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

Ladies and gentlemen, good day, and welcome to the GCPL's Analyst Conference Call hosted by Axis Capital Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Anand Shah from Axis Capital. Thank you, and over to you, sir.

Yes. Thanks, Ruthika. This is Anand here from Axis. And thanks, and good afternoon, everyone, for joining the Godrej Consumer's conference call to discuss the business and performance and strategy for the GAUM business. We have with us Mr. Dharnesh Gordhon, who is the business head for the GAUM business for Godrej. So without further ado, I'll just hand over to Bharti from Godrej to take over the proceeding. Thanks, and over to you.

Thanks, Anand. Good afternoon, everyone. We hope that you're staying safe and healthy. Thank you for joining us today to discuss the Africa business performance and strategy. We have with us Mr. Dharnesh Gordhon, Cluster Head, Godrej Africa, U.S.A and Middle East; and Mr. Sameer Shah, Head, Investor Relations. We'll start with Dharnesh sharing his perspective on the business, and then we can open up for a Q&A. Over to you, Dharnesh.

Thank you, Bharti, and thank you, everybody, for being on the call. I really appreciate your time. Good afternoon. Good morning. I'm not sure where all of you are. I think the first thing is, in these times that we live in the first question that we always have to ask is to see that all of you and your loved ones are safe and healthy. And indeed, it's more than a year now since the global pandemic was declared a pandemic, and it all started deeming times for most of us personally. So I appreciate your time. So I think the first -- just maybe me setting some context in saying that in a way, in our Africa and Middle East and our U.S. businesses, it's really a mindset. And the mindset starts with this premise that we have and what we had to embrace is, we have to win in our markets of limitless possibilities. So this whole question about everything can and will go wrong, but how do you grow a sustainable, profitable business over time? And I think the first thing we always talk about as a team is about embracing values that encourage collaborative workplace and discipline. We see change rather than stability as natural. And this whole drive to do more with less. So over the last couple of quarters, we have seen a good, solid, decent, and I know we can use many adjectives, but we have seen a recovery across our Africa, U.S. and Middle East cluster of businesses. And we've seen this steady performances continue to begin to win more with our consumers in each of these markets. We have seen a steady performance with mid-set growth. And the key areas from a geographic perspective was coming from our Southern Africa business; our cluster in West Africa, which includes Nigeria, Ghana, et cetera; and parts of our East Africa business, particularly areas like Tanzania, where we are seeing stronger growth than the rest of our geographies. The U.S. business has also seen a decent revival, particularly in the last 2 quarters. It's a lot about refocusing. And we've seen that when we do put the right areas of focus, we are able to begin to win with our consumers. And when I talk about focus, it's really about getting what we all call the basics and maybe we should find another word for it, but getting the very basics right and strengthening our operational and strategic focus of the business. And in a way, this term that we continue to use about making sure that execution discipline is there. And a lot of times, we always knew what needed to be done is just the follow-through of execution and discipline in execution was an area that we have begun to focus much more on. So when I look at very different parts, it says, "How do we grow market share? which means how do we grow? How do we manage cost and manage cash? And how do we build strong effective teams?" So those are kind of the 3 broad pivots of some of the areas of focus. And I think we have seen feeding in multiple blocks to drive sustainable, profitable sales growth. And one of the big pivot for us is really route to market or go-to-market opportunities. So making sure that we understand our channels more, we understand the geographic play more and how do our consumers get access to our product more. And in these markets, it's really about product availability, effective distribution continues to be the single most determinant of success in African consumer markets in particular, where the retail market is extremely fragmented, it continues to change. And I think, obviously, COVID has got new dimensions and challenges. But we do see that our business opportunities to scale up across multiple channels, getting to be more direct has to be complemented by serious discipline in execution. And flawless execution is the term that we continue to embrace because it is about that. It is less of strategizing and more of doing and making sure it's done in the right way and with the right guardrails and right frameworks in place. So we are more and more becoming a multichannel player. We continue to find new ways of deepening and widening distribution. And in terms of discipline, it's really from idea to launch. So when you talk about innovation, oftentimes, we are not -- it's not the innovation or the product that's not doing well, it's the way -- our ability to execute over a period. So overall, we've seen that our ambition to have a sustainable double-digit growth has to be guiding everything that we do, but we also have to start making choices on where to invest, how to keep our brand relevant. And in this area, we are beginning to focus more on what really matters and what consumers really value, and I'm using... [Technical Difficulty]

