Emami Limited (531162) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Emami Limited Q2 FY '22 Earnings 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. Thank you, and over to you, sir.

Hi. Good afternoon, everyone. Thanks for joining this Q2 conference call of Emami Limited. From the management, we have Mr. Mohan Goenka, Director; Mr. Rajesh Sharma, VP Finance; Mr. Vivek Dhir, CEO of International Business; Mr. Vinod Rao, President, Sales; and Mr. Gul Raj Bhatia, President, Healthcare Division. Without further ado, I'll hand over to the management. Over to you, sir.

Thank you, Percy, and very good afternoon, friends. I welcome you all to this conference call on Emami results for the second quarter and half year ended 30th September '21. I hope all of you and your loved ones are safe and keeping good health. It is heartening to note that the pandemic seems to be on a decline since in commencement more than 18 months back, with the country crossing 1 billion vaccination. The trend shows that the country is slowly coming back to its normal life cycle, although it is still quite early to predict the return to normalcy. Despite this development, we can easily take us back to complacency. We need to be guard and not take the decline in COVID infection slightly. It is of utmost importance that we and all our stakeholders, including our employees, channel partners, suppliers, et cetera, and their families, continue to stay safe and healthy in the future. With an overall reduction in COVID positive cases, we have witnessed an improvement in demand during the quarter as mobility levels increased, while discretionary categories also showed revival. Demand trends remains steady for most of our brands despite a high base in previous year. However, the relevance of immunities have gone down due to accelerated vaccine and a lower fear of pandemic, resulting in a slowdown in demand for immunity products. Despite this demand moderation, I am happy to share that we continued our strong profit-led growth in the second quarter, led by a 9% growth in domestic business on a year-on-year basis, and 11% on a 2-year CAGR basis. Our domestic volumes, including institutional sales increased by 6.2% over previous year. Our overall revenues at INR 789 crores grew by 7% over Q2 FY '21, and 9% CAGR on a 2-year basis. In the domestic business, BoroPlus grew by 29%, Male Grooming range grew by 15%, Kesh King grew by 15%, and 7 Oils in One grew by 50%. Notwithstanding a large base of previous year, Pain Management range grew by 6%. That is a 2-year CAGR of 18%, and Healthcare range grew by 5%, which translated into a 2-year CAGR of 26%. This growth in Pain Management, Healthcare range was achieved despite subdued market sentiments towards immunity products in view of decrease in COVID cases and rising vaccination. Navratna declined by 9% during the quarter, however, it grew by 2% on a 2-year CAGR basis. During the quarter, we have launched TV and print campaigns roping in Bollywood celebrity, Sonu Sood. We also got on board the world renowned wrestler, Khali, for Zandu Ultra Power Balm. Additionally, BoroPlus launched a variant targeting women between 25 and 35 years of age with a light and non-sticky BoroPlus Soft Ayurvedic Antiseptic Cream. We are also cross-pollinating our international brand, Creme 21, in the domestic markets through the e-commerce channel. Creme 21 has a good brand equity in several countries, and we believe same can be leveraged to enter premium skin care market in India. During the quarter, modern trade grew by 31% and e-commerce continued its robust run, growing by 2.2x. In quarter 2 FY '22, e-commerce business increased its contribution by 220 basis points to 4.2% of domestic revenues. In the first half of the financial year, our rural presence was increased in additional to 5,200 towns through the Project Khoj. Our revenues through stand-alone modern trade outlets have also grown by 51% during the same period. Stand-alone modern trade coverage has increased to 37 cities, with our direct coverage increasing by more than 550 outlets. We have also activated 22,000 additional outlets for our healthcare products by focusing on Ayurvedic Bhandar and chemist outlets. Our international business witnessed a decline of 6% during the quarter. However, international revenues grew by 2% on a 2-year CAGR basis, while CIS grew by 35%, MENA and SAARC markets declined due to the impact of the second wave of COVID-19, as well as high base of personal hygiene sales in the previous year. However, going forward, we expect our international business to recover the growth momentum. Coming to profitability. We posted a strong profitable growth during the quarter. Despite continuing input cost pressure and a high base of previous year, gross margin at 68.8%, contracted by 150 basis points over previous year. However, EBITDA at INR 277 crores grew by 8% and EBITDA margins at 35.1% also expanded by 10 basis points. PAT at INR 185 crores grew by 56% with PAT margins of 23.5%, expanding by 740 basis points. Cash profit at INR 269 crores also grew by 15%, and cash profit margins at 34.1%, expanded by 240 basis points. If you compare our financial performance over last to last year, that is Q2 of FY '20, gross margins were lower by 90 basis points. EBITDA grew by 44%, and EBITDA margins also expanded by 590 basis points. PAT grew by 93% and PAT margins also expanded by 900 basis points, while cash profit grew by 51%, and cash profit margins expanded by 720 basis points. I'm also pleased to inform that the Board of Directors have declared an interim dividend of 400%, that is INR 4 per share. While the industry is witnessing an all-time high rise in the input cost, we are happy that we have been able to protect our operating margins by way of calibrated price increases, and increased operational efficiencies. We will continue to strengthen the brand equity of our core brands, invest in new brands,and extensions, leverage new engines of growth to reach critical mass, to remain constant in our growth trajectory. We are confident that with our judicious approach towards business, we would be able to continue delivering profitable growth ahead. Today, we have Mr. Vivek Dhir, CEO of our International Business; Mr. Vinod Rao, President, Sales; and Mr. Gul Raj Bhatia, President, Healthcare Division, with us. They would be very happy to answer your queries on the performance. With this brief, I now open the floor for Q&A. Thank you.

