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

Ladies and gentlemen, good day, and welcome to Bajaj Consumer Care Limited. Q3 FY '22 Earnings Conference Call hosted by ICICI Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Manoj Menon from ICICI Securities Limited. Thank you, and over to you, sir.

Hi, good morning, good afternoon, good evening depending on the part of the world you are joining from. As I said it's our pleasure to host the 3Q FY '22 results conference call of Bajaj Consumer Care. The company is represented today by Mr. Jaideep Nandi, Managing Director; Mr. Dilip Kumar Maloo, Chief Financial Officer; and with Mr. Richard D'Souza, GM Finance. Over to Jaideep for the opening remarks, and we'll open it up for Q&A after that. Thank you, sir.

Thank you, Manoj, for hosting this call, and good morning from India. Along with me, Mr. Maloo and Richard, we have some more colleagues from my management committee. So let me take you through the performance of the company for Q3 and 9 months of FY '22 before we open the house for questions. The unprecedented inspiration in the economy due to the steep rise in material prices across the industry including ours, has impacted disposable income as well as consumer spendings adversely, especially in the rural markets. The hair oil industry was not spared with the overall hair oil market remaining subdued in Q3 and volumes declining by 2% against the same period last year. In these peaking markets where we have a larger presence, had a much sharper decline of 6.2% compared to the overall hair oil market decline, while the markets of South and West continue to grow. The company reported a sales turnover of INR 225.3 crores for the quarter, which is lower by 7.2% on a high base of 18% growth last year. The volume decline for the quarter was 5.9%, with the hair oils declining by 3.5%. The 2-year CAGR sales growth in Q3 FY '22 was 4.7% and a 2-year volume CAGR was at a growth of 8.5%. On a sequential quarter basis, the sales was higher by 6.2% and volume was higher by 10% over Q2 FY '22. For the 9 months FY '22, the sales was at INR 649.5 crores, a decline of 1%, while volume growth was 1.3%. The hair oil sales value was higher by 3%, while the overall hair oil volume grew by 5% for 9 months FY '22. With a high dependency on LLP and RMO, which is witnessing unprecedented inflation, the company's gross margin was also adversely impacted in spite of price increases totaling to 7% taken during the year in ADHO. LLP and RMO prices for the quarter were 27% and 54% higher, respectively, over the corresponding quarter of last year. Over the sequential quarter, prices of LLP and RMO further went up by 6% and 11%, respectively. The gross margin for Q3 FY '22 was at 55.4% as against 63.5% in Q3 FY '21 and 59.1% in Q2 FY '22. We continue to keep a close watch on commodity prices in the coming quarters as well as in terms of market reactions, and we'll take any corrective action if and when necessary. The company will continue and has been continuing to invest in its brand for long-term growth. ASP spend for the quarter was at 17.8%, which is close to 2% higher over the sequential quarter. The EBITDA for the quarter was INR 41.6 crores with a margin of 18.4%. PAT for the company was at INR 40 crores against INR 58.2 crores for the corresponding quarter last year. As we have been witnessing for the past few years, the consumer down trading continued in the quarter, especially for the premium oils with the coconut and amla categories growing faster, and the premium -- all the categories of premium oils remaining under pressure. Although our presence in the category is lower currently, our direction to complete and balance the portfolio in the economy segment as well should derisk our top line in the mid to long term. With rural markets slowing down, key wholesale markets in the Northeast and Central parts of the country continue to see reduced business volume. Our company had a double-digit decline in wholesale and a single-digit decline in retail in rural, while the retail for the quarter remained flat. While the overall performance was affected, most of the key initiatives taken at the beginning of the year has been doing well. Retail presence is being strengthened across top towns and new royalty program outlets are being rolled out to increase focus in the top urban cities. In rural, various efficiency initiatives through technology interventions help us optimize the van operations. With portfolio expansion in progress, the focus has been to seed the newer brands in the rural markets as well. Expansion of the hair oil portfolio will continue with further launches in Q4, premium range of hair and skin care product launch planned under the Almond Drops will start from Q4 onwards. Both modern trade growth and e-commerce scale-up have been as per planned. B2C Modern Trade registered a 16% growth on the back of better offtakes and footfalls in Diwali. Across most chains, better store execution, assortment as well as optimization of our distribution footprint. The e-commerce business for our company continued to scale up well with 45% growth for the quarter and 95% for the 9 months with the business now contributing over 4% of turnover. Listing expansion across key retailers, investments on brand visibility on 3D platforms, activation of the non-ADHO portfolio continued to yield results as per plans. More than 25% of the sales are now coming from non-ADHO brands in the B2C e-commerce space. Almond Drops continue to get media support across TV, social media platforms and trade media support in key markets with increased investment in advertisement during the quarter. New youthful thematic campaign dialing up the element of style for younger consumers, along with newer claims of 2x hair fall reduction has been launched in January. The campaign has been integrated for both traditional and digital mediums. The new commercial on TV has been doing well on message communication and other key parameters of likability, relevance and purchase intent. Digital marketing for ADHO has been continuously dialed up, and we are now actively using new age influencers to reach out to younger consumers. Bajaj Amla Aloe Vera has been making steady progress with a share of more than 3% in the Amla category. The new TV campaign for select HSM market has been on air and has been received positively. Bajaj Sarson Amla, which was launched in December 2021 to leverage the equity of Bajaj brand name and rural distribution strength, saw good initial placement. The Amla category grew by 27% in the quarter and 40% in the 9-month period. The initial response to Bajaj Pure Coconut Oil, which was launched in select markets of East, West and South has been encouraging. The product will improve our distribution footprints in these markets. The product was also launched in the e-commerce channel, followed by launches in select modern trade outlets in January. Our new digital first premium brand in hair and skin care natives also 4 variants launched in the quarter in mask and serum. This is continuing through in Q4 as well. A new range of digital first premium pure oils, Bajaj 100% Pure with 3 variants; castor, jojoba and olive oil was launched in the quarter. This is an integral part of the e-commerce strategy as we scale up further activations and support in the e-commerce space. We'll continue to expand our portfolio in the coming quarters with premium haircare products launch planned in GT in February and March. The digital first brands will also see more variants launch under both Natyv Soul and Bajaj 100% pure brands, supported by a push in digital investments. We're in process of building an organization structure to ensure agility in launches faster GTM and scale up the digital marketing first. In the International business, Nepal business continue to perform well with double-digit growth, while infrastructure corrections are underway in UAE and Saudi. International business will be a thrust area from the next financial year. The ESG initiative to reduce carbon footprint, greenhouse gas emissions, especially in case of packing materials continue to progress well. There is a reduction in consumption of approximately 16% in glass bottles, 7% reduction in paper and 14% reduction in laminates through optimization and rationalization of specifications. Plans are also underway to ensure that bulk of our packing material is of recycled material. As part of our EPR, we are on track with our target to effectively collect and coprocess 100% of our post-consumer plastic with 90% achievement of target already in 9 months FY '22. Conservation of natural resources like water, reduction of carbon footprint, wastage at factories remain a key focus area. Water conservation effort saw us measuring the water consumption sources, installation of controls helping us reduce 24% of our water consumption in Q3 FY '22. While the market conditions have been challenging currently, both from demand slowdown as well as raw material inflation perspective, the company will continue with its mid- to long-term strategic direction of expanding its hair oil portfolio and distribution footprint, continued investments in marketing both conventional and digital, launching a premium personal care range under the Almond Drops brand and scaling up the digital first brand, Natyv Soul and Bajaj 100% Pure. So with that, I end the opening remarks and opening -- open the session for questions. Thank you.

