Emami Limited (531162) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Emami Limited Q3 FY '21 Conference Call hosted by IIFL Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Percy Panthaki from IIFL Securities Limited. Thank you, and over to you, sir.

Good evening, everyone. Welcome to this Emami Q3 call. Emami has reported very good results with top line growing at about 15% and EBITDA growing at about 30%. So without further ado, to take you through the story behind the numbers, I would like to hand over the call to Mr. Mohan Goenka, who is also accompanied by VP Finance, Mr. Rajesh. Over to you, Mohanji.

Yes. Thank you, Percy. Very good evening, friends. I welcome you all to this conference call on Emami's result for the third quarter and 9 months ended 31st December 2020. I hope all of you and your loved ones are safe and healthy. I'm very happy to inform you that our company's growth momentum has continued in Q3 FY '21 with a broad-based growth across brands, channels and businesses. Robust performance has led to achievement of double-digit volume-led revenue growth and improved margins in this quarter. The company, led by good seasonality and a favorable consumption environment, posted a very strong growth of 15% in revenue from operations and 16% in net sales. The domestic business grew by 16%, with 13% growth in volumes across brands and channels. During the quarter, Zandu Healthcare range grew by 38%, BoroPlus grew by 21%, Kesh King by 16%, Pain Management range grew by 12%, and 7 Oils in One grew by 32% and male grooming range grew by 5%. In the health care range, Chyawanprash portfolio grew by 24%, Zandu Honey by 2.5x and Zandu Pancharisht (sic) Zandu Pancharishta grew by 19%. However, Navratna declined by 12% due to a strong winter season, and CSD also declined by 27%. I'm happy to inform you that Fair and Handsome is now back on its growth track and has been relaunched in the market in new packaging as Fair and Handsome Radiance Cream and Fair and Handsome Instant Radiance Face Wash. During the quarter, the company forayed into the home hygiene category and launched a new brand, Emasol, which offers a complete range of home hygiene products. The initial consumer response to the just launched brand looks to be promising. The current pandemic has also brought heightened awareness and relevance of health care categories like Chyawanprash, Honey, et cetera, and have led to increased consumer household penetration and consumption. The changing lifestyle and consumer focus on personal health and wellness have brought Zandu offering to the fore. We have recently launched multiple new products in these new segments. We plan to continue launching NPDs in the OTC generic and ethical segment where we see high market growth potential and where there are gaps in our current portfolio, thereby adding value to our consumers. Overall, new launches contributed to 3% of domestic sales in quarter 3 and 4% in 9 months. During the quarter, while rural markets continue to perform better, growth in urban markets has also picked up. All the channels posted convincing growth, and e-commerce channels grew by 3.5x during the quarter and increasing its contribution by 210 basis points to 3.1% of domestic business. Our very own e-commerce portal, www.zanducare.com, which was launched during the last quarter, has been very well accepted and is growing strongly on a month-on-month basis. The modern trade channel registered a strong growth of 51% in this quarter, increasing its contribution by 200 basis points to almost 9% of domestic business in this quarter. Modern trade independent stores, also known as stand-alone modern trade, grew very well in this quarter. We are creating a separate organization structure and activation program to leverage this opportunity. This will help us drive offtakes of NPDs as well as higher-margin larger packs. You would also be happy to learn that we have outlined a clear strategy to drive growth aggressively in rural markets. We are mapping potential of villages to increase our direct rural coverage. We have also built a model of direct coverage and have evaluated the current [indiscernible] markets. We will invest in adding manpower to the top 4 states to aggressively increase our coverage in these 4 markets. The company's international business grew strongly by 26%, led by MENAP and SAARC regions. Special focus on immunity-boosting products and launch of hygiene range during the ongoing COVID pandemic helped in boosting sales. Further, the strategy of identifying and tapping opportunities in markets with high hair oil usage with brands like Kesh King and 7 Oils In One paid off well in this quarter. Creme 21 did exceedingly well with a growth of almost 82% in this quarter. During the quarter, both profits and margins increased significantly. Stringent cost control measures and benign raw material prices helped the company to improve its margins. Gross margins at 70.4%, grew by 210 basis points. EBITDA margin -- EBITDA grew by 29%. EBITDA margins were at all-time high at 36.4%, which grew by 390 basis points. Profit after tax increased by 45% and PAT margins at 22.4%, increased by 460 basis points. Cash profit at INR 303 crores, also increased by 32%; and cash profit margin at 32.5%, increased by 420 basis points. We are very confident that our strategies and the growth momentum will reap rich dividends in the time took up. With our renewed focus on digitization and future-ready evolving business strategies, the coming quarters look promising, and we are satisfied that our commitment on various initiatives have been delivered. We are optimistic to close the year with an overall high single-digit growth. With this brief, I now open the floor for Q&A. Thank you.

