Godrej Consumer Products Limited (GODREJCP) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the conference call of Godrej Consumer Products Limited, hosted by Emkay Global Financial Services. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Ashit Desai of Emkay Global. Thank you, and over to you, sir.

Yes. Thanks, Janice. Good afternoon, everyone. We welcome the management of Godrej Consumer on the call today. From the management, we have Sunil Kataria, Business Head, India and SAARC; and Mr. Sameer Shah, Head, Investor Relations. So we'll directly begin with the Q&A session. And Janice, over to you to handle the Q&A.

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

My first question is on the health hygiene platform. So we have seen companies report go down in the past few months. So I wanted to understand, if 100 was the base in Q2, how is the industry or your numbers shaping up in the health and hygiene, sanitizer, wipes and all those products typically for the COVID response?

Abneesh, Sunil here. Yes. So the way the hygiene category is doing, first of all, within hygiene, there are multiple formats. So I think that itself, there are differences between the way formats would be moving. So the bulk of hygiene category is obviously hand hygiene, and that's one of the category which has seen the most traction in both soaps, which is itself the largest component of hand hygiene still in India and will remain so, and hand washes. And then there have been the new categories which have been emerging over the last 6 months, thanks to COVID, which are things like disinfectant sprays or, let's say, room freshner sprays, which are more hygiene related. So I would put this into the 2 parts. That there's a core hand hygiene and there are maybe just new categories which are emerging. Now the way it's happening is, we are seeing in hand washes itself, the penetration of the category has changed pretty fundamentally over the last 6 months, thanks to this whole outbreak which has happened. The category penetration of hand washes in India is roughly gone up by 1.5 to 1.7x, and that is the kind of traction which is happening in the category. It is happening both in urban and rural. In terms of soaps, which again, is seeing a very significantly decent consumption increase and traction, it is primarily because of, I would say, 2 reasons. One, yes, maybe more hand washing is happening and secondly, maybe there is people are taking more precautions and protection because of extra bathing which may be happening as well. This put together, I would say, hand washing 1.5 to 1.7x, soaps, obviously, 100% penetrated category, it is seeing a consumption increase. So I think this is too happening. The third part, which is a new segment emerging, they are very, very small right now. And I would say it's a little too early to call as to where will this stabilize.

But you are not unduly worried on the third part?

Okay. It is difficult to say, where will it stabilize, but I would put 2 big -- 2 categories which are maybe emerging more in this one is sanitizers, which otherwise was always a very, very insignificant category in this country. The one which is -- and the second one which is newly emerged is the disinfectant sprays. I think they are both very, very small in the larger scheme of FMCG hand hygiene -- over hygiene itself. My feeling is what will happen is that we may have seen a very, very abnormal spike in the last 6 months in these 2 categories. They will definitely come down very sharply. They have already started coming down sharply, but the good part is that they were completely marginal and negligible, I think they will settle down at a space that they will have a reasonably decent threshold level in the country. So hence, I'm not too bothered, because in a pre-COVID period, they never existed in this country. So even if they stabilize at a reasonably lower threshold level than the spike, I think they will start becoming meaningful categories for the future.

Right. My second question is on distribution. So in kirana, clearly, customer is relying much more than pre-COVID. So there is more products being catered to by kirana versus earlier, non-FMCG including. And within FMCG, every company has come out with 30, 50, 70 new products. So -- and this is leading to FMCG companies rationalizing their portfolio because you have less shelf available. So how are you addressing SKU rationalization? And on the other hand, new products which you have also launched, plus now slowdown are happening in some of the new products. If you could discuss that part.

Okay. So actually, I'll again handle this in 2 parts. So one is that, in any case, the kirana -- I mean the whole GTM in India was pretty much operating in a very, very, I would say, partially broken system till, let's say, 2 months back, right? trade, for example, is still to come out of the structural changes it has seen. So in this time period, obviously, general trade and e-commerce are the 2 channels which have really got the boom. And general trade more because I think of their own entrepreneurial spirit and the way they responded to the needs of the local neighborhood. Now coming to your question, yes, there have been a flurry of NPDs which have happened across many portfolios. What will happen in this that there will, again, maybe 80-20 or 70-30 principle is shaping up, where you will find maybe 70% of the traction is coming out of 30% of the launches or 1/3 of the launches. And I think those are the ones where the further investments are going to go. And that's something which is even the way we are also seeing prioritization. But yes, there are some which are really, really stabilizing to a decent threshold level. There could be categories emerging for the future or in some of the cases where the categories pre-existed, you see that you start getting some threshold level of base. I think we'll all be prioritizing in that 70-30 ratio in terms of categories. And hence, those will also start showing in as [ due to ] kirana opens up more and more -- in a more formal way like earlier, you will also see the shelf space also get -- start getting distributed in that way. So I think that is one principle which is panning out. The second piece which is happening in terms of the SKU rationalization, I think this is an exercise, which we, in any case, do once in 2 years otherwise also. But yes, having said this, I think we have actually ourselves also gone through this exercise in the last 60 days again because this COVID also made us step back and say, okay, are there any SKUs which are -- or any products which may not be required in the future new normal. And we have done some SKU rationalizations, we have decided to do away with a tail that we thought that was not going to be relevant anymore. So I think these 2 pieces are the ones we have taken charge on.

The next question is from the line of Manoj Menon from ICICI Securities.

A couple of questions actually from my side, which is more of from a clarificatory nature. One is that, when I was listening to Sunil in some of the other public forums, media, which he was presenting, one, I remember, Sunil, you spoke about the changing the -- the changes which is actually happening in the GT distribution landscape and how companies like you which are actually market leaders in the certain categories could take advantage of. So I remember one of the statements you made that, let's say, GT today could be servicing a larger area than what he was doing previously. So that's question number one. Just some clarification comment from your side for the larger audience? That's point number one. Point number two, on the HI business in India, specifically, what I find is that while there is a general consensus that health and hygiene habits which has changed in the last 9 months, let's say hand wash, for example, is something which is sustainable into the medium term. But I'm not sure whether, let's say, from an investing community point of view or the consensus point of view, is it appreciated well enough that -- is this something which sees a template to be applied even for insecticides in India. For example, as a consumer, if I had actually used mosquito repellant for more number of hours and in more number of rooms in the last 6 months, is it something -- basically has the consumers have been staged in insecticide fundamentally? That's the first 2 questions.