[Operator Instructions] The first question is from the line of Prakash Kapadia from Anived Portfolio Managers.

A few questions. If I look at the current quarter results, second quarter in a row, sales have declined, gross margins have fallen. And if I look at other companies with a more broader product portfolio in the hair oil, they are growing despite the market really not growing. So is it fatigue, which we are sensing in Almond Oil category? And secondly, a couple of quarters ago, we said, obviously, the EBITDA margins could trend lower, but the focus would be on growing EBITDA and PAT on an absolute basis. So from here on, what do we expect to happen? And what is our game plan? Will there be more price hikes? Will there be some reduction in material costs, some product mix change? So in the mid- to long term, what are we focusing on? And how will some of these things change for us?

So let me address the 2 questions in the sequence. So first and foremost, we talked about how the other larger players have been able to grow, while ADHO has not grown. So if you look at that has actually been how our company is placed with a very, very strong ADHO if the market is in a -- if market sentiment is strong and there is a good consumer demand that is happening, ADHO keeps growing. We saw last year with a rural push that even the government supported. I mean, the rural economy boomed, and we had a fantastic growth. We had a double-digit growth as far as ADHO itself is concerned, after quite a long time. And we are facing the reverse cycle now where the rural demand slowdown itself, which has directly impacted us. So all the initiatives that we had stated last year, while all this activity of ADHO growing and when we are talking about that EBITDA dilution will happen, but the absolute numbers will remain. It did not obviously factor in these 2 unprecedented, and I would assume not really foreseen at that point of time. This unprecedented escalation of both the raw materials that we use, especially, let's say, RMO where we are far more -- that is refined mustard, where we have far more over-indexed than somebody -- of other players and that has seen some 54% escalation. We did not anticipate that. Now there is this rural demand collapse, which obviously not anticipated. It's something what we wanted to do is derisk our portfolio so that at least we have a larger portfolio where we are getting our volumes from. So if you look at today, all the companies that have grown, the cheaper oils is where the growth has come from. None of the premium oils have actually grown for anybody today. I mean, at least not in the kind of large volumes that we are talking of ADHO. So I don't think ADHO itself has too much of an issue today. Yes, there will be a little bit of lapsing that will keep happening when the market collapses, but as the market comes back, rebounds back, I think there is enough that is being done as far as ADHO is concerned to erase that demand. What we need to capture is the lower end of the demand, which we have not been actually targeting for a long time, and this is something which will be recorded so that the balancing of the portfolio comes in, so that the growth is arrested. So this is what the attempt has been. And if you look at -- that's what I was saying, if you look at our CAGR for 2 years, I mean, while the numbers look sequentially quite worrying for the -- let's say, the 2 quarters if we look at. But if you look at the 2-year CAGR, our hail oils growth is at 8.5%, which is what you would more or less compare with any of the players. So this is how we would want to place ourselves, have a larger portfolio so that the other wings are also firing. So you will see some more launches in hair oils coming up in this quarter itself, so that we have a far more balanced portfolio as far as hair oils is concerned. Coming to your second point regarding the gross margins, yes. So one expectation is that with the bumper crop, I mean I'm given to understand there's a 25% hike in the mustered crop that has come this year. So we expect the mustered prices to soften going forward. In Q4, we'll see some softening. In Q1 onwards, we think there will be a good enough softening as far as mustard is concerned. As far as LLP is concerned, yes, it started showing a little bit of a downtrend, but with current prices that is happening as far as crude is concerned, we expect LLP to remain at these levels. I don't think it will go up significantly much more. At this moment, the market, we don't think we can take further price corrections because if you look at in the last 2, 3 years, ADHO has taken the highest amount of price increase if you compare it to the larger brands. So I don't think we are looking at price corrections now. So the EBITDA will remain a little subdued because all the other aspects that we have saved in terms of investments will continue to do because we need to derisk and need to expand our portfolio. So that is an attempt we'll continue.

