Emami Limited (531162) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Emami Limited Q4 FY '24 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 Limited. Thank you, and over to you, sir.

Hi, everyone. Good evening. It's our pleasure to host the management of Emami Limited for their 4Q call. I have with me on the line, Mr. Mohan Goenka, Whole-Time Director and Vice Chairman; Mr. Vivek Dhir, CEO, International Business; Mr. Gul Raj Bhatia, President, Healthcare Division; Mr. Manish Gupta, President, Sales; and Mr. Rajesh Sharma, President, Finance and IR. I'll now hand over the call to Mr. Mohan Goenka, who will take you through the presentation, and then we will open up for Q&A. Over to you, sir.

Thank you, Percy. Very good afternoon, ladies and gentlemen. Thank you all for joining us today. It's a pleasure to have you with us as we reflect on the performance of the past quarter. I'm pleased to share that we have navigated through headwinds with our ongoing efforts on distribution and brand building yielding positive results, reporting a volume-led revenue growth during the fourth quarter. Notably, the rural market is also witnessing a recovery, which bodes well for our future prospects. While consolidated net sales at INR 881 crores grew by 8%, revenue from operations at INR 891 crores grew by 7% over previous year in Q4. Our domestic business grew by 8%, with a healthy volume growth of 6.4%. Coming to our brand-wise performance. Pain management grew by 9%. Health care grew by 10%, and 7 Oils in One grew by 20%, BoroPlus range grew by 33% on account of extended winters while Navratna and Dermicool posted growth of 1% during the quarter. Male Grooming range and Kesh King range were impacted on account of lower discretionary consumption and declined by 2% and 9%, respectively. However, we believe this is a short-term issue, and both the brands would bounce back once the market recovers. Further, I'm happy to share that Helios and Brillare Science continue to grow robustly by 86%. During the quarter, we launched Nature F1rst healthy radiance range under Fair and Handsome brand and also introduced 4 digital first on Zandu Care D2C portal. Increased distribution through Project Khoj resulted in additional coverage of more than 20,000 towns in rural regions since the launch of the project. More than 15% of our direct rural sales were achieved from these newly activated coverage towns. Further, our sales enablers like upsell/cross-sell tool, beat optimization and chemist outlet expansions were also scaled up during the year. Additionally, our contribution from modern trade at 10% increased by 110 basis points, and e-commerce contribution at around 12% increased by 290 basis points in FY '24. Despite geopolitical crisis and currency depreciations in key geographies, our international business grew by 9% in constant currency and 8% in INR terms, driven primarily by MENAP region. In FY '24, sales of 7 Oils in One crossed INR 1 billion in the international markets while Creme 21 also registered its highest-ever sales. Our international business further strengthened its portfolio by introducing a range of shampoos and conditioners under 7 Oils in One brand and the baby care range under Creme 21. Our gross margins at 65.8% expanded by 270 basis points. We invested strongly behind brand-building activities, resulting in 39% growth in A&P spends in this quarter. Despite such investments, EBITDA at INR 211 crores grew by 6%. For the full year, we achieved revenues of INR 3,578 crores, with a growth of 5%, with gross margin of 67.6%, expanding by 290 basis points. EBITDA at INR 950 crores grew by 10%, with margins expanding to 26.5%, an increase of 120 basis points. Our profit after tax at INR 724 crores grew by 13%. Looking ahead, we anticipate an improvement in consumption, both in urban and rural markets, sustained by optimistic prospects for the rabi crop and a forecast of normal monsoons. Our commitment to investment behind our power brands, expanding distribution network and enhancing capabilities position us favorably to seize market opportunities. Our outlook for the coming quarters remain positive, with a strong summer season and forecast of a good monsoon. We will continue to be focused on our objective of achieving sustainable and profit-led volume-driven growth and amplifying our new growth engines. Favorable macroeconomic indicators, accelerated expansion efforts across emerging channels and strategic initiatives alongside our robust innovation pipeline coupled with sustained investments in core brands will propel us forward -- will propel us towards strong growth in the days to come. I now open the floor for Q&A. Thank you.

[Operator Instructions] First question is from the line of Arnab Mitra from Goldman Sachs.