Okay. So Manoj, let me take the second one question first and then I'll come to the GT one. Okay. So obviously, while I think there's one change which is definitely happening in new normal is that overall, I think, India and Indians now would be much more health conscious than we were ever before. See as a country, as a society we have -- never had a very great sense of civic sanity, I mean that's something, unfortunately, the way our country has evolved. The way our society has evolved. In terms of health also, we tend to take a lot of things for granted and say, okay, it is more a reaction -- action that will happen from us rather any proactive move which will happen. So I think there's one overall theme which is irrespective of category which is happening is that there will be more proactive sensitivity towards health by and large. Now obviously, what we are seeing right now in this template and what we may have experienced in the last 8 months is something which is led by a lot of panic. I think that's something which has a hand hence, I don't think that this template of panic-led proactive actions apply to HI per se. I don't think so that's something which, as a template, would apply to HI. What could apply forward, and I'll tell you there's a action which we need to take from our end to leverage that. So what could apply is that if earlier, let's say, on a scale of 10, Indian's attitude towards proactive health conscious was a 4 on 10, my feeling is that moved to a 6. Now that's a window of opportunity for all players which play in the health segment. And in that sense, HI is all about vector-borne diseases in this country. So that is actually categories lands bang in there. Now having said this, this is not something that the template will suddenly will start playing out overall. What we'll have to know, obviously, is keeping this backdrop in mind we'll have to obviously create lever for category growth. To just give you an example with 1 data I can tell you, is that even in this COVID time, the HI penetration in the country in the last 6 months has jumped significantly, if that is any indication. But that is, I think, because at this time, that a lot of these preventive panic-led actions happened and everybody obviously wanted to be wary of any kind of disease at that time. But I think this window since it comes our way, we have to back it up with a product which will drive category trials because we are the category leaders. So that's a window of opportunity which I think comes our way. So that is one area where we will be very focused in. Secondly, there is clearly a window of opportunity coming our way in terms of launching products which are seen as much more efficacious and drive premiumization in the category. So I think in the back of this, these 2 are the levers that we will be focusing on. And I can talk to you on this a little bit right on this question. We are very clear that category trial generation responsibility lies on us as a leader, and we know this category has its own seasonality. Those are separate challenges altogether, which we can't wish away. But we are working and in a matter of maybe next 6 to 8 months, we would have 1 or 2 very, very disruptive launches which we believe can help us accelerate the category trials -- new trials further. That's one. And then secondly, 2 launches which I can talk of, which we have already done, is, one is the GK Gold Flash, which is a premiumization and upgrade opportunity from the coil and the burning format, which I think is a piece which is working very, very nicely for us. And the second one, which has just rolled out, which I am pretty bullish about, is a product called Goodknight Smart Spray. And this, we may not have shared right now too much publicly, but I can talk about at this forum is because we've just rolled this out around 30 days back as a test market in Andhra Pradesh. And let me tell you what this product for the benefit of all the audience here. It is a product, which in my mind and from all our tests, is maybe the only comprehensive, complete solution of HI which ever exist in this world. It is a spray which is a no-gas spray. It has no gas into it. It's a non-gas formulation. It is instant like any other spray, so it gives you SOS solution. But any -- like any other SOS aerosol spray, it helps a 8-hour longevity. So it actually combines the longevity of electric format or a burning format and the instancy of aerosol, and all this comes in a no-gas formulation. So this is a pretty disruptive product that we have launched, and we've launched it under Goodknight brand and not under Hit. So this is a first Goodknight formulation which comes under as aerosol base a non-gas formulation. So this kind of product, I think, can seriously lead to a very different consumer behavior in upgrade and premiumization. Now coming to your second question -- the first question, which is a GT behavior. What I mentioned, I know Manoj was what you might be referring to. When I said that the GT is going to see an expanded coverage, what I see one big change which has happened. The piece I was referring to was that definitely, there's an omnichannel piece which is a very, very large piece shaping India right now. It is also one of the most confusing influx pieces that we are seeing. It is changing by maybe every 6 months. There are too many boundaries of traditional channels that we had all lived with. For example, this is modern trade, this is GT, this is e-com. They are all blurring. Therefore, it's being called omnichannel. So what is going to happen is, let's say, the example of, for example, Dunzo. If earlier, a neighborhood kirana was only servicing a catchment of, let's say, 1.5 kilometers to 2 kilometers at best around their outlet and that's the neighborhood catchment that neighborhood kirana knew very well in terms of consumer preferences, inventory assortment, credit servicing, home delivery, everything, that was the business model. With things like Dunzo happening, Swiggy, Zomato as last mile delivery happening, we are very clearly seeing that the opportunity in the GT is grabbing is that for that entrepreneurial kirana wala, this catchment is no longer 2 kilometers. The catchment is suddenly maybe become 7 to 10 limiters also. And the planogramming of the store is changing completely. If earlier it was assortment of which catered only to the neighborhood kirana of, let's say, maybe 300 different items. Suddenly, we are realizing that the premiumization in that assortment happening because his boundary has expanded. So I think this is a very, very interesting change that is happening in urban GTM where the boundaries and the opportunity for a kirana are going to be not limited by the physical distance of the catchment.

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

My first question was on the ProClean platform that you have launched in the middle of COVID. So actually, 2 sub parts of the question. One is, was it driven by COVID or was it something that you were already planning and working on? And secondly, in the past GCPL has innovated, it has been based on some kind of a product differentiation which gives you a product advantage. Here, it seems a little bit more of mainstream what is already there in the market. So just I wanted to understand your thought process. Is it that you could become a #2 player in the longer run here. Do you have strong incumbents, but no maybe strong #2 player in some of these categories? Or do you think is it the platform where longer term you will have differentiation on product also?

Yes. I think it's something -- a question you're asking about a very -- a format that we are pretty excited about. So there's been -- I think -- and it's good to know that you are also having excitement about this format. So no, the question for us that both these formats. In ProClean, we have launched, if you see, we have entered floor and toilets, are the 2 segments. And I can tell you, interestingly, we did not do it under Protekt because we see Protekt as a Home & Personal Hygiene brand. So we have extended Protekt to a Home & Personal Hygiene brand, but we have kept toilets and floor part of home out of it because we thought that brand stretch requires a very, very different kind of efficacy and very different kind of brand itself. We had evaluated both these categories as part of our long-range planning exercise around 6 months back itself -- 9 months back itself. And we had seen that these categories were growing pretty healthily in the country, even during the slowdown of India; and B, they were both low penetrated categories in India. Even though there have been incumbents who have done pretty well, overall penetration in this country was still low because it's a large unbranded play which exists in both these categories in the shape of phenyl, et cetera, or maybe price warrior local players. So that's why we -- this category attracted us. Having said that, we always when we enter a category, you're right, we normally come through a strong serious product disruption. When COVID happened, we were already working on some products. But we decided that there was definitely this is the time to make a entry and take a threshold level space in this category even though products may not be highly differentiated. So that's something which we preponed. So hence, we have launched this product because we believe that even if they are not fully differentiated or highly differentiated right now, given that the category has a huge penetration headroom to grow, the category has only maybe 1 large -- both categories maybe 1 very large branded players and no strong national strong brand which has crux behind it as well as distribution might behind it play. We believe that even in this case, we can grab a reasonable level of threshold market share. So I think that's the way I would answer your question. Having said that, we are very clear that our DNA is innovation. So we will parallelly keep on working towards and we are currently working as part of any other categories that we see are there any disruption opportunities in this format also from product angle, and that's something which is a work that we hopefully will continue to do. And if things work out, maybe in a matter of next 12 months or so, we could have some differentiation coming through in this category as well. But yes, this category, very clearly, we are seeing good early signs. And we believe this category is actually not -- while it got heightened during COVID, it's a category which will not dip post COVID because it has got its own COVID-agnostic headroom to grow. And hence, we believe this is a category to really invest in future. And what these categories do to us, see the point would be a larger point I also want to put here is that we have very clearly in our LRP also said that we want to start having a much more diversified portfolio to leverage our business. So what this categories do, along with the other work that we've been doing on Protekt, this makes us a much more diversified home and personal care company. And that is a very strong intent that we have put on the table. And I think ProClean and Protekt both really help us do that. So clearly, we will be investing behind that. And apart from this, if you combine these 2 formats along with our continued thrust behind air care and fabric care, it just this makes us -- I mean, the personal vision for us is we will be a very different home and personal care company with presence across maybe 10 different segments than what we were, let's say, a year back, where we may be limited to, let's say, 4 or -- 4 segments. So that's the way we see ourselves.

Yes. That's very clear, Sunil. And my second and last question is on hair colors. This is one segment where growth has been very erratic. We have seen some good quarters followed by some bad quarters. If you could just throw some light on what's happening within the category is the different moving parts between...

Arnab, you're talking about hair or ear?

Hair colors. I'm talking about hair colors. Yes.

Hair color. Okay, hair color.

Why has the growth been a bit erratic? Is there some changes happening within the category? Why I actually growing as it was expected to grow? And therefore, how do you see the future for you going ahead here?

Okay. If you see the last 9 months, obviously, this category has got impacted because of the discretionary nature, right? Otherwise, the way I see this, prior to pre-COVID, pre-April, yes, the category actually had -- in fact, 2 years back, this category already grown at around double digit. Then the year 2019, what happened during the this category saw a slowdown, but that slowdown was nothing to do this category alone. It was the way all of you guys have been tracking that the whole Indian FMCG went into a serious slowdown, led by primarily rural and even urban came under pressure. And the way GDP came down crashing from 8 to 3 during that 4 quarters, the FMCG saw a fundamental slowdown and this category did get impacted, but the same stress was [ leveled ] across all other of the categories. So I could not -- I would not pinpoint anything which was only an outlier for this category. So that's 1 comment. Already now in the last 2 quarters, what's happened is that all discretionary categories have come under completely come off the racks because the fact is the whole focus was towards prevention and hence, essentials. So they got impacted both on supply chain as well as consumer demand point of view. What is the good news for us is that in the pre-COVID period of, I would say, the 2 quarters pre-COVID, we were seeing huge traction happening in our hair colors business, thanks to some of the marketing interventions that we had taken. And we were seeing a very, very sharp market share gains which were coming our way and reflected also in our core business of hair colors as well. So I think we were actually on a very positive trajectory, and we really kind of -- I was personally pretty disappointed that COVID happened in between. That in a way, almost kind of disrupted some of the brilliant work that we have started seeing results from. We had also launched shampoo hair color during the same last 2 quarters pre-COVID. So a lot of our hair color pieces were -- actually had started gaining traction -- what has happened now, the positive side post-COVID that I personally expected this category which was tracking negative, like any other discretionary category which has gone into a negative growth, and the penetration has also fallen, I expected it to take some time to recover. I was myself mentally prepared for saying, okay, this is going to be maybe a post-COVID 6 to 9-month kind of a recovery. What I'm very surprised is the kind of recovery that I've seen in hair colors in the last 3 months. And I'm being candid here that I now expected this recovery. It has been very sharp, I'm still not very sure that this sharp V-shaped recovery that we are seeing in hair colors is actually going to shape, but one thing has certain is it is not going to take 6 months that I earlier thought. So I'm clear on both the sides. That, A, this recovery is here to stay and maybe India, we are going to see a much more faster bounceback of discretionary. But I would wait for a little bit more time to see how the recovery shapes out. Having said that, the good part is the 2 big pieces that we have put into play in the last 2 quarters of 2019, which is the new marketing mix of Godrej Expert Rich Creme, the launch of Shampoo hair color and the way they were playing all very positively for us, I think we are seeing, again, they're continuing from where we left them off. And that's giving us a very healthy sign. It's also showing in the way our market shares are going from strength to strength in the last 6 months. So I'm pretty positive about hair colors right now. Actually, I'm pretty happy about hair color right now.