[Operator Instructions] We have our first question from the line of Abneesh Roy from Edelweiss.

My first question is on the domestic volume growth. You have mentioned this is for institutional business. Can you tell us, is this CSD and which products have done well here? And what could be the volume growth ex of the inflation business?

Abneesh, if we exclude the CSD, our volume growth is about 5.5% in the domestic business.

And institutionally -- essentially, [ canteen ], CSD [indiscernible]?

CSD and CPC. Yes.

Okay. Second is in terms of your rural sales. So when Nielsen data is in last 2 months, they seem to suggest there is a huge slowdown in rural. So in terms of outlook, what's your sense on rural, especially your own [indiscernible] hair oil, which is a bit more indexed to the rural. That has also seen slightly tough growth this time. Yes, I understand the seasonal factor, high range, low range, and all that. But are you worried on the rural outlook?

So this, I would not shy away by saying that, yes, over the last 3, 4 weeks, there has been a slight slowdown in the rural areas, and this is across the board. So -- but we will have to wait and watch because we are entering into the peak winter season. And at this point of time, we load our winter products. If winter goes well, then we have seen it in the past also, despite of poor offtake, winter is good, then we see demand for BoroPlus and other products. But yes, there is a slight slowdown in the market.

What can you attribute that to? Because rainfall is good, MSP, direct benefit, whatever you mean, everything is happening. So is it essentially the migrant labor is coming back? Or is it floods? What is the main reason for the slowdown?

So again, Abneesh, honestly, I would not be very specific on why the sudden slowdown in the last few weeks. 1 of the only reasons what I see is the migrant laborers really coming back to work, that could be the only reason. But we would have to still wait and watch whether the market bounces back quickly.

Sure. And last question, essentially, Kesh King continues to do well 1 year, 2 year, both. So if you could tell us what's working here and the split between shampoo and hair oil?

You are right, Abneesh. And if you remember, we were very confident that Kesh King would definitely do well. We are taking share from our competitors quarter-on-quarter basis. Market is also expanding. We are trying to get on new consumers through our new campaign. We did a campaign with Shilpa Shetty also, and we have been very, very aggressive in all our markets, including South India. So still, there is a lot of headroom to grow as far as Kesh King is concerned, and we are bang on our strategy, I would say.

And market share, do you see some gains will be from the large unlisted Ayurvedics play?

So no, over the last few quarters, we have seen the competitive intensity by Patanjali and Indulekha has also come down. We have been more aggressive. So we are taking shares from these plays also.

We have next question from the line of Tejash Shah from Spark Capital.

[indiscernible] Pertains to healthcare [indiscernible].

Not clear, Tejash. Sorry, your voice is cracking.

Is this better?

Yes, slightly better. Go ahead.

Yes. Yes. Sorry for this. No, so last 2 quarters, we were seeing good traction in Healthcare range, obviously driven by inventory demand as well. But we had launched a lot of products, and there was a refocused interventions being made in terms of marketing and communication. So how should we see this deceleration? And if you can give some color on nonimmunity based product growth on Y-o-Y basis?

