So e-commerce, on a like-to-like period, we were at about 0.5%. Now it has gone up to 2.5%, sequentially, quarter-by-quarter, it has been growing. And at this moment, if you look at e-commerce would be more or less in terms of just hair oils, if you look at more or less at par with some of the other more illustrious competitors. But I think overall, our portfolio anyway is mainly hair oils and maybe going forward, you might see a little bit of change in that. So 2 things will happen. One is clearly in terms of e-commerce, we want to put a lot of eggs in that basket. So whether it be in terms of products that we are looking at, maybe some of the products you might see. I mean I've been talking of, if you remember, we have been talking of a portfolio coming up in play, maybe sometime looking at beyond the -- little beyond just adjacencies around the hair oil space, et cetera. So these are all on the anvil. I still cannot talk of them because we want to go a little slow so that we get it right as much possible -- as possible in the first time itself. So that's why we are going through a little more of detailed consumer research in some of the products that we want to launch. And then, because if we launch these products, we would want to stay with the products and we would not want to come out of them once having stayed, as much as possible as much as it supports us. So some of the products are coming up, maybe you'll see in the next 2 quarters or something, or maybe next 2-3 quarters, some products which might be purely for the e-commerce channel itself. Also in e-commerce we are building up a team which might be a completely separate team working on e-commerce. Age of the people, the way they think, et cetera, would be typically more like there was on the Mamaearths of the world. I mean, that is what our ideal objective would be, to look at that, products, distribution, the way we market, the way we influence the customers, et cetera, looking at that category. So that's the attempt we are doing. Some decent work has happened. I would not say great work, but decent work has started. That is something that we would like to dial up for the next 2 years or so. Yes.

But in terms of e-commerce-only products, it would be essentially hair care only, right? And that to adjacent to the current core. You won't go too much beyond that, right?

See, frankly speaking, the only consideration that we will put for ourselves, which itself will put a lot of constraints for us, is what is our right to win. I mean we would not like to launch products, even though there is enough pressure on us. We would not like to launch products without seeing whether we have a right to win in that. So most of the consumer work that is happening at this stage in terms of understanding consumers, some extensive work is mainly to understand whether we have rights to win in the categories or the formats that we are wanting to launch. By that logic itself because we are a hair care player, so that is typically where we would want to be restricted to. Unless we look at some products where we feel that we have enough innovation quotient, which we can dial up. Again, only restricted to just beyond hair care and just about very close to that, close to core, so that we can support where we feel we have enough expertise in. So that's where we will focus on. Yes.

The next question is from the line of Amit from Care PMS.

Sir, one of the slides mentioned that the demand is more of the value for money packs and value for money products. So I think a lot of work has been done in this quarter on the value of pack side. So the -- I think in the participant discussion, you mentioned about new products being launched in a couple of quarters or whatever. So do you believe that will be on the value of -- value for money products segment?

No. So we are looking at 2 parallel tracks. So the one which will be a little nearer would be in the -- more on the e-commerce digital-only space, which will be the extreme premium range of products that we would want to launch. Now whether it's extreme premium or just premium, that I would not be able to state. That would be more for the consumer to determine -- decide. But that is the category that we would be looking at. Premium, exclusive, e-commerce: dialed up in that range, which because of the margins that we make, we should be able to support those products. So maybe not bringing in huge value volume revenue to start with, but those are something that we would like to stay invested in for some time to come. So this is 1 range that we are working on. A little later coming up maybe is, as we have been discussing earlier -- and Amit, if you were party to one of the calls in the last 2, 3 quarters, we have been also talking of a range, which would be a little more mass, which will be more GT-led. But -- which, again, where we have rights to win either as a brand or as products that we launch. So this is an area where it will be a little more mass market, but preferably on the -- a little higher price in terms of gross margins because we would like to invest in the brands. And ideally speaking, the way we are looking at is where we don't compromise so much on the gross margins. But we keep enough money to be spent as far as advertising and selling promotion to build a brand. So that's where the launches we are looking at. And again, that is where also a set of consumer studies are happening as to where we want to do that. So that might take a little longer as far as launch are concerned. So those range of products, yes. Again, very, very sequentially. We'll not launch a plethora of products together. It will be one at a time because we would like to nurture and care from those brands so that we can keep investing in those for some time while we keep launching others. Yes.

Got it. Got it. So in terms of, like, new brands, new products would be quite a lot of investment, as you mentioned. So any cap that you have kept for the ad spend as a percentage of sales that we currently have around 20%, 21%?