The next question is from the line of Alok Shah from AMBIT Capital.

I had a question. So most of the FMCG companies, especially in the health and hygiene category have launched a lot of products. But at some point in time, most of the companies will take a call. This is technical, this is structural. So if you were to call out some 2, 3 brands or categories in which you are ready to pick up the battle, sustainability and do a lot of disruptions and innovations, which would be those 2, 3 categories and brands?

Yes. Okay. So I think in a way, to earlier question also, I talked about it, but I'll repost this answer here. I think very clearly, as I said, that while many of us would have launched many multiple hygiene products during the COVID frenzy. Clearly, that 70-30 ratio is playing out. It will play out. So finally, I think the categories which will be the long-term category within hygiene space for India. One is very clearly going to be hand washes. I'll give you a data also here. And this is something which we can tell you very interestingly. Hand washes have been in India for around 20 years -- 15 years now. The penetration in 15 years moved from 0% to 19% as a category overall, and all led primarily by urban. And this has defied the might of everybody. And what COVID has done, it has taken the penetration in 6 months from 19% to 34%. Now that's a fundamental disruption of this category which has happened. And maybe that's one silver lining out of that it has actually led to a fundamental habit change. Now even if, let's say, it doesn't sustain at 34%, it comes back to maybe a 30% hypothetically, the great piece is it would have taken us maybe 5 years to move from 19% to 30%. So in a way what this has done it actually short circuited the 5-year curve of hand washing in this country. And that [indiscernible] is one category which is definitely now going to go from strength to strength because even if it's let's say over the next 3 months corrects to 30% penetration, there's still a huge headroom to grow in this 30%. I mean we're talking of -- I mean still maybe another 30% to go where we normally start seeing categories getting into slowdown when they are 65% penetration or so, right? So that is one category which is here to stay. The good point for us is that we have got a disruption in this which we had launched 2 months back -- 2 years back itself which is Godrej Protekt powered liquid hand wash. Now this is the brand which has seen a huge traction, expectedly, like most hand washes brand. But what it has done is that it is occupying a very sweet spot, that there is no INR 15 handwash available in this country. The only thing people use other than hand wash is for cheap solution today is soaps. So we have INR 10 soap in the market. And that is what obviously a very large segment in this country. Now this is a very, very easy price point to shift over and upgrade from a INR 10 soap to a INR 15 powdered liquid hand wash. And this is where we have a headstart. I can't disclose the shares right now, but we are seeing some very good strong volume share that we have gained in this segment. And here, we would like to see volume share because we are obviously priced at 1/3 of the normal hand washes. We have [ $15 up to $45 ] . So what I'm interested in is tracking my volume handwash because that's what matters here as to the number of homes I'm reaching. And my task here would be to actually drive penetration in this category. If market share gains happen through conversion and downgrades from other handwashes, that's a secondary task for us. I mean that happens. Our eyes are not on that. So I think this is one category which stays. Secondly, I believe that as a category which is going to evolve going forward, the hygiene is, I think the piece is on disinfectant spray, I think, this is going to be a niche premium category which will evolve, I think, primarily through e-com and modern trade. I don't expect the frenzy to sustain. I expect it to come down. But I think like the way aerosol category has emerged in HI, I think this is an aerosol category which will emerge at a premium and/or hygiene through premium niche channel. So I think that's another play which will happen. And the third piece which I think we talked about -- and this is where I think, Protekt comes in, obviously. And the third one, which I think has seen a huge frenzy during COVID, but which I think is the category which is COVID-agnostic are the toilet and the floor cleaners is the home hygiene category, which is where I think we'll play through ProClean as I talked of internally. So I think between Protekt and ProClean, the good news is we want to, I see us playing in 5 more home and personal care categories. Obviously, all, by and large, between home -- personal and home hygiene. But what it opens up, it opens up a window of 5 more categories for us, and which is we'll keep on disrupting, and we have our own might of both distribution and brand building on which was right. So this makes us very, very excited. This also makes us very diversified.

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

I just had 2 questions. Firstly was on the urban and rural mix. So you've launched a range of products. Most of them are probably catering to the urban middle class kind of market. I just wanted to understand, historically, GCPL has had a slightly lower share of the rural portfolio at about 28-odd percent of India business. Do the categories that we are looking at into the future mean that this ratio probably will not go up probably to 30%, 35% levels? How do we see this kind of mix moving? The reason I ask is because even over the next 4, 5 years, the expectations are that rural should do better than urban. So that's the context.

Yes. Okay. So Harit, there's 2 things -- again, maybe we're panning out. Yes, there are some of these hygiene categories that we are talking about, let's say, the toilet cleaners and the bathroom cleaners, they're obviously urban skewed, right? And actually, the question there is that the penetration of the category is so low in urban itself that, that itself will see a huge amount of growth. But having said that, there are 2 or 3 interventions that we are doing which are very, very rural focused. The one big one which is I just talked about is the powdered liquid handwash, which is a INR 15 handwash. There, the entire focus is to upgrade the INR 10 soap. And the INR 10 soap is a highly skewed and highly penetration category which is led by rural in India. So that's very clear. The most of the soap market -- I mean it's roughly around a 60-40 ratio between INR 10 soaps and the larger soaps in this country, and that INR 40 itself is skewed towards the lower tier and the rural part of India. So I think powdered liquid task is very clearly to teach hand washing to the rural India and to upgrade the soap users. So that is 1 big bag for the rural which is happening. Secondly, as I said in HIP that we are looking at some disruptions over the next 12 months coming while I've talked to the Goodknight Smart Spray, which is completely urban and completely premiumization story, a very big one for us. I think there is couple of innovations that we are working on and pretty close to -- hopefully, we should be able to tell in the next 3 quarters or so, which are going to be only focused on driving new trials in HI2 for new trials to the category. And they will be largely, largely rural skewed. So I think in my portfolio, what is happening is, I think there's a balance of both happening. I would not say that we are going to be launching products which are skewed towards rural. I think we have a balance of both. And I think maybe was a 5-year period, our aspiration would be to take 29%. We are around 29% odd this year. Take 29% to maybe 34%, 35% I would say that would be a 4-odd to 5-year horizon for us. But yes, I think we'll have a balanced attack on both urban and rural.

Makes sense. The second question was on the soap side, specifically on #1. So in the last 6, 9 months, my initial expectation was that #1 might suffer a little bit given the increased focus on hygiene and some of the more germ protection led products #1 could actually lose some share. But over the last couple of quarters, even you've actually done quite well while you've gained share from smaller players, regional players. How do we look at the #1 performance going forward over the next 12 to 18 months? There are 2 aspects, one is that consumers normalize their purchase to a product, like a #1, from a germ protection. But on the other side, even the smaller players are coming back. So how do you see the -- headwind, tailwind combined, how do you see the growth trajectory expected?