Surely. So Gul Raj is with us, who looks after the Healthcare division. I would ask Gul Raj to answer this, please.

Yes. So basically, if you look at Healthcare range, it comprises of, in a sense, 2, 3 segments. 1 is the immunity range, then there is OTC products besides the immunity products. And then we have Ayurvedic medical products, the medical [indiscernible] and this comprise of generics and ethicals. So we've seen a slowdown, obviously, compared to last year in the health supplements range such as Chyawanprash to some extent, [indiscernible] et cetera, because of the last year's Corona peak pandemic, consumption was very high. And this year, it's come down quite significantly, and that's true for the entire market also. But we've seen other brands like Pancharishta, like Nityam, doing reasonably well, and even our Medical division, which is basically a separate [indiscernible] going to doctor, ayurvedic doctor, et cetera, has done reasonably well. So we've done pretty well in the other OTC products besides immunity and in the medical division.

Sure. So do you see acceleration happening over here as we go along in the rest of the year? Or there are some still high days of immunity products, which will drag down the overall performance?

We do foresee the other brands doing well in the current quarter and even the ayurvedic products division doing well in the current quarters. Even the ayurvedic products, or the Medical division, also had some immunity-based products which did well, but we have tried to make that up to focus on other categories. But we will still see pressure on brands like Kesari Jivan, Chyawanprash, [indiscernible], et cetera, in the current quarter also because, as you know, the peak sales happened between the months of November to January on the Chyawanprash category, et cetera. So there were the added benefit we got last year of higher consumer offtakes and consumer penetration last year in the category. But we still believe that we have headroom for growth in terms of the market share because we are a relatively smaller market share player, so we are focusing on seeing how do we gain our market share in some of the immunity products like Chyawanprash.

Sure. This is very helpful. Second question pertains to [indiscernible]...

Just to give you some numbers, like if you exclude the immunity in healthcare, we have almost grown at 8.6%. And if you include the Chyawanprash immunity, it's about 4.5%. But on a 2-year CAGR basis, the total growth has been around 26%.

Okay. Okay. This helps.

It is, basically, the immunity, because of the high base of last year, it is -- the numbers have slightly been drag down.

Perfect. This explains. Second question pertains to A&P spend. There has been a deceleration, and if I tie up with your opening remarks that we have been aggressive on launches and in marketplace also we are competing aggressively, how should we see A&P spend going forward, at least for this year and next year?

So A&P spend for this year as a percentage has been at 13.4%, compared to about 14.7% last year. So -- but we -- as we have always maintained our A&P for the year, see, what had happened on A&P for the first half, if you would see, we have spent a little less because we could not spend in the first quarter because of the pandemic, but we have really spent quite significantly in the second quarter. But we have taken some budgets from our first half and brought it to second half, looking at the situation of pandemic. That is 1 of the reasons why we think our second half A&P would be slightly more compared to our last year numbers. It would, of course, depend on the pandemic situation, but as of now, it looks like we would spend aggressively in the second half compared to our last year second half.

So annual guidance on that will remain around?

Annual guidance would remain at about 16.5%.

Okay. And then last 1, Mohan-ji, we are sitting on now a very good healthy cash flow of INR 500-odd crores. And then, so how do we plan to utilize the same going forward? Any inorganic growth plan, and we are seeing a lot of activities [ D2C ] space nowadays?

So as you know, Tejash, we have already invested in few companies like the [ Man Company ] and [ Brillare ] and some other investments also we have done in start-ups. And if those are the opportunities, then we are constantly for a lookout. And of course, right now, we are about to accumulating the cash. If there is any opportunity, we will evaluate. But right now, we don't have plans for that of [indiscernible] acquisition.

That's all from my side. And Diwali greetings.

We have next question from the line of Arnab Mitra from Credit Suisse.

My question actually is kind of a follow-up to the previous question on healthcare and balm, because both of these categories have seen a big surge in demand last year, till the third quarter, actually. So based on your current run rate of trends, because I'm assuming all the COVID mindset is kind of outright already, are you kind of confident that you will be able to grow even if it's a low growth on the high kind of base that you have in the second half also for these products? Or are you seeing a sequential deceleration there? Every month is getting tougher to a kind of match up with the last year's a kind of consumption levels that were there.