Again, that's a good question. So -- that's a good question. The way we are approaching, as I said, are twofold. One is, we are looking at some of these digital-only first, where, obviously, the large chunk of your money where it goes into TVCs, TV advertising, et cetera, will not be there. It's more an approach which is different, which is selling through this -- through the digital media advertising through the digital media going through your, as I said, star bloggers, et cetera. So that's the call. I mean most of the good e-commerce companies, not the FMCG ones, but the good ones, which are established the way they are. I'm not at any point of time suggesting that we will be successful or we'll do a fantastic job, but that will be our aspiration, that is what we would want to dial. That may not take a large amount of money as far as -- in terms of absolute numbers in terms of ASP costs. But the other range that we are talking about. There, yes, there will be investment, which will be required both in terms of selling costs as well as in terms of advertising cost. We would like to have gross margins which are higher, may not be all of them higher than ADHO. The e-commerce ones may be obviously higher than ADHO, but the regular ones may not be higher than ADHO. So yes, as a percentage, you will see some kind of add-on that is happening as far as the ASP is concerned, that 18 moving towards 21, et cetera, on a long-term basis, only when the sales keeps supporting. This will not happen overnight. This is not something that suddenly the number will jump to 21. So it will have a gradual shift. If we see traction in sales, we'll keep investing. So that's how we will keep monitoring on a quarter-to-quarter basis. Yes.

Okay. Okay. Okay. So e-commerce and the generated -- the margins are significantly different? I mean for e-commerce, it's quite more beneficial? Do you want to say that?

So the e-commerce is, again, as I said, I mean, the assortment that you are looking at in e-commerce -- see, as of now, still, it is very, very ADHO predominantly driven, right? Because that's basically the only product that we have. Now we have started to have that. But e-commerce, overall, because of the distribution costs, et cetera, does tend to give you better margins, right? Over a time, it will give you better margins, though even if you discount this products and give discount offers in the customer. Because of distribution, et cetera, the way it is structured, it will give you better margins. And going forward, the products we are launching, we intend to launch -- as you have seen, we have revised the prices of Nomarks from 100 ml at INR 200, now it is listed at the INR 350 for 100 ml. In Nykaa and all of the others, et cetera -- Zero Grey, I'm so sorry. Zero Grey has just been priced up, I mean we have taken a 70%, 75% price increase in that. So some of these products we'll keep launching, and we'll keep working on investments behind the Vans, and we should be able to take it out. I mean Zero Grey had a margin of about 80-odd percent. So we'd try to take it further up. So this is where we would be looking at.

Fair, fair, fair. And the last question is you mentioned about the rural ratio continuously changing and probably for one or more year, it looks like that ratio would remain as such. So the micro strategy, which we had thought about, about 1.5 years back, focusing on region and particular state. So do you plan to continue that or anything on that, that you would want to share?

See, you have to look at more a comprehensive strategy rather than look at this state level breakup. So because what we realized is that even though you broke states up or even within states where the strategies are, clearly, these were more things that was really known to us as a overall hair oil player. So whether with UP, which is more the Amla, or let's say, ADHO kind of a market and cooling -- cool during the winters or whether Maharashtra, it is the coconut, et cetera. I mean these were all known. So really speaking, not too much has changed in terms of product assortments, et cetera. But what has helped us is in the terms of the initiatives in terms of some of the directional pushes. So whether it be the rural penetration through Vans et cetera, in the price points, gaps that were there, those have been taken, but most of them have been national in nature, not so much state level focused in terms of initiatives.

Got it. Got it. Got it. Fine. And anything on the value-added hair oil industry? How do you see that growing? Because, of course, it's not been growing for quite some time now. So as an industry, value-added hair oil like ADHO, et cetera, the premium or the semi-premium kind of a segment?

Yes. So that's, again, an interesting point. So how you want to classify. So each company would classify the way it works for their portfolio. For us, I mean, historically, we have always taken LHO as a market. I mean even this year, for example, just to give you just a pattern how the market shares look. LHO, our market shares have moved from 63% to 65%. But we would not be saying this at all in any of our discussion or even in our internal discussions, because we have moved from that LHO concept to the THO concept, which is the total hair oil. Finally, you are playing in the hair oils market, which is INR 13,000 crore market and not really that, let's say, INR 1,500 crores of LHO. So our -- we have never really looked at value-added hair oil as a category as such. It was LHO and the non-LHO or LHO and coconut and Amla and some of the other oils. So in that sense, if you look at, yes, LHO has grown. That's how we have seen our growth. Going forward, given what we see as impact to us happening in the marketplace, we see the growth for the next year, at least to remain robust. Yes.

Yes. Okay, okay. Congratulations on completing 1 year. We hope more energy and more enthusiasm gets into Bajaj Consumer with you being on the head.

So being new, these are very sensitive points. So I have actually completed more than 13 months. So...

Yes. That's why I said more than 1 year, I mean.

Yes. Thanks. Just -- yes. Thank you.

The next question is from the line of Rahul Ranade from GSAM.

I just wanted a few data points. So what would be the Amla share for us currently out of the overall turnover?

Yes. I just mentioned that for Amla share in terms of percentage sales, just...

Or maybe even the actual amount for the quarter [indiscernible]

No. So Alma -- no, no. Our scale is -- just 1 minute, let me give you the exact number. It would be close to about -- just let me give you a rough cut number. So close to about a little more than 3% of our turnover, 3% to 4% of our turnover.

Okay. Okay. And how much of it would this grow up to -- I guess this is also coming more from your decision where it is increasing in terms of number of outlets where Amla is available. So how much does it go to just with the distribution in place? Can this be more like a 6%, 7% of turnover?