Sorry to interrupt, the line of the speaker got disconnected. Please stay connected while we reconnect them. [Operator Instructions]

I'm really sorry, everyone. I'm not sure how we got disconnected. I was making a point about ambition becoming a lens to guide our decision-making. It's about making choices and making the right choices fast enough. So one of the areas that we've looked inside our business is, are we structured to do this? Are we structured to be agile, to be focused? And at the same time, are we focused to that in scale? And it's kind of -- sometimes it looks like it's things that are pulling at different ends of something, but it is important to get those perfect sight. So one of the rollouts that we've had very recently is, we've begun rolling out centralized category management structures. And more and more we find that we are beginning -- instead of getting better execution, we have not been able to cross-pollinate learnings across geographies, where the consumer tangent is very similar with maybe tailored local execution. But in general, our offering very similar [Technical Difficulty] but we are not allowing ourselves to take that opportunity -- I'm sorry, I don't know what this thing -- one of those ways is to do that -- sorry, hello?

Yes, Mr. Dharnesh, please go ahead.

Yes. I'm sorry, I'm getting a lot of disturbance. So one of the ways is that we've rolled out the category management structures across our hair extension business, and we often refer it to as dry hair business in our wet hair business, which is hair regimen, hair color and hygiene. And part of this role is, how do we more and more get -- allow execution to be locally tailored, but our offerings and category understandings to be cross-pollinated fast enough and across the geographies. Because we have often found that we are e-learning too much instead of leveraging learning in different ways. And this is very much from consumer insights all the way to manufacturing excellence. Are we producing the right product at the right manufacturing level, scale with the right efficiencies? Are we -- and this is what we are finding that given that centralized direction more, it's allowing us. And it's very much early days. We have a lot of work to do in the ways of working, but we are already beginning to feel that this is coming through very nicely. And it will allow us to focus on ways that have been different way to the past. So this right -- this centralized structure has become quite important. The other thing is we've also started to really look at all the operating models for each of the geographies. And with the operating models -- and they may be very different because you have Tier 1 markets, Tier 2 markets, what is the structures we have? What is the opportunity for more shared service leveraging, shared service -- leveraging shared services is more from an efficiency perspective, certainly from a cost perspective. We should see those opportunities coming more and more. So we have many building blocks that we are putting in place. And I think the whole point is we have to build today for the sustainable future. And building is not just getting a sales target for the month, it's really putting the right things in place and using governance as a very important framework in how we're getting there. And we have to build ecosystems that are sustainable over a long period. And I think we continue to become more confident that the longer-term potential of what we are doing is there and our ability to drive profitable double-digit growth is there for the taking as long as we keep, on the one side, the discipline; on the other side, our entrepreneurial agility, et cetera. I think when I talked about earlier and I just very briefly said this word, building strong effective team, and I think this is another area of focus. I'm very, very pleased. It's been a year nearly in the business next week could be a year. And I think the teams have been very resilient. The agility that has been coming through is going to serve us much better in the long term. Obviously, we will continue to focus on developing and retaining the right talent. We've made a lot of changes in the team over this last period because we have to begin more and more to transform into high-performing agile organization. But having the right competence to meet in place, building capabilities for the future, et cetera, become more and more a focus. So when I wanted and I even talked about is managing costs and managing cash, I think focus ranging, smarter pricing, oftentimes we're leaving money on the table because our pricing and -- are we constantly recalibrating our offerings? Where are the areas of high-capacity utilization that we should be using more? Relooking at the entire managing -- manufacturing footprint, where we look at how can we drive less -- how can we have less complexity and drive scale rather than many manufacturing setups all over the place. And I think understanding it from a geography, from an economic block perspective, what are the transfer, the duties, et cetera, import duties. And more and more, we begin to find that there are synergies that people put in place, which will help us. So I think I know I've kind of said a lot of things. But I think the most important -- probably the best to describe is, yes, we are confident; yes, we've seen things turning around in a way that we're beginning to feel more and more comfortable because it is not short term; we -- the building blocks will always be being built but -- and it will always be refining, but I think building this ecosystem now would give us a long-term sustainable growth that I think, hopefully, we'll all be very proud of one day. But we also have to fix the aeroplane while it's flying. So it's not that you let go of short opportunities or the ability to at least get some profitable growth going now. And I think this is what we are beginning to find because success beats success and the momentum and motivation of the team, the energy that's coming through now to deliver on the consumer opportunity, and I think this is the one area we want -- it is -- the opportunity is there, it's just how you get through that opportunity is really the choice, not whether you seek that opportunity. I've tried to very broadly have a broad brush, and I hope it was okay, and I'm sure they'll be -- I'm happy to take questions when it's appropriate. So I would be open to that, and I'm not sure what's the -- who we have got next.