Okay. So let me tell you what's happened in the soap piece. So I think the #1 story, first of all, is not a COVID story alone. If you see the last -- and soap business, as all of you know, has its own cycle. It can see commodity bull runs and it can see some of the commodity come down. And that obviously has very clearly given that's a 100% penetrated category, it has this whole linkage to the up and down of price warriors, which does happen to local players. So that does play out in the category at all and we are now used to those cycles, and we know how to navigate those cycles. They're kind of playbook there now. Now what happened even in the 2 years pre-COVID when there was a -- the soap segment was seeing a slowdown, in line with the FMCG slowdown, number one, the brand kept on doing the right things, and one of the pieces which has worked for #1, is this whole approach that we have adopted as a company called CMM or what we call micro marketing initiatives. So consumer micro marketing and that is the culture which I think has got ingrained in thing -- which means that we, today, execute our strategy, and this is not only for #1, we execute our strategy is what we call it a DDR level, or the dynamic district regions which Nielsen gives us. And our plans are very, very varied at a district -- dynamic district region level. This paid off us even in a pre-COVID, when for 2 consecutive years we kept on increasing shares. A so #1 was already at a all time high share before COVID happened. And then what has happening COVID is something in which our thought, I would see in my lifetime happened to soaps, because I always used to do -- joke about with the marketing team, that I don't think we can make India bathe more. Like maybe it's been always very tough and I don't track oral care, but you guys would know that it's been tough to get in here to do tooth brushing twice, I said [Foreign Language] and that's going to be a longer haul. But what COVID has done and I know this will not sustain, but I think it will sustain to some extent, it's taught India to maybe hand wash more. It is always teaching India to take maybe bath more while I think some of this will go away, but I think some of these hand washing habit will stay. And hence, I would like to say one thing, that one misconception which at least I don't have in my mind, that in my mind, when we talk hygiene, the biggest hygiene category in this country is soaps. While we will be investing in hand washes and the task of powder to liquid hand wash growing hand wash penetration from 30% forward is safe, but the fact is a large part of India will use hand washes -- soaps for hygiene and that's a brilliant context to be in. Now #1 of players at a very, very strong position because high market shares. When this handwashing has panned out in soaps also, I think we had been and plus with combined with the CMM activations, which we did not let go down off during breakdown also, and that's a complement to our marketing. I think the sales teams, what they did on the ground. We are seeing the benefits coming out to very, very sharply in terms of #1. And I would say, while #1 is being talked of here, I think a very untold story in our soap portfolio is Cinthol, which is the premium end of portfolio, which also has been gaining steadily for the last 3 years from we have been getting strength in both actually, both at premium end and at the [indiscernible] end. And we have seen the gains happening in both Cinthol and #1, very strongly in the last 6 to 9 months where we left it off pre-COVID, the category tailwinds has benefited us and we have taken advantage of that. Now another piece which I can tell you on this germ protection which has happened, and I can tell you one piece which is missing also in my soap portfolio, which I'll talk it -- and that nobody is asking. When this COVID happened, I would -- I also feel that while WHO has tasked Indians and maybe not Indians but globally everybody that any soap is good enough for germ protection. So what has happened there is that initially, while you've been having a frenzy toward health soaps, people to be realized that, hey, every soap is to take germ protection. And after maybe 3 or 4 months, people have made sure that they come back to their original brands. So I think that's also playing out. Having said that, we still believe, health soap is a segment we need to invest further on. And that is where we have now doubled down on investment. We are in 2 parts of our portfolio, which is one we have launched a Cinthol health soap at a premium end, which we believe will take time but will be added. Because that segment, we still believe -- I still believe we have opportunity to grow. We are weak on that. And the second one is Protekt Health Soap, this don't expect magic in soaps to happen overnight, I see this as a 3-year journey of health soaps. So we continue the great work that we are doing in #1. We continue to do the great work of Cinthol Lime, Fresh and Cinthol Original which are very strong portfolios, and we continue to start build Cinthol Health and the Protekt Health Soap. It's a 3-year journey. I know how soaps work, you have to be hell of a lot of patient in soaps. But I think that will make us a very, very complete soap company in that sense. And I don't feel that soap, I think when we talk hygiene, India's hygiene starts with soaps. We shouldn't forget that.

The next question is from the line of Akshen Thakkar from Fidelity Investment.

Just a very big picture question. I don't know how does the Board evaluates your performance? Maybe if you could just speak a little bit to over the next 3 to 5 years what are the areas that the Board or [indiscernible] wants to have to focus on now? And then, obviously, you would have formulated a plan to achieve whatever qualitative, quantitative numbers that are set out in front of you. Could you just help us maybe understand a few markers that you have along the way is it market share gains? Is it new product development? Just generally, what's your dashboard on decision-making looking like? That was 1 question. And the second question really was that you've touched upon that NPD, that some -- not products will go up. But the ones that will succeed, given that kind of markets that you entered in are fairly large, right? So you had a very good success track record in some of the past NPDs. So just in terms of hiring trends, can these new NPDs, if and when they are successful, we as large as let's say air fresheners and sort of car fresheners -- or is the size of the price lower in some of new NPDs, just wanted to get your thoughts on these two questions.

So I think clearly, the performance parameters, the dashboard that we get evaluated and where we -- as well as I personally evaluate myself first, a self-reflection. I think very clearly, it's the portfolio growth. And I think it's the growth in terms of quantity. And I think the second one which really for me is important is the quality of growth. And which is a piece of how you -- because what will happen in any company is that finally, there will be cycles when one category will go through some rough patch, other will go through up and I think for a sustainable growth. And at my level, it's all about looking at a sustainable growth and not living only from quarter-to-quarter. And that's I think what all of you are also interested in when you look at it from investment point of view, is what is the sustainable quality of growth that we are building for us. So that is one benchmark, apart from obviously delivering short-term results, which obviously goes without saying. So that's the one piece. Second piece, obviously is that wherever you're a category leader, your task will be to grow the category. Wherever you are not the category leader, your task will be to gain market share. So that's the second piece I would put as a second part of the dashboard. And third important piece is, obviously, the margins and the health of the business in terms of profitability and parameters like return on capital employed or the EBITDA margins, that's the third piece. And the fourth is bench strength and talent. That what are you building in terms of talent pipeline for the future across and this is very critical because what obviously all of us are seeing across is the changes which are happening in India right now are, I think, disruptive itself with an understatement in my mind. And I'm talking even pre-COVID, that this omnichannel maybe got a wind of its own thanks to COVID, but it is happening or about to happen in this country anyway, right? So omnichannel throwing out all the things that all the skills that we made or learnt in the past. So hence, the talent becomes very important in the future ecosystem structural changes. And I think that's the fourth piece of the dashboard, which I would put. So I think from these are 4 parameters I think which we talk when we converse with the Board, and this is something which I look forward when I talk to my own teams and when I self-reflect. So I hope that answers your first question. The second piece on this NPD pipeline. Yes, I think we are a company which has innovation in its DNA. In the past, you may have seen almost 1/3 of our growth have always got driven by what we call as NPDs, which is a 36-month cycle from launch of a product. And these new categories that we launched, I think the beauty of these categories is that they're all pretty much under-penetrated or, let's say, less penetrated categories in this country. So toilet cleaners and floor cleaners both would be in the range of -- although I don't have exact figures, but anywhere between 15% to 20% kind of penetration, which is very low for a nation of our size. Similarly, if you see handwashing, I just told you, it's moved from 19% to 30% thanks to COVID, a brilliant head start which has happened. A brilliant habit change that this country has seen. So now it is up to us as players to really growth this category too from 30% to 50% over maybe next 3 years. Because I think all these categories are really really, I would say fertile grounds to do disruption and in each of this handwashes have already done the disruption, in each of these while we are starting off with some of these as maybe not so differentiated products, we will be very clear that we will go; ahead and place some disruptions going forward. So you will see that, that's how we play out this categories. Given the size of these categories, actually by [indiscernible] are not small at all. Floor cleaner and toilet cleaners are all in the range of around INR 1,500 crore plus categories, now that's a very large category. Just to give you example, air cleaning in India is INR 700 crores to INR 800 crores. And if you've seen that there were, we have got market leadership or close to in the last 2 years and built a brand which is maybe a INR 300 crore-plus brand, just imagine if we can enter a category which is INR 1,500 crores and I understand there might be market leaders sitting at 60% market share there. So we are not going to take it lightly, but at INR 1,500 crore category sitting at a 20% penetration with 1 single player of 60% market share, disruption can be done there. I think the -- I mean, you can't get a better category than this. So I hope that we will be able to come with disruption as does use our own strength to carve-out, yes, strong meaningful NPDs in this, which will be sizable. I'm very clear that we are not entering these categories to create INR 50 crore brands.

The next question is from the line of Latika Chopra.

My first question was on the distribution side. You couple of times mentioned about how e-commerce is going to be important and you've talked about omnichannel as well. But specific to e-commerce, how are your market shares tracking for the core categories here and how do the unit economics for this channel today behave versus general trades, and considering a lot of your premium new launches might be over-indexed to this channel and at least in the beginning, how do you see the margin profile here panning out? That's the first question.