See, we have, we've just relaunched Amla, so to say, in the last 2 quarters or so. And this quarter, you'll see a major shift happening as well as our Amla category itself is concerned. As we speak, we have restaged Amla. So the product now will look different. It will have some little more thought as far as the product is concerned. We have just relaunched Amla. It will hit the market maybe by the end of this month. So we would get into media a bit as far as Amla is concerned. So there will be a little bit of push as far as Amla is concerned. So yes, we think going forward, this will be one of our growth drivers.

Okay. Okay. Understood. And just on the purchase line item. So just to clarify, so this facility in Baroda is more of a third party manufacturer from [indiscernible] is it?

Yes. That is correct.

Okay. Okay. Understood. And just lastly, on the RM pressure, so the LLP and the mustard oil prices that you gave out, are they for the consumption during the quarter? Or is some part of it supposed to hit us in Q4?

It's a moving average purchase price.

Okay. So sir, it is a cost of consumption, is it?

No, no, no. More or less very similar, but we would rather shift to this cost of purchase rather than consumption.

Okay. Okay. Because I believe you used to also carry some bit of inventory also. Early in the year, we used to kind of feel the pressure with some kind of lag, so just wanted to understand from a Q4 perspective?

So we are -- in that sense, we are a little better off because Q4 being hardening in terms of LLP prices. We have a little bit of a buffer standing out of Q3 -- I mean, ending Q3. So that way, it's a little bit of a thing. But this is a transient thing. So really speaking, I'll not worry too much. It's more the trends that I'll worry about rather than based on inventory holding how the gross margin change is not some -- change is not something that would put too much of effort on.

The next question is from the line of [ Yogesh Singhvi ] from SKY Investment. As there is no response from this line, we'll move to the next question, which is from the line of [ Deepan Panchak Narayan ] from Trust & PMS.

Congrats for a good set of numbers. I just wanted to understand, we've seen that ADHO has been as a category grown by 14%. So which are the other product segments which has grown at a higher level for us?

So as far as hair oils are concerned, basically, it's mainly Amla Hair Oil that we have other than Zero Grey and some of the lesser hair oils that we sell, Jasmine, et cetera, right, where -- our Brahmi Amla Hair Oil. So ADHO has grown at 14% by value and 16% by volume. And Amla Hair Oil has the balance -- the difference that you see between that 14% and 16.2%, which is the overall growth of hair oils, in terms of value, it's contributed by mainly the growth in Amla as well as in terms of the other hair oils, which have also contributed a bit, Zero Grey, as I said. That's right. Yes.

Okay, okay, okay. And in terms of growing overall demand, let's say, so we've seen urban growing at 7% currently. So now with Q4 being more markets getting opened up, are we seeing early trends of urban segment also coming back into growth mode as more people have started going outside?

Absolutely right. I mean that is what we are seeing, while still rural continues to be much, much more robust. January has been a good month for us. Overall, we have seen good demand sustained across markets. The biggest heartening thing, again, as I say, is that secondary continues to remain at par or more than primary. That is a very heartening thing. Distribution days, if you see, has gone down from 28 days earlier to 26 days now corresponding period. So in those terms, the numbers look good. There is no build-up of inventory in the distributor. In fact, there is a negative in terms of distributor inventory as such. 26 is roughly just nice, and there's nothing wrong with that. So we clearly see demand coming up. Now urban is also looking up. Wholesale may not have still picked up the way we would want to, but we see green shoots happening in retail. Rural, as I said, continues to be very robust.

Okay. Okay. In terms of regional, so if you say, urban modern trade still doing well, but only general and the wholesale is not doing well for urban segment?

See, modern trade is still not as per what we would have estimated to be. Modern trade has definitely recovered, but it is still not as we would see the trend in GT. So that is something that we would still look to see how we can grow. In case we need to outpace the market, what all are the levers that we need to drive so that at least we can outpace the market. We are looking at more our internal targets and ensure that we achieve the numbers, let the market grow at whatever pace it has to. If the market grows faster, obviously, we would like to grow faster, but at least we have our own growth stories wherever even if the markets are lower. So that's how the retail growth came up, I think, good initiatives by the marketing and the sales teams as far as retail markets happened in GT, which is where we see nice growth happening in some of the key markets where we wanted to focus. Modern trade is something that we have dialed up last quarter, maybe at the end of the quarter. We'll see how it plays out in the next 2 quarters or so, which I really don't go by so much by the quarter-to-quarter numbers, more by the trends that are happening and see whether there's enough traction coming up.

The next question is from the line of Shirish Pardeshi from Centrum Capital.

My heartiest congratulations. At least, I can go back to our discussion 5, 6 months before, and truly, you have delivered that. So there is no doubt about your execution capability and the building up the organization. I have 2 questions. You mentioned that Amla is roughly about 3% of sales. Is that correct?

A little more, yes.

Yes. So I just wanted to understand which all states we have now rolled out Amla franchise? Or rather which in fact you are planning to roll out?