[Operator Instructions] The first question is from the line of Manoj Menon from ICICI Securities.

Just a couple of questions from my side, and then I'll come back in the queue. The first is when you considered this opportunity from a carrier perspective, maybe 18 months, 24 months back. Just wanted to get your thoughts on what are the strength/weakness opportunities which you saw in Godrej as a group at the Africa business, which prompted you to leave Nestlé, let's say, after 16-odd years? So that's the first one. Maybe you may not want to even respond to this as well. So I just thought, I just wanted to get your perspective on how did you look at it Godrej objective from outside before you joined? That's one. The second aspect is on the people part of it. I'm sorry, if I missed any comments in your opening remarks, at least I don't think I did. Anything on the people side, the culture side, et cetera, now that we are just about completing 12 months in your initial observations, any changes, et cetera? And lastly, if time permits, the way you look at the Household Insecticides opportunity, specific to some of the developed markets in Africa and some of the, let's say, Kenya, Nigeria, et cetera?

Great. Thank you, Manoj. So this is the -- probably the most challenging question everybody ask me about why. When I was first approached with the opportunity, and I didn't understand the company, I didn't -- I then did some research. And it was just -- I think the opportunity to build something was exciting for me personally. I think -- but when you cross that with a company that has a such a deep history, the values of the organization and also the ambition of the organization is like, okay, this is something that really appeals to me it's like an adventure in a way that was made for my mindset, and I'm a guy who likes challenges and I certainly like adventure. But it is also important that you have the adventure with the right organization in terms of does it align with your personal values? Are people that I can work with? And do they have long vision and prepared to understand that in order to make things happen in some of these geographies, you need to play the long game. And when all of those things started coming together, I got really excited. And part of it, to be very honest, was I started to play it a bit -- I love Africa so much. And I was born in South Africa, so I don't know I always have this -- and probably being in Southeast Asia. And I don't know, are you where our next career move was, it wasn't -- it was just kind of, okay, another move. Not something that was super, super different. And honestly, and I know I'm probably sharing a bit too much personally, but I wish today, I was 55 and I said, okay, I have 5 more years or 10 years, whatever left, let me start doing something that I'm going to enjoy and look back on. So it's kind of a not very smart, logical way of deciding to join, but I think it was just -- I had such a good feeling when I met Nisa, and when I met Vivek at the time and then I visited India, I just had the right feeling that I can find a home here, and we can do stuff together. I mean, obviously, this was going to be challenging. There was no doubt about that. I kind of knew what I was signing up for in the beginning. And maybe I should have thought about it more clearly. But in a way, I think I actually had this approach that it is going to be fun as long as we stick to our game plan and we do things in the right way, and this is why one of the first things I always talked about is balancing growth and governance because most of these markets, especially developing markets, you have to be as smart on governance as you have to be on looking at how do you grow the business because it's easy to sell, but to collect cash is a big problem, right? So -- and you can really lose your pants in so many ways. So not being smart about that is now really challenging yourself and those things become a challenge. So I think I had -- I don't know, I had probably my own experience, geographic experience helped. Obviously, those was categories I didn't understand, but there was another challenge like do something new and different. So it's kind of -- maybe it's a school boy enthusiasm. I don't know how as to say, but it was just a good fit. And I felt the right move who I am and who the organization was. With regards to the -- I think you asked me another question on the -- just I guess Household Insecticides, right? Household Insecticides has to be one of the biggest opportunities. And we started to play last year in a more serious way because any part of the challenge is there's a lot of technical challenges you face in terms of regulatory and there's quite a long time span to register products, et cetera, and we've been through that process. We've been having really good success in Nigeria, for example, with Goodnight. We also have been growing our Zambia business very well in Household Insecticide. In fact, we've had quite a big growth. It's off a very small base, yes. But the 1 thing that we realize, and especially if I go use Nigeria as an example, is if you put the right effort, you will get the return there. And I think we'll be playing with some different models than what is mainly from a brand activation perspective, introducing the product. And where we were investing, and I think in a month or 2, I don't know when the full results will come out, but you'd see that spurts of growth and the green shoots of a really good HI business coming through. And Nigeria has to be a focus at least the largest opportunity for sure, but we are doing very similar work in Ethiopia, in Zambia. And -- but it's a different model. So one one new thing is the entrepreneurial or enterprise model with dedicated distributors, the other one is ourselves fully all the way to operations and really building a sizable business in the future. And I think for me, the massive opportunity certainly is Nigeria, then obviously, it's spreading to the rest of West Africa. And in Central Africa, we're already seeing some success. But with 2 different, very different models. And also, it's really understanding that the product offerings are different. And for example, I just discussed with my Middle East team yesterday about HI for the Middle East. And in the Middle East, mainly in UAE, et cetera, it's not mosquito that's a challenge, it's a cockroach that's a challenge. So maybe show you understand that you have the right consumer proposition. And let's understand that Goodnight as a brand or Hit as a brand has different relevance. And I think that kind of area of focus is coming through. And honestly, one of the reasons why I feel that success is coming through is because when we started dedicating category teams to be focused on this, we see the results coming. So I know it's early days of saying that the benefit of a category -- of centralized category team. But I feel that it's suddenly more focused. It does not take away from local execution and even local So we're not making a one size fits all. So I think that will be the biggest mistake you make. So we are very confident that we think -- we know what it needs to succeed. It's not necessarily -- it's not a cut and paste on the India success. But from a technology perspective, we have the right products, we have the right technology. It's how do we execute it in a smart consumer way with the right offering. And I think this is some of the areas. We've had a very -- we've had probably a very good year of learnings of HI and one of the plans is to double down our investments in particular in Nigeria or Goodnight. You did ask me something else about talent, I'm...