[Operator Instructions] The first question is from the line of Abneesh Roy from Edelweiss.

Congrats on extremely good set of numbers. The first thing is because of the recent controversy in honey, do you see this as an opportunity? I see that in advertisement also there is a tweak. Do you see the current market leader losing market share, so it's a big opportunity for you or maybe even the new entrants? Any comment on that?

So Abneesh, that controversy has died down now, okay? Honey, anyway, the market has been growing very aggressively for all the players. So we are also riding this growth momentum. I don't see this controversy will last long.

And sir, on Emasol, are you still as excited what you were, say, 5 months back when this was more in -- at the drawing board stage? Why I'm asking this is the sanitizer sales are cooling off. Rest of the cleaning and hygiene products, there are multinational companies and very strong incumbent. So would you have a more of a niche strategy of e-commerce or maybe some modern trade or would you look at some regional focus? Could you clarify on that?

So Abneesh, you are very right. Of course, this category is challenging, but the market size is very huge. Of course, after launch, we are learning. We are focusing on few markets, few channels because it's a tricky category, I would surely say. But the initial response has been good. You would have also seen advertising. We are doing it in some channels now. Pricing plays a very important role in this particular segment. So we are playing some pricing game also. So let us see. We would have to wait. We have just launched the brand about 2 months back. I'm optimistic about some categories. Of course, sanitizers and all, as you rightly said, markets have died down now. So we would not focus so much on them. But there are other brands where I think we have some room to grow.

Sir, 2 follow-ups there. You said some markets. So could you elaborate? Is it e-commerce? Or is it seasonal? Second, you are in the -- normally the top-tier in terms of gross margins and maybe even EBITDA margin. So playing this pricing, is it more of an increased strategy?

Yes. So there are 3, 4 channels which we think we can get into. One is, of course, the e-com and stand-alone modern trade and modern trade and also some rural markets, which we are trying to tap in. So that is one. And secondly, as far as margins are concerned, of course, these products have slightly lower margins compared to some of the other brands of Emami. But this is too small that the margins would come down at overall level. So we would have to see and we will have to wait which brands take off out of this range, then only we will be able to comment.

Sir, one last follow-up, sir. Out of the 30 new products, which are the ones you are getting more confidence, not looking at the last 6 months, 9 months data only, but more in terms of different positioning, different niche and the uptrend in terms of the numbers because sanitizer would have been great early, but now it has cooled off. Anything similar which will not work, anything you can highlight?

Some of the products under BoroPlus range, where we have increased our focus, that is definitely we are very hopeful. Secondly, as I also mentioned in Emasol also, we have identified 2 categories where we would go a little aggressive. In the Zandu portfolio, we would be far more aggressive compared to the BoroPlus and Emasol range. There, we see a lot of promise. So after launching so many products, you have rightly said, not that all the 30 brands should do as well. But even if 5 or 6 of the brands take off to our satisfaction, we would be able to invest and take it forward.

The next question is from the line of Kunal Vora from BNP Paribas.

Congrats for the good quarter. First is on Fair and Handsome. So just wanted to get some sense on how has the relaunch impacted the sale? So if you can just share some insights on the numbers which you're seeing after the relaunch and before? And also if you can talk about key suggestions, which you had received from the consultant which you incorporated while doing the relaunch?

So you would have seen Fair and Handsome or the male grooming after almost 4, 5 quarters, we have finally grown. And we are seeing the traction also in the month of January. Of course, we relaunched the product in the month of November. Mid-November is when we launched -- relaunched the product. And since then, we have seen this traction with the new campaign of Salman, and it's almost a 360-degree campaign. We have also invested a lot of money behind the new campaign, which, I think, has paid off. So rural market after a long time has shown good growth as far as Fair and Handsome is concerned.

So were you negative -- like, sorry, were you negative till November and after November you, like, turned positive or the growth has come back?

Yes, yes. So pre-November, of course, we were at a decline or you would say minus 1% or 2%. But post-November, the growth has been very robust.

Okay. Okay. The second question, if you can share some thoughts on cost inflation in FY '22, like what are the -- like if you can quantify the extent of savings which might reverse next year because ad spends were low this year and we were like there might have been other cost savings as well. So if you can share your thoughts on how to look at the OpEx and generally, the margins for FY '22?

