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

Ladies and gentlemen, good day, and welcome to Bajaj Consumer Q1 FY '27 Earnings Call hosted by ICICI Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference call over to Mr. Manoj Menon from ICICI Securities. Thank you, and over to you, sir.

Hi, everyone. It's a wonderful good evening from Mumbai to all of you. Bajaj Consumer Care is a company covered by ICICI Securities and it's one of the top picks and high conviction buy-rated topper. Today, it's our absolute pleasure to host the management for the 1Q FY '27 results conference call. The company is represented again by Mr. Naveen Pandey, Managing Director; Mr. Dilip Kumar Maloo, Chief Financial Officer; and Mr. Aakash Gupta, Head of Finance. Over to management for the opening remarks, post which you will get the opportunity to interact with the management. Thank you.

Welcome you all for the quarter 1 FY '27 call for Bajaj Consumer Care. I'm happy to share that in an extremely dynamic and volatile environment, we've been able to deliver another good quarter. In this quarter, the company was able to deliver a revenue of INR 341 crores with a growth of over 28%. As we are aware, this quarter was impacted with unprecedented volatility in raw material prices due to the West Asia war, and its cascading impact. As an organization, we took selective and calibrated price increases and ml-age reduction across our portfolio to protect our margins. Despite these measures, we saw our gross margin drop from 63% in the sequentially last quarter to 61.8% in this quarter. Please note that while this drop was sequential against quarter 4, it was a significant improvement over quarter 1 FY '26, against which we saw 510 basis point improvement. We continue to invest in this quarter behind our brands and maintained our advertising spend at 14.6% and chose to optimize on the other cost -- fixed costs, including employee costs and the other fixed costs, where we were able to take advantage of operating leverage and deliver strong savings against the same quarter last year as well as against the sequential quarter. In this quarter, if you look at it, we have been able to deliver a total savings of over 600 basis points on these lines against quarter 1 FY '26. Overall, as a result of all of these, our EBITDA on a consolidated basis for quarter 1 has doubled to deliver an absolute EBITDA of INR 84.4 crores, which translates into a margin of 24.7% and the corresponding PAT for quarter 1 stands at INR 70.7 crores with a margin of 20.7%. The current quarter saw a continued momentum in our general trade channel, which grew in line with organized trade with both channels delivering growth in strong 20s. This performance was extremely broad-based with urban retail, wholesale and rural delivering strong growth. Our rural business, which recovered in H2 of last year, saw strong growth in this quarter and grew in line with the urban. Within the organized trade, both modern trade and e-commerce performed well with growth coming across sub-channels and customers, with the exception of institutional business, which was weak for us. Institutional business is less than 1% mix to the company. In international business, we had a challenging year last year, and I'm happy to report that we have had a very, very strong rebound. While the current quarter performance is exponential on a weak base, what gives me great joy is that we've been able to perform well across countries, which gives me not only confidence in our ability, but also in this channel's ability to continue to grow on a sustainable basis for us in the future. Our key markets of Nepal and Bangladesh demonstrated continued double-digit growth and margin improvement. MENA, which was challenged last year, delivered a very strong growth. And Rest of World, which witnessed tariff and other related disruptions last year, also rebounded back very strong. At a brand level, Almond Drop Hair Oil continues with its strong performance in this quarter as well. We have delivered a low-teen volume growth on an ml-age adjusted basis. Just like previous year and quarter, this growth came back across all the pack groups and all the channels. While all pack groups have done well, what is really stand out is small packs in the sachet business, which has led this growth. Overall, we continue to register positive movements across most customer metrics also on this brand. On a consolidated basis, our ASP for the quarter was up by 29% against the same period last year. We continue to maintain a robust SOV/SOM ratio in the traditional media channel, while we increasingly make shift towards various digital channels of communication. This quarter also saw us investing significantly behind influencer-led marketing campaigns across all digital -- major digital platforms, and we have received very positive consumer feedback on the same. On the growth portfolio, which is a cluster of smaller brands, non-ADHO brands, which we have a high growth aspiration against, performed well in the quarter, with the overall portfolio growing high single digit sequentially against the previous quarter and improving its run rate. This growth came despite the value deflation in the coconut portfolio, which forms a large part of this mix. On the input costs, the war in Gulf has created extreme volatility in terms of petroleum-related products like LLP and packaging materials. It has also led inflationary trends in case of edible oils like mustard and almond, which have not fallen from their historical prices even in the harvest season like they used to do so previously. To counter the impact of this inflation, we took selective pricing and ml-age reduction across our portfolio. While from a supply chain perspective, we believe the worst is behind us, we do have high-cost inventory in our system and the spot prices are also expected to cool sequentially over the next few months. In this period, we will continue to manage the levers in a calibrated manner in order to deliver the P&L without compromising on the investment needed for our core business. Overall, like always, we will remain focused on strengthening our brands, and through enhanced advertising and digital investments and by driving innovation. We will also continue to work on the expansion of our digital footprint through Project Aarohan and shall stay committed to prudent financial management. Thank you, and back to you, Manoj.