Yes. No, Dharnesh, that was super helpful. No I had 1 more, which I had asked was largely on the people culture. You alluded to a lot of comments about culture, but how do you looked at the people part of the business? And is it status quo? Would you had to kind of beef up, embellish, amend? So just trying to understand your people strategy in Africa.

Sure. Sure. Sure. Look, the one thing is there is super talent available in Africa, for example. And I think this -- but we also have to be an organization that can appeal. So we made -- in Africa, we don't have, as a company, we don't have the name that a Nestlé, Unilever has because people always venture those traditional MNCs, right? So this is one of the areas we -- how do we attract some talent. And honestly, one of the big changes we've had is, we brought in a lot of new African-born talent and across the spectrum in kind of senior roles, and we're seeing that value. Because there is no better -- if you get the right talent who understands the market intimately, with also having the right value, then it's a recipe for super success. I mean it will be very interesting, if you took an organogram from a year ago to now across the the highest level to the middle to the lower to lower, and you'll see a lot of good, good African talent coming through in joining us. And I already see some advantages, even from a finance perspective. So there's now being a lot of local talent coming through. And it's not just about local and not local, I think it's -- we also cannot -- we shortened the learning span of the market if you bring local people who yet -- who understand the context because there are different cultural connects, and there are defining, from a consumer perspective, also the way business is done, et cetera. So this local understanding has tremendous role. And also, I think we want to be seen as probably that's attractive for everybody. And it's not just selling that is not African that can go into Africa. We must be seen to be as in -- when we talk about equal opportunity, employer in a way is also about building a brand of Godrej name in Africa as being someone who I'm not just a mid, lower white collar or blue collar employee, I'm also an employer of super talent, and I will bring in leadership and African leadership into more and more leadership position. So it's really interesting if you see before and after, and we're not even begun to take our journey. But more and more, I begin to be confident that we can attract the right challenge. And later on, we cross-pollinating. If somebody from Nigeria can go to South Africa, say from South Africa to go somewhere else, so allow that kind of interplay to happen as well.