So Arnab, let's take this question in 2 parts. 1 is the balm and excluding the balms. So we are -- See, what we are seeing because balms had really accelerated during the COVID period, okay? And what we have targeted this year is that we are trying to maintain our numbers of last year because on a 2-year CAGR basis, balms would always almost -- will be at about 15%, 16%, even if you don't grow in the second half. So right now, we are trying to protect our basis of last year. That's the first challenge in balms because the numbers are extremely high of last year. As far as the healthcare division is concerned, Gul Raj can correct me, and what we are definitely expecting is a double-digit growth despite of high base in immunity. So because we are seeing good offtakes of Pancharishta and some of our other medical marketing products and our Zandu e-commerce division. So by and large, I think it would be a single-digit growth for -- if you include the pain balms for Healthcare division.

Right. And on pain balms, just a follow-up. So based on the trend of the consumer offtake that you're seeing, do you feel confident that you will be able to hold that base for a little challenging situation, and you will require intervention like market share gain or distribution or other kind of things to even kind of make that flattish second half numbers?

Arnab, as of now, the demand in the month of October has been quite robust, and we have been able to hold on our numbers from last year. So at this point of time, I won't say that -- and if you compare it to, last to last year, we have almost grown at almost 50%. So we are holding the ground quite strongly, and with the campaigns of Sonu Sood and Khali, I think we are attracting new consumers. And we have also increased our budget significantly in pain portfolio. So overall, I'm not too worried, very honestly, for pain management.

Got it. All right. That's helpful. And my second question was on BoroPlus. So you have made some effort to diversify your revenue stream beyond this antiseptic cream. If you could give us some idea of, are there some products where you've seen continued traction with a showing promise? And the effort to get Vasocare under BoroPlus cream, is it -- if you could give us some idea of what is the market share that currently Vasocare has in that petroleum jelly market?

So Arnab, we had launched a complete hygiene range looking at the pandemic in mind. But right now, our focus are on 2 products. 1 is the aloe vera gel and 1 is on the soap. These are the 2 products out of our entire launches which are showing some promise, and we would keep on advertising these products. As far as new ideas for BoroPlus is concerned, we are very, very bullish on the BoroPlus Soft new launch that we have done because the young consumers are looking for non-sticky products, and BoroPlus has this strong equity as far as antiseptic is concerned. There was a huge need gap which we think we would be able to fulfill. And as far as petroleum jelly is concerned, we are very, very small. We only have about, I think, 3% -- 2%, 3% market share. So bringing it under BoroPlus umbrella, I think it will help both petroleum jelly and also BoroPlus. And we would be able to advertise as a range, and we would be able to focus much more.

And just 1 bookkeeping question for Rajesh-ji, just high other income that you reported in the quarter, what is it pertaining to?

So Arnab, we have earned some other income on account of our valuation gains on the start-up investments, some of the options which we are holding, and that's the reason for high other income based in the quarter 2.

We have next question from the line of Amnish Aggarwal from Prabhudas Lilladher.

Yes. Mohan-ji and Rajesh, I have a couple of questions. My first question is on the -- I think, couple of questions have already been answered, but a couple of them are more. So the first being that the -- looking at the current scenario, and there is so much of inflation, and 3Q usually is -- you can say a high-margin quarter for us. So how are we placed on this inflation front? And what steps are we taking?

Amnish, you are right. There has been a cost pressure over the last few weeks, particularly on the [ vaccines ]. So we have taken some price increase for our winter portfolio, but definitely, we would see some decline in our gross margins in the third quarter. We would still try to balance that out through our advertising and other cost measure initiatives. So on a yearly basis, despite of so much of increase in our input cost, on a yearly basis, we are not expecting more than 80 basis points to 100 basis point fall in our gross margins. That's what it looks like.

Okay. And do you think that your this input cost pressure has peaked for you, or you -- as we go along, your -- we can be witnessing further increase in inputs?

No, for now, I think this is at its peak. I don't see a further increase from here. And we are also doing a lot of cost reduction measures parallelly because of this input cost pressures.

Okay. And Mohan-ji, my next question is, as Rajesh said that this other income gain is on the initial gain on the start-up holdings. So is this your mark-to-market gain? Or is it that we have sold some stake or something?

No. Amnish, it is mark-to-market gains.

Okay. So can you quantify how much of the other income increase is due to this mark-to-market gain?