So as you have seen that we are at all-time high margins, we would, of course see how do we protect these margins. The costs have slightly inflated in the last 1 month or so. But as far as menthol and the key raw material is concerned, they are still benign. So it has to be a right mix of price increase. We would have to wait and watch once the -- we set our budget for next year. But as of now, I'm not seeing any much pressure, I would say, on margins because there is some room of price increase going forward in some of our categories.

But wouldn't some of the costs which have been low during FY '21 normalize and that itself will cause some sort of margin pressure?

There may be a slight margin because, as I said, it has been at all-time high, okay? So 100, 150 basis points, we would have to wait for some time once we get the final budgets. But it won't be like a big difference from what margins you're seeing this year or next year.

Great. Just one last question. You had like 60 new launches, but the contribution from new launches is at 3%, seems a little, like, low. Would having a high, like, wholesale dependence, does that impact your ability to drive sales of new products? And would you expect this 3% to increase going forward?

No. We said 30 new products and 60 new SKUs. But most of the products are, you would say, they are niche and are under Zandu brands, like Tulsi drops, giloy and all these things [Foreign Language] market size is still small, okay? So I would say 4% contribution in 9 months is not very small. And very recently, only we have launched Emasol, which is not even 2 months, which Is a big market.

But does having a high wholesale dependence impact, the ability should drive sales of new products and how do you, like, counter that?

No, no. Our wholesale contribution is about 40%, 42%. And see we don't launch new products in the wholesale market. We only launch new products mostly in the retail markets and rural markets. Once the demand for these products come, then only we take it to the wholesale.

The next question is from the line of Vivek Maheshwari from Jefferies.

Hello, am I audible?

Yes, sir.

Yes, Vivek, go ahead.

Couple of questions, Mohanji. One from the earlier participant about the margin. So let's say, this year, the margin should be north of, let's say, 31%, which is significantly higher than what you have done in the last 3 years. What is the medium-term outlook on margins because there is always this despite so between growth and margins? So how do you think about from a next 2-, 3-year perspective on the margin versus growth equation?

So Vivek, as I said, what it looks like that, of course, there is some increase in the raw material prices in the last 30 days or so, particularly LLP and some other products. But there is some room of price increase. So we would have to wait and watch. I don't see much pressure on margins as of now. Even if there is a 100 basis point margins here and there, it doesn't make much difference, okay? But there won't be a significant slide in margins going forward. If you want a number, I think you should take about 30% as the margin going forward.

So basically, that suggests that some of the cost savings that you have seen in F '21, some of these are going to continue and that's because that 30% mark still will be higher than the average, what you would have done in the last 3 years. Is that a fair way of looking at it?

Yes. See we would have to wait and see how the raw material behaves, but there is still some room of cost reduction. The WOW project is still on. Some of those benefits are still yet to come in. So it would balance out. This quarter has been phenomenal high or these 7-8-1s (sic) [ 7 in Ones ] have been phenomenally high. See we have also launched some new brands. You would appreciate if we get good momentum, we would want to reinvest this margin in the categories, okay? So but -- so there is no worry from the investors or from anyone. I am saying that margins -- there would not be a big difference in the margins going forward. 100 basis points here and there, it is very difficult for me to comment.

Sure. I mean yes, yes -- I mean, from our side, obviously, between growth and margins, most will or all of us would want growth, being better than the margins...

Someone just commented these margins are not on reduction of the A&P expenses. This quarter also, our A&P expenses have been growing at 12% in this quarter. Our whole idea is because we have launched so many products and broad-based growth [Foreign Language], so we want to invest behind these products now, okay?

Sure, sure. Yes. And the other bit is on the Zandu Healthcare portfolio. So what are your expectations? I know it is still -- these are early days, it's a small part of the overall top line, but the growth has been obviously phenomenal in the last 3 quarters. What is your, again, let's say, medium-term expectation from this? And could you elaborate on the website launch that you mentioned? How does that fit into the overall story?

So see health care has been doing exceedingly well. This quarter also, we grew at 38%. Our idea is that it should grow at between 25% to 30% going forward. There are still a lot of new launches, products in the pipeline, which R&D and the marketing is working on. You would continuously see launches coming up in every quarter. Some of it would only be sold through the portal and some through the markets. We are expanding our rural -- sorry, retail reach in now the health care division also seeing the last -- growth in the last 6, 8 months, okay? So there is still a lot of headroom to grow, as far as Zandu Health care portfolio is concerned. The portal is doing exceedingly well. This has exceeded our own expectations. So let us see, as I said, there will be product-specific product -- sorry, specific products only for the portal. So I'm very optimist as far as Zandu health care range is concerned. We also have got the strength seeing the numbers of Zandu, to be very honest.