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

Am I audible now?

Yes, you are.

Yes. Yes.

Okay. Dharnesh, just wanted to understand what drives growth in your business? Because in the last few quarters, the growth has picked up back into double digit, almost mid-teen kind of levels. But before that, for quite a few quarters, the growth was really low. So just wanted to understand all these gyrations that we are seeing, are they mainly explained by environmental or macro factors, or is there some business-specific explanation, which is a larger contributor to this variations?

Yes. I think, obviously, there could have been macro factors. And I think maybe in the first 2, 3 months, maybe there were some supply chain challenges from other people. But if you look at most of our competitors, most of them are local anyway. So we didn't have that challenge. But I do think if I have to start singling out a few things. One is really focusing on route to market. So our GTM, were we just a distributor wholesale push organization or we understood offtake? So driving from being a sell-in, if I may use the word now, I trust to all you understand, sell-in to become an offtake organization, that is not just loading a wholesaler with your product, and we don't care whether it actually sells out of your store into the retailer and of the retailer, even if it's into a seller. So I think getting the teams are focusing on, if you will offtake and you really spend the money where you suppose giving retailer -- if a margin only go to a distributor into the wholesaler and it's not enough funds to drive consumer awareness of your offering to drive brand activation, et cetera, when all you're doing is what we call BTL right? So I think understanding that and focusing more and more. I'd rather -- I rather come to an ideal world where it is purely replenishment based on consumer uptake. So I think kind of refocusing some of our efforts on building consumer. Also, a lot of stuff that we have started to do was, we realized that the distribution gaps we had. And Nigeria is really a case study of we've remapped the entire route to market. We've put in an entire new distribution network, which includes sales brands. Okada is like a motorcycle sales rep, et cetera, sales vehicles. So we started doing that, and the growth comes. So it's really interesting that we realize the pockets of areas that we were just not available. How can you get a consumer to buy your product where you're not even available in the store that they go to or even the salon they go to, et cetera, et cetera. So I know it sounds very simplistic. And it comes -- it's a long haul. It's not something that can happen overnight. But it is pleasing really, really when you see the transition and the areas of focus. For example, in the city of Lagos alone, we have such distribution gaps. In the city, where our head office is the city, our team has you shouldn't maybe having that, but part of it being is we didn't go to the last mile. We are really probably just getting to distributor to a cash and carry kind of driving distribution to the last mile. And that focus has been across the clusters. We've had different levels of success because it's also to do with how -- what is the trade structure, somethings take longer. It's also about we have the right people to drive the right route to market initiatives. And this is an area we have a lot of competence to be built. We have a lot of training that used to happen because we don't have very well sales machine today, but the success we have seen is coming mainly from those efforts. And I think this is what's allowing us to get the growth. I can always say it's not a marketing, but to be very clear, it is really doing the basics of distribution, numeric and weighted distribution, getting products to -- and also understanding pricing a bit more because we do 2 things: one, we leave too much money on the table, we don't price much enough; or we outprice ourselves because we have other efficiencies. So trying to figure that out and also making sure that we watch the products because one of the challenges we have is, if you don't take incremental continual pricing, you could find yourself on the wrong end of the stick because you've not -- you don't have a sustainable profitable growth. And I think this is being the other thing. So I think probably, if you ask -- if you only allowed me to say 1 thing, I will tell you it's route to markets. Yes, much more sharper consumer focus, understanding what are we spending on in the marketing mix and making choices that we were trying to do too many things all over the place, and we sometimes choosing the battles in a bit more. Even when it comes to the number of SKUs, we have so many products, some of it doesn't have focused, really becoming saying, okay, what is optimizer that we need to have in the business and making sure that ranging relevant by channel, sub channel, et cetera. And -- so I just think let's -- honestly, the agility to quickly transform in route to market has been one of the key successes that we've seen.