Yes. So I rather not get into a detail of which all states we are looking at. But if you look at the overall Amla markets, I mean, clearly, there are 10 states of -- 10 states in the country, which are starting in Amla, right, starting with UP and markets of Rajasthan, MP, et cetera, et cetera. So you can well understand, one of the biggest advantage that we have is that fortunately for us, except for 1 or 2 markets of, let's say, Andhra Pradesh, the northern part of Andhra Pradesh, which is the Vijayawada or Vizag belt, that part, Rajahmundry -- not Rajahmundry further up. So except for some of these markets, some parts of Maharashtra, other than that, most of the places is basically completely coinciding with where we are strong as far as ADHO is concerned. That clearly gives us gives us some advantage because you have a ready-made distribution channel, ready-made channel where consumers know us as a brand. So -- or know us as a company, sorry. So that is one of the advantages that we also want to basically leverage on. And the fact that we have been able to dial-up our brands consistently, giving us the initial stages that we did where we could do the cost-benefit analysis at a group level just to see where we are making money as far as brands are concerned. Now it is far more optimized, et cetera. So at least that is giving us advantage. So these are the states we are focusing on. The states exactly where we are strong in ADHO, similar states as far as ADHO is concerned.

So if I understand correctly, we had the existing brand, which was Brahmi Amla, but you thought that it has got no relevance, and that's why you are relaunching or rather relaunched Amla focus or something more to do with it?

So that's an interesting point, Shirish, because Bajaj Amla Hair Oil was always there. I mean it was there for a -- I mean, I will not say always there, it has been there since the times -- it's been there with us. It is not a new product that we have launched. Brahmi Amla as we keep discussing, the advantage of Brahmi really could not be established scientifically or in marketing terms to be able to sell it to a larger set of consumers. So that brand still remains very, very focused in specific markets, which are basically either the CSD-specific channels, CSD, modern trade, et cetera, and very specific few markets within the country in GT. Other than that, Amla Hair Oil has been there. What we are now doing is, we're doing a focused work on the brand. We have changed the pack design. We have changed the brand itself, which you'll see coming up maybe in the next quarter. We'll put it up in the presentations as well. And we've also launched -- fulfilled the range itself. Earlier, it was only available in the INR 10, INR 20 and the INR 40 pack. Now we have the 300 ml and the 500 ml. So it's an entire complete range we are going to, as I said. Now with our distribution reach, et cetera, we are trying to utilize it and push this product. At this moment, our entire effort has been through print media. Going forward, you will see some dialing up of that happen.

Okay. My next question is on our Van operation, which you are focused. So what has been changed? I mean, earlier, we didn't have focus? Or we have allocated more budget? Or the related question is that how many states we've rolled out this Van operation now?

So Van operations, as I mentioned in my opening remarks, we have actually rolled it out even to the Southern states as well. So obviously, as you can understand, Southern states, assortment wise, we are not one of the best. We are working out the assortments for Southern states itself. But those are states also we have gone into, especially the 2 states of Andhra and combined Andhra and Karnataka. In the other states, obviously, they are where we have right to go. So all states right from Northeast to Punjab to Himachal to, let's say, Gujarat, Punjab, Rajasthan, Maharashtra everywhere, we have rolled out Vans. What we have done in the last 6, 7 months, is basically optimize the routes. So one of the things that has happened is optimizing routes in terms of throughput per Van looking at. So we do a complete analysis at absolute granular level. Being a smaller company, maybe it gives us advantage that we are able to look at numbers far more granularly so that we can -- then execution excellence, which is what we keep talking about, is something that we are able to build it in. So that at each Van level, how much money are we making, how much is the throughput, is there a route change that is required? We're going into that level, analysis month-on-month. And that we have been able to optimize in the last 3, 4 months. So in the last 2, 3 months, continuously Van business has been increasing as well as the EBITDA that we do, a marginal EBITDA on Vans that has been very, very nicely in the mid-teens in terms of percentage.

Yes. So just follow-up, I mean, rather more clarification, you mentioned that your coverage is around 4 lakh, and with this heightened focus on Van coverage, you expect this 4 lakh to change to what number in next 1 year?

Okay. So I'll just qualify the 4 lakh number. In fact, our internal data shows a little more than that, but what -- unfortunately, still, we don't have the entire Van sales data computerized. So unless I have finite actual data, I would rather talk of numbers which are a little more conservative rather than the numbers that I get from my sales teams. So by that logic, the number will get automatically scaled up. But while scaling up, -- so this is 1 part in terms of just sheer numbers. What I would report next time is more of -- as I gather more data and as I computerize my system and get the Van sales more correct in terms of data, in terms of number of outlets, et cetera, we'll be able to report those numbers. But on a structural basis or in a directional basis, we would like to dial-up Van sales only to the extent where we see the throughputs for us remain, do not go down. So we would not like to go to any of the markets where the throughputs keep going down, which would have an impact on the EBITDA, even if it means higher sales. EBITDA for us will be ruthlessly monitored as far as Van sales is concerned -- at Van level actually in that sense.