Mohanji, a couple of questions from my side. So you mentioned the rural pickup. Are you seeing it in your own sales numbers? Or is it more a reflection of the Nielsen data, which is, I think, now showing rural going a little ahead? So just wanted some sense of what you're actually seeing on the ground in the March quarter and also in the June quarter till now.

Arnab, I'm talking about our internal numbers, not so much from the Nielsen. Of course, Nielsen also in the last 4, 5 months, they have been very bullish on rural, but internally, also, we are seeing some signs of recovery from all corners. So -- and which we are also seeing in this quarter. So hopefully, this trend continues both in the urban and the rural areas.

Sure. And Mohanji, this quarter specifically, other than BoroPlus, which is obviously a bit seasonal, the nonseasonal categories like pain and health care have also seen some pickup. So do you think there is something overall like improving at that end? Or would you more put it down to the distribution initiatives on your side?

No. So Arnab, as you know, our distribution initiatives have been going on for quite some time now. The Project Khoj has been there for last almost 6 to 7 quarters. But definitely, there is recovery we are seeing across channels, and there is momentum both in health care, in pain, in summer portfolio. So there is some kind of a recovery, which we are seeing across channels.

Sure. And my last question was on margin. So in this quarter, specifically the GM increase was more than offset by the advertising spend increase. Is this a trend you expect in FY '25? Or do we see actually some EBITDA margin expansion also if the growth remains reasonably healthy?

So on margin front, Arnab, we are well positioned. That's why we could spend -- 39% growth we have seen this quarter also. We would want to spend on our core brands for growth. That is for sure. If the momentum continues, our advertising would also go up. But because the input side input is benign still, so there might be some margin expansion in this year, what we expect.

[Operator Instructions] Next question is from the line of Harit Kapoor from Investec.

So my first question is on the summer portfolio. So if you look at Q4, obviously, the summer portfolio growth has been -- has not been great. And I guess it was probably due to a delayed winter. But I just wanted to get your sense about how the first quarter has kind of moved at least the initial trend. It looks like it's been a strong summer, and most categories are going to see a pickup. So I was just wondering if you are seeing that in your performance as well at least from a summer perspective.

Yes. So Manish is on the call. Manish, would you like to answer this?

Yes. Do you mind repeating the question? I couldn't get it properly, if you don't mind that.

Yes, my question was on the summer portfolio and what's the kind of pickup that we've seen in the last 1.5 months, 2 months given that it's been a fairly severe season this time around and whether you're seeing that in your numbers.

Yes. So the good news is, yes, we are seeing it absolutely on the numbers. I mean the summer this year, as you rightly said, has like been extremely severe, and we are benefiting from that.

Got it. The second thing is on the ad spend. So Mohanji, you've got a 20% kind of A&P-to-sales ratio, which you haven't done as such consistently. I was just wondering with the market outlook improving a little bit, do you see pace of innovation kind of further picking up over the next 12 to 18 months? Because I remember you're saying that we are ready with a lot of things, but the market is not conducive, but with the market now picking up, do you see more news there? I know you have done 35-plus new products and variant launches, but just wanted to get your sense on that. And how does that reflect on the A&P side as well?

So very much, Harit, I think we are well positioned now and a lot of new launches are in the pipeline. You would definitely see some coming in, in the next 2 quarters. So yes, we are bullish now. We are well, well settled both in terms of distribution, innovation, margins. So we would be aggressive, very honestly, going forward.

Sure. And last thing was on pricing. So typically, you might have a 2% to 4% type of a price increase trajectory on an annual basis to take care of not only COGS but also the other OpEx. So just wondering whether you've actioned some of that already? Do you expect that happening during the year? How do we see that?

So Harit, honestly, we would not be very aggressive in terms of price increases because the input, as I said, are benign. We are expecting EBITDA margin expansion despite of less price increases. Price increase, we expect not more than 2%, 2.5% in this year.

Next question is from the line of Mr. Percy Panthaki from IIFL Securities.

Very interesting to note the growth in the sort of new-age brands, Brillare and Man Company. Can you give some idea on how big those brands are, if not in absolute rupees crores or some indication, in terms of what percentage of sales do they contribute to this quarter?