Understood. That's helpful. And as of now, what would be the urban and rural sales mix, if you could just talk on that.

So it is exactly -- now sits at 50 and 50 -- if you look at the primary level, it is at 50 and 50. There is urban primary sales and the rural primary sales. If you go into retail and wholesale, wholesale though it has been collapsing, it's still about 28%, 29%, while retail is out 22-odd percent. So that retail component has been consistently growing for us because that has remained flat till now and 2-year CAGR is actually positive, while the wholesale component has been dropping.

[Operator Instructions] The next question is from the line of Shirish Pardeshi from Centrum Broking.

Jaideep, I'm a little worried if I follow your commentary last 3 to 4 quarters, we started saying that we have now gone back and investing a huge money in the van operation and we are trying to do a lot of activities in terms of ramping up our direct coverage. While it did show some number, and I give the benefit saying that our base was higher, and that's why I'm considering 2-year growth. But the problem or the challenge which I'm finding, the wholesale market coming back and you did mention at least 3 to 4 times that HSM market is still having. So is there any structural de-rating which is happening and people are referring more on the low end of the product mix of Amla and coconut. And that's where we have lost our price and product prepositions. Is that the thing which is worrying you? Or maybe if it is not, then how we are going to correct the situation or we will have to wait the consumer sentiments to change?

Yes, I would think it is more a transient phase. If you ask me whether we are really worried about our pricing power, et cetera, I don't -- I still don't see so. It is more an overall thing that is happening. While ADHO itself has grown at a little lesser, I don't think structurally, there is an issue with the product or the market segment. Yes. In -- as far as we are concerned, in specific markets, which markets have overall collapse for all other products as well, we have also declined. But that is where we need to cover ourselves with a flanker brand that we have launched Amla, Sarson and maybe coconut going forward as well. So this is what we wanted to cover. As far as van operations is concerned, the deep rural back work has already happened and further escalation will happen as we launch a few more brands, maybe we'll go further deep. So that initiative will actually continue with that direction. So last year, we got that fillip in terms of getting that extra sale. Yes, that base is now sitting with us. I don't think we can further grow on that base even further on that van operations itself. But overall, I think there is enough and more for our other products to fire, so that we have a more complete range and the growth momentum to come back. That I don't see as much of a worry.

I got that. Just let me have 1 follow-up on this. You did try to do the product intervention. We started with Amla, our core Amla was reestablished, and we also added Alo vera in that. So I give the benefit saying that now we have good product portfolio. And if HSM market -- if that is there, which is showing the down trading, what is it not working? I mean distribution efforts, these all will be a long haul, but in the short run, if the product has already been established about 2 to 3 quarters in terms of Amla, what is it that missing?

As far as Amla is concerned or even now that the Sarson has been launched and the way we see, those products are doing pretty well. I think the way a new product starts, I think those products are progressing pretty well. What we have seen is this down trading that is happening and the demand contraction that is happening in specifically few states itself, UP, Bihar, Madhya Pradesh, Chhattisgarh and Jharkhand. And this is where the demand -- and to a certain extent in some of the Eastern markets. That's where we see the issues. Even if you look at the other markets, let's say, the markets of Rajasthan, Haryana, Punjab, Delhi, they still were pretty robust. I mean, far more robust than these markets. So it is more a localized Eastern, Northeastern kind of a market for us, not Northeastern India, but the Eastern part of the north belt is where we are seeing the very, very specific in the lower-income markets. I mean, that's where we see the strain. And I think that's more a temporary transient medium. That phase, I don't think will last -- cannot last continuously.

So just to get my understanding right, you are of the opinion that we will not have to drop the ADHO prices?

I don't think ADHO price drop unless there is a real correction as far as LLP and RMO prices are concerned, I don't think we want to -- we would need to drop the ADHO prices. What we would need to do is maybe escalate our advertising effort because that actually in Q2, we had dropped in and I think for a premium brand like ADHO, that needs to be continuously pushed. So that is what we have to get back.

Okay. My second question is on the input material. I think RMO and LLP for many years, we have been buying. And I'm sure there is some method to buying this process. So just need to understand if you can spend a minute obviously because we have the large buyer, we would be sensing how the market is going to move for this product. And I'm sure you're not doing everything on spot. You will have some cover and something we will try and do it. So just wanted to understand the whole process, how this buying and our understanding about the price escalation, which is there. So are we competent enough to get our say that, okay, we will be able to manage the cost pressure? Or then we will be at the mercy of the price increases or the inflation which is going to come up maybe from here on, if it is going up, then we'll have to face it?

