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

Ladies and gentlemen, good day, and welcome to Bajaj Consumer Limited Q2 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Manoj from ICICI Securities Limited. Thank you, and over to you, Mr. Manoj.

Hi, everyone. It's a wonderful good morning from the ICICI Securities Research team. It's our absolute pleasure once again to host the management of Bajaj Consumer Care for the quarterly conference call. The company is represented today by Mr. Naveen Pandey, Managing Director; Mr. Dilip Maloo, Chief Financial Officer; Mr. Akash Gupta, Head, Finance. We continue to have a constructive stance on business and the stock. Now to the management for the opening remarks, post which we'll open the floor for Q&A. .

Thank you, Manoj, and good morning, everyone. Welcome to the quarter 2 FY '27 call for Bajaj Consumer Care. In the last quarter, we delivered a revenue of INR 333 crores with a growth of 27% against the same quarter last year. On margins, we delivered an EBITDA of INR 53 crores with an EBITDA margin of 25% and a PAT of INR 70 crores with a PAT margin of 21%. At the end of the first half of the year, our revenues are up 28% to INR 674 crores. Our H1 EBITDA is INR 167 crores, which is a growth of 85% over the previous H1. And our PAT is INR 141 crores, which is a 35% growth on the previous. What I'm particularly happy about is that this performance came amid volatile and dynamic business environment. And despite all the challenges, we've been able to deliver these very strong set of numbers. In line with our commitment to strengthen our core, Almond Drop Hair Oil continues with a strong performance in this quarter and has delivered double-digit unit volume growth. This growth came across pack groups and sales channels. And while all pack groups have done well, the growth was particularly led by small and medium-sized packs, which outperformed the overall brand. As part of our commitment to further strengthen Almond Drop franchise, we launched the new enhanced positioning, supported by our TV campaign based on hair strength leading to beauty. We have gone line with this campaign towards the end of the previous quarter. And in this quarter, you will see this being supported via 360 degree campaign with enhanced investments in digital. This for us marked the start of reinvigoration and strengthening the premium position of this brand, and you shall see more action on this front in the coming quarters. Our consolidated ASP spend for the quarter were up 7% over the same period last year and are up 18% on H1 basis. We continue to maintain robust SOB, SOM ratio in traditional and digital media, and we have carefully optimized the nonworking ASP and reworked our media operating cycles to create some spend efficiencies. As we move to the growth portfolio, the coconut franchise delivered a strong volume growth across channels. This quarter also saw the relaunch and new launches in the several of the growth portfolio of smaller brands. In Amla Oils, we have refined the consumer proposition and are testing the new mix in general trade. In body lotion, we have upgraded both the product and packaging and will test it on e-commerce. In Banjaras, we have introduced packs that extend the brand into large adjacent categories, which could offer significant growth potential for us if we are successful. At an overall level, we have substantially improved the profitability of the growth portfolio and remain committed to building it into a second growth engine for the organization, both in terms of revenue and margins. This quarter saw continued momentum in our general trade channel, which grew in line with organized trade and both channels delivered growth in the strong mid-20s. Within GT, both urban and rural business performed well with rural continuing to grow marginally ahead of further. With an organized trade, both modern trade and e-commerce performed well with growth coming across subchannels and customers. Quick com continued its scale-up and remains the fastest-growing subchannel for us. In this quarter, we have also come close to completing our immediate objectives under the project, which has been a massive effort from our sales team over the past 8 quarters. Spread across 3 phases, we covered GTM transformation across 13 key states. We've been able to add over 1 lakh outlets, 1,000-plus distribution points and have been able to close over 600 WAN routes, achieving an expansion in direct reach and a reduction in fixed costs. While the work of infra addition for this stage is largely done, our teams will continue to drive efficiency and attempt to improve throughput in these outlets in the balance of year. But our work here is not over as we will quickly move to R01 2.0. In R01 2.0, we will focus all our energies on expansion of our direct reach in urban by 10% and in rural by more than that over the next 6 quarters. In international business, the rebound, which we saw in quarter 1 continues in quarter 2, and we have performed well across country clusters. This channel for the full H1 has grown ahead of the company growth. And except for Bangladesh, most of our other key markets individually have also grown ahead of the company average. Bangladesh is witnessing a tough operating environment and grew in the teens. Our international business is also improving the sharp improvement in profitability. And on the back of revenue scale up, margin correction and cost optimization, we are delivering a good improvement in the EBITDA margins of this channel. On the overall margin front, this quarter witnessed continued volatility in key raw material prices due to the West Asia war, edible oil inflation and the cascading impact of these 2 things. Our gross margins for the quarter were at 59.9%. And overall for the first half of the year at 60.8%. Despite the sequential reduction in gross margin, our teams have been able to rally around and deliver very strong savings in fixed costs and employee costs, which has allowed us to deliver a near-term high EBITDA margin of 25% and a PAT margin of 21%. Going forward, the cost environment remains volatile, and we stand committed to taking actions as appropriate to protect our P&L while being fair to our consumers. . To remind everyone, as an organization, we have taken a calibrated price increase action towards the end of quarter 1. We will now follow it up with another round of price increase and MLS reduction in quarter 3. In this round, we are approximately taking a 5% increase in consumer price, which will be split roughly equally between rental price increase of 2% to 3% and a similar contribution coming through MLS reductions. Overall, like always, we remain focused on strengthening our brands to enhance advertising, digital investments and by driving innovation. We will continue to work on building our growth portfolio and on our expansion of our distribution footprint through R01 2.0 all while staying prudent and committed to proven financial management. Thank you, and back to you and the team, Manoj.