We can now open up the -- yes.

[Operator Instructions] The first question is from the line of Siddhesh Deshmukh from IIFL Capital.

Sir, this is Percy Panthaki here. Congrats on a good set of numbers. Just wanted to get a sense on margins for this quarter as well as going ahead. You are at 24.5% -- can you hear me now?

Percy, apologies for the disconnection, you have to please ask your question again.

Am I audible now?

Yes.

Yes. So my question is on the margins for this quarter as well as going ahead. So we've already reached about 24.5% kind of margin this quarter, which is ahead of what, sort of, we targeted maybe about 4 quarters ago. So just wanted to know, one is, is there kind of any one-off in this quarter on the margins because I see that like other expenses Y-o-Y is very muted despite a fairly good top line and volume growth. So any explanation on that? And secondly, how do we look at EBITDA margins going ahead given that we are close to that 24%, 25% mark, which was our best case kind of a scenario. Do you think that we should basically not take any more expansion from here on? Or should we actually even take a little bit of moderation from here on?

So Percy, first of all, I think from a margin perspective, the way we would look at it is, I think we have another quarter of, let me say, tougher inflationary prices remaining in front of us. And a lot will depend on the revenue, what comes in. But I think margins at a gross margin level will continue to remain in a tough zone in quarter 2, and then they will expect to sequentially ease over quarter 3 and 4. In terms of the overall EBITDA, we are on the higher side of what our aspiration of. And I think a lot will depend on how the revenues go. As you know, we don't give guidances, but we are -- from a pricing perspective, pricing is not going to drive any further margin expansion. We don't have any pricing actions planned in. Operating leverage, we will continue to try and run the company as efficiently as we can. And I think a lot will depend on how the top line performs flowing into the bottom line. So that's the way I'll say. And as far as your one-off question on one-off is concerned, no, we don't have any significant one-offs. There are a little bit of variations in terms of expenses falling in a certain quarter and thereof. But beyond that, there is no one-off basically, which is there in this quarter.

Okay. Secondly, I wanted some clarity on the volume growth also for ADHO. Last few quarters, we have been running at about a mid-single-digit volume growth. This quarter, it has gone up to a low teens kind of a number. So what has driven this improvement?

We have seen very good traction across the smaller unit price points, which is actually helping and aiding this kind of a momentum.

Understood. And lastly, if I can get some idea on the non-ADHO portfolio, how is that performing? And also what is our sort of strategy on that part of the portfolio? I think it's depending on the quarter up or down, but approximately 15% of the total sales is non-ADHO. And earlier, we have said that we want to take some focused bets on that. Coconut is going to be one of those bets. Banjara's is probably the other one. So just wanted to know your overall thoughts on one is why this quarter the non-ADHO has been a little bit subdued. And secondly, how do you see this panning out? And what are your sort of priorities in this portfolio?