Sure. Sure. And the last one on Fair and Handsome, I mean two things. One, if I look at the base, the last 7, 8 quarters, the decline has been fairly sharp. So a 5% growth, while it isn't positive, it's in the context of, let's say, even this quarter's base of minus 40%. That's an okay number, number one. Number two, is there an -- since you mentioned the second half of this quarter did see an improvement, that was around the time when you also launched or relaunched the product, there will also be placement and the primary inventory filling and so on and so forth. So can you just talk about, from an F '22 perspective, where do you see Fair and Handsome?

No, no, Vivek, as far as Fair and Handsome is concerned, there is no inventory filling. This is the demand coming in from across the board. Even in the month of January, we have seen good numbers for Fair and Handsome. So the brand has come to the growth momentum after the new relaunch or the new campaign, okay?

No, but there will be some channel filling, right, when you relaunch the product, right?

[Foreign Language] ongoing product. There is no channel filling for these products. These are ongoing products. Yes.

Okay. Do you think it is out of the woods now and F '22, what is your -- because this is the part of the portfolio, which has been most under pressure in the last few years?

Yes, yes, it is completely out of the trouble waters, I would say. And the first 3 weeks have been phenomenal for Fair and Handsome, I would say.

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

Congrats good set of numbers. Mohanji, we launched 30-plus brands and 60 SKUs. And then we have now planned for OTC channel aggressive launches also. So is there any defined sense in terms of categories of choice or margin profile that you prefer in new launches? Or as you've mentioned that you'll try everything and whatever works you'll see if that works out and overall SKU later on?

No. So Tejash, all the new launches, as far as health care is concerned, they are at a similar margin profile, okay? Only the Emasol range and some of the BoroPlus, like soaps and others, they are slightly lower. But we never get into any category where gross margins is below 50%, okay? That is one of the criterias, then only we launch the product.

Okay. Even in Home Care, we are going ahead with this program?

Yes, yes. Home Care also, we have strong margins. We have almost in the range of 47%, 48% margins.

Okay. Sir, second, what will be our overall revenue share in modern trade? And what will be -- which will be our top 3 brands in modern trade?

Modern trade, I mentioned in my opening remarks. Our modern trade contribution is about almost 9% now, and e-com is about 3%.

And sir, our top 3 brands in model trade will be?

Top 3 brands in modern trade is -- I will have to check. Rajesh can get back.

And sir, last on staying with the Fair and Handsome question on earlier participant, and this is very academic also in nature. I believe Fair and Handsome will have a very youth-oriented customer base. But we replaced Shahrukh Khan with Salman Khan. So does millennial consumer resonate to 50-plus years of brand ambassador anymore?

Yes, yes, absolutely. He has a very mass appeal. So -- and we have seen significant growth coming in, in Fair and Handsome. We always wanted a celebrity with mass appeal.

Okay. Okay. Even in urban centers, that works.

Everywhere it works. Globally, it works.

Okay. Sir, last, any update on pledge? I believe we had some...

Because they also -- please understand, they also sell through Bangladesh, SAARC, Middle East, everywhere. It's not just 1 market.

Okay. Okay. Yes, yes. Fair enough. Sir, lastly, on pledge, we had some guidance from March reduction in pledge. So where are we on that?

We are presently at 36%. And in my last call also, I had said that the promoters are committed to bring it down to 0. We are wanting to dilute some of our other assets. And we are very optimist that we are getting some traction for some of our assets. [Foreign Language] the first thing is we would reduce our pledge.

The next question is from the line of Arnab Mitra from Crédit Suisse.

Congratulations on a very good quarter. My first question was on Honey, and this was a category where you had entered, but then you had taken a bit of a slower approach here. So any change in strategy now that TVC has also started?

So Honey market, Arnab, has done exceedingly well, though our base is very, very small. And Zandu can play a significant role as far as Honey is concerned. Of course, we have increased our focus in the last 2, 3 months. And even in this quarter, we would keep the focus on, on Honey. We would have to wait and watch how the market behaves. It's slightly seasonal because it is a winter product. But [Foreign Language] it has become almost all round year product. So yes, you are right that after COVID we have increased our focus on honey. This has been in our focus.

Sir, would you now look to be like a mainstream player because initially your strategy was to price premium and be very niche and completely looked like that. So would you think that there would be a little more mainstream now? And also a related question on the ortho oil, is that a segment where the absolute size of the category can be reasonable? Or is it also very, very niche product because again, I saw that you have launched a TVC on that.