Rajesh, how much is, in this quarter, for these 2 brands?

So both TMC and Brillare would be contributing over INR 200 crores kind of to our revenues for the full financial year this year.

Okay, on a full year basis. Okay. And are you also seeing like a good quarter-on-quarter ramp-up? Or I mean it's more or less equally spread out throughout the quarters?

It's slightly increasing quarter-on-quarter going ahead. So this quarter also, if you look, our growth has been significant at more than 80% compared to overall 60% kind of a growth for the full year.

Understood. Secondly, I just wanted to understand what is the pipeline inventory as of end of March? Is it higher than what it should be around that time of the year? Or is it lower than what it should be at that time of the year? How are you placed on the pipeline both in the distributor as well as the other parts of the trade?

Manish?

Yes. So for the month of March because, as you know, we start loading for the summer. So like-to-like, I mean we are in a good situation. There are a couple of concerns which we have addressed in the month of April and May, but nothing to be worried about.

So would I be right in assuming that actually the summer sell-in would have been sort of lower than expected because the onset of summer was delayed? Or that's not the case?

No, no, not really. See, the onset has an implication on the tertiary and the secondary part. But from a loading perspective, we were pretty much in line with how the things worked out. So we typically start in the month of February onwards. So no change...

Understood. Understood. And how would this affect your primary sales for Q1, if at all, there is any effect? I mean there should be because the loading has already happened, but the sale has been delayed because of the delayed onset. Do we see the sales sort of being a little softer in Q1? Or that's not the way to look at it?

No, no, no. See, I think one change which we have made consciously is that to be prudent about what kind of loading we do in quarter 4 as we are into Feb and March. So we've been very cognizant about it. And thanks to a great summer start, which has happened. I mean, actually, we are right now in a very good situation in April and May. So you won't see a softer Q1 to that extent.

Understood. Also on Kesh King brand, what really is that brand? Why are we seeing declines in this? And I mean if I look at the brand history over the last 7, 8 years since you have acquired it, it has been a roller coaster ride. There are some years in which it does very well and then some years in which it sort of stagnates or declines. Then some initiatives are taken due to which, again, we see a strong growth, and then again, it declines. So what really do we need to have a more steady, stable, modest growth in this brand? And what is currently the problem that -- in the brand due to which there is a decline in the sales?

So Percy, if you see last 5 years CAGR, Kesh King has grown at about 4%, okay, which is in line with many of our other brands. Of course you are right that there is less of consistency, but we are taking a lot of steps for Kesh King to see that we grow at about 5% to 7%. Of course, there has been a lot of competitive intensity in this category, not just from some of the other brands but also some of the D2C brands. So we are just reworking on this to see how we can grow at 5% to 7% consistently on Kesh King. We have aggressive plans for shampoos under Kesh King.

Understood. Understood. And the other area which has not been doing well since quite some time is the Male Grooming range. So what are the plans to revive that? We have tried different things. We have launched different products. Some have worked, some have not worked. A few years ago a problem was identified that the face is getting covered with beard, and therefore, people are using less of this. But how do we -- I mean I understand all the issues. But is it possible, first of all, to tackle these issues and bring the Male Grooming range back to a healthy growth? Or you think that this is a structural issue and we have to live with it, and therefore, the growth will be lackluster in this subsegment?

Percy, we have taken some very interesting call for Male Grooming. Though we have been growing very aggressively as far as The Man Company is concerned, but yes, Fair and Handsome for the last few years is struggling. We have made a note of it, and we have reworked on the strategy. You would see some things coming in the Q2 of this year.

Okay. Understood. So when you are giving these numbers of Male Grooming, which is minus 2% for Q4, it is excluding The Man Company? Or this minus 2% includes The Man Company also?

Excluding The Man Company.

Excluding.

Next question is from the line of Shirish Pardeshi from Centrum Broking.

Just 2 questions. I think Manish alluded saying that the season has panned out very well for Navratna. What is the growth which has panned out in BoroPlus? I mean is there any separate initiatives we have taken?

Shirish, you mean in the first quarter for BoroPlus?