So almost INR 24 -- INR 23 crores, INR 24 crores is towards this mark-to-market gains.

Okay. Okay, fine. That's useful. And finally, just on the new launches. You said last year, we had launched a lot of new products, okay, in the healthcare range. Even in the -- we had gone in for your -- some hygiene products, home care products. So can you, you can say, identify 3, 4 products where you see that there is a significant scope to scale up and where you have been able to create some niche for yourself?

So the answer to that, Amnish, is that in BoroPlus, there are some products which we think are promising. We would keep on focusing on them. Unfortunately, Emasol hasn't done do well, so we would gradually phase that out. And in some products, we are now launching aggressively in BoroPlus Soft, is an aggressive launch. In Fair and Handsome, we are trying to launch, we are -- some new products. We are bringing Creme 21 to India, that bring in incremental growth. So these are some new initiatives that we are taking now.

Okay. And sir, how much of your, say, top line will be contributed by the products launched in the last 12 months in the current year? If you have got any targets or indications?

It was about 2.5%.

Okay, in the latest quarter.

No, in this quarter?

Yes.

In this quarter, it was 2.5%.

So in the full year, the same number should be the number.

Yes, it should be in the range of about 2.5% to 2.75%.

We have next question from the line of Shantanu Basu from SMIFS Limited.

Right. Most of my questions have been answered. So basically, I just want to know the current situation in Russia given the COVID impact that they have been facing recently, and in Q2, you have reported very good growth in Russia. So what's the impact of -- I mean, what's the trend over there beginning October? What do you see over there? And what would be the trend going forward? And on similar lines, how would the other international markets perform? So that's my first question. And the second question is with respect to Emasol. So you just now mentioned that you plan to phase out some of the products. So can you please elaborate which products do you plan to phase out? Because I believe the toilet cleaner and the dishwashers are doing well, others are not. If you can just update on that, that would be helpful.

Surely, Shantanu. First, I'll answer the Emasol, then I'll ask Vivek to take on the international 1. In Emasol, you are right, so we are only focusing on these 2 brands, and particularly, in modern trade and e-commerce. In the GT, we are gradually phasing that out. And for international, Vivek would answer your question.

Sure, sir. Sure, sir. So Russia, our presence is largely in the pharmacy. So pharmacy, usually gets lesser impacted due to lockdowns because those are the open outlets, even during lockdowns. And what has happened in the last couple of years when we formed our own company subsidiary in Russia, so we have taken a direct control into the market. So impact is visible whatever growth, which we are seeing in the marketplace, are due to the structural changes which we have done. We have a better control in the marketplace today, and we have expanded our field force in current year. And in H2, again, we are planning to expand our field force. In fact, should be very minimalistic of this lockdowns, and we should continue to grow at a decent pace in Russian market.

And what about other international markets?

Other international markets, again, say, depending on the geography. In certain geographies like Sri Lanka, we are taking a direct control into the marketplace. We are seeing very good results over there as well. And Middle East, [indiscernible] which has given us a little bit of [indiscernible] in supply chain disruptions in quarter 2, and we're expanding our local manufacturing in Middle East in coming quarters when the full range and more countries are going to be catered from there. So we may see a little bit of supply disruptions. But long term, they are all accretive in both top line as well as bottom line. Similarly, Bangladesh and also we had gone through a little bit of restructuring, which is going to be better for us in long term. So otherwise, I think fundamental business growth is very decent in most geographies, except 2 places where because of either lockdown, extended lockdowns, or political disturbances like in Myanmar and Afghanistan was troubling us, so we have yet to overcome over those issues. But fundamentally, business is going well, and we see better future in coming quarters.

We have next question from the line of Gaurav Jogani from Axis Capital.

Congratulations on the good set of numbers. Sir, in terms of the ad spend, we can see on an absolute monthly basis also, your ad spend has even gone down from Q1 to Q3, and your guidance being for 16.5% for the full year. So are we looking at very aggressive ad spend going ahead? And also in the [indiscernible], when you said that some gross margin pressures would be to mitigated by reduction in ad spend. So how should 1 look at it?