Right. So -- no, honey would still be wait and watch. We have launched, we are capitalizing on the brand Zandu here. We are doing some advertising on Zandu. It is -- we still believe it's a competitive space. But yes, with our price reduction and at the same price of Zandu of Dabur, we think we can get some consumers from them. That is one on honey. As far as Zandu Ortho Oil is concerned, yes, this market has grown phenomenally over the last few quarters. And Zandu being a very strong player in the pain management, we thought we should capitalize it. There is less competition in this particular category. So we launched the Zandu Oil. The total size of the market is roughly about, I think, INR 250 crores or so.

Okay. And my last question, Mohanji, is on Kesh King, similar to what you answered on Fair and Handsome. So Kesh King had a tough period and then you did a relaunch. And then, of course, COVID happened. So now again, are you seeing clearly the Kesh King is out of the woods and any sense of what is happening in that premium hair fall category? We had Indulekha, we had Patanjali, the other players. So any sense of market share? Or how you would be doing relative to the category here? And are you completely out of the woods there in terms of any issues?

[Foreign Language] Arnab because month-on-month, we are seeing good traction of Kesh King. Month of Jan also has gone quite well for Kesh King. So [Foreign Language] let us see [Foreign Language]. We have increased our budgets across some of the brands, and Kesh King is one of them because it's a very high margin and very critical -- important brand for us. So we have increased our focus across oils, whether it is Kesh King, 7 Oils in One because [Foreign Language]

The next question is from the line of Prakash Kapadia from Anived Portfolio Managers.

Congrats on a good set of numbers. 2 or 3 questions, Mohanji. Of the launches we've done over the last 6 to 8 months, which have achieved your desired scale? Aloe Vera gel is definitely doing well. Any plans of scaling it further and some of the other brands, if you could give some insights? And on e-commerce, any specific digital launches? Or are we taking the mother brands also on line now?

No. So as I said, Prakash, out of all the launches, some of the launches are very niche in Zandu. [Foreign Language] we would have to wait and watch which product seems to be promising. I told in the past also that in Emasol, I think 2 brands -- 2 products are achieving our desired targets. As far as BoroPlus is concerned, of course, the Aloe Vera gel and soap in certain markets and also liquid are doing well. So out of the 30, we feel that at least 5 or 6 products have some promise. We would have to wait and watch. We can't give up so quickly. That is not the strategy of Emami. And if there would -- we need to relaunch or restrategize for some markets, we would do that. But it's too early for me to say what is going to happen. The only market which we think will not go forward is the sanitizers. That, honestly, we have given up. Other than that, every brand would stay or every product would stay for some time. We will take a call only after 3 or 4 quarters. [Foreign Language] we are not worried about what is going to happen here. Some of the product would only for, as I told in Zandu Care.

Right. Sir, on e-commerce, are we taking mother brands online or these are again specific digital launches, which is what we have done at the initial phase?

No, no. We are taking our main products on e-com, but we have certain SKUs only for e-com, large sizes, which are very e-com specific.

Right, sir. And I think some while we've invested in 2 startups, Men Grooming, Men Company and [indiscernible], so any plans of -- I think we hold 33% to 35% stake, any plans of increasing? There have been some learning and quite some time has passed by this time.

These investments have done well for us. So in the recent past, we have just increased our investment in one of the companies. They are promising. Post-COVID, they are doing well now.

And you mentioned you are seeing pockets and opportunities in hair oil specifically. And you mentioned there was a focused market approach, specifically in hair oil, and you are seeing results in 7 In One hair oil and Kesh King has been doing well over the last couple of months now.

Yes.

So what are these markets, if you could comment or give some insight? Are these non-UP, Bihar market, specific markets there? Is it South, North? Any geographical color will help?

No, 7 Oils in One is across the board. And as far as Kesh King is concerned, it is primarily driven by the Hindi belt.

Right. And is there that lower SKU which is helping in expand the market in Kesh King, which was not there earlier?

No, no, no. Not this small. It is the big SKUs which is actually helping us. [Foreign Language]

The next question is from the line of Harit from Investec.

Just one question from my end. In your opening remarks, sir you had mentioned about rural coverage that you are expanding, specifically in 4 states, and you're going to increase manpower. Just wanted to get some more sense on any targets that you can currently share in terms of what kind of expansion you can see you will cover over the next 1 or 2 years?

Yes. So Harit, yes, we have a specific plan for rural markets. And these are 4 states in 4 different geographies, East, West, North, South. This is a pilot that we are doing in these 4 states. And then we have identified 12 other states which contributes to almost 75% of the rural sales. So we would incur almost a cost of about INR 7 crores, INR 8 crores is what we have budgeted for this exercise. And we have already started rolling it out. Let us see what are the results in these 4 states, then we will roll it out in the other 12 states.