Yes. Quarter 4 BoroPlus growth is much stronger.

Right. That was for -- there was delayed winter. So that's why we saw that growth. But Q1, BoroPlus is very, very small.

Extended winter in Q4.

Extended winter, sorry, in Q4.

Therefore, my question is that we might have seen the extended winter and growth is better. But if that inventory is getting stuck, I understand that quarter 1 and quarter 2 will be a slower saliency for the BoroPlus. But is there any specific beyond winter effect that has happened?

No, not really, Shirish. It is just due to the extended winter.

Okay. Mohanji, my second question is on the international business. Again, international business has been a little volatile when you look at last 3 to 4 quarters. What is the steady-state growth we are seeing? I mean maybe 2 years before, we have done a lot of changes in the international business. So maybe if you can add, what kind of pains we are struggling and seeing at this time? And what kind of growth we are aspiring for FY '25?

Okay. Vivek?

Yes. So international business has been really stable, even post COVID as well, it is not 3 or 4 quarters. It is around maybe last 12 quarters, you'll see numbers are happening. So fundamental strengthening of the structure in each of the geography is also happening. We have also made some recent changes in Nepal to pave the way for the local manufacturing maybe 2 years down the line. So the things are happening. And branding, we're doing local innovations in many countries. We are doing the manufacturing, and manufacturing is further led by localization of procurement as well. Many things are happening altogether to have a permanent growth in the international business. And we will have double-digit growth in coming quarters as well. So we don't have any concerns per se, apart from, say, political disturbances or the currency issues which are happening to us in, say, Bangladesh or Russia. Currencies have tanked for us. Political issues have happened. Bangladesh has seen some election time during the month of December and January. So those are macroeconomic issues [Technical Difficulty]. I hope I had -- yes.

I got that. My second last question on the D2C brands. Rajeshji, would you be able to quantify what kind of revenue contribution or absolute number we would have got for these 2 companies, Man Company and Brillare, in FY '24? And what kind of profitability or losses we would have booked for the entire year?

So both put together, TMC and Brillare, we got turnovers of over INR 200 crores for the last financial year. And of that, the bulk of the revenues have come from The Man Company, which is where it is now EBITDA positive since last year. So there, we are not incurring any losses anymore. Brillare being a smaller contributor is still in investment phase and has good plans for growth going ahead.

Okay. Okay. My last question, have we taken...

The loss -- but the loss on Brillare has come down significantly.

Right.

That's what I wanted to check. But then anyway, I'll take it off-line. Just last question on the margin front, are we aspiring -- because most of the FMCG companies are saying that there is a chance that they might take some price increase, so have we implemented any price increases in last 40, 50 days or planning to take in next 40, 50 days?

Yes, we have taken some price increases in some of our portfolios, Shirish. But as I said, for the year, it would not exceed more than 2%.

[Operator Instructions] Next question is from the line of Nillai Shah from Moon Capital. Mr. Nillai, we are not able to hear you.

Sorry, is it better?

Yes, we can hear you now.

Okay. Mohanji, there is one question from my end. In terms of fiscal '25 growth aspirations, what would that number be, given the fact that the summer seems to have worked out well, which has laid into 1Q, as Manish mentioned, and then we've also -- we'll be cycling basically 2 back-to-back weak winter seasons. So would you say a double-digit growth is something that Emami should be aspiring to for fiscal '25?

Definitely, Nilesh (sic) [ Nillai ], I think as the summer has started well, and you are right, we have lower basis for winters. So we definitely expect more than 10% growth for the financial year. Hello?

It seems that we have lost the connection from the current questioner. We will move to the next question from the line of Harit Kapoor from Investec.

Follow-up, I guess on the distribution side, the last couple of years, we've seen GT lagged quite materially in terms of growth, while we've done very well on the new channels. I was just wondering whether this decline in GT has kind of narrowed in the last quarter or 2, especially with rural improving a little bit. So just wanted to get your sense on that as well as, obviously, your own initiatives in GT. So just wanted to get your sense on how that channel has done over the last, say, 3, 4, 5 months.

Yes, Manish?

Yes. If you don't mind, could you repeat it? I'm on a line which is a little sketchy, so if...