Very interesting, Dharnesh. Just 2 sub questions as a follow-up on this one. Firstly, how far are we in this journey of getting a better route to market? Would you say across all the countries that you are present in as a whole as aggregate? Would you say you are like 30% into the journey, 70% is remaining? Or is it visa versa? Some kind of flavor, if you can give on that? And secondly, if you can also give some numerical quantification of this route to market in terms of, let's say, when you came in, what was the total number of outlets you were reaching directly versus wholesaler and how that percentage has changed and how it will change over the next 2, 3 years as well? So that will be very useful, Dharnesh.

Okay. So the first thing I have to apologize for the fact that because it's so many markets, the playbook is very different. And so -- and we had to make prices in the beginning. And I think we were seeing some of the really good growth coming from some of the, what we call, focused markets is because if you don't get South Africa right in Nigeria right and Kenya right and the U.S., right, if you don't get that right and you start spending yourselves to and across, so you never -- so -- and the question you asked is actually a super difficult question to answer because the ability to access data across these very fragmented markets, even in a country like Nigeria, you can get a good sense of maybe Lagos and Abuja but the minute you get beyond into the second-tier cities, you have 0 crew because -- so you kind of have to do all research. So I think one of the things is how do we create our own sales tools to get the kind of data, et cetera? So I'm really sorry that I would tell you, actually, it's about it's not even about country. And the challenge is, so we have seen. And I think we knew maybe in percentage terms in Lagos alone by over 25% distribution gains in the last 6 months. And that is -- and I can only talk about 1 city because if you start extrapolating that and say, what is the next battle? And part of the reason it takes time, it takes effort, and it takes the talent. And we've had to start building the selling to be able to scale this up. South Africa is a very different play. The trade is far more organized. In South Africa, we have to be more smarter about talking category management. And most of the retailers actually play across multiple channels. So you're going to shop right, shop right plays from aftermarket all the way to a cash and carry store. So understanding that even amongst a single customer in South Africa, with a multichannel player, what is the category talking -- what is the category discussion that allows you to become a partner of the retailer who get you the distribution? Whereas Nigeria is very different or Kenya is very different. So I think the challenge would -- and the same question you asked, I wish I could have the answer because if I could find some way of putting all of this into 1 data set and by channel is not even by geography -- by geography by channel, my own personal assessment -- and please, this is coming from intuition and instincts and my own experience without -- because no one really knows. You can't say -- Nielsen cannot give you a retail universe. They'll give you an idea, but Nielsen's pick up generally is like about 30%, right? So I would say, only around 20%, 22% numeric distribution. And idealistically, you'd say 100% is the target, but you also have to understand that there's this economies of scale, the cost to serve maybe a bit handicaps you later. So what is your distribution ambition? It depends on the geography. But in -- for example, in South Africa, you can get 85%, 90% distribution because by the way of the trade structure. In Nigeria, if you get to 40% numeric distribution, you are doing well. So I'm really sorry, but I will -- we have to rebuild -- the team and I have been trying to figure out how to quantify this. So one day, I -- very soon. Yes. And with regards when it is really about scaling up? And I think the 1 discipline that we've had to put in guys, we can't do everything...

Just a very general statement, if I can make, Dharnesh, is that there is still a lot more to do in this route-to-market journey. It's not as if you have put in place most of the actions already on the ground, right?

No, no, no. We are still at the starting days, to be very honest. And what we'll be doing is what I've also experimenting, we experimented with a van sales model in Nigeria. We first started in Lagos. It has been amazing. We were getting into neighborhoods our distribution, so it's so encouraging. The other question is, obviously, we need capital to drive, to drive it further, right? But at the same time, it's a watchout because it's an operation so you need to have -- to make sure you have the right governance, the right management because it can also run away with you. So now the team has come back and I just talked about the Nigerian team. It has come back with 8 scale up plans, adding 20 vans for these so many months, by quarter, by the next quarter. So they've got a scale-up plan over the next 18 months. And then we say, okay, now let's pause and let's see what has been the cost to serve? Are we getting return for their investment? So far, we believe it's a great model. One of the things I'm going to try now in Kenya, is I've asked the Kenyan people to borrow some ideas of the Nigerian team. And let's take [ 10,000 ] and do a pilot in 1 city. So there's a lot of experimentation going on because I think part of the -- if it was pure FMCG, to be very honest, it's easier. But also because we have this portfolio that tangents in one way with hair extension that is very different to the base FMCG, so you start having those multiple channel, but also at the same time multiple category. So that's why we experimenting more. And in a way, is the may not designing a new unique thing, but tailoring route to market by the -- that's relative to your category, and especially with the hair extension business, which we are beginning to have more and more success. And honestly, at the same time, bringing back discipline and one of, I think, if you ask Sameer why he is happier the most, obviously, Sameer loves the growth, but it's also happier that we have become much more tougher on our accounts receivable, much more disciplined in the way we're managing cash because the problem with route to market also is you can start expanding like crazy, and you don't get paid 2 months later, then you have a bigger problem. So I think calibration is probably the right way, responsible is probably the right way for me to describe. So if I tell you a time line, in our focus markets, it's minimum an 18-month journey before we say, "Okay, now we are comfortable, and now let's go up to the second tier, et cetera."