Shall we open the line for questions. .

Yes, please.

[Operator Instructions] The first question comes from the line of Vinay Shukla from Phillip Capital India.

Question is on outlook side. So since we are now entering into the higher base that has been largely behind us and the commodity inflation has come back. And given that the Bajaj Consumer operates in relative and dispersity category, so how should we assess the company's growth trajectory over the medium term? So is it accusing a midteens growth in '27 and sustaining on near double-digit growth in can any outlook, if you can share on the same?

Nothing to add, Vinay. That's what our aspirations are. On the long term, we want to aspire for a double-digit growth. And yes, for the year, we are expecting the high teens, and that's what we have just said. I don't think so there is any change or any delta to be added here. Give guidance -- so unfortunately, I can't guide you to next quarter or thereon. But what our aspirations are remain unchanged. We remain confident about that.

Noted, sir. Secondly, on arose, the same performance has been very strong from over the last quarter. So just trying to understand whether this reflects the internal initiatives that education? Or is there some more structural changes happening in the category? Second part of this question is if you can break down the DSO performance between how much concrete and distribution expansion or channel that or the MT firm, the new product launches or premiumization? So this is a -- just trying to break out of the initial performance across all the 4 segments.

So Vinay, obviously, our belief is that the improvement -- there has been an improvement in category, but our performance is also impacted a lot by the actions which we have taken and the output of those actions. So it will be a combination of both is my belief. I can't really split between what is the category contributing and what is the action. But since you was on specific ones like RO1, what do we believe, we do definitely believe that. A good amount of our growth, maybe 2 to 3 percentage point of volume growth will be driven on account of distribution expansion. And that remains a continuous opportunity for us. As I have stated multiple times today, we operate at around a 50-60 index to direct distribution of our larger peers. And over a period of time, we would want to achieve 75% index on direct distribution. So that's something which -- is something which has benefited us, and we will continue to focus on it because we believe that can continue to benefit us for the next few years.

Got it, sir. Sir, just 2 data points on now. So what is the contribution of the price points in the total ADH sales? Secondly, what is your current contribution of the modern trade in e-commerce or in overall sales? And thirdly, what is the volume -- sorry.

Contribution of price point packs basically in value terms is less than 20%. It's in teens. Contribution of organized trade channels in value terms to the overall company is close to 30%.

And what will be the volume for this quarter for?

We've given a 10% plus volume growth in basically indication. We don't give the exact numbers, Vinay, as you are aware. We've -- in our commentary, we clearly stated a double-digit unit volume growth.

Next question comes from the line of Avi Mehta with 361 Capital.

Sir, I just wanted to get your thoughts on how is the consumer behavior post the need for sharp pricing because it suggested that you would be looking at on the price hikes. So just wanted to understand this in the context of what we are hearing about rurals, monsoons, et cetera, and how -- what gives you confidence of change is volume trajectory as we go forward despite this pricing? . And the second question, just wanted to get your thoughts on the quick commerce channel. Now you did align or argue about the growth portfolio essentially doing much better. conceptually, would you look at Quick commerce more as a brand-building channel spend? Or would you better look at this more as a fulfillment channel. I wanted to just hear your thoughts, and I'll kind of align the next question as to that.

Thanks for your question. First, I think -- see, our endeavor always has been to pass the minimum level of price increase we can to the market, but we also have to be fair to our P&L, and we have to do an action, which balances the interest of the consumer as well as safeguard our P&L. So what we try and do is we try and pass on the absolute cost rather than trying to protect percentage gross margin, et cetera. And if you would see in the past, that has been demonstrated in our actions. So going forward, again, our endeavor is to do the same. And we are taking price increase, which we believe would be sufficient to cover the kind of a cost impact we would need to manage our overall P&L. Now, this is something, which happens across the company. And hence, these pricing actions by and large, in a certain zone would basically -- other companies will also need to take. Some of our peers in other categories have already announced price increases. So I believe that this is something which will -- and if you look at the history of our brand as well as in the FMCG market, we've had periods of high hyperinflation, and the brands have been able to pass on sustained inflation for those periods. As and when the inflation subsides, we will figure out appropriate ways of easing the P&L on the consumer through various actions. So that's on the first part. On the second part, how do we look at quick commerce. And that is where the difference of approach comes in within our own larger portfolio of brands. So for a very large and very well distributed brands, like Almond drop, the channel would be a demand fulfillment channel, providing convenience to the consumer. But when it comes into more premium variants or more urban variants, which are targeted at the urban elite, let's say, for example, serums or certain other higher-end personal care products. For those products, we will also look at Quick Com as a demand creation plus fulfillment channel. So it will not be something which would be a company-level strategy, but it is a strategy which is best suited by brand, by market, which we will take and we will activate as we go around.