So Gaurav, as I said, we have taken -- taken some budgets from a first half to second half, particularly for brands which we could not advertise in the first half. To slightly, you would see a higher at A&P spend in the second half compared to our last year numbers. But we are cognizant of that fact, and we are also cognizant of the fact that input cost pressures are there. We will definitely try to mitigate all these increase in expenditures to reduction in expenditure in other areas. Overall, I'm not seeing much pressure on the margin front. Maybe a max of about 100 basis points here and there. If the winter portfolio does very well, because it contributes quite high on our margins, then I'm not too worried on the EBITDA and other margins. So we will take that call once we approached to the market in the fourth quarter, but as of now, we would be aggressive on our A&P spend.

Sure. And my next question is [indiscernible]

In the last 2 years, we could not advertise for Navratna oil, particularly because the peak pandemic was hit during the summer seasons. So we have to be aggressive this year for Navratna oil.

Got it. It's all clear. And, sir, with regards to the distribution expansion initiative that you had taken and a press release for the rural side. Are you getting a few states, how has been the traction there? Where are we on [indiscernible]? And what kind of needs we have seen because of that?

So Gaurav, this is very, very interesting because we know this year, and I'm extremely bullish on our Project Khoj and the other initiatives on distribution that we are taking. So I think, please, hear to Vinod very carefully.

I think this rural, we start with a pilot in 4 states and just to test waters in terms of looking at, should we use an approach of a potential-based expansion versus the typical population-based expansion, which most companies do. We are thoroughly encouraged with the progress. We've added close to 5,200 towns in a short period of time. We will end the year with more than 8,500, close to 9,000 towns and villages. And we've been encouraged with this, all our metrics, all our action standards are being met. And we are looking at advancing this from a 3-year program to shorten it to actually end up our entire coverage model in 2 years. And this is really, really helping us to drive growth for rural as well.

Sir, any color that you can give in terms of the cost of doing this exercise? I mean, vis-a-vis a traditional channel where you go to a wholesaler who -- really doing directly here. What kind of a potential do you see? What kind of written investments that you would expect going there?

Sales, when you look at diminishing returns and you compare it versus the current WAN cost for sales. In fact, additional expansion that we are doing by going to more number of towns, we will be also looking at optimizing the current [ grand road ]. So if we are typically at a 18% cost to sale in the WAN kind of markets, the Khoj initiative is currently we are at 20%, 22% cost of sales that we envisage over the next 2 years, that will also start coming down in the 18%, 19% cost of sales range. Because we are looking at all the other action standards that, in terms of our frequency of coverage et cetera, and the optimization will help us consolidate the routes and deliver the right kind of cost.

Yes. Sure. So that's right. And actually, in your opening remarks, sir, you also alluded to some numbers in terms of the distribution reach. If you can just repeat that again, if you don't mind? I mean, on the rural projects [indiscernible]? 5200 towns which have you in your reach. Also, how many direct outlets we reach and what kind of healthcare outlets reach in that numbers can be shared?

Right. So if I just repeat that, in the opening remarks, what Mohan-ji has said, we've added 5,200 rural towns in this year. And we -- this is still as on date. And what I've added is we'll probably end up at 8,500 to 9,000 villages in this year. And in a direct reach sense. So we'll maintain our stores in, yes, at [ 9.3 lakh ], which includes both our direct and rural footprint. And we will add close to with this additional 8,000-odd towns, we will add close to 45,000 to 50,000 stores by the end of the year.

We have next question from the line of Shirish Pardeshi from Centrum Capital.

Hi, Mohan-ji, and Rajesh-ji, and the team. I have a few questions. The first question would be the Fair and Handsome, we have complete -- So tell me, initial feedback, the new product, what we have rolled out, what is the response? And has it gone to an entire country or it's still in the verge of getting implemented?

Shirish, we have launched across India, and the new product and campaign has been there for quite some time now. But there is some discretionary pressure on the -- there is some pressure on the discretionary products, and Fair and Handsome falls into that. But despite of that, we have grown in the product i.e. Fair and Handsome, but -- We are, again, aggressively launching our campaign now because the season is approaching now for [ marriage ].

Okay. My second question is on the healthcare. Exactly what contribution comes from the Ethical and Ayurvedic other than OTC?

For the Healthcare business, Ethical contributes to about 25%.

And that includes the pure-play headwinds? Excluding OTC.

The medical -- The medical parts, the doctors' parts.

Okay. And could you spend a minute, I think, since the time you have taken over, I've been personally experiencing that the company is very positive. So where do you stand in terms of the reorganization, in terms of the entire healthcare business, in terms of the geographic expansion, in terms of coverage, in terms of product launches? And what is the learning over the last 2 to 3 quarters?