Got it. My second and last question, Dharnesh, is on margins. When this business was acquired about 7, 8 years ago, we were told that the margins are high-teens or close to about 20% at EBITDA level. But then they kept falling and for a brief while went into single digits as well. Now they are in low double digits. What is your vision for the margins of this business in the medium term, let's say, on a 3-year kind of horizon, 2- to 3-year horizon, what kind of margins would you be targeting?

Look, look, I will -- I'm very happy to even extend the discussion to get Sameer to be part of it. But let me start with this 1 sentence, if we want to play in markets that are tough, and we want to win in Africa, we cannot talk about anything less than double-digit margins. I think you have to build that pipeline. And I think getting to 14%, 16%, 17% has to be the goal, otherwise -- and it comes from 2 things. One is better pricing, better consumer offering, but it's also about fixing operational challenges. But if you talk about over a long period, we have to get to that kind of And then you are -- then you can say you've really begun to succeed in these markets. And I think this has been definitely the direction, definitely something we are very serious about doing. And I think we're beginning to ourselves understand what is the pathway to that kind of stuff. So I don't know, Sameer, if you just want to say a few things?

Yes. Thanks, Dharnesh. No. I think, Percy, we've called this out in the past, right? I mean that ambition is to sort of scale up on margins, but I think the pivots I mean would be more critical to be kind of understood and discuss and it starts at scale, right? Because the moment we get scale, we get growth. I think a natural fallout of that will be margins. The other pivot for margins also will be kind of value upgrade or premiumization in our own way, and we do have the portfolio. And even within the portfolio like hair extension, there is possibility of sort of uptrading, right, I mean consumer. And last but not the least, there's cost saving programs, something which we have seen, I mean, within larger GCPL setup in India, Indonesia now, I think 5 to 6 years is what is getting just cross-pollinated in multiple countries in Africa, and this being just the first year. So we do expect there is huge amount of kind of steam left over there on creating a pool, right? Part of it gets reinvested back for growth and part of which will also sort of expand margin. So yes, I mean, from whatever 10, 11 percentage kind of base margins where we are, I mean, at this point in time, the ambition is to take it to at least kind of 17, 18 percentage over a period of next kind of 4 to 5 years I would say.

The next question is from the line of Abneesh Roy from Edelweiss.

Congrats on a very good recovery in the business, both on sales and margins. My first question is, you mentioned because of COVID, there are dimensions and challenges. So I wanted to understand what are the changes in consumer habits or the product category you're seeing because of the COVID, because of the lockdown because of any wave 2, wave 3 happening? Similarly on the margins, if you could comment. So both my questions are on the current state of the business. So on the margins, we are seeing inflation across raw materials. So if you could discuss how the inflationary pressure is there in your business?

Thank you for that. I think the first point is that consumers definitely have been changing a lot of the patterns. It's a bit different. I think the e-commerce in some categories that definitely have a higher salience. And one of the things we started back a B2C campaign, and we've seen the benefits of that. The other area, which I know, it sounds a bit strange, but in Africa, there's an opportunity for premiumization and this is another area where we say, what are the value opportunities? So we think consumers are saying that we want something that's more value. We don't own necessarily just 1 sheet on the 1 side. And the other side is, obviously, with people unemployment on the rise, inflationary pressures, et cetera, we have to be much more closer to the ground. And I think this is really understanding where the consumer pivots. But one of the plans we have going forward, especially in the big changes we have -- and it's hard for me to make a broad brush comment because we play in so many different categories. But definitely, self-help in terms of consumers doing more by themselves rather than going to a salon, as an example, become an important thing. And how can we provide solutions for the consumer in terms of -- I can't go to the salon as much as I used to, how can you help me to create products that become easier for me to do at home. So do-it-yourself as a one broad consumer thrust, we are seeing in our hair care, in our hair extension, hair fashion businesses definitely coming through. And I think this is something we have to watch. At the same time, pricing, and I'll just let Sameer talk a bit more about the impact of inflation and margins.