Okay. My last question on the ad spend this quarter has gone up substantially. Would you be able to help me to understand how we should look at this ad spend in '22 or maybe '23?

Sorry, could you repeat that, please?

I'm saying ad spend has gone up at 19.2% of net sales in this quarter. What I'm trying to understand, whether this will be the benchmark for FY '22 or you are expecting a lower ad spend allocation?

So ideally speaking, we would like to offset the other expenses and keep the ad spends at -- see, as you are aware, as you rightly said, we were at 18%. The base data that you see of 21.7% of the quarter, I mean, the previous quarter, 4 quarters ad spend is mainly because of a little bit of depressed sell, but more because of some cost that we had to incur because of the projects that were going on, specific inputs that we were giving for the markets of -- for the UP and West Bengal, right? So those have got neutralized. So on a like-to-like basis, that 18% has gone up to 19%. But this is something that we would like to keep it there. As I said, I would not really like to compromise on this component of the expense line item. All the other components are open or -- for a reduction, whether be it in employee cost, whether be it other expenses, admin, et cetera, manufacturing, where I really do not -- built any strength for the organization. But this aspect, where it is investment in brands, investment in marketing efforts, investment in sales is something that I would like to continue to support through either increase in material cost or through other expenses or if required, be a little bit of a reduction even in EBITDA. So this is something that we continuously want to dial-up.

The next question is from the line of Percy Panthaki from IIFL.

Sir, just a couple of follow-up questions. Firstly, could you share your thoughts on M&A over the next 2, 3 years, whatever. I mean, your framework is -- how you would approach it, if any?

Yes. Percy, it's a good question, but my answer really would not change too much from the ones that I have been giving. So 2 aspects as far as the business is concerned, which is something that will remain on the anvil, but may not be a focus area maybe in the year of '21-'22, that is FY '22, which is basically 1 area is this entire area of international operations. Clearly, I see opportunity there. I do not have the bandwidth to go into it, both in terms of financial capability as well as in terms of operations capability. But that is something that will always remain in the horizon. That is something that we'll definitely get into. What, where, et cetera? As we go by, we'll keep -- we're working on it. But at this moment, I will not be able to share. M&A on the other hand, is something that we'll always keep an eye for -- eye watch out for. There'll be a some amount of money, which will remain earmarked in our books to look at these opportunities. We'll keep exploring. But unless it makes sense as far as either a clear addition to our portfolio, which can give a strategic benefit. And more importantly, from a return point of view, it needs to return that investment. One of the biggest problems M&As within the country with the valuations that we have, we have really not seen the return money for us. So for a company like our size, which is a little smaller, we'd only be a little careful. If we do an M&A, it needs to add strategic advantage to us and also need to have some kind of a return expectation for the company for the investment that we make. So these 2 conditions met, we'd definitely look at it.

And what would be your preference for M&A in terms of sort of product categories? Would it be within the hair oils? Or would you look at outside the hair oils? And secondly, in terms of geography for M&A, would you prefer India or overseas?

So again, all good questions. I personally would say all these are open questions because, unfortunately, M&A options are not something that you are internally deciding or you can have a strategic call either decided on an Excel sheet or on a PowerPoint. This is something what opportunities lie for us. If you ask me a little on the other side, instead of, which are your go areas, if you ask me, which are the no-go areas? Maybe that answer is a little easier to -- for me to say. As far as markets are concerned, both India as well as outside India are opportunities. Outside India, very, very few restricted markets, where we see valuations are okay and where we feel that we can add value. That itself will rule out most of the markets, except some markets in Africa and maybe some markets in South Asia. Other than that, we're only -- really not much. Middle East, et cetera, more of trading posts, people really don't make money out of Middle East. So lot of markets will get naturally ruled out as far as markets are concerned. But yes, pockets, geographies, et cetera, will depend. As far as categories are concerned, again, where we are strong in. We would not like to add portfolios which are diversified where we do not have any value to add. Unless we have value to add just for adding on to our top line, we would not be looking at acquisitions. It needs to add some strategic value to us.

Right. And secondly, on Nomarks, now what is the thought process of the company? Is it a focus brand for us? We haven't had too much discussion on Nomarks in the last 1 or 2 quarters, that's why I'm asking.