So actually, I think from the [ 2 to 3 quarters ], we get aggressive launches, as you are aware for [indiscernible]. We had a number of launches both in the immunity segment and some on nonimmunity segment. So immunity segment products such as Health Juices, Tulsi and Haldi drops, [indiscernible], did particularly well, especially until about Q3 last year and in Q1 this year. But then after the pandemic, it came down, they sort of came to much lower levels. We've also done some launches in both the Medical business and OTC business of other categories, which we are doing test market in some states, and we hope to gain volumes in the coming quarters. We have also done a reasonably good expansion in smaller towns, in terms of [ eco ] coverage. So we are targeting our distribution coverage for the OTC business to go up by something like 20% this year. This should be mainly in up-country markets, which we have been covering probably not to the fullest in terms of the market potential. We are also trying to scale up our e-com business, modern trade business, both through increased listing coverages and also more marketing investment going in modern trade, in online marketplaces, and also on our D2C platform Zandu Care. So whatever we've seen at states, some of the downside coming in due to the corona immunity products, we are working on making up through increased distribution expansion, increased focus on NPV losses and gains in market share in some other categories where we have a relatively low market share.

Okay. If I may ask 1 follow-up on Mohan-ji's commentary that healthcare speed at which we have grown last year has come down. But is that the traffic on Zandu online D2C platform, we've also seen for slower growth?

We did see a bit of a slowdown in Zandu Care after June and from July onwards because during the period of probably the last 12 months, products like Chyawanprash, Kesari Jivan, and many of the immunity-based products were doing very, very well. And that's probably in line with what the market trends are also. So if you see Google trends also, many of these categories have seen a slow down. So to that extent, it's followed the market curve actually.

Okay. Okay. Mohan-ji, my question is on these [ sufferings ] last 6, 7 months, how much price increases we have taken and what is the weighted inflation which we are facing at this time?

So, Shirish, we have taken roughly about 3.5% price increase.

And what is the inflation we are facing now?

So right now, the inflation is.

Hi, Shirish-ji. So through the price hikes, we are a kind of maintaining our bottom line, so our dollar profits, we are kind of maintaining. But since our gross margins are so high, so we are not looking at protecting margins, not taking INR 3 buyback for every INR 1 increase in costs.

Okay. Okay. Just last 1 question, Rajesh-ji, since you are there. What is the amortization now which is left? And if you can spend a minute how much -- how long we will be amortizing now for the acquired rent?

So another 3 quarters. So bulk of the amortization would be over in another 3 quarters at the same rate. So by the end of June '22, we will be done away with our Kesh King, intangible assets amortization. And then a small quantum of the other intangible assets Creme 21 which we have would remain.

So for the full year, the tax rate would remain in the same range?

Yes. We can assume 20%, 21% in that range only.

We have next question from the line of Prakash Kapadia from Anived Portfolio Managers.

A couple of questions. If I recollect, you were also focusing on larger chemists, which were, I think, 10,000 in number. We were having a focused approach to increase the contribution from the top 10,000 chemists. So any update on that? Secondly, on Kesh King, shampoos were around 20% of our overall sales. So is there a focused approach to grow that in the percentage terms? And lastly, on Zandu Healthcare. Historically, Pancharishta and Nityam have been around 70%, 75% of sales. So you know to help us understand better, if you could dissect the turnover of Pancharishta and Nityam to Zandu last year during COVID times? Give us a better picture of what the contribution of immunity products were. And directionally, for the Zandu Healthcare division, what -- are we doing incremental grow structurally because it has 1 of the best products, and it's a very solid brand? So the next 4, 5 years, what are we doing to double our sales in Zandu Healthcare division?

So Prakash, first, let me answer the Kesh King. In the Kesh King range, the shampoo, which was almost 20% contribution about a year, 2 years back, it has reached to 27% now. So definitely, the shampoo is growing faster than the oil business. And we have very recently, only in the last 10 days, we have launched the anti-dandruff shampoo in Kesh King. That would further take away the percentages to, I think, about 32% to 35% in the next 6 to 8 quarters. That is the kind of approach we are taking for Kesh King shampoo. As far as the chemists outlets are concerned, let Vinod answer your question, and then I will ask Gul Raj to take the [indiscernible] question.