See I think the way you handle prices is you look at 2, 3 options. You look at alternates, you look at alternate sources as well as you look at forward buying as it is required. So LLP, typically -- I mean while the effort has been going on across for alternates at this moment, you are not -- we don't have a solution as far as alternatives for LLP is concerned. So it's all alternate sourcing as well as forward buying. So forward buying, et cetera, coverage, you do some hedging and try and cover based on what is your expectation on LLP prices. But given this kind of a very, very volatile situation that is happening, I mean, covering too much of the forward also may not be a great thing. We did do some cover in October, so it did cover November and December, so there were some decent tactical buying. But really, it gets wiped out in this entire process, process of the kind of escalation that we are seeing. As far as RMO is concerned, yes, I mean, RMO is a very, very crop-dependent product and very few people actually are into RMO for a 12-month basis. That is the supply base we are trying to broad based. While in LLP, I will not be able to give to you what the sources. I think a lot of work has been happening in terms of LLP sourcing, both internationally as well as domestically, we are trying to look at much more broadening of the LLP sources that we have than we had earlier. While in RMO, it is more a local thing where a little more broad-basing is happening. So I think going forward, we'll have a far stronger sourcing suppliers base than we had in the past. So most of the -- I mean, we are in a stage of testing at certain stages, in terms of negotiating at certain stages. I think we should be happy. But whether it will have a huge material impact on the LLP and the RMO prices, I think it will still be a function of how the prices move.

I got that. Jaideep, it's very helpful. Just wanted to understand, do we have any idea that what is the current inflation? And I'm sure we have taken about 7%, 7.5% price increase. So maybe if you can help how is the current weighted inflation we are facing? And more importantly, I think if you can give us some understanding that how one should look at gross margin because the gross margin decline in this quarter was a surprise, and it was very, very high. So maybe in the short to medium term, how one should look at the gross margin?

If I were to just define the gross margin decline that happened, just to give a sense of, let's say, from the last quarter because that would be a bit of a shock to many people as to why gross margin declined. So as you saw, as far as our RMO is concerned, even that went up in Q3. And so there was about a 2% dilution in the gross margin that happened. Of the 3.7% total gross margin dilution, about 2% happened just because of sheer RMO itself and a bit of LLP as well. Other about 1.5% is actually shared between 2 things. One is obviously, a mix change as well as tax mix change that we had within ADHO itself as well as in terms of some of the consumer offers that we had to offer in the select markets and just to bolster demand. So this is where we are seeing that some kind of corrections tactical that we did, which in Q4, I don't think that will be required.

The next question is from the line of Aniket Sethi.

In terms of the marketing spend, so we just want to get some visibility at least from a 1-year perspective. So you have highlighted some media support even for the Amla portfolio. How are you looking to carve out spend for new brands? This is mainly because the core ADHO franchise also needs some media support and the headroom to increase absolute media spend is kind of limited given GM pressure at least from a 1-year perspective?

So we would continue to have that budget about 18% to 20%. I mean, that is what we had set for ourselves. So as far as the new brands is concerned, it will remain at that at least of the overall this thing at least 2% to 3% spend that you would like to do as far as on the overall business itself. So that is the minimum that we would like to spend on just sheer marketing spend as far as we are concerned on the overall sales.

2% to 3% on the non-ADHO franchise?

On the non-ADHO franchise, on the overall -- 2% to 3% on the overall sales, yes.

Understood. Understood. And you also have been talking about the potential of our Personal Care portfolio under the Almond brand for some time. So are you looking at a more mass offering over there? Or will it be limited to a premium e-commerce kind of range?

No. So we are looking at a combination of both. Some of the product formats that we have might be more suited for the modern trade and e-commerce and some of them will be mass brands as well. So it will be a combination of both with focus being more on the larger brands, smart brands that we want to get through the...

And to start with, what will be the focus over there?

I'm sorry, come again?

To start with, say, in the next quarter or so will we have the mass brands launching first or the premium...

In the next 2 months -- or by the end of April, you will see both of them -- at least about 3 products coming in both the formats, both the mass as well as normal channel, yes.

Understood. Understood. Lastly, I just had 1 question in terms of brand operations. If you could kind of quantify the cost of doing these operations? And how much would it be really contributing to the overall revenue pie?

See, overall revenue, it contributes to about -- roughly about 12% or so overall in terms of revenue. And in terms of costs, it comes to about -- overall, if you look at about 2% of the overall revenue, it comes as a cost.

Additional cost of doing this business.

Yes. Correct.

The next question is from the line of Vaibhav Badjatya from Honesty and Integrity Investment.

So I have kind of 3 questions. So one is that our Almond Drop glass bottle has this drop system, so had ever consider changing the quantities per drop so that we can indirectly probably increase consumption. Have you ever considered that?

So actually, what we have done is -- are you talking of reduced grammage, I mean I didn't get your question.

No, no. So I'm -- sir, talking about our glass bottles in almond drops. If a consumer is using the bottle there is a drop by drop system that comes, right? So have you ever considered changing the quantities per drop by changing the design of the bottle so that we can increase the consumption?

I think -- not really -- I mean, we understand what you're saying, but that is not what we have thought -- this thing. I mean in any of our consumer studies, that has not come as a point of context. So really speaking, that is not something that we have put through now.

Got it. And sir, secondly, on the -- I just wanted to understand on the wholesale part. So during demonetization, GST, wholesale suffered, we understand. During COVID, wholesale suffered, we understand. But in September quarter and December quarter, none of these things were there materially. So what is exactly the problem with wholesale? Is it funding issues problem or they are facing competition with new age wholesale, the B2B players, what is exactly the problem with wholesale?

I think new age B2B is not an issue as far as wholesale is concerned. It is -- if you -- again, if you look at our business, the slump that has happened is sheer because of the rural slowdown that we see and in the rural markets where we had a higher indexing, I mean, the rural markets, the wholesale if it gone quite low. In fact, in this particular quarter, if you look at the wholesale has done better than the sequentially last quarter. But the sub-DB business, which is the sub-stockist business, that has actually gone down. So both wholesale that it's feeding the rural as well as the rural wholesale itself, which is a sub-DB that has actually gone down. So clearly, that sign is there. Retail is the only business which has done well. Wholesale has grown on sequentially, but as against last year, if you compare, has gone down and sub-business is also down, which has been doing very well till the first quarter of...

