Bajaj Consumer Care Limited (BAJAJCON.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Bajaj Consumer Q3 FY '26 Earnings Conference Call hosted by ICICI Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ashutosh Joytiraditya from ICICI Securities Limited. Thank you, and over to you, sir.

Thank you, Sagar. Hello, and good evening, everyone present on the call. I, on behalf of ICICI Securities, welcome you on Bajaj Consumer Care's 3Q FY '26 Earnings Call. I would like to thank the management to give this opportunity of hosting the call. We have with us Mr. Naveen Pandey, Managing Director; Mr. Dilip Kumar Maloo, CFO; and Mr. Aakash Gupta, Head, Finance. I now hand the call over to Naveen for his opening remarks. Thank you.

Thank you, Ashutosh. Good afternoon, everyone. As we are aware, at Bajaj Consumer Care, we operate primarily most of our business in the coconut oil and hair oil category, and that's close to a $2 billion revenue size. Multiple times, people have asked this question as to how this category has been performing. And I would like to mention, as mentioned in the second slide that this category has been growing over the past 3 years with a volume CAGR of close to 4.5% and a revenue CAGR of around 8.2%. And this period was a tough period for the category. As you would see, the macroeconomic headwinds have turned into tailwinds, and we are seeing good economic growth along with inflation at one of the historic lows, and this provides great tailwind and environment for the category and for our business as well. With that, I would like to welcome you for the call for the quarter. This quarter registered a strong growth for us across all segments, demonstrating early results of the action initiated by us towards improving our revenue growth and margin. When viewed sequentially, you would see the significant journey we've been able to cover over the past few months. On a stand-alone basis, the revenue of the company stood at INR 287 crores, registering a growth of 27% on a Y-o-Y basis. On a consolidated basis, the revenue stood at INR 306 crores with a growth of 32.7%. The gross margin on a stand-alone basis stood at 59.8% for the quarter, registering a significant improvement of 800 basis points on a Y-o-Y basis. The improvement in gross margin, as previously shared, has come on back of a mix of actions around strategic pricing, revenue management and mix improvement. Consequently, EBITDA on a stand-alone basis for Q3 grew by 99% to deliver an absolute EBITDA of INR 58.4 crores, which translated into an EBITDA margin of 20.4%. This is an improvement of 740 basis points over the same period last year and in line with our last quarter. On a consolidated basis, our EBITDA grew by 109%, translating into a margin of 18.6%, which was again a 600 basis point improvement over last year. The stand-alone PAT stood at INR 47.6 crores with a margin of 16.6% and the consolidated PAT was INR 46.4 crores with a margin of 15.1%. The quarter also saw a strong recovery in our general trade channel, which grew in line with the company. This performance came on the back of volume-led growth both in urban and rural segment. Both the key subchannels in urban, namely direct retail and wholesale have done well for us in this period. As you are aware, the rural business where we were making significant changes in our coverage model had been muted in the first half of the year. However, as we've entered quarter 3, we have seen a strong revival in this channel. Having said that, this channel is relatively weaker as compared to our urban growth, and we are working on to ensure that it gets rural to its full potential. Organized trade continues to perform well by registering a strong double-digit growth year-on-year in quarter 3. Within the organized trade, modern trade and e-commerce have performed well, whereas CSD and CPC channels were a bit muted. On international business, this quarter has continued to be challenged, and this overall business of international has been weak over the last couple of quarters. This quarter, we declined mid-single digit on a Y-o-Y basis. Within that, the markets I would want to mention which performed better were Nepal, where we saw a revival in growth after geopolitical issues impacting revenue in the last quarter. And in Bangladesh, where we have taken a model correction, saw us sequentially grow over Q2 and also achieve operational breakeven. Moving ahead, at a brand level, I'm very, very happy to share with you that Almond Drop Hair Oil has delivered a very, very strong value growth on the back of double-digit volume growth. We saw strong performance across pack groups. Our ASP spends for the quarter were up nearly 37% as against the same period last year. What this meant was that we ensured that ADHO continues to operate on a very, very strong SOV/SOM ratio. Our aggression in digital spends ensured that we reach the digital and the new age audience across all significant platforms at a very high frequency. On front of Coconut Oil, Bajaj Coconut witnessed a growth of mid-single digits in quarter 3. Over the past 2 quarters, we have taken a correction in our pricing and discount index against the market leader and have got it to a level which is sustainable. While this correction has led to a temporary volume-led impact for us, it has helped us achieve sustainable margins. We also believe that most of this impact is now settled and behind us, and we should see revenues built up over time. Bajaj Gold Enriched Coconut Hair Oil, which was launched by us previous quarter, saw a very good response both from trade as well as consumers. Banjara, which was the brand acquired by us under Vishal Personal Care, also registered a very strong 15% year-on-year growth for this quarter. Operating margins of this business also remained stable in mid-teens. Our integration plans are on line with internal time lines. And we have already integrated 2 states within South where we witnessed a very strong positive response to the integrated portfolio of Banjara's and Bajaj Personal Care being carried into the market. The integration for the rest of the southern states has already been initiated and would be complete over the next quarter. On the front of input prices, we have seen LLP moving upwards over the last couple of quarters as against previous quarter. This quarter, the prices were up by 2%. However, in case of Refined Mustard, we saw a sequential easing of inflation with pricing -- prices declining by around 5% as against previous quarter. On Copra, we have seen significant softening of prices as against quarter 2, and we expect that in the coming months, Copra should ease a bit further. The rest of the basket, except of Copra, is likely to remain range bound. Thank you for your attention. Back to Sagar for the questions.