So Percy, the way I would say is that in the non-ADHO portfolio, the growth portfolio, what we call, a large part is coconut. And in coconut, I'm -- I would not draw the same conclusion that I'm unhappy with the progress of the portfolio because the progress has sequentially grown. Despite us taking a volume -- value correction on the per ml prices we realized for that brand, which is the largest contributor in the channel against quarter 4. So despite that, there has been a significant volume growth in the coconut portfolio. So we are happy with the movement. And I think we stay committed to building that portfolio on a profitable and a sustainable manner across. In the past, couple of years back, we had a very high discount to the market leader, and we have rationalized that discount to the market leader to come close to a level wherein we can operate the portfolio on a profitable basis, and we are maintaining and sustaining that stand. So with that in mind, I think we are fairly happy with the progress we've made on the portfolio. So I don't see a concern. Also, please understand that this is an extremely competitive portion of the portfolio, which is -- and hence, we would not, at a very frequent instance, disclose a lot many data on this because this is very small and extremely competitive for us. So I think that is all I can say.

Got it. Got it. But just wanted to understand on the Banjara's piece, whether that's a major focus area or not? And secondly, I mean, plans over a medium term, is it going to be only coconut, which is going to drive it for the next 1 or 2 years, or -- and therefore, further diversification is a little far away? Or do you think further diversification is also more immediate on the agenda?

It is definitely more immediate on the agenda, Percy. Banjara's is something which we've acquired, and we are doing a lot of work in terms of revamping the brand and positioning the portfolio for growth. What I would expect is that we are carrying out a lot of pilots in terms of what would be really -- what would make a disruptive growth in that portfolio possible. And as and when we are ready with the ideas which we are doubling down on Banjara's, we will come back and speak to you in the forum once we are ready with that. But till then, we are working on the portfolio, but Banjara's, to state it unambiguously, forms a very clear part of our growth portfolio strategy, and it would be most probably the second biggest, if not the biggest leg in terms of our growth portfolio.

Next question is from the line of Abhijeet Kundu from Antique Stockbroking.

Congrats on a great set of numbers. So this question has been asked earlier on the gross margin front, but just some clarity that Q2 also gross margins obviously will remain under pressure. But talking to some of the consumer staple companies, they have said that Q2 -- the inventory which would be there in Q2 would be higher price as to Q1 because the prices have been going up and down. But I mean, certain companies have blocked their Q2 at a higher rate as compared to Q1. So just your view on that.

Very specific question, Abhijeet. But yes, it can be true, but I would not want to give a generic answer, because for certain key commodities, that fact would be true. For some others, it might be flat. But yes, I think from our perspective, what we have clearly said is that we see gross margin slightly more under stress in Q2 as compared to Q1. But different items within that set will behave differently. I think generically, it's not that everything will be more inflationary in Q2 against Q1, depends on the inventory holding at the end of quarter 1, how much of quarter 2 cover a company is carrying, and also depends on how quickly do we see cooling off on certain items. We are still in a very dynamic situation. A couple of weeks back, we thought the war is over. We might not be so, so sure right now, and we don't know what the situation might be another 2 weeks down the line. So it's an evolving situation, very difficult to predict. But even if things are on track, I think quarter 2 is definitely going to be a quarter wherein we can't take margins for granted. Let me put it this way.

Okay. And again, a very similar question on the EBITDA margin of 24.4%, I completely agree what you said as the other expenditure saw very hardly muted growth, close to 1%. So certain of the expenses were not -- typically, that happens, that expenses get booked over the year, and hence, the margin also has to be adjusted according to that, right? I mean this could -- what has applied to the quarter in terms of other expenditure would not really apply to the full year. There would be some amount of increase in that. So we would say that you would -- you had guided one time that 20-plus margin is what we would do, and we would focus more on the top line growth. So that guidance remains, right?