So the chemist expansion is very much on our radar. And what we are currently doing is we are segmenting the chemist basis, the chemist potential, and the market potential of our participating categories, and that will then give us a pareto chemists that we need to cover. The -- Yes, we are looking. So we've tied up with agencies who, like IQVIA, who give us access to chemist stores at a [ beat ] level and a city level. And we use concentration curves and you look at -- even if you look at the data, around 120 cities contribute to more than 75% of chemists business, and that will be our focus in the top cities, the to chemists to improve our coverage and improve our quality of presence.

So, yes. Earlier, we had a very high dependence on Pancharishta and the Nityam brands, Mr. Prakash. But I think over the last, say, 1 year, we try to grow the saliency and contribution of other brands also such as Chyawanprash, such as some of our new launches. And we've seen some of the new launches do particularly well such as products in the respiratory segment, products in the immunity segment, and even in the Health Juices segment that we launched. So we are trying to broad base our portfolio to reduce dependence on a couple of our power brand as you see. And to answer your other question on how do we -- what are we planning to do to sustain the growth at a structural level, we have been adding, as I said, improved coverage by way of at increasing our coverage in retail outlets by about 20%, which basically means that we are increasing our outreach not only in the OTC business, but even in the medical business, where we are going to more doctors and more outlets, and thereby reduce our dependence on the wholesale business, the wholesale segment. This particularly helps us not only for the power brands, but even for the NPD launches. That's at 1 level. At another level, we are working significantly in a very focused manner with our internal CFT teams, with our R&D teams, to continue to develop products which are differentiated, which have basically a much better consumer connect in terms of the product proposition and the benefit proposition. And we've seen some launches that we've done in the last 12 months which are paying results in terms of both NPD launches and improvements on our current power brands extensions. At the third level, we are continuing to invest on improving the business through new product launches and existing launches on our e-com platforms. And that will be a continued focus area for us, because we do believe that the Zandu brand name and equity, we can actually increase our portfolio and reach out to the millionaires in a much better manner through the e-com marketplaces. So we have taken significantly higher growth in these [ timings ].

Okay.

And Prakash-ji, just to give you 1 data like about 2 years back, Pancharishta and Nityam were almost at about 50% of our healthcare business. And right now, it is at about 35% for the dependency of Nityam and Pancharishta has come on significantly,

And the point of the ethical division, what is the growth opportunity there? Because some of the products which you mentioned have gained acceptance, and feedback has been very good. We were earlier also trying to launch certain diabetic products, and ethical-based products in certain key markets and beta testing was going on. So is that going to be a new driver to higher growth?

I think there is an equal opportunity in both the Generics and the branded Ethical segment. The short-term growth opportunity clearly lies in the generics business, because that's a business which we have been underleveraging so far because of maybe [ Man Power ] and our own coverage issues. So in the next maybe 6 or 12 months, we do see higher growth coming in, and we've already seen those growth coming in the Generics and Classical business. The Ethical business or the brand Ethical business takes some more time, because it requires a lot more effort to be put into display, other brands on the doctor's prescription list. So that's a slightly higher or a medium-term opportunity, which also requires higher investments. So -- but we are working on both opportunities as I've said in the short to medium term, we see more growth in the Generics and Classical and in the medium to long term on the Ethical business. But there are clearly opportunities properties in both the segments, or both the categories.

Sure, sure. That is helpful. And just 1 data keeping question. Rajesh, if I look at net working capital, it's a slight increase on a year-on-year basis, half 1 versus half 1 of last year, any one-offs here? Or is it higher inventory?

No, it is primarily on account of some higher inventory due to building up the stocks for the winter season and also some bit of our receivables have gone up because of good institutional business, and some bit of new launches. So some credit has been in the market on account of these 2 businesses.

Thank you, and wishing all of you a very happy Diwali and a prosperous year. Thank you.

Thank you, sir. Ladies and gentlemen, that was the last question. I would now like to hand the conference over to the management for closing comments. Over to you, sir.

Thank you, Percy. Thank you, all the participants, for joining us in this meeting. Wishing you good a health and a very happy and prosperous Diwali to all of you. Thank you.

Thank you very much, sir. Thank you, ladies and gentlemen. On behalf of IIFL Securities Limited, that concludes this conference. Thank you for joining with us, and you may now disconnect your lines.

Thank you.