Okay. So that's very interesting question, which is a topic for a lot of debates within our organization. So thank you for asking me this. I will be pretty candid at this. So first of all, I tell you, our e-com journey I'm breaking into 2 parts. I think the last 2 years a piece, which is -- when we had started on our e-com journey very seriously. And there is one call that we've taken, which whenever I benchmarked with some of our very, very sterling peers, who really do some great work, and we've benchmarked with many of them as well, is that we are the only company which has taken a call of not putting e-commerce under [ sales ]. So the reason we have done that is that we don't see this as a channel in the future. We see this as a business which encompasses a comprehensive thinking of the entire consumer journey. So that's 1 basic principle that we put out that e-commerce in future has to be seen starting first with consumer and then the channel piece of fulfillment plays out from there. While most companies have seen it as a channel of fulfillment or last-mile delivery. What this means is, in the last 2 years, while we have been putting the basics into place, and the intent was to just maybe do a bit of catch-up with some of the people who would have been ahead of us, we have created a team which reports directly to me. So your business has e-com which reports directly into me which is the CEO India and SAARC. And we have teams in the e-commerce of both marketing, supply chain, key account management as well as finance. So that's the way the business runs itself. What this gives leverage to business is to launch their own e-com first or e-com native NPDs. It makes them take their own budget in terms of influencing the entire consumers journey from top of the funnel to bottom of the funnel, which means on the platform, and it obviously gives them leeway in terms of their own financial call. So I think that is the first phase of our journeys. Having said that let me tell you what has happened in these 2 years for us. I think the first focus of these 2 years has been to just get our growth up in this channel to a good level where we believe we should be. And we have seen, obviously, very, very high traction in e-commerce. We will end this year at around 4% of our business in e-commerce. Yes, I know that this still not maybe the best of class, but there are obviously, players who may be in 6%, 7% range. But I think that also is a function of the kind of categories you have. But yes, I personally see if you ask me, I think 5 years down the line e-com even grocery skewed companies or, let's say, home personal care skewed companies, I think this business is tracking for 10% in 5 years. That I'm pretty clear, even earlier. I mean maybe 5 years also maybe a late one. It could be on 3 years, it could become a 10% business. So that is now the second phase which comes in. Now the second phase of e-com journey which is starting, I would say, from April this year is where we'll start looking into the quality of growth in e-com, and let me explain you what that means. That means definitely about growing much more premium and -- or what we have divided a portfolio of e-commerce into 2 parts -- actually 3 parts now. One is we're calling as a core, which is a brand we sell a lot in current GT and modern trade system, which contribute to maybe around, let's say, already 2/3 of our business. The second portfolio, which we have identified, which is called the growth brands, which are all our NPDs which happened in the last 2, 3 years which I believe, huge affinity for e-com things like, for example HIT Ant Roach Gel, a Goodknight Fabric Roll-On, or let's say Goodknight Naturals premium liquid vaporizers, to just to give you a few examples or HIT Racquet, so all those stuff, which we're calling as the growth brands. And the third one is the future NPDs, which we are going to be having digital native NPDs. The next 2 year journey of e-com, will be in 2 fronts. One is build all future capabilities of e-com marketing, e-com supply chain, and also e-com on platform consumer engagement, I think these are 3 capabilities that we're building. And the second bucket that we are going to work on is quality of sale, which would mean that we'll be more and more of our sales to come out of growth in NPDs. And these growth and NPD brands obviously will have a much higher future margin profile for us. And that is where while currently, our margins on e-commerce are less than the margins in GT business, understandably so. That is where we believe over a period of maybe next 3 years we will try to come on par with GT. Because the focus there if you ask me honestly is right now not that I'm not to put out whether that margin is right now off from GT. I think there, what I want to see is, how do I grow my growth and NPD portfolios and premiumize my mix, because that's a great opportunity which e-com throws for you, which is not easy to do in a GT. So I think that's the role of channel in my mind going forward.

Sure, this is quite comprehensive. I think, Sunil, I wanted to check was on HI. I heard you talking a lot of innovations. The relaunch of Goodknight has done very well, we heard you on Smart Spray as well. Does it mean you are now more confident that this category growth reads could move back to more stable and less volatile trend going ahead? And what kind of growth outlook you anticipate? And also to comment on what is the status on this competitive landscape on the incense sticks space today?

Yes. Okay. So this is, I think it should cover -- this answer should cover I think most of the HI question. So I think, first of all, this category will have its own seasonality. I think that's something which we all have to, we much on the same ground. Because that's the nature of beast here. That this category is a problem solution category. It has its own cycles of mosquito infestations, which are linked to say seasons and just like a flu or a fever happens during weather changes, this is prone to weather changes. And hence, 1 thing which may be from the long-term perspective, we should see categories that we should get too perturbed from maybe a season shifting from 1 quarter to another. I think this category should be seen from maybe a long-term period of what's happening over the 18-month period or so. That's my first perspective, and that I think I would request all of us to maybe evaluate this category from that lens. The second part, I think this category is really that this category has 2 components of play for us. One is which I talked, which is the play where we really struggled over the last 4 years of getting fair share of recruiters, which is where the incense stick phenomena happened, the illegal piece happened. And we obviously disrupted the recruitment part, which always was coming to, let's say, the branded players, and we were playing the big role in that, which obviously got hit across for all branded players. So there, I think, I would say, we have still not nailed it fully because while they had come down a little, obviously post COVID expect some of them to come back to some levels may not be the older levels. But there, I think twofold action is going to happen from us. One is that we have done a very, very strong legal and PR action in the last 8 months on this industry. And that is something which has paid some dividends to us. Having said that, still, it's India, these people will keep on having this up-downs, up-downs. I think we have worked out a very strong regulatory and legal team which will be consistently added. So I think that's 1 task. The second is we need to get products and answers to incense sticks which will get as a fair share of category equipment because that is our task. This is what I told you in the next maybe 2 to 3 quarters, we have something lined up, which we believed while you launched natural incense sticks already a year -- 18 months back, I believe that is where we have some very, very strong penetration of opportunity coming our way. So that is the part on the incense stick -- or the recruitment part of the category. The last part is premiumization and upgrades, which were I think Gold Flash is doing pretty well for us. That we are seeing good happening, more than the growth, I think the first part which is happening, there is a seeding. The Gold Flash model is all about seeding the machines and then the consumer comes back for the refills. So I think we are on track for our seeding targets that we set out, despite COVID breakdowns. Se saw the seeding targets are on track. And the second piece, which is going to happen is premiumization category due to some very, very disruptive solutions. Maybe in 3, 4 months' time -- maybe in 4 months' time, we should be have having a much better point of view on Smarts Sprays but that in itself, I think, is a pretty comprehensive premium solution. And I think between Gold Flash and Smart Spray and the Goodknight Natural which we launched and e-commerce, I think there's a portfolio emerging for us which is about premiumization in the category. And then there is a bottom end which is about burning formats with drives category penetration. The outlook on HI for us, I think volatility is part of the game. But I think what we're looking at is at least driving high single and to low-digit growth in this category, I think is a place where I would look for in this category.

Our next question is from the line of Percy Panthaki from IIFL.

Sunil, my first question, again, sorry to harp on this, but on HI. So see, there are some categories which are COVID tailwind categories and some of which are COVID headwind. Now where HI would fall, I would assume is that given a higher emphasis on health and hygiene, it would be a marginal tailwind category with respect to COVID. But despite that, if I see your CY '20 growth rate, assuming some number for Q4, which will not change the overall number materially. But the entire CY '20 put together would be approximately 5% growth in HI. Will not an exciting figure, especially given that because of COVID the supply chain of these incense stick guys were disrupted, et cetera, et cetera. So there's been hardly any benefit at all or any major sort of change in trajectory from the earlier growth rate. So am I looking at this in a wrong way? Or what am I missing really here?

Okay. So let me actually take this number piece first itself, and I think maybe this will give a perspective on the thing, okay, is this thing [ CY ] '20 figure would be around let's say 5%, I think I can tell you, you can add 2% to it straight away, which I think the loss we have got because of supply shortages. So let me first put it that way. That if I were to -- I think the quarter 2 -- and my portfolio is not about Goodknight. I think there's a HIT which plays a very large role. I think this number could have been higher by 2% to 3% straightaway, I think. So what I'm talking is, I'd say, in any case, would be a high single-digit to low double-digit kind of a growth aspiration, which we are looking forward going forward. Definitely, I would like to definitely play a low double digit pieces, as a piece here. Now this is a category which I would say is, as I said, it has not been a category which has got a huge tailwind because of COVID. It is a marginal tailwind category because the health-consciousness in the country has gone up and that is something which is going to play. And hence, I said that the way you have to see this number is not a 5 kind of a number. It's a number which could have easily been on the higher single-digit side of number. What we are -- got things right and which is giving at least me some definite confidence is that we have got NPDs rolling out which are also looking good. Gold Flash being one, Smart Spray early days and a couple rolling out in other 2 quarters' time from now. So I think this, if I put together, I would say the expectation on HI is very clearly that we will have to drive the category growth in the backdrop of post-COVID scenario which is marginal tailwinds, we'll have to do it at both bottom end, as well top end through premiumization and category equipment. The critical one for in this definitely would be how do we get fair share of category equipment which has always been our forte. So I think this is where this is and then how we look at the category going forward.