Okay. Okay. Got it. Got it. Mohit, one more question, if I may. It's a follow-up compared to based on what somebody else had asked. If you look at Kesh King as well as 7 in One, you've seen very good growth on base of good growth. So it's not like you had a low base of growth in both these brands in the first quarter last year. We've also seeing one of the other companies that reported very strong growth in the value-added hair oil space. Could you just give some comments on why or what are you seeing in the business space? And what might be the reasons now for accelerated growth once again in this category? Would it be this pent-up up demand or just a general buoyancy, any sense would be helpful.

Harit, it is a little early because we have gone into research to understand why suddenly there has been this demand over the last few months, okay? But you are right that across the board, we are seeing a ramp-up demand. And it is not interestingly not only in India. For 7 Oils in One and Kesh King, we have seen increasing demand coming from the international markets. Yes, yes, entire Middle East, Bangladesh, SAARC. So what has happened, we would have to wait and watch to understand from the consumers. But even the month of Jan has been pretty well for both the brands. [Foreign Language] products, it's not a small this thing, but still month-on-month, there is demand. Interestingly, penetration for every category of ours, which was very, very niche, that has increased the post pandemic, whether it is Kesh King, whether it is 7 Oils, whether it is balms, BoroPlus, every brand, penetration has gone up by 3%, 4%, which is very encouraging, I would say.

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

Very good congratulations and good set of numbers. Just one broad thought. After a long time, you're seeing the consistent growth on a Q-o-Q basis also. Bit more color I was expecting on the volume growth. I mean it's a very good growth, which is broad-based across all categories we have seen. How would you relate this a large growth, which has come from winter? So do you think this volume growth which is sustainable?

Yes, yes. Shirish, I think it is sustainable because of 2 things. One, you would also notice that Navratna oil has degrown by 12%. Navratna is not very small in the third quarter. And CSD has also degrown by 27%, okay? So this is despite we have got this growth. And this growth is not just led by winter portfolio. You would see Kesh King, Fair and Handsome, 7 Oils In One, the health care range. So it is broad-based growth, okay? BoroPlus has grown by 16%, but [Foreign Language] I surely feel, see, this momentum will continue. And what we are also seeing in the month of Jan, at least, for the first 3, 4 weeks.

Yes. So I was just trying to look at from the modeling perspective. Even international has really done this quarter exceedingly well. So do you think for a full year, because we have a base quarter which also is beneficiary, which is I'm talking about Q4. Do you think that this growth, if it is continued, there is a significant upside in terms of revenue growth because you've just happed on -- there are 4 states which you are doing a pilot in terms of distribution and the rural growth. And it's rural, naturally it's firing well for you, do you think we will do exceeding well in terms of our top line and even profitability?

Yes. So Shirish, as far as rural distribution is concerned, see you only get benefit after 4, 5 months, okay? [Foreign Language] so it doesn't happen overnight. [Foreign Language] benefit should only start coming in, in the second quarter onwards. But as far as ongoing projects are concerned, yes, I definitely feel fourth quarter should be a good quarter. It should be a double-digit volume growth. That is what we are expecting, and it's just we will have to wait and watch.

Any short-term triggers you think other than your raw material which you have just mentioned? So can we expect a similar kind of gross margin or if there is a certainty in the quarter 4?

No. So gross margins, we will -- as I said, there is some pressure as far as LLP is concerned. [Foreign Language] 100, 150 basis points [Foreign Language] we will -- we might have to take a hit. But we are also evaluating price increases which we do in the first quarter normally. We are just waiting to see where the prices stabilizes for the raw materials, then we will take a call.

Have you increased any prices in the recent past?

Not really, [Foreign Language].

So you're saying you will wait for another 1 month and then try...

Yes, where the prices stabilize for raw materials, then we will take a call.

But you're optimistic that there is a room for a price increase we can take?

In some of the categories, for sure.

Fair enough. Just last question on the depreciation. Though there is a note which says that there was a mold which was -- which life cycle which was brought down. So this is one-off or we will expect some more prices since the depreciation in the next quarter also?

No. Shirishji, this is one-off since we have revisited the life of -- from 10 years to 7 years. So one-off impact has been taken in Q3.

There is nothing which will come next?

Right.

The next question is from the line of Sree Agarwal from First State Investments.

Couple of questions from me. The first one is, you referred to some organizational changes that had taken place and also some strategy changes regarding rural markets and accelerating the growth there. So could you elaborate a little bit more on that and just give some details on what exactly has happened here?