So basically, I think it's more on the issue on the demand side, which is being fulfilled through wholesale channel. That's why the wholesale channel has been down?

More rural demand. If you look at company, it's really more rural demand that we see. As far as urban demand is concerned, our business is concerned, it still remains pretty robust. So I don't still see any issues as far as our urban business is concerned. It's -- our urban retail business is concerned. It's more the rural business where the hit is.

Correct. And lastly...

And same is the HSM market, not even the other markets today like South, whatever. We are under-indexed, all right, but those we are doing pretty well. It's a very, very concentrated geography where we are seeing this down fall effect.

Okay. Understood. And lastly, on the -- on our overall oil portfolio. I understand that we are trying to broad base our portfolio. But in any -- so in a normal situation, currently, there's a lot of pressure on the rural side and on our consumer side. But in a normal situation, do you think that consumers will migrate from Amla to Almond, given a normal economic condition at their end? Or they are more comfortable using Amla not shifting within different hair oil based on the content?

No. So both, if you look at upgrade and downgrade in terms of lapsers and joiners, this process will continue in a normal market conditions, so both will keep happening. While there is no major mass scale shift happening between these categories, but this basic intrinsic shift keep on happening. So that we expect, and that's where with a kind of brand image that you want to project, et cetera, and in terms of imagery that you do, in terms of brand equity that you established, I would assume that a normal situation ADHO will keep getting consumers as some of them keep lapsing as well. So that itself is not an issue. But when the down trading is happening, when everybody is conserving cash, and the economic pressure is there, there, you see ADHO taking a bit of a hit.

The next question is from the line of Keshav Garg from CCIPL.

My question is really simple. I just wanted to understand that why this FMCG companies trading at almost a price-to-earning ratio of 10% adjusted for cash, whereas other FMCG companies are trading at anything over 50 to 70x price to earning?

I think if you look at -- I think the answer itself is in terms of the way the company has performed over quite a sustained period of time and as well as in terms of what in terms of derisking this organization has. In a situation like this -- I mean, that question is clearly answered by exactly this year's performance, this quarter's performance, and that is what we need to address. At some point of time, we need to bite the bullet, widen the company's portfolio and have a little bit of derisking so that at least you are able to make up from somewhere. Today, we have -- because we have only remained in ADHO and remained in a very cocoon kind of atmosphere, the growth got stalled about 2015, '16. And after that, we have not yet been -- even today, we have not been able to completely recover. So with this attempt of slowly broad-basing, which we wanted to do last year itself and if the market condition had remained stable. I'm not saying it should have been [indiscernible]. If it hasn't remained normal, I think all these growth that you are seeing would have given you a completely different picture, which we assume as normalcy returns, and it will have to return at some point. I think these growth drivers that we are putting in terms of the long-term outlook, I think, will give us the strength, and I would assume then the EBITDA multiples and the numbers that you are looking at for...

Sir, actually, the -- sir, that's incorrect. If you see Procter and Gamble Health and Hygiene, so they only have Whisper and Vicks. So their also product concentration is there still, they are trading at 84x peak. So the real reason is that any FMCG company, if the price falls below 30x price to earnings, they will do a share buyback and they will buyback and extinguish the number of shares. So earnings per share will go up. So because of that, the PE ratio will sustain. But with -- in our case, there is no intention of doing any share buyback. So I mean, the share will definitely keep on languishing if you are not able to increase the operating business of the company, at least you can do a share buyback so that our EPS can increase.

So I appreciate that tactically, that is something that the Board can always look at. So that is a separate call. But I think the objective of the company is not to look at these tactical methods alone but more to ensure that the performance of the organization is strengthened, and it is a far more long-term in nature. I think that is the attempt that the company will have to do. Whether how we should look at the dividends, how we should be looking at share buybacks, et cetera, I would like the Board also -- I'll definitely take your message back to the Board and ask them to consider options or buyback or any other such options or interventions that are possible. But I think, overall, we should be looking at how we can improve our long-term strength also.

The next question is from the line of V.P. Rajesh from Banyan Capital.

My first question is that you called out some specific markets like UP, Bihar and others in the Eastern region. And you call that this is a translate problem. So if you can just elaborate a little bit why do you think it is transient and it will get better in the, let's say, next 2 quarters or 3 quarters or whatever the type may be?

See, if you look at historically, I mean, the slump is not a -- again, no market, you will see a slump that has been prolonged and it has never recovered at all because the intrinsic demand in terms of consumption, in terms of consumer consumption cannot really go away. Yes, we are currently facing an unprecedented both in terms of inflationary pressures as well as there is not too much of rural, let's say, initiatives or incentives that is there, whereby there is this consumption sentiment, which is better. I don't think this can continue to last or even if it lasts the bases have already gone down to quite a low level, and it can only go up from it. So really speaking, I don't think there can be further contraction of demand from where we are sitting today.

And have we lost our market share in these particular markets?

Specific markets, 1 or 2 markets, a little bit of market share loss has happened, but I don't think they are extremely marginal. I mean at this stage, market share losses numbers are not showing up as far as the data is concerned. I mean, they are just 0.2%, 0.1% kind of slippage that is there overall. So as of now, it is not there.

And my other question is on the organization side. As you said, things have been quite volatile since 2015, 2016 time period. So organizationally, what is happening on the sales force side, are you seeing more attrition or turnover there or how are you managing that? Because I'm assuming people are not hitting their numbers, so their compensation is definitely not keeping up with their peers.