Understood, Sunil. Just a follow-up on this one. There was a disruption in supply on account of Assam being shut. I understand that. But for any FMCG category, the total pipeline, including retail, wholesale distributor, everything put together, is generally anywhere between 1.5 to 2 months. I mean if you pick up any product on the retail shelf, the most common package date that you will see is at least about 60 days old, right? So do you actually have consumer level lost sales because production disruption?

Explain this you, Percy. Percy, this in this shortage to us did not happen in April and May. The July lockdown which really hit Assam was actually the lockdown happened in between 15th July to 15th August. So if you see what was happening, this was coming after 3 months of lockdown anyway. So in between 15th March to, let's say, 15th July, that pipeline had run out in the country across all commodities. We all seen the shelf of kiranas are empty by that time. That is one thing to happen. Second piece which has happened, which at the time was because if you remember, if you can see our first quarter results of HI itself was something on 120-plus kind of growth. That time, the season was extraordinarily big. So what happened at that time was 4 months of huge disruption in the kirana stock shelf, panic in the country, combined with the extraordinary season, huge sensitivity maybe towards any kind of not falling ill, I don't want to visit hospitals at the time. The stocks just ran out by, I think tell you what May across the country. And then -- and we were living, I can tell you -- I probably can't get into every figures, I was operating on -- since there was so much of a run which had happened in stocks, we were operating -- and plus every factory despite our all -- we had -- I think our teams had done brilliant in opening of all factories. There was 1 challenge that continues having factories or some COVID case will happen in 1 factory or some COVID case will happen in the country, and every district commissioner was operating at his own discretion. And every district was taking their own calls. So if 1 case would happen, some places will come and say, "Okay, I want to take a 7-day quarantine. Some places, they will come and say, I want you to take 21-day quarantine. So in that frenzy what happened we were operating from hand to mouth on 2 of our formats, which were coils and aerosols. And in aerosols, I can give you more detail also what happened. In aerosols the challenge never happened in our factory. In aerosol, the biggest hit which happened was in April to July, the largest can supplier in the country was in Bangalore outskirts. And if you can and check the data, the Bangalore urban englomorate [ Angglomorate ] was one of the most stringent lockdown in this country saw and that supplier did not get open permission. So we got into struggle because -- and we -- the entire aerosol category got into struggle because we could not get the supply of cans. It was not a problem with my factory at that time because my HIT factory is not in Guwahati. So the burning format got impacted from Guwahati. The aerosol format got impacted because the can supplies. And by -- and both these were happening in the period of July. So actually AMJ I did not lose any share, I would say, in a the supplies would not have got affected because those 2 months would have taken care of. The pain point for us happened in July, August, September really. I hope that clarifies the point.

Second question is just sort of a query on one of the earlier answers that you had given on e-commerce. So you had mentioned because of Dunzo, Swiggy, et cetera, the addressable radius of a particular store goes up from 2 kilometers to 7, 8 kilometers. I'm a little sort of confused as to why this would be the case because if you look at -- I mean, if you are at your house, within a 1 kilometer radius of your own house, there would be at least 20 kiranas maybe. So Swiggy, why would it sort of want to get product from 7 kilometers away when it can easily supply it from somewhere closer to where the customer is based.

I'll tell you 2 things that are happening Percy, one thing which is change, is that in majority of homes, at least in urban India, and there used to be this phenomenon home delivery which used to happen from a local neighborhood kirana within 2 kilometers this thing. So one thing which has happened is that the assortment at that time was always catered to the local taste, which was -- which has been of the neighborhood kirana. Now what has this last 8, 9 months done, that because of a lot of people not wanting to step in would stand in front of kiranas, or let's say, the modern trade, what has happened is especially a modern trade phenomena, that you are now wanting much more different kind of assortment which you have got used to, let's say, you used to go to modern trade or which you were maybe earlier not even aware of. So what has happened is e-commerce is giving you a window into very different kind of assortments. Modern trade assortments have disappeared because you are very scared to step into a modern trade store. And your neighborhood kirana till now never had that assortment. And I can tell you -- give you an example. I do the sample around my own home. And I will take some names of some products which I suddenly started asking this neighborhood kirana, and I've done some maybe 20 such samples myself. The product brand called Viba. I don't know, you guys have heard of you. I had not too very honest heard of pre-COVID, it's a brand into mayonnaise, sauces, and all types of this pizza sauces, pasta sauces. And suddenly I saw having huge tax of this and I told him what is happening, you would have never stocked this, so I asked him a question as a question. What was your assortment earlier? Here assortment of 350. And what is the assortment here now, he says 750. And I said, why, he told me I am becoming one of the largest Dunzo players around my assortment. And I've done this service around 10, 15 people around. A, staying at home has given people exposure to a much larger assortment category, which is not otherwise available to them in their neighborhood kirana. B, modern trade substitution has happened. And C, is a definite comfort and adoption of digital which is happening that I go to just the Swiggy or the Zomato or the Dunzo app, and I just press the button and the fact is, in the next 30 minutes delivery happens. Combined with this, there is a lot of local neighborhood kirana which will not have this assortment, and you are okay saying wait 30 minutes and get it from Kirana which is 6 kilometers away. So I think this is a very clear phenomena which is there that catchment areas are disappearing.

So Sunil, do you think of permanent damage to modern pad in the sense that even when year of the virus and the cases drop and the modern trade stores are opened fully some people who have tried e-commerce, either through this kirana tie-up or direct inventory model, whatever, they would be happy with this kind of an arrangement. And therefore, some of those sort of consumers would not go back to modern trade at all. Do you think that's a possibility?

So I'll tell you word, obviously, I don't see it doomsday scenario for modern trade, no way, right? They're going to come back. We're already seeing some revival happening. But there is 1 structural change. I would not say -- I will not call it structural damage. I would say there are structures change which has happened. The structural change is that earlier maybe Indians, and I would be any of saying, let's say, maybe when e-commerce happened in this country 7, 8 years back, the first India is so used to trying out clothes in the trial room, we are so used to trying out shoes in our trial room would we ever change our habits to ordering that online? And what happened is to phenomenon happen, one is cash and delivery and one is return policy. That changed the whole traction. And the first phase of e-com structural change happened through both apparel, shoes and maybe the electrical appliances. The curve which never took place which has changed in the last 12 to grow modern trade get impacted. The modern trade has always served as a point of experiential shopping that you would go there, that you will spend 2 hours there, you will actually like move through the aisle, you will experience a few products, plus you look for promos, right? So it was kind of a leisure shopping of both promo as an experience. Now what is happening with e-commerce is that you have got used to not the leisure part but definitely a much better assortment and an experience on e-commerce. And this is that amazing experience of the stock coming to your footstep anyway, let's say, anywhere between 24 to 48 hours. I believe the structural changes, this will have definitely some amount of stickiness. And hence, modern trade has to invent at least 1 more new pillar for growth. The pillars for them were always about promotions, assortment, experience, 3, right? And experience only in some cases. Obviously, there are some, obviously, stores which are only about -- they don't give experience. But let's say, broadly, these are 3 pillars of growth of proposition. In this, promotion and assortment are both now getting tested and have got tasted by consumers online, right? The piece is they have to change now is that is experience going to be enough to bring the entire growth back? I think that will require some rethinking. And I think the change there is not about experience. In for modern trade is going to be omnichannel now. So you all modern trade players would evolve into omnichannel players. I personally don't think so if anybody does not evolve into omnichannel will see same kind of growth. So I think the growth structural change for me is not structural damage. It's a structural change of monitored there also becoming omnichannel. The question is what percent of the business will be physical, what percent of the business will be digital, difficult to predict. But if I'm the CEO of a modern trade chain, I would say the future is become omnichannel.

The next question is from the line of Krishnan Sambamoorthy from Motilal Oswal Securities.

You mentioned that there's been an increase in the penetration in the HI category. I remember about 3, 4 years ago in the one of the sessions in your office to it was in the mid 30s

No, the overall penetration was better. That's only. The the is India has now moved to 50 plus. So it's 50-50, even around 50% odd, 52-odd percent. So that's a change which has happened over the last 2 years or so. The urban penetration was always in the range of around 75%, and so it's hovering around maybe 77% or 78% in that sense. So that's the change which is there. We've seen a 2% to 3% increase in the penetration in the last 7, 8 months in both urban and rural.