No. So that was sometime back, Sree, as we had recruited, one was the Head of Sales and one was the Head of Healthcare Division, Gul Raj and Vinod. They have settled quite well. Now they are driving the health care and as far as our sales is concerned. We are not doing any more changes as far as the organizational structure is concerned. Of course, we are recruiting a lot of people now for rural markets, sales development and some of the other areas where we see some potential. So these would be new recruits. We're strengthening the organization wherever we think for future growth. It is mostly in sales and distribution, I would say. That is one. It is in analytics, sales -- stand-alone modern trade, rural sales development. These are some of the areas where we would put in resources. So that is one. [Foreign Language] there are no major changes, I would say.

Okay. The other question I had was on the penetration comment that you just made, which I found very interesting [Foreign Language] your penetration has increased by between 2% and 4%, I guess.

That's right.

How does this compare to previous years? Typically every year -- and what has sort of driven this in your view? Is it the distribution coverage that you have increased in recent years? Or is it you're seeing some changes in consumer behavior? Or...

No. This is led by the pandemic, I would say, because we have been trying -- every company tries to increase the penetration, and it doesn't happen so rapidly. So because of increased interest in health care products and ayurvedic natural products and because of availability of our products in almost every outlet. So that helped in penetration. We also increased our advertising for some of the brands. Winter portfolio helped. The Zandu brand itself is very powerful, okay? So -- and the products were available -- it helped in penetration, [Foreign Language] every product penetration has gone up significantly. Consumer [Foreign Language] in the categories.

The next question is from the line of Amnish Aggarwal from Prabhudas Lilladher.

Just a couple of questions from my side. One being that as the immunity boosters and healthcare is doing well, so how Chyawanprash has done and what's our planning on that? And secondly, the trend and the time line now in the further reduction of promoter pledge?

So Chyawanprash, I'd said that Chyawanprash portfolio grew by almost 24% in this quarter. And I'm still seeing some momentum coming up even in this quarter as far as Chyawanprash Honey is concerned, okay? And as far as pledge is concerned, I said we are very committed to bring it down to 0. We have enough assets which we can liquidate. So as and when it happens you would come to know. I cannot really give time lines, but commitment is 100% there.

Okay. Sir, what's the current rate now, I think 38%?

It is at 36%.

36%. And has the latest reduction happened due to increase in the stock price or because some money has been repaid by the promoters?

It is primarily because of the increase in the share prices.

The next question is from the line of Dipan Mehta from Elixir Equities.

Hello, can you hear me, sir?

Yes.

Sir, congratulations on a very good set of numbers. Just a quick refresher as to why our tax rate is so low? I mean that is question number one. And second question is that in terms of the amortization of acquired brands, how does the tax work over there in the sense that do we take it as a deduction and then calculate our tax rates? So if you could just clarify on these 2 points, please?

Deepak (sic) [ Dipan ], so we have been paying MAT and our major manufacturing facility in Assam, which Pacharia enjoys tax holiday for 10 years. So as I said, we pay MAT for the full organization and hence, the tax rates are lower. And whatever amortization we do that is chargeable to our profits, and the book profits whatever comes we take MAT on that. So MAT is stable on book profits, so we get benefit of the amortization.

Okay. And this 10-year period gets over when, sir?

So it is after 6 years.

So that is 2027?

Right.

Okay. Because then beyond that after 2027, it will come into that 25 point, whatever the tax rate is...

Right, right.

And you will start taking the MAT credit which you have paid?

Yes, yes. So we also have MAT credit of more than INR 250 crores today, which have not been accounted in our books. So once we get a visibility of taking the benefit of MAT credit, so we would start taking the MAT credit also. And though the tax amount may increase in our books, but the payout would be only 20% to the government, and we can take the credit of the MAT credit for the balance amount.

Second question, sir, you have been speaking a lot about the increased demand, but you've been in this business for decades, do you think that there is a structural change underway because of which the growth rates have improved? Or is it more, in your opinion, cyclical in nature, that this is a good cycle, consumer behavior, higher incomes in the hands of people, that is what is driving near-term growth rates?

Deepakji (sic [ Dipanji ] I think it is a little early for us to say, okay, that -- of course, this has definitely to do with pandemic. As far as we are concerned, the health care range, consumers' interest have really come in into the healthcare. And Zandu being a very significant brand in this whole, we have benefited out of it. We also became aggressive over the last few months as far as distribution, people, everything was concerned, that also helped, I think, particularly us. We would have to wait and watch to see how long does it last. It is very difficult for anyone to say.

The next question is from the line of Sonaal Kohli from Bowhead.