So I don't see too much of attrition that is happening there. If you look at the attrition numbers, it would be at about 15%, 20%, which is what we expect more or less across the industry itself. So fortunately, we don't see too much of an attrition that is happening. Yes, there is a natural attrition, which is there, but that has been there -- other than last year, that kind of attrition we have seen across years. So that has not been so much of issue neither at the head office, we see that much of an attrition. Where we see things that we need to improve is in the new areas that we are trying to build this thing, we need to be a little faster in terms of buildup of capability, et cetera. I mean, that is where possibly where we need to focus a little more.

No. But I'm assuming your sales force, are they hitting their numbers? Like how many percentage are hitting their numbers?

So yes, you're right. So obviously, the numbers that people are hitting are not very high, especially in these markets that I talked about, but it has not resulted in mass-scale attrition as such. Yes, there has been a little bit of attrition here and there. And we are also taking measures to ensure that they are protected by ensuring the incentive commissions, [ they're tweaked ], et cetera, so that at least we give them stretch targets so that at least they earn a bit of base commission if not a very high commission.

Okay. And my last question is, you have been around for, I think, 3 years now. So what is your honest assessment of when do you think the ship can turn back into a growth mode?

I think this entire attempt of ensuring that at least you have at least 2, 3 other portfolios to play with rather portfolios or engines to play with is something that needs to get established. I mean that is the first attempt was to ensure that we have the basic processes and systems to be able to create these growth pillars to ability to launch brands, ability to get -- do the R&D. So that part was over. That is the launch that we had planned. So most of the launches are as per plans. I don't see -- maybe a quarter here and there, other than that, I don't see any of the long-term plans, which has got deviated. What has hit us is these 2 things. And I fairly understand that -- I really don't know whether we could have been better prepared or we could have anticipated this kind of an absolutely unprecedented raw material inflation or the kind of slump that has happened. But a company like us, which is very, very dependent on a single brand and wants all the boxes to be ticked for the business to go up, it has not happened. But if you look at the investments that are happening in -- or the direction that we have taken and the investments that are happening, I think within the next 3-year period, I think we'll have a decent portfolio where some substantial numbers will start coming in as well. So this is the direction we are taking. And I think there, I'm pretty comfortable that we should be seeing a different company in a 3-year period where far more larger space we have, and it is not concentrated only in a single block of 1 product only.

So my last question is just what is the EBITDA margin you expect 3 years out, given all the changes that you are driving in the organization?

See, earlier -- I am not deviating too much from that. I mean we wanted to talk of EBITDA margin would be closing at about 22%, 23%. I think going forward, we will be looking at least a 20% plus EBITDA margin with this kind of investments coming up. So maybe in the very, very short term, you'll see a bit of EBITDA erosion, but I think 20-plus margin is something that any way we should be looking at going forward.

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

Just wanted to understand if there is any -- sorry if this question has been answered, I entered late. Is there any difference between the primary and secondary sales of the company?

At this stage, not much. In fact, the primary is trading along with secondary. Just a little this thing, not really too much. We still remain at the 27, 28 days of stock that we...

Okay. Second question is, you had a volume decline of about 6% and a price increase of 7%. So that should have totaled to a sales growth of 1%, but the sales is down 11%. Now I understand there is always some mix effect, but a 12% mix effect seems too large. So can you explain this?

Sorry, come again. One second, so we have taken a 6% price increase. And I think that SKU and the product mix itself has had a 4% order impact on the overall thing. Yes, so that's about...

Sir, if I do my math, if there is a 6% price increase and volume is down 6%, so the sales in absence of mix should be flat. Now you're saying mix is negative 4%. So the sales should be negative 4%, but your reported number is negative 11%.

Negative 11%. Where is this negative 11%. One second. Where did you get this negative 11% from, sorry.

Sorry. Sales is down 7%, my mistake.

Yes, 7%.

Yes. Yes. correct, I would assume since [Technical Difficulty] so the mix effect should have been positive this quarter?

No, mix effect is not positive. Mix effect is because we have been -- we have had a higher sale of other products as well, as well as in terms of mix within ADHO. The lower volume, let's say, sachet sales have been higher this quarter, so there has been an adverse impact on the mix as well. So both mix in terms of ADHO, SKUs -- because 50 mL and 100 mL, which are our flagship SKUs. I mean, there, we have had stress.

I see. Because I thought your urban to rural mix this quarter would have shifted a little more in favor of urban. And urban sort of would -- I mean, a better urban mix wouldn't that be positive for your overall product mix?

No -- not really. I mean I don't think there is a huge difference on that because the shift that you see, if you look at, let's say, against last year, the urban has actually really gone a little lower because last year, if you look at -- compared to last year, the retail has remained flat, while wholesale has gone 20% down. So it doesn't make too much of a difference because what has got sold in this thing is the SKUs, which is in -- the smaller packs, actually -- yes, the sachet pack has actually gone up and your Amla and Coconut has also gone up. So that is what is bringing the SKU mix -- both the SKU mix as well as the product mix adversely impacting.

Understood. And you mentioned that you would want to go back to a 20%-plus kind of margin soon. So I mean, what's the -- I mean, how long do you think it will take for us to go back to that 20%-plus level?

I think from next year, we would want to keep investing on the brand, so you would be expecting about closer to 20%, but still remaining below 20%. But once those investments are in and I think we start seeing the results in -- from FY '24, we should be seeing 20-plus numbers coming back.

Okay. And the margins that you have reported this quarter, are they the bottom? Or do you think that temporarily margins could drop further because of inflation or whatever reason?