Yes, similar to what you said in terms of hand washes what do you think is the level you think would sustain? Would you think that this could -- at least until your new products start kicking in I would that -- that 200 to 300 bps once the sales start tapering off a bit because of health concerns?

No. So I think, as I said, this jump that we've seen in the last 6 months is definitely maybe because of the frenzy that may have happened in the first 3 to 4 months. But I think the rural penetration increase of HI is little COVID-agnostic in my mind. I think that's got to do with overall sensitivity of consumers which happen towards vector borne diseases. So I expect that to be buy and large stabilizing at this level 1% here and there. I don't expect a drop which -- I mean, maybe could happen in very, very sharp COVID-led category, I don't -- we'll see that here.

At the same time, what's been the experience in the 2 categories where the growth has been a bit disappointing, which is primarily the out-of-home HI category as well as the non-mosquito category. Have you seen a jump up there as well? Could some of this be used to grow what was not growing earlier?

Okay. So one, maybe factual correction. Actually, we about it, which is a very strong story of -- I think the non-mosquito part of a very undelivered part of our business. And maybe when in all of conversations, some of the narrative always seems to be around mosquito part, but the fact is the non-mosquito part of HI is a very, very large opportunity in India. It forms around roughly 12% to 13% of our business of HI only. So that's a hell of a lot of opportunity which sits in table. Indians have as much problem of cockroaches and other pests as they have mosquitoes. And that is where the work is happening where in this last 8, 10 months. Actually, this part of our portfolio has performed very well. So it's not underperforming In fact, it's an outperforming part of our HI portfolio. So that's 1 thing which I want to clarify. The piece which has got hit, which is expected, is the out-of-home, which is only 1% part of our portfolio or even less than that. It's actually not even 1% point 0.1% part of our portfolio, which is expected because out-of-home is linked a lot to school usage and kids playing out-of-home when they go out in the evenings, when they step out of school, that will concerned. And what you've seen is obviously, this is almost behavior like cosmetics. That kids are not allowed to step-up in the buildings for the first 6 months. The schools are still not open. But that's a very, very small part of portfolio, which is more a long-term category creation and habit change a bit. So that, I think, while I'm obviously not happy that that got hit badly because that's the future growth here. But I think that's just a temporary hit. Once schools open, once people start stepping out more, that will come back to normal. But that is 3-year growth horizon for us. The non-mosquito segment has done well, and we hope to grow that in strong double digits, in fact.

Even on the out-of-home as people step out more, even if it is in the room because of the fear of getting sick, right? Isn't there an opportunity for you as well? Can that really affect the

I fully agree with you, in fact, on the biggest opportunity we a see as kids step out in the compound as people step out in the compound, we have to start investing in protection against any mosquito bite because which I'm saying, which is coming the HI varies, that right now, you don't want to have any kind of fever or any kind of vector borne decrease right now. And that is where mothers are very sensitive about children right now. The vulnerable point of HI, consumer has always been moved adults we don't get to bother about what happens to us. We're seen always for entry consumer who enters the category in HI also or for that matter who upgrades also. The 2 biggest vulnerable points are the birth of a child and hence sensitivity towards children or sensitivity towards older parents And hence, to remind, that is the opportunity, which is very clearly going to come back on the table after this disruption of no-schools, no playing outside, that as India is normalizing and hopefully the vaccine is round the corner, maybe in the next year, with schools opening everything and even now with people going and started playing downwards, we would see a reversal in our fabric roll-on business also.

That's useful. Just 1 final question on that. In the Indonesia business, how much would be the proper form as well as non-mosquito?

You want to take

Yes. So at this point in time, Krishnan, the out-of-home space is largely vacant for us in Indonesia. There are plans to sort of having product launches to kind of fill in that opportunity. And beyond mosquito would be somewhere in low to mid-single digits of the overall portfolio. So we got into that space with launches of cockroach aerosol solutions and that's something which we will continue to scale up over there.

Yes. I mean, my question was more from an opportunity perspective, what it could be, right?

I think if you look at the category in Indonesia, Krishnan, I think out-of-home is anywhere between 15% to 20%. And if you look at some of the Asian markets, just from a comparative perspective, this would be anywhere between 15% to as high as 40%.

The next question is from the line of Richard Liu from JM Financial.

Sunil, actually, I have 2 questions. One is specific to GCPL and the other one is more general for the sector. I'm sorry, GCP is again related to HI, and I'm happy you touched upon some of this in the remarks that you just gave. What I wanted to understand from you is that the last we heard from you on such analyst forums, you had spoken some fantastic things about under the HI or what you call reimagining HI, right, which is this whole non-mosquito daytime use and out-of-home use thing and then you have some big plans for it. I just wanted to understand your progress. I know you gave some data about non-mosquito being 12% or home some 1%, et cetera. But I remember the conversation we had earlier much bigger plans for some of these non-mosquito related areas. Can you just give an update on what's the plan now? What stunted the delivery, et cetera?

Yes. So I think, Richard, in fact, I think the progress in the non-mosquito business for us has been pretty decent across over the last 24 months. In fact, this business has grown up pretty much high single-digit in fact double-digit this year. And there, I think 2 things that happened for us. One is, see, there, we are the category. We are -- I mean there's nothing else other than Hit, 90% kind of share, we're sitting on that category. So we have a category completely. And it depends a lot on how we build that non-mosquito part. So what we have done is: A, our aerosol business has done very well in terms of penetration. In fact, we've seen while household panel does not track penetration of this format very well because it's very, very premium format, we have seen our own internal numbers growing at strong overall trajectory. Second piece that has happened for us is that we have just now, 2 months back, launched a mass NPD, which we just test, which also maybe Ita mentioned that earlier. Just the way we've done a smart play is the premium end in mosquito segment, we've launched a product called Hit Roach I mean it's a very colloquial name that we put Hit Roach product we launch at INR 25 in Karnataka right now. It's just been around 45 days into market. The intent there is that can we start increasing penetration of anti-roach usage in India. India, still the penetration of roach products are very low. The only lowest cost product actually chalk, which is we are playing chalk, and we do reasonably well there. But it's pretty much underpenetrated commodity category. And this product has a very, very big differentiation that this actually 1 and the heated technical is a is that it goes to buster. So this product once a roach eats it, it goes back to that the whole nest gets busted. So that's the product that we launched. We obviously have test marketing it. And actually, I mean, there's always a of a journey that we have been launching this test market even during COVID times. So I'm very hopeful that if this product starts showing some traction for us in terms of consumer education and penetration gain, then this is something we could take toward building the category over the next year in India. And that's one progress which has happened that we never had in the roach another segment, a mass product and that is a product which is now getting test marketed. I think that's the journey. The other journey if you recall what I told you that the 2 pieces have already talked. I think Gold Flash is a way of premiumizing. And there's a smart play, which I think could become a very efficacious solution. And the fourth part, which is the top end of the piece is, we've launched 100% natural Goodknight Electricals and a Goodknight which is primarily

And is out-of-home, still -- you think that's a great nature and opportunity. And also, when you talk about high single-digit and low double-digit growth for the category, how much are you banking upon these non-mosquito with to deliver that?

Okay. I would expect the non-mosquito category in that is follow for us. Often, it has a huge opportunity to be the lead driver. In fact, that cateogry segment, I would expect to do high double-digit growth.

Okay. Is that an important contributor to this high single digit? Or this high single-digit or the double-digit is irrespective of the non-mosquito?

No, I think it will a mix of both, right? Because finally for us, both are pretty important brands, Goodknight and Hit. And while Hit has a play in both mosquito and non-mosquito, Goodknight doesn't have a non-mosquito play, right? So -- and that's the way we've created and crafted our architecture deliberately, that Hit would be more the non-mosquito driver and Goodknight would be the more the non-killer brand. So I see the growth happening double digits where we'll actually drive more and more operation of the category because it's very small right now in this country. Globally, aerosols are a very large format. In India, so have not become so large-format because India has seen liquid vaporizers becoming very big. Globally, there are no liquid vaporizers so big. So India is structurally different in terms of So I think there's a huge opportunity in terms of building the non-mosquito segment: A, through aerosol itself; and B, through mass solutions. So that will drive high double digit. Plus, as I said, the mosquito piece will have to do its own agenda, which have just popped up.

And Sunil, would love to hear your thoughts on this whole digitization of Kirana bet, right, which Jio especially in the context of how you think equation with brand owners will evolve over a period in time between the distributor and brand owner?