I have 2 questions. First relates to your pledge. Do you see a scope for reduction in pledge through -- if your stock price remains at this level for maybe a quarter or so and if -- and how does it translate into price reduction? Secondly, while you mentioned about selling some of your assets to pay for the pledge, you also had some pledge because of the Cement deal. What do you see the status of that? Would it go away in a quarter or 2? And thirdly, on the...

That still remains at 8%, the pledge with Nuvoco. So out of 36%, 8% is pledged with Nuvoco. And your first question was if the share price remains the same, would there be a reduction in pledge? Yes, if there is any asset sell because we are looking at some land deals or something like those. If something happens, of course, our first endeavor is to reduce our pledge.

Sir, what I was referring to your Emami stock price remaining the same because there may be a lead lag relationship or they may be taking a 3-month, 6-month average.

Yes, yes. No, no. So if the prices remains the same, there is some room of reduction because everyone has not still released the shares. There could be a reduction of about 2.5% to 3% at these prices.

And sir, when do you expect the cement-related pledge to come down? Do you have any visibility on that front?

Not really. That case is going on. [Foreign Language] Once we get some visibility from the courts, only then only we will know.

And sir, as far as your hospital real estate business is concerned, are you hopeful that within 6 months you would be able to close something? So when we meet for, let's say, Q1 results, there would be something on the table? Or are you looking at much longer time horizon, like you may want to wait for 12 months to get the right price?

No, no, no. We are not waiting for 12 months for the right price or anything like that. These assets are there. And we are expecting sooner some bids to come in. Let us see. I think in 6 months' time we should be hopeful that something should materialize.

Sir lastly, we are all trying to guard the structural growth drivers of this company. Could you tell us at least about the -- external might be difficult for you, it may be led by low base of the last few years or agriculture nominal income growth, but on the internal side, how things have changed for you? How the pledge reduction did lead to change in momentum? And is it like momentum leading to further growth? And therefore, why we as analysts could think that the last 3, 4 years and the next 3, 4 years could be different? Your own thoughts and learning from the last experience. And how internal growth drivers could be from a 3-, 4-year perspective?

So you are right. See, once we get into the growth mode, the entire organization -- the gear shifts to the growth. And there's a lot of motivation amongst the team and the distributors, everyone. And we start investing, reinvesting behind brands. Everything changes. That is one. Secondly, post or COVID or pre-COVID, the whole mindset of ours also changed. We launched so many brands which we have never done in the history of Emami in 1 year or 6 months' time, okay? So the -- launching a brand is now much easier than what it was pre-COVID. And I have mentioned in my opening remarks, we are -- you would also see a lot of new launches coming in as far as the health care range is concerned. That has definitely changed. And what else? So yes, of course, reduction of pledge has helped promoters as mindset [Foreign Language]. Our risk taking ability goes up. Everything matters.

So did the new team make a difference? Like in last 2, 3 years, did you make significant hires?

No. The new team over the last 6, 8 months, that made a significant difference. I would say the 2 new recruits of Vinod and Gul Raj, that really helped us, honestly. And Vivek also -- International Head is Vivek Dhir. International has been doing very well since he's come on board.

The next question is from the line of Gaurav Jogani from Axis Capital.

Sir, my first question is with regards to how the season -- Q4 has been panning out in that sense that we see an extended winter now in the Northern belt. So could that have an impact on the sales of Navratna oil in Q4?

So Gauravji, let us wait. As I said, first 3 weeks have been good. [Foreign Language] at least the brands are selling that is more important. Summer can set in any time. Even if it sets in by third week of February or fourth week of February, we should be able to do good numbers for Navratna oil. So I really can't comment on summer right now. [Foreign Language] on summer products.

And sir, with regards to the amortization, the one-off amortization, can you quantify what was the amount this quarter? And what can be steady state amortization rate that we can build going ahead?

[Foreign Language] INR 60 crores every quarter, which would continue for the next another 2 years.

And sir, the one-off amount [Foreign Language] because of the change in life of assets [Foreign Language]?

No, this quarter because of the change in useful life of molds, we have taken additional hit of around INR 11 crores. So this is one-off, not from next quarter going ahead.

[Foreign Language] Percy?

[Foreign Language] Mallika, we can close the conference now.

Yes.

Okay, sir. Thank you.

If there are any further this thing, Percy, we can, of course, talk to Rajesh.

Yes, yes, sure.

Okay?

All right, sir. Thank you.

All right.

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

Thank you, Percy. Thank you, IIFL, for arranging this call. And we thank all the participants for joining us for today's earnings call on third quarter. Thank you.

Thank you.

Thank you.