Okay. Percy, again, a very good question, I think, a very relevant question. That is a question we also keep asking ourselves. I mean what to do with Nomarks? Do we [ sell ], right? So the way the acquisition turned out really may not have -- the way it was envisaged to be. And now that we sit with Nomarks with where the sales have got stabilized. Even this year, Nomarks actually grew in the quarter. Nomarks grew without any support. It's come to a base level where sales really, certain regular customers we keep servicing. So there are 2 options as far as we are concerned. One is obviously dial it up, which would mean the entire distribution network that Nomarks goes through and the sales strategies that Nomarks go through. Forget the marketing for a time being, even the entire sales, the GTM itself of Nomarks, we need to have it right before we get into Nomarks or invest the next pie as far as Nomarks is concerned. So having sitting on Nomarks like that and the fact that there are other things that we are -- we feel are something that we can invest in. Now sitting in this kind of a situation as far as Nomarks is concerned, there are only 2 ways out. One is keep it there and let it remain or look at a divestment. Now if you're looking at the divestment, now we are not under tremendous pressure. If a valuation is -- which comes, which is worthwhile for us to consider, obviously, we'll exit. But if it is not, we are okay to sit with that because unless we make some money out of it, there is no tremendous pressure on us. It is not taking much out of our infrastructure, manufacturing capability, people, et cetera, that we need to have some desperate desire to exit this brand. So if we make money, yes, we'll exit. If we don't, we are okay to remain. Whether we'll dial it up or not? I don't know at this stage. It has some potential. But at this moment, because we are focused -- because we're a smaller company, we'd rather want to focus not in too many things, but in areas where we want to get into. Nomarks is not a huge priority in the next maybe 1 or 2 years.

Okay. Sir, just forgive me for this question. Maybe it is some misunderstanding on my part, but I am not able to reconcile 2 things. One is that you mentioned that basically, you will invest in brands, and therefore, the EBITDA growth may be slower than the top line growth. But on the other hand, you also mentioned that you don't want to get into too many launches, you want to concentrate on ADHO and Amla itself as of now. And we have already a significant, almost 18%, 20% kind of ad spend here. So I don't understand why we would need to have a ad spend higher than the current level of ad spend that we have as a percentage of sales? And if we don't, then on the other hand, why is it that EBITDA cannot grow faster, especially because all companies are also having some cost efficiency plans, et cetera, et cetera. So even with the same ad spend to sales ratio, I'm sure the EBITDA can actually grow faster than sales?

I think fair point, except that I think your period of discussion and my period may be a little different, and that's where I think there is a dichotomy. So one is if you look at the very, very near future, you're absolutely right. We are not really going to invest much. I mean Amla itself will get invested in. So it's not that there will be no investments at all. Amla itself -- so we've really not invested in Amla. It was more the distribution strategy in Amla that you saw. So there'll be some investments happening in Amla, so where you will see a bit of ad spend going on, but it should be commensurated with the sales growth that we are envisaging. Having said that, but overall, otherwise, what you're saying is absolutely right. But overall, as I said, may not be in the next 2 quarters, but after that. Maybe in the second quarter of Q2 end of -- late Q2 or Q3 starting, we will see some of other launches coming in. And that will keep happening continuously after that because that pipeline is now getting filled up, and we'll, as I said, we are now into the consumer research. We'll finalize the brands, and then we'll see launching them. As and when we launch them, we would like to invest also in the brands. We not launch them and hope the distribution takes over and establishes the brand. In our mind, that really may not be our strength where we can just establish a band through the distribution network. So we'll go slow. We'll keep investing in the brands and hope that those give us the return.

So these new launches, which are planned 2, 3 quarters down the line, they are all in the Hair Oil segment only?

No. That's what I said. So not all of them will be Hair Oil's segment. So because hair oils -- I mean, we are looking at hair oils as well, but more maybe in the hair care space itself. More -- if you're looking at e-commerce, et cetera, that we are getting into, it'll be more some of the newer formats in hair care itself. And if you're looking at hair oils, as we have said, we're looking at what our brand strengths are, what are the product matching that we can do and maybe some of the extensions of some existing brands may not be in hair oils that we would look at launching. Again in the next 2, 3 quarters, after that -- okay, that's another ball game.

The next question is from the line of Sarvesh Gupta from Maximal Capital.

Sir, congratulations on a good set of numbers. Because we saw a very high-growth rate in this revenue, I wanted to get some comments on the sustainability of this? Because the market has not grown much. Rural has done better than urban, but overall market has still remained subdued. So you have obviously gained market share, but if you can comment on the sustainability of the same? And if you have seen some pent-up demand in some manner, or some special pricing strategies, which has helped you? And how sustainable will those be to continue this sort of revenue growth?

Okay. So first and foremost, see pent-up demand is not something that we see. Unlike consumer durables, I don't think there is a huge lot of pent-up demand that gets serviced. So really speaking, that is not what would be fueling growth either for us or whoever else in this category or in the overall FMCG category. I think general festive season spendings, et cetera, case of COVID coming down, all of these have been factors. And rural generally booming across due to whatever, government is putting money in the hands of the consumer, at least this year. So that is what has resulted is what we think. Now with the kind of budget that has been presented as far as the government is concerned, 1 side, we expect the overall market itself to remain pretty buoyant, may not be in the double digits, et cetera, but somewhere close by. On our side, we have looked at where our strength lies and where we have opportunities to get into. And if you look at overall, we have been a very, very strong ADHO player. But in the years of '19, '20, you'll have seen that the seams were bursting a bit as you saw competitive pressure coming on. So one of the things that we want to do is dial up ADHO, ringfence ADHO and also have some other products so that at least we are able to play in the competitive space. So while we play with competition, we also have some products where we can play with -- in other categories as well. So this is both a defensive as well as the offensive strategy as well, ring-fencing ADHO with some of the other products. So this is as far as Amla or some of the other things that we might look at. On the other side, if you're looking at growth opportunities, growth, not looking at the competitive landscape, purely from a strategic point of view? Yes. We clearly see that whatever strengths we have, our innovation quotient has been dialed up for the last 2 years or so, where we have been continuously working to improve our R&D teams, et cetera, there is some scope as far as the other hair care format, as far as the channels that are coming up in terms of consumer preferences, which are -- we see ourselves having a play in those markets. So that is something that we would like to work on. So these are the 2 platforms that we will look at. So we are confident, quietly confident. It's too early days, so to say, to have seen growth. Maybe after 4 quarters or so, maybe we'll get some sense that yes, there is stability or not. So really speaking, that way, you can put the jury out in the open. But we are quietly confident that we are on the right track.