Yes. So Richard, I mean, this is a piece which I talked in I think last week, it was 1 panel. So I think this -- one thing I want to put on the table for all people in the industry is, this is going to be a piece we all have to navigate very fluidly because it is evolving like crazy right now. Be a model Udaan happening at it. We obviously have Jiomart and Amazon and Flipkart wholesale happening parallelly. So I think the disruption of kirana is I would not say -- I think the evolution of the state GTM in India is happening on both traditional kirana, it's happening on B2B and it's definitely happening modern trade. So I think these pieces are somewhere becoming hazy. One thing which I'm pretty sure in terms of brand owners, that one piece which we all have to be ahead of the curve, and I'm keeping e-commerce out because e-commerce, I think, is one of the glamorous pieces of the pieces that all we up to talk of, and we all are investing in that. I think brand of kiranas and how we support the new kirana, I think which we are planning to do, which penetration is . One is, I think we need to support the kirana to become more tech-savvy with our own supply chain. So that is where one change which will happen is we are reevaluating the role of distributors in future It's a very large team in itself. I can't obviously talk, but I'll just tell you that. What is the role of future distributor in supply chain in a digitized world is something which is very important. It is not going to the same, which it was till now. The future distributors will have a very different digitized role. That's one because that will lead to a very different service level for the kirana because if future kiranas, digital kiranas expect a very different service level. Second role will be the assortment which will sell through these digital kiranas, which are linked to that other topic that I talked about the catchment changing. So the assortment will no longer be limited to the local neighborhood consumer profile. The assortment will become more and more premium. I think that's what will happen. So the second part which brand owners have to do is that we'll have to keep this, A, very nimble agile supply chain in mind and also, we'll have to do a lot of science, which we are already doing, and we can have a separate session on what we are doing in terms of GCPL of building a very artificial intelligence-led selling off planogramming and assortment in kirana stores. And the third piece, definitely will be linked to the return on investment in commercials because this will be a different kind of commercial to pan out in both omnichannel as well as in kirana. So I think these are 3 classes brand ones have to be had and that of what we are doing right now.

The next question is from the line of Aditya Soman from Goldman Sachs.

So firstly, on hair color, I think you indicated that there was some impact to in nature. But a large proportion would just be basic coverage, right? I mean the basic hair color. And here, I would expect that you would see meaningful sort of pent-up demand as people start getting out, going to offices as hair salons open up. Is that something that's playing out in 3Q? Or do you expect that to play out in 4Q?

Yes. So that is something which we are clearly seeing signs. And when I said I'm seeing almost like maybe V-shape has happened in hair color, which I was pretty much surprised. So I think this happened about 2 phenomenas. We have played it pretty strongly because I think our marketing which are falling into place, pre-COVID, have actually put us in a good shape. I think we also got one benefit that since we are a company which is compared to our competition we can country -- company and a lot of our categories were essential, we were able to actually put our whatever little distribution, but we were able to get the last mile up in April itself. While many of our competitors which are primarily discretionary could not do that. So I think we got advantage of that as well. It started into share gains. And the third, I think, clearly, there is a -- I think as India has opened up, there is some kind of a, I would not call it revenge consumption right now, but maybe signs of people wanting to make up for the lockdown and they want to celebrate a bit more, and I think they're definitely wanting to indulge, which is playing out in hair colors. Having said that, how much it will sustain is a question right now. I'm not so

So what would be the proportion which is basically nondiscretionary and discretionary within hair color?

Sorry, what is that, proportion?

Which is discretionary and nondiscretionary within the hair color or the

The other way on a question on we sell INR 30 I would not -- I mean I would say the whole category, by and large, if you see has a discretionary element to it because when you are a lockdown, whether you're at INR 20 powder user or whether you're a INR 30 or INR 37 creme user, which has various points point in a category, if you want to just step back and think, what is a cost of INR 37 or INR 30 is a big deal. You will say it is there are many other food products, which will be expensive than that. So I think it is not that it is just that in this category, you evaluate think can I do without it? And hence, this is what that category falls that all the triggers for hair coloring are social. That when you go to a party, when you step out, when you're going on weekend somewhere, when you are seen by others, by and large, whether relatives are coming home, you're going to relatives places. So that's why it is discretionary in nature, by and large, I would say.

Fair enough. So the way to put it, what proportion would be in the INR 20 powder or lower?

I'm sorry, I just missed out. They're not very clear to us.

No, no. So what proportion would be the INR 20 powder versus creme of the overall mix of hair color?

Okay. For us, this would be -- I mean, the powder is tremor the a 40-60.

40 would be powder, 60 would be creme.

Fair enough. No, I think that's very clear. And secondly, in terms of the Goodknight spray that you've launched. Is there any risk of cannibalization to your existing aerosol

In fact, that is one of the reasons we are doing a test market. Okay. That's one of the reasons which I want to check out. There's obviously there will be some cannibalization. But what we have seen from all our research is that our net gains were much, much larger. Overall, it will lead to a huge amount of net gain for us. That's one thing. But I'm okay with some cannibalization because I think this is a very, very superior format. I would not be bothered about it. I think

I think it's a more premium form, right

Yes, it's a -- no-gas aerosol. And it's an aerosol format, which is instant, no-gas and I mean no room in the -- I mean, current aerosols of it are gas aerosols, and they have intent effect which last around 1.5 to 2 hours. This is a no-gas formulation, water-based, instant intent effect, lasts 8 hours.

Right, sir. And lastly, in terms of -- you mentioned also for floor cleaners and toilet cleaners potentially being a new category, but is there a risk that as modern trade comes back that these are sort of the first categories that you see private labels come in from modern trade, especially the likes of Reliance? We've seen them being very aggressive. And is part of the reason these categories are doing well is modern trade has been

These categories already have -- see in these categories that floor cleaner or toilet cleaners or for that matter hand washes, I mean there will be only 2 clear kind of players there. There is 1 large market leader, which is 60 plus and then you see modern trade channels a lot of private levels which are coming there. The biggest piece in this category if you ask me which is missing is that there is no strong #2 in general trade, right? Or for that matter, no strong $2 in either e-commerce or modern trade also because consumers, what we believe is going to happening people are now going to be more and more having trust in brands in the post-COVID world. That the other change is going to happen. That earlier was, if I was in -- especially in hygiene category, which have got to with safety, I earlier I was okay, I think any floor cleaner would do. What I expect, hopefully, in the future would happen is that I'm not going to be okay with any phenyl or I'm not going to be okay with any private level. I would say if you okay, I'm okay paying some premium but I want a trust of complete germ protection or complete safety in terms of hygiene. And I think that's somewhere where we -- even if modern trade comes back, I don't think that that's a very big variable. I think there's enough room there overall to get the brand moving.

I understand. And just following up on that, is there a risk that we could be overemphasizing the value of the brand in the sense that obviously, we've seen modern trade gets disrupted quite meaningfully in the last 2, 3 quarters? And traditional trade, obviously, the top 2 or 3 players benefit because the consumer doesn't have the whole book here of brands to look at. So could that be a reality as well?

Sorry, just explaining what do you think is the really a is I understand the last part of your question.

So in modern trade, obviously, the consumer has a choice of looking at multiple products on a shelf. In traditional trade, you do not want because you know the last for the brand or maybe get a visibility of 1 or 2 brands. So is that one of the reasons why just brands are doing exceptionally well in the COVID period. And as modern retail comes back, maybe some of these brand trends that we've seen over the last 6 months or over

Yes. See, I mean, if that would happen, to me, a large part of modern trade business, obviously, shifting to e-commerce also. And I can tell you between modern trade and e-commerce, the ability of consumer to search any kind of brand assortment, a brand itself and then the assortment is even more higher. So I think that test is going to happen for a brand in any case, whether it's e-commerce or modern trade. And I don't think so brands can control the evolution of channels in this country. What the brands have to do is they have to make sure that you make your proposition stronger and stronger. Channel players are completely play which today, honestly, is not in the hand of brand owners. And even if modern trade comes, and I expect monetary to come back, but I think I expect the modern trade to come back in a very different avatar. I think the role for us in manage make sure that you have differentiated products or if you don't have a very differentiated product, you were in a category which has huge to play and you have brand equity and GTM might to make it work for you.

Well, Ladies and gentlemen, we'll take that as a last question for today. I would now like to hand the conference back to Mr. Ashit Desai for closing comments. Over to you, sir.

Yes. Thanks, Sunil and Sameer for the detailed discussion. Thanks everyone for participating. We'll close the call now.

Thank you.

Thank you, everyone.

Thank you on behalf of Emkay Global Financial Services, we conclude today's conference. Thank you all for joining. You may now disconnect your lines.