I think margins have more or less now bottomed out. We don't see -- I mean, there might be a plus/minus a few percentage points here and there. But really speaking, I don't see a major shift in margins further going down.

The next question is from the line of Devanshu Sampat from Yes Securities.

Two questions from my side. So where are we on a journey of revamping the senior management and the overall hiring plans? Can we expect this INR 220 crores, INR 230 crore run rate for employee expenses to continue and lies in line with the salary hikes? Or can this number move up?

No, as far as senior management hiring is concerned, there is no further hiring that is expected. There are a little bit of changes in terms of rationalization that we'll be doing in terms of a little bit of dialing up of the digital marketing team that we have as well as in terms of rationally some of the sales force that we have a bit of rationalization there. So that will more or less cancel each other. Other than that, no senior higher management hirings are happening, no higher employment will be happening any further.

Okay. Okay. And can you elaborate a bit on our efforts in the new product launch and MBD team overall? Like what investments have been made in terms of people, if you can give a sense on the efforts on this in this area?

I think a lot of changes has been done to the marketing team itself. I think we are a far smaller marketing team, which is more of just ADHO brand as well as one more very small team, which looked after non-ADHO band. So now at least we have a broader team, whereby we are looking at ADHO being handled by 1 team, ADHO -- or rather 1 team, yes, ADHO extensions by 2 people, which is all these new brands of ADHO. We are looking at both Natyv Soul and the Pure Oil is being looked after by 2 people who will be reporting to the digital marketing head. And the oils, which is basically the Amla franchise and the Coconut franchise, this will be looked after by 2 more people. So that's the broader team that we have as far as marketing is concerned.

So that's on the marketing side. What about the R&D and new product development?

R&D side, we had already invested last year. So we have about 8, 9 people as far as R&D is concerned. So the product development thing we had done last year itself, that's how these products are now coming up. So that was an investment which has happened about 5, 6 quarters back.

Okay. Okay. And sir, just a clarification, you mentioned that we are looking to expand our GP portfolio in the coming few quarters. Are you referring to bringing any of the recently launched products into this or Natyv Soul? Or are we just looking at entirely new...

Neither Natyv Soul nor the products which have been already launched. So we're looking at some more products coming up in the next 2, 3 months.

Okay. So Natyv Soul -- sorry, sorry.

Sorry, so you'll see products coming in GT this month and the next 2 months -- next 2, 3 months, starting and then it will...

So Natyv Soul and Zero Grey and this 100% pure brand are purely online, right?

They are digital brands. They are not coming up in -- they are not coming up in general trade.

Okay. And so are we targeting more in the hair care space? Or are we -- and what about the plans in the non-hair case space? Any thoughts on that, too?

Yes. So as I said, the -- in the Bajaj name, you will see most of it will be in the hair care or hair oil space. But in the Almond Drops category, it will be more both hair and skin care.

Okay. Okay. And sir I haven't attended the last few quarters, if you can just update on what's happening with the Nomarks category?

See Nomarks, we are -- we have decided to scale it down and remain with a few products which work, which is basically one of them is the phase 3 that is where we are seeing where we can tactically use the product with so much of a large portfolio that we want to invest in. Nomarks is not a brand where we will be able to invest further. So tactically, wherever we can push both in modern trade as well as in select GT markets we'll be taking up beyond that, Nomarks will not get invested in.

Okay. Okay. So just a thought the standard for Nomarks is slightly different. Why not look at some of these premium Natyv Soul brands which are I mean, to bring it into that channel, I mean, wouldn't that make sense? What are your thoughts on this?

Yes, it would. But at this moment, we are more -- yes, you're absolutely right, we can obviously do that. But at this moment, we are more focused in getting Natyv Soul first establishing more on the digital platform itself. So our focus and attention is more there. But yes, if we see opportunity to be exploited tactically in that, we'll look at that as well.

Okay. And can you just touch upon the reach of our Nomarks distribution?

In terms of numbers?

Yes. Yes.

Don't get offended, I'll get back to you.

The next question is from the line of Ekta Sanghvi from Vallum Capital.

I just have 1 question. Sir, what is your outlook on the rural demand in the medium term? And also, would you be adopting -- like you said that we have -- our focus has been low on the lower end of the demand. So will we be focusing more on promoting the Amla and Coconut portfolio in the rural market, still the demand is subdued -- or will we promote more of the small SKUs of ADHO?

In fact, both. In fact, that's absolutely correct this thing. We'll be looking at both, and we'll have to look at that portfolio, I mean exploiting that portfolio. So in very specific markets, we'll have to play with both, let's say, the Amla, Coconut as well as the smaller packs of ADHO. In certain markets, it might be just a higher push on Amla and Coconut for the time being because those are markets where you are not only not only underrepresented in some of the markets you are hardly represented. So when this downturn is happening, when the larger packs are losing out, these are markets which are newer markets, so to say for us, which we need to cover up. So that's where we get the volumes back. If you look at most of the other players, that the growths have come in, they have grown in markets where, let's say, products like Sarson, et cetera, have grown much, much faster than their normal portfolio. The normal portfolios have not done strongly, but let's say, the cheaper oils have done better. So this is where we also need to cover up and ensure that we are able to play both. Where we can exploit ADHO. Obviously, the first choice will be to exploit ADHO in all markets that are there. But wherever we feel that there is a stress, ADHO can only do so much, we'll have to cover it and balance it which is where I think the focus has to be.

What about the key areas that you mentioned, UP, MP, Bihar and all, have you explored -- do you think that you have explored the Coconut and Amla portfolio completely over there? Or would you be focusing more on these portfolios in those regions?