Yes. But going forward, do you see at least a single digit, high single-digit growth or a low double-digit growth? Any guidance on what is visible?

For ourselves?

Yes.

Well, we would want to target a little more than that. Let's see how it goes because the guidance is very difficult to give. Even if you give guidance, finally at the end of it's walking the talk. So we can keep talking, but I think we'd rather want to walk it and let's see how the numbers pan out. So maybe we'll have to wait for those numbers.

Okay, sir. And congratulations, again, for a good set of numbers.

Your next question is from the line of Tejash Shah from Spark Capital.

Yes, sir, a couple of follow-ups from my side. Sir, you -- in the last 3 quarters' con-call, you have highlighted at some point that the operating margin at which we where was slightly higher than your comfort zone. And now because of whatever reason, gross margin pressure, we have actually come down to 25% level in this quarter. And then growth has actually responded well to that margin profile. So would you try to protect margins at this level? Or would you intervene to go back to earlier levels? And if the trade-off is actually good growth, good market share gain, would you prefer to operate business at the current margin level, which is itself is a very profitable level?

See -- good question, Tejash. I think the way I look at it is how do we build strength, sustainable strength for the organization in the long term? So short-term wise, obviously, I can always look at ADHO alone, that's a growth driver for us. I can dial up ADHO further and further, to an extent, obviously. I will hit a ceiling at times where ADHO growth, beyond a certain point, will not get pushed. Forget competition launching categories in almond itself, which we need to keep a watch out for, et cetera, which will happen further down. But even otherwise, even if there are gaps that we have tried to address either through distribution reach, or whether through the price points that we have launched in ADHO or getting into channels which we want to leverage ADHO, et cetera, you'll have still hit some kind of a road block. So forget whether we would want to do an EBITDA management or et cetera, I think on the long term, on a strategic thought process, ADHO alone may not have been just a sustainable product. You would have seen '19-'20 itself giving us enough cues as to how ADHO alone was doing for us, right? So forget the quarter 4 of '20, look up to just analyze numbers of Q3 of '20, right? In the initial stage itself, we were looking at picking the data and taking 2020 out and comparing the numbers of '19. Now nothing structurally changed as far as the market is concerned, other than the fact that the growth in 2020, Q3, until Q3 of '20 itself was not very robust. So if you are putting yourself in that kind of a precarious position where everything of yours is determined only by the market conditions and growth, that is something in my personal thing is a little bit of a weak strategy, even though you might be looking at for a short-term good EBITDA numbers, et cetera. So my thought would be, how do we strengthen the organization? How do we build some brands where ADHO continues to be a flagship brand for some time to come and maybe for eternities away, but at least you have some more other brands which have significant presence in the marketplace. So not only do we have a portfolio play, you also have options to play around with the product categories. But just like we see any other organization, forget competition, even any other organization that they would like to balance the portfolio. Because what you are looking at is looking at top line numbers, looking at the EBITDA numbers, really not speaking so much in the middle numbers of gross margins in this thing. I mean, obviously, you analysts will analyze each of these line items. But as a business, yes, I would be looking at my top line number. Is it delivering the way I would like to take it and the EBITDA numbers, the way I would like to take it? If I have to play the gross margins up, dial-up gross margins and dial-up advertising cost to support that or the other way round the advertising cost and hence, dial up gross margin or the other way around. I will do that as well as if I have to do a little bit of a compromise in terms of the EBITDA margins, I would look at that, keeping in mind that the overall EBITDA doesn't keep going down because structurally, you would not like to weaken the organization either. This is a profitable organization. We'd like to continue to keep it profitable and yet look at a little more pragmatic approach to how we approach. So just looking at absolute EBITDA as a percentage, and it's going -- I mean, that's a very nice Utopian thought. Unfortunately, it may not be always possible to deliver those kind of this things if you also want to expand your portfolio and strengthen the organization that much.

Sure. Very, very detailed answer, sir. And sir, just last one on the Baroda sourcing point that you made. If I remember correctly, we also had purchased some land in Gujarat near Halol to set up our factory after around GST reforms gain. So are we not going ahead with it on our own plant and we are sourcing it from third party? Hello?