[Operator Instructions] Our first question comes from the line of Abneesh Roy from Nuvama.

Congrats on extremely good set of numbers. So Naveen, 2 quarters, previous quarter, you delivered 10-quarter high revenue growth and this time, even more explosive. So second question is what is the sustainable growth rate given Q3, there was a GST transition impact. Some companies saw pent-up kind of a pipeline filling in Q3 also. So is that helping? So would you expect a slower growth rate, say, in Q4 and Q1? That is my first question. And second, margins, last 2 quarters, 18%, very sticky kind of margins, EBITDA margins. Where do you see the journey towards higher margins? That's first question.

So Abneesh, thank you. First of all, regarding your question regarding pent-up demand from quarter 2 or the price, see, we had -- even in quarter 2, we had said that on quarter 2 base, we had possibly estimated an impact of around 2 to 3 percentage of growth, which would mean on those numbers anywhere between around INR 5 crores to INR 7 crores kind of a number would have happened. Now if you carry it forward and look at it on quarter 3 numbers or going forward, it is not a material impact, and I don't think so we should be too worried about it. Having said that, obviously, when you are in the high-growth trajectory, you can't really predict to the decimal point. But yes, we are working towards and all our actions are designed to sustain a higher level of growth than what we witnessed in the past, and that is what our endeavor would be. Second, moving on to margin question. I think as we had shared earlier a couple of quarters back, there have been a lot of actions which have been taken in -- not just in the last 3, 4 months, but over a period of the last 7, 8 months, 9 months, which have kind of cumulated into a set of margin improving in. And there is a certain amount of improvement, which has happened because of actions, which I would say are lower line fruits or which are quicker delivery on margins, and we have seen that. We will see further improvement on margins gradually and slowly. Our aspirations on margin profile is higher, but the next set of movement will come in gradually rather than more [indiscernible].

Sure. Naveen, one follow-up on the demand side. So we are seeing the other -- obviously, the big daddy of hair oil. Marico report very strong VAHO numbers last few quarters. Even Dabur is doing reasonably well and now you are also doing well. So is this an industry-wide large company revival in hair oil? Or is it every company has its own reason? And second is your base was very soft last year. So general trade was extremely challenging last year. So my question is, in terms of strategic changes, which you want to do or have done given last 5 years for the company was very difficult, and you had a lot of new ideas given the Marico kind of background. If you could tell us from a strategic input change, what all has happened, which are the ones you are happy with, which are the ones you are not that happy? That is my next question.

I think, Abneesh, I will start by saying that we have a fantastic team here at Bajaj. So it's not Marico idea of being copy pasted here. I think we are doing our own job, and I'm proud -- extremely proud of what the team has been doing. But in terms of the category, yes, there is a certain amount of buoyancy in the category which we see. And that would translate into most of the brands which can get their act right benefiting from the same. So yes, there is a better consumption momentum, which seems to be there in the environment, and that is coming into play. With regards to us, we've been very focused. I think we've been focused on our core brand ADHO. We've invested back a lot of margins in terms of our advertising, which you see us committed and focused on that. And I think that is something which is working for us. And we intend to continue our endeavors on that same and see that -- take it forward.