See our aspiration, we are happy is that we are happy to operate in the low to mid-20s. I think that is in terms of what we would be happy with our business. I think that is the statement which I made in the past. That is the statement I would hold ourselves to again. And business is dynamic. Sometimes it will be on the lower end of the spectrum, sometimes it will be on the higher end of the spectrum. Beyond that, we don't give quarterly or yearly guidance in terms of specific numbers. So I don't want to comment more on it. I would also like to qualify one inference, which possibly my previous statement made. I am not saying that there is certain expenditure, which basically has been booked in quarter 2 and which will get booked in quarter 1. We are not doing any -- whatever either -- we are not either getting any benefit nor are we postponing any expenditure. I'm saying in a natural course of business, there is a certain skew which happens between quarter-to-quarter. By and large, the line is to ensure that we keep costs as low as possible, which means that to try and manage the business with very low increase in costs and let the operating leverage flow down. I think -- I'm just reclarifying maybe the understanding is same, maybe it is different, but I just thought I'll clarify that.

No, no, the understanding is same. I mean, it's just certain costs fall in certain quarters. So that I understood.

Yes.

Next question is from the line of Mihir Shah from Nomura. As there is no response from the participant, we will move on to the next question. The next question is from the line of Mayur Patel from 360 ONE AMC.

Sir, congratulations for a good set of numbers and pretty detailed explanation. Just want to understand despite the pressure in the market, but if you just look at the Aarohan initiative, should we expect more benefits coming out of Aarohan initiative? Anything is left to be implemented in the rest of the year?

So Mayur, thank you for your question. We are executing Aarohan for the first time in 4 weak state, which we have called out and where we are executing Aarohan for the first time. But Aarohan is also a continuous exercise for distribution increasing. Even in the states where we have implemented Aarohan, our endeavor in terms of expanding direct distribution remains. So the effort would be to make it a continuous exercise and get a sustainable year-on-year benefit in terms of distribution expansion, which not only takes us to more direct outlet, but also builds our capability to execute a wider portfolio in the market. So while there would be one-time or the first-time benefit which will come in, in some markets for us this time, it would be a more continuous sales and distribution exercise, which will be a multiyear exercise.

Sure. And one more question. Sir, any update on the M&A strategy? Should we expect in this year any progress on the M&A side, looking at any targets from a diversification point of view?

So Mayur, as of now, we can just say we have nothing to disclose. As and when we have some update to disclose, obviously, we will come back and update the market. As of now, nothing to disclose.

Next question is from the line of Tejash Shah from Avendus Spark.

Am I audible?

Yes, Tejash.

Naveen, thanks and congrats on very good set of numbers to you and the team. First question is just extending where Mayur left on Aarohan. Is Aarohan still delivering a measurable growth delta? And let's say, if we had to split the current quarter growth between states where Aarohan has been in application versus where non-Aarohan are there, would the gap be a wide one?

See, Tejash, I think what I have said also in the past is that Aarohan delivers anywhere around 200 to 300 basis point delta as a one-time when we are executing because of the change of the mix. However, the overall strategy is, an indirect or a low supervision, basically distribution to a high-impact direct distribution. And getting that basically will be -- getting those benefits coming in would be actually a multiyear benefit because you will -- once you add the outlet to the network, you will continue to make efficiency over a long period of time. So the one-time impact, as I said, would be maybe 200 to 300 basis points for the first time. But after that, it will be there. And that too also will be on a small mix. So you can do the math, but very difficult to really segregate into what is because of what.

Perfect. Second, is the INR 500 crore growth portfolio road map progressing as per our internal milestones? And any, let's say, framework that you have to kind of evaluate it periodically, how is it going?

So Tejash, we intend to come back once a year and give you more details in terms of the progress. Please appreciate the fact that it is comprising of several small businesses and portfolios wherein we fight the battle with extremely large competitors on those sub-segments. So we intend to give you a fair bit of disclosure on an annual basis to keep on giving you a sense of how we are progressing. And I think we will do that. So I'd request a little bit of patience and consideration from all of your side regarding that.