Yes, sorry. So Baroda, yes, so we have a facility -- I mean, a land parcel in Baroda, you're right, absolutely. We have a blueprint of that as well. But at this moment, we have kept that on hold. We have gone with a third-party because in terms of costing, et cetera, we have seen that provides a certain advantage. Because we'll also be looking at, let's say, the budgetary support that we are getting with the corner of our eye. On 1 side, we have MAT that is coming to us for the next 4, 5 years, that 17.5% will remain with us with the Guwahati manufacturing and the budgetary support. So we are also looking at what the government positions are on Jammu, et cetera, and see whether we need to look at that. So Baroda land parcel at this moment remains as such. And if nothing else happens, maybe we'll look forward. So our manufacturing footprint for the next 5 years is under construction. Our new head of supply chain manufacturing and IT, Mr. Rajesh Menon, who has vast experience in that, he's working on that. And maybe we'll see how that pans out. Yes.

The next question is from the line of Dixit Doshi from Whitestone Financial Advisors.

Most of my questions have been answered. Just 1 question. So you talked about some new products in the hair care sector. So if you can elaborate a bit. Or in the long run, let's say, over 5, 7 years, are we targeting more of a new product rather than only hair oil?

Well, first and foremost, I would not yet be able to tell you the exact nature of the products. Some of the formats are getting finalized. Product names, what it will have, what are the USPs et cetera, are still under construction. So you'll have to just wait for another 4, 5 months for these to see the light of the day, and you'll be the first ones to know as we launch it in the marketplace. So maybe give us some more time, you will be -- but that is the kind of time lines we are looking at. End of Q2, beginning Q3 when you will see some of these seeing the light of the day. If you look at the overall a little longish term that you just talked about. So one of the focus -- the focus is really not as to how much will hair oils contribute to? That's not really how we would want to see ourselves as. We would want to play in the place -- space that we are comfortable in, which is today the hair care space and some of the adjacencies. And as we build capability, hopefully, we will, and we'll see where all we can add value as far as the portfolio is concerned. Really speaking, I would not bother about in terms of exactly what kind of products in which kind of category. What I would rather bother about is what kind of numbers I'll target, which I may not want to share with you in terms of internal numbers, but [Technical Difficulty] Okay. So this is what we'll be looking at in terms of structuring the product, this thing, in terms of our value sales growing at a good, consistent number so that we become a larger player in the marketplace. For that, 2 things will have to happen. And logically, it will happen, not that we would want it that way. One is the percentage share of ADHO itself will go down, which would mean that we would want to ideally speaking, if you ask me, we would like to keep gaining share in the LHO market, though we don't monitor LHO as such. But overall, if you look at keep growing in that by doing all the investments that we do on ADHO because that's our bread and butter, while we keep adding on to the portfolio, et cetera. So that overall, as a percentage, the percentage contribution of ADHO goes down, and we become a little stronger as an organization. Yes.

So historically, what we have heard always is that the company's focus is always on a hair oil side. So we can now assume that we will be open for any category where we have the right to win, and we have a good quality product and a good capability?

So that is a very qualified and a very broad-based brush that you've painted with. So it's not any category that we would want to win. Any category and that right to win is something that we feel is a very sacrosanct word. We don't feel that we have rights to win in most places. So we will be very, very conservative in our thought process of where we have rights to win. And if we want to get into some of these, we would like to do an elaborate extensive consumer research, get some sense whether we have some rights to win in that and only go about launching that. In spite of that, you might see failure. But we would like to see, as much as possible, the risks and the failures that could possibly happen are mitigated. After that, it is up to the market as well as our own internal execution and planning, strategic and execution skills, which will determine whether we get ahead or not. Yes.

As this was the last question for today, I would now like to hand the conference over to the management for closing comments.

Okay. Thank you so much. It was really invigorating to hear the various questions from all of you all. I mean it was very, very helpful for the kind of support that you have given us and the encouragement that all of you guys have given for a long period of time for this company. And we would like to repay it back by looking at some of the things that we want to do, which is what we have been talking about, some of these growth drivers working for us, et cetera. These are, as all of you have rightly said, these are all early days. We are not really getting excited by that, but we are getting encouraged by the fact that some of the plans that we are putting up, as I keep saying the systems, processes, making the organization internally strong. It may not have any value volume implication as far as the business is concerned. But for the long term, if you want to make a strong organization, professionally done, we need to really dial up systems and processes, governance, entire controls, et cetera, which is where we have spent a lot of energy and effort in. So a lot of these initiatives that are coming out or the thought processes are coming out may be a function of that. So this is something that we'll continue to dial up. The management team, as you have seen, has gone through a little bit of a transition. That is something now we would like to stabilize. We would like to push some of the new areas where e-commerce, et cetera, will build up teams. So that at least we are future-ready as an organization. That will be the attempt to be. And hopefully, if we get our strategy right and the market is conducive, we would like to see this continuing forward. So thank you all for joining this call. Thank you so much.

Thank you. On behalf of ICICI Securities, that concludes this conference. Thanks for joining us, and you may now disconnect your lines.