Sure, last question. Copra from the peak, how much has the correction been? And both you and Marico do expect more correction. So what will be your view on how the crop is -- how much can be the correction? And related question is, you have been saying that you want to focus on the core, which is ADHO. Given overall company is doing well, ADHO is doing well and Copra is correcting. Would you like to also now focus a bit more on coconut versus your initial plan given there is a raw material cushion, there is an overall buoyancy in the market. Any change in the plans for coconut where you want to be now a more rational player rather and focus more on the core of ADHO. So any change there?

So first of all, Abneesh, I think market is expecting the sequential correction over this quarter and then the subsequent. How much of it will come in this quarter, how much will come next quarter, I think is speculation, possibly, I'm not best suited to answer that. But yes, the crop seems to be good, and we are going to expect a price correction. That is what is seeming to be most likely. What we have done is that we were operating at a certain indexation to the market leader by offering a certain higher benefit to the consumer and trade. We have got ourselves aligned to what we believe is sustainable, which will allow us to operate profitably in this category and invest behind our brand. I think we've, by and large, tweaked ourselves to get to that position. With this, yes, we will have aspirations to do well, but our aspirations would be not by cutting prices and doing more, but would be to build in the right way and to gain a fair share in the market. So we will -- yes, we will -- while we focus on ADHO, we will also focus on coconut, but it will not be a price-led route. It would be more a brand-led route, which we will take to [indiscernible].

Our next question comes from the line of [ Rehan Syed ] from [ Prenator ] Asset Managers.

Am I audible, right?

Yes, sir, you're audible.

So just first, my first question is around I want to get the understanding regarding the [indiscernible] of your Aarohan business. So can you [indiscernible] 25% to 40% increase in [indiscernible] in the Aarohan states given this massive response rate [indiscernible]. So why is the [indiscernible] to focus on the flagship trends and what is the specific planning for this [indiscernible].

Sorry to interrupt. Rehan sir, your audio was slightly muffled. If you are using a speaker phone, may we request you to use the handset. And management if you can please confirm if you were able to hear the participant.

Yes. I think I heard Rehan. Let me try and answer Rehan's question. So Rehan, first question is the way we measure Aarohan. Aarohan is nothing but our attempt in terms of building a solid direct distribution system. And we've been doing that both by looking at adding new outlets in urban as well as changing our go-to-market in rural and getting -- going more direct there. So that exercise, we have seen in the states where we operate, we've already seen anywhere between 25% to 40% addition of outlets in terms of those states. And at an overall level, we've added more than 10% outlets to our direct reach. Coming to your question on why is it helping ADHO more than the other portfolio, I think that's the question on what we are focusing as a portfolio. And it has not focused -- it has not benefited as much on coconut because we've also taken a strategy of correction, and we have changed our market inputs behind that brand. Over a period of time, direct distribution will help us not only benefit the sales of the [indiscernible] brand, but will also help build the overall portfolio range in an outlet. And that is something which would be a long-term benefit you will see accruing to us. I hope I've been able to answer your question.

Yes, yes. Fair enough. And my second last question is around the internal business that you [indiscernible] go-to-market issues, partly in Africa where revenues fell 6% given that the distributed rice and [indiscernible] behind you, so what's structural changes are being made to ensure this business [indiscernible] on a consolidated growth? So are we [indiscernible] operational or are we facing a fundamental [indiscernible]?

I don't think so the issue is brand relevance or brand. I think the issue is more partner choice go-to-market people on the ground. And those are some of the fundamental corrections. See, in a direct market like India where you are operating with your own teams, it's far easier and far quicker to sometimes influence and make changes around this. In markets where you're working with country distributors, some of these changes have to be done more gradually and you have to work with partners to get the changes done. So that's where it is going to take a bit more time. But we are confident of what we are doing, and we hope we will get there in the next subsequent couple of quarters.

Your next question comes from the line of Amit Purohit from Elara Capital.

Just on the growth in the stand-alone business, I was trying to understand, last quarter, we saw much of the growth was price led and the volume was probably flattish, if I'm not wrong on the ADHO. And this quarter, we are talking about a good double-digit growth. What would be the price increase we would have taken in ADHO from YTD? And what would the price growth on this?

So overall, as you would remember, we talked about that last time the difference was close to a double-digit kind of a number, and that is a result of not just price increase, but also price and mix change and revenue management activities, which we have done, which is the spread between what you will see as the revenue growth and the volume growth. So we would not want to further bifurcate into how much comes from this activity because I think that will be too sensitive.