So Amla has always been there in this market. That is the Amla Aloe Vera wherenever these markets are selling. But in some of these markets where Sarson has higher indexation for the Uttar Pradesh, Bihar, et cetera, Jharkhand, where Sarson obviously is clearly the large brand there as well. The focus has been with the launch of Sarson to also focus on covering where we are not covered well with our ADHO itself. So that we'll cover. Coconut at this moment is restricted to East, West and South, where we are improving our distribution. We'll see how coconut has to be taken forward.

Okay. And sir, lastly, again, on the -- could you please comment on the rural demand outlook?

See, the rural demand outlook, I don't see any quick fixes that will happen. I don't see in this quarter any rural demand coming back very, very strongly. So we will keep playing, as I said, on ensuring that we cover our plans by entire our portfolio coverage. But overall, as I said, on the long term, I don't see there is a huge stress in the economy or there is fundamentals that is going wrong that this rural will not come back. So we expect the rural demand to come back in a quarter or 2 and by that time, we should be ready. And that's where we are also investing in ADHO itself so that it is -- we are able to get back with the ADHO as well when the demand comes back.

The next question is from the line of Vaibhav Badjatya from Honesty and Integrity Investment.

So in terms of RMO and LLP, so I want absolute numbers for example of 100 mL of Bajaj ADHO, how much in mL terms is RMO and how much is LLP?

The percentages obviously, I would not be able to share. But all I can tell you is that LLP is about 2%, 2.5% higher than RMO and -- yes, and in terms of raw materials, these are the 2 main raw materials, about more than 95% of the raw materials contributed by these 2 products as far as raw materials is concerned, packing material is obviously separate.

Correct. So you're using to 2%, 2.5% LLPs lower than RMO, you're talking in terms value terms or volume...

Volume terms.

Volume terms, okay. Got it. And in terms of -- hello, can you hear me?

Yes.

So in terms of A&P spending, clearly, there is gross margin share and going forward also, there will be. On the top of it, we are increasing our portfolio and a lower value segment kind of thing which will obviously have lower margin. So where you will make trade-off in terms of A&P spending? Would it be more an ADHO side? Or would it be more on the new brand launches that you're doing? And you will probably not make too much of investments?

Well, let me just clarify this entire thing on A&P as well as the new product launches. As far as the new product launches, you'll see 2 sets of a new product -- let me put it a little more broadly 3 sets of new products. One will be pure trade-led banks where we have done some bit of investment as far as media is concerned, but we may not do too much of investment as far as media is concerned which is the ranges of Amlas, Coconuts and so on and so forth of the world because these will be more trade led. We'll be using more our distribution, our real reach, et cetera, to push. There will be a set of brands, which will be more in the premium side, both hair oils as well as in terms of the almond range that we are talking about. There, we will be spending money on media, those will be premium brand and they'll be having a far higher gross margin, and we will be pushing them to media. And the third leg is obviously more of the -- a little long-ish term, this thing, which is Natyv Soul, 100% Pure, et cetera, where we'll be investing in this digital brand. It will have obviously a very big gross margin but then also high expense as well. Balance based to ensure that we fit into our EBITDA numbers that we have.

Correct. Understood. And -- so in terms of the difference in the raw material cost structure between us and some of the other hair oil space. For example, lets compare Almond with Amla, so I think LLP is common in both and mineral oil is also common. So I think within mineral oil, they're using more RMO. But for Amla, what is the -- is there a trade difference between the vegetable oil and RMO or vegetable oils are also -- which is used in Amla is also growing in the same proportion as what RMO is growing in terms of price.

Yes. No. So you're right. So normally, let's say, products like Rice Bran, et cetera, they trade a little lower than RMO. But in current stage, I mean, they are farther slower than RMO comparatively, if you look at. And our base formulations have been mainly based on -- obviously, ADHO is not something that we wish to change even going forward, even though there has been a lot of experiments, which have been done, and we have had formulations with other vegetable oils, we are not very keen to change the base formulation of ADHO itself, right? So ADHO gets ruled out. As far as the other products are concerned, yes, the formulations, et cetera, we have been trying out. So there are some formulation changes have been made and some of them have got implemented as well with replacement of RMO with some of the other vegetable oils.

So in Amla, you're saying it's more towards rice bran oil?

We are looking at different options, and we'll keep changing them as long as sensorials remain, we are looking at the various options.

No, no, I'm talking about versus the competitors, other competitors, the vegetable oil that they are using, would -- do they have more rice brand oil content there? Or how does it relate to the RMO is what I'm trying to understand?

Yes, they would have a little lower RMO content that we have. Let's put it that way. And this is specifically Amla that you have talked about. If you look at the overall portfolio, obviously, you have products like coconut, et cetera, I mean that's a completely separate track. Really, you can't compare that...

Ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to the management for closing comments.

Yes. Thank you so much for attending the call. Yes, we understand this was a very challenging quarter being hit by both the demand side as well as the inflation side. But I think, overall, as far as we are concerned, we still feel that ADHO has its own strength, which will come -- bounce back as the market demand stabilizes. And our investments that we talked about in terms of expanding our portfolio in these various legs that we talk about -- the 3 legs of expanding the hair oil portfolio coming out with our Almond Drops brand itself as well as in terms of the digital first brands that we are investing in, I think, will give us -- will put us in a long -- with a very, very strong position going forward, and that's what we will be investing. So thank you so much and look forward to interacting with you in the future. Thanks.

Thank you on behalf of ICICI Securities Limited, we conclude today's conference. Thank you all for joining. You may now disconnect your lines.