The first question, I just wanted to clarify what I was trying to understand. In Just reading between the lines, it seems that you believe at least the demand is not giving the pushback or given the industry. It's not mean from a competitive lenses -- in almond oils you are the leader. So there's more for a demand and consumer feedback, that's what I was trying to understand. Any signs of stress there?

I think it's early, but we remain optimistic. At the same point of time, I would say it is early because whatever concerns, which we are talking about, which included you talked about in terms of rural demand, El Nino, they are all while away. They will happen only when the harvest start sitting and what will happen. I'm sure the government is also trying to do their bit in terms of easing the overall pain. I remain optimistic about our economy.

Next question comes from the line of Abneesh Roy with Nuvama.

This is Abneesh Roy. Congrats on a very good set of numbers. My first question is on the test market of products. You did mention LibBam and Color shampoo is adjacency. And I do know the INR 15 pricing for the shampoo also. So if you could tell us any other differentiation you see? What is the right to win near adjacency. I do understand. But any other point you want to mention, which markets in this from a Banjara perspective?

Thank you, Abneesh, for your remarks and for your question. Abneesh, we are test marketing these in Banjaras markets, core markets only, which are the 4 southern states. The belief which we have is Banjaras is a company which has been there in these markets for many decades. And hence, there is a very strong equity around the urban natural brand values, which exist. We have remained in these years, a very cosmetic and a very top outlet-centric distribution over a period of time. And with the distribution of Bajaj and Banjaras merging in South, there is an opportunity for us to take this portfolio to a much larger retail footprint. However, as we do that, what we need to do is ensure that we are taking product SKUs and participating in categories, which are very mass and very dominant. And this attempt is to try and figure out our product and positioning as well as the price fitment for these markets. And that -- those are the pilots which we are doing. Obviously, many of these categories are -- the revenue size of these categories even within South is multiple hundred crores rupees. And if we can get our execution and our proposition right, it will provide a significant headroom for Banjaras. So in South, in the market where Banjara has equity, we are basically creating SKUs and propositions, which can participate in large, fast-growing categories and help us get some shares there. So beyond that detail, please, pardon me, I will not be able to share, but I hope you get a sense.

Absolutely, it's quite useful. Second question is on the coconut portfolio. So here, have you added the share. I do understand pricing is negative. But have you added the grammage? Is it coming because of the MLH increase? Or is it that generally demand is robust?

Anish, unlike the leader, we have not given free volumes higher. So our -- whatever are the volumes are actually in similar lines to last year or possibly even lower in some packs. But we have not added volumes basically to the pack. So what you are seeing, and that is why we started reporting unit because that is the toughest measure for volume. So by giving free volume, we can't get credit. So again, in coconut, we are -- we are seeing good traction. We are seeing really good traction in the number of bottles being sold. .

Sir, last question. So now project ran almost 2 years is done. So I wanted to understand in Phase I and Phase II, those 8 states. Is there any particular state you want to call out better growth and some states where growth has been challenging? Any learnings and any strong highlights you want to point out on Phase 1 and Phase 2?

So again, I think in our core markets, we've got very good response. So distribution in places which are high equity markets for us have really given a better delta. I think that is the theme which you can look at as compared to markets where our equity is slightly weaker. So it's a continuous effort and for us to go on.

Sure. That's all from my side.

Even the weaker markets have given a positive delta, a good positive debt tables. But since you asked me to compare, obviously, the higher equity markets have given a higher delta within that same group.

Perfect. Just 1 follow-up on the project R01 selection of state. So Phase III, for example, which is currently, I think, almost done. Bihar, Jharkhand, Odisha, Punjab, Gujarat, how do you see these markets from a core versus noncore? And clubbing say, balance, say, 14 states into kind of R01.2. Those are, again, smaller states for you, I understand, if you could clarify.

So RO1 2.0, Abneesh, would be all states, all 27 states of the country. So we are now not differentiating between Phase I and Phase II because we believe that what we did even in the first round, let's say, states like UP, MP, we can now pick up another round of distribution expansion in those states. So let me clarify, when I'm saying R01 2.0, it is a pan-India national program and aimed at expanding direct distribution by 10%, and we want to take this objective as a year-on-year objective. So R01 2 would be another 10% expansion. Hopefully, we'll get into our own 3 and 4, where in every phase, we will look at expanding our direct distribution by 10%. So when we get into that, that will be there. In terms of your specific question on Phase 3, obviously, there are hen-pecking states here, which have much higher share for us and certain other states where the share is lower in these markets. The phasing -- the division of Phase 1, 2 and 3 for R01 1.0 was also done keeping in mind our go-to-market readiness and our infrastructure position on the ground because we had to phase in and hence, other software parameters were also used decide the sequencing of the events. But as we go into our R01 2.0, it will be one-shot national exercise, wherein we will take now and continue to work on expanding distribution.