Okay. But is that -- when I look at the other segments like coconut or even for that matter international business, so is it -- I mean, you talked about double digit, but would ADHO be like high teens kind of a growth rate for us to achieve this kind of a number? Or would it be mid-teens? If you can just...

I'm sorry, it's not high teens for sure. But yes, beyond that...

Sure. And just on the margin side, I mean this quarter itself, we have done pretty well, one on the growth side as well as obviously the leverage has helped us to improve our margin little bit, but then the outlook when you look at beyond FY '26 and how do you think this new strategy of GTM would probably -- when do you think that this will get completed maybe in FY '27, would it be first half of FY '27? What is the time line of this?

Your question is on Aarohan?

Yes, yes, Aarohan.

There would be some parts of the exercise which will get concluded. For example, we've concluded for a few states this year. We will pick up the balance states and do that in next year. But then some part of the exercise like direct distribution expansion is something which is ongoing. So it's not that it will get over in a year, but we will keep on sequentially working and improving from where we are to the next level of maturity and next level of depth in the outlet. So that will be an ongoing work.

Sure, sure. And so large part of this growth, would one, you indicated some consumer uptake and also because our focus on Aarohan and GTM operation, that is working well for us across channels, right? Is that...

Yes, that's fair to say.

Our next question comes from the line of Naitik from NV Alpha Fund.

Congratulations on a very good set of numbers. So my first question is if you could highlight what is the number of direct outlets that we have as on date?

We broadly do around 6 lakh outlets basically urban plus rural put together as a direct coverage.

Got it. And any ballpark number that we are looking at adding next year to this?

See, Naitik, our stated point of view has been that we want to expand around 10% coverage every year and do it year-on-year for the next 4 years to 5 years. I think that's what our committed strategy is. Now obviously, it might not be spread equally across every year. We might do a bit more in 1 year and a bit less in next year.

Got it. And sir, my second question is apart from this program where we have we are [indiscernible] our distribution and some buoyancy in the demand sentiment, is there anything else or any action that you would like to highlight which will help us sort of get the strong growth?

Sorry, I was not able to hear you. Can you please repeat?

So what I've understood, 2 key reasons for the growth is one, our efforts on our own program increasing the direct reach. Second is you will see in the centered sentiment. So apart from this, anything else that you would like to highlight which will help to sustain growth?

See, our growth, which have been there, if you're wanting to understand why we have grown, very simply, we put in -- we focused on our brand. We put in efforts behind distribution. We have invested behind the brand in terms of advertising, keeping the media spends up and our overall strategy execution has helped us get there. I think that's the way I would state it.

Got it. And sir, my last question is, if I were to understand year-over-year organic growth, would it be fair to assume 20%, 23% would be the [indiscernible] that we have achieved? [indiscernible] as in Vishal -- for the base quarter would not have Vishal...

Stand-alone, basically, Vishal is not there. If you were to remove Vishal's roughly around INR 15 crores of revenue from the consolidated number and recalculate, you will get the number which comes in.

The next question comes from the line of Deepak from Unifi Capital.

Sir, first question, if you can provide the mix, am I audible?

Yes, sir, you're audible.

So firstly, I would want to understand the product mix between ADHO and non-ADHO currently. Since you are focusing more on the ADHO category, how is the product split today versus what it was earlier? That is the first question. And the second question relating to ADHO is that we already hold a high market share in that category. So what are the strategic levers left for us to tap on so that we can grow higher than the industry growth rate?

Thank you, Deepak. Broadly, what I can share with you is that our ADHO, non-ADHO mix, if you were to look at the other portfolio and ADHO portfolio, you can use the thumb rule of 80-20. Beyond that, we don't give very specific numbers, but 80-20 [indiscernible]. Second, coming in terms of [indiscernible] your point was on category and growth and how...

Yes. My question was that we're already the leader in the category. So how much -- what are the levers left for us to grow beyond the category growth rate?

Thanks for reiterating. The way we look at it is that we are playing in the larger hair oil plus coconut oil space, which is being used by the consumer for their needs. We don't see ourselves necessarily as a player only within light hair oil. And hence, we have significant headroom of growth in acquiring consumers in this larger space. So we have a lot of headroom to win new consumers and that is what our [indiscernible] is going to. We don't certainly see ourselves only as a player in light hair oil.

Okay. Got it. And sir, second thing that I wanted to check in the non-ADHO portfolio, which is 20%, the bulk of it would be coconut oil. Is there any new product that you're thinking of introducing or existing products which can scale up in a big way under the Bajaj brand. Should we hear from you on the new categories anytime soon? And if so, then how big can those categories be?

So Deepak, coconut is the next sizable, but it is not all of 20%, first of all. We have brands within this portfolio, which have the potential of growing much bigger. We've also acquired Vishal Personal Care, which brings in the Banjara brand into our portfolio, which I believe has a significant scale-up opportunity. And we will also launch some products, which unfortunately, I can't talk to you about until they are launched. So you will see innovation from us, but you will see calibrated innovation and space out innovation, which will come in quarter at a time wherein we believe we have opportunity to scale up that innovation and make it bigger. So you will see actions from us on that front, but gradually.

Okay. Sir, lastly, if you can touch upon the channel mix of our company between general trade, modern trade and also the geography split urban, rural. What I want to understand here is, firstly, the mix between channel and geography and also the actions that you have taken to correct the channel level and geography level wrong doings that had been in the past, the actions that you've taken channel-wise and geography-wise, both?

So see, we've -- in general trade, we started our work on making certain corrections quite a while back, and we've also suffered pain for it. People who have been tracking our company for a while would know that we started doing certain corrections in wholesale 3 quarters back. We've started our work on our own close to around a year back. What you're seeing is the culmination of all of those works coming in together and kind of working for us at this stage. With regards to the question around what is the mix of business, broadly, what you can use at 70-30 for general trade, organized trade. And if you were to take a split within general trade, you can take a 50-50 split between rural and urban. Those thumb rules would by and large be [ hardly ] okay.

Understood. And sir, given the disturbance the company used to face due to the wholesale channel and also the rural geography, has all of those issues been solved? Or should we expect any further more corrections to happen in the subsequent quarters?

I find that very difficult to answer is certain amount of issues are like a person's health. You have to continuously work on keeping yourself healthy. That is the same way as for a distribution organization. It's not a static thing. You have to continuously work on. But yes, what I would want to give you confidence on is that a lot of work has happened over the past few quarters, and we feel very happy and confident where we are.

Understood. No, what I wanted to -- why I was asking the question is that -- my assumption was that it could be a structural issue. But by the way you're saying it seems to be like a cyclical thing and hope it recovers soon.

So we've done a lot of work already on rural. I don't think so there is something which is there. I think a larger part is where I think the qualification comes in more verified more than anything else. I think in absolute, our rural numbers, our urban numbers, our direct numbers, our wholesale numbers, all in absolute are very good. But when you look at it and compare to the market commentary, most of the companies are indicating that rural performance is better than urban. And I think that is not there in our case. I think that's the only call out being given. Beyond that, there is no problem which is being highlighted or nothing else which is being indicated.

[Operator Instructions] Our next question comes from the line of Percy from IIFL.

A couple of questions from my end. Firstly, on the growth that you have shown, congratulations on that, very good growth this quarter. But just wanted to understand how much of it is like new outlets that you have reached for the first time and you have placed the merchandise? And how much of growth is coming from that? And how much do you think is coming from actual consumer demand? Of course, exact numbers on this are not going to be available, but whatever sense you have from the market understanding, that would help on that. That's my first question.

So Percy, always a large amount would be consumer demand because if you will recollect, we have a reach availability to 4.5 million outlets. So even when we are going direct and we are reaching the outlet, what is happening is that we are executing the range better. It's not that we are making our product available for the first time. So it will be very, very difficult to determine that in the outlets, which we are directly reaching for the first time, what was the earlier business they had from wholesale and hence, what is the net contribution, I think, would be very difficult. But yes, there would be some improvement, which would be coming of that. And...

Because, Naveen, the reason I'm asking is that, I mean, we've had a certain trajectory of growth, not only Q2, but even before that, I'm not going back too far away where the performance was really bad, but in the recent couple of quarters, we had a certain growth trajectory and now it has really accelerated very materially from that this quarter. Just trying to understand what is the reason? Like have we put in some new ad communication, which has been a real big hit or I mean, we have taken prices up, so that cannot be a reason for the volume growth acceleration, if at all, it can only suppress. So just trying to understand what can I hold sort of accountable for this huge acceleration that we've seen this quarter?

A lot of work which has happened over the past few quarters on both brand and...

Okay. Okay. Because it's just that it's come very suddenly. It's not been a gradual ramp-up. That is why I was asking because if it has been over a few quarters, then we should have seen a partial impact of that in Q2 also, which we did not, I mean even existing for the...