Yes. Thanks, Dharnesh. No, Abneesh, I think there has been kind of marginal inflation, especially because of crude and also because of increase in global logistics cost because there is a good amount of imports, which comes in most of the markets in Africa. Thankfully, there hasn't been any inflation challenge because of sharp currency fluctuations. I think most of the markets have been extremely stable over the last sort of year or so. In fact, some markets like South Africa have seen currency appreciation than depreciation. But I think the point is to be smart on pricing, right, because that's going to be very critical. I mean how do you strike a fine balance between passing on the increase in input costs, right, through pricing, in parallel also driving kind of strong volumes growth. So that's going to be the model. We also would be placed at a marginal competitive advantage compared to a lot of our peers, that's because we have a back-end manufacturing facility compared to a lot of our peers who are also sort of importers, right? So the impact of inflation is relatively higher for them as compared to what it is for us. So we also get opportunity actually in kind of high inflation scenario to again gain market share. But yes, at this point in time, we are not overly worried in terms of inflation impact, especially on margin, my sense is scale as well as smart pricing and last but not the least, again cost-saving programs should kind of get our margins sort of moving up.

Sure. That was useful. My last question, Dharnesh, so you have been there in this business for 4 quarters, I'm sure you'll be prioritizing given the scale of the business. So is there any business or, say, any geography where do you want to defocus or maybe even divest at some stage? Could you share anything you want to put in the public domain on this?

Yes. So I think your first one is about focus, right? And honestly, I have this old philosophy, which hopefully is right. If you want to really win in Africa, you have to win in the biggest market and the biggest market is Nigeria. So if we really put the right things in place, the right focus areas and I personally lived in Nigeria and I personally run a business there, and I just know it is -- the possibilities are there tremendously. Obviously, you have to do it in the right way. And I think this is where people -- you can get so excited about the opportunity, and you forget to put the right governance frame work, and that's when things go wrong. And most people fail, it's not because they fail because the consumer opportunity wasn't there, they fail because you didn't put the guardrails or -- so I think balancing those 2 is important. But definitely, absolute focus Nigeria. U.S., I know I'm not talking about Africa, but U.S., has so much opportunity, and we begin to see some really good changes happening now. I'm so excited in the last couple of weeks, we've finally we got into Walmart in -- with our hair extension business with our first entry into the U.S. market. And Walmart has given us exclusivity for a year in the category. Obviously, it comes with a lot of responsibility to get it right. But that, if we get it right, will be a totally game changer because we have a new category in the new geography, which is exciting. The value opportunity in the U.S. as opposed to Africa is so much more advantageous. So there's an opportunity for that. It is highly competitive. So we -- it doesn't mean we -- it will be easy. So I think that -- South Africa will always remain one of those areas where we have underrealized our opportunity, and it may not be as se** as in Nigeria, but at the same time, you have to play and you can -- you have to scale your business to a certain level. And I think we still have a lot opportunity in South Africa. When it comes to defocus, it seems like you've been in my meeting for the last 2 days, and I think this is a big challenge that, that understanding, and when I talked about a bit earlier in our -- in the opening address about business models. So we have to make -- become really more tougher making choices and that is this a fully fledged business where we put all above in what sells the entire teams and we focus? Or is this business more an enterprise model kind of business, which is a dedicated distributor, we become a supplier and slowly maybe build up some consumer demand. But I think that clarity of choice has not been very clear. We haven't been there in the past because we have been trying to do too many things all over the place. And I think this clarity you will find coming in. And I don't -- I'm not ready now to share the geographies because I've also have impact on teams, et cetera. But definitely, part of our restructuring or refocus will be making those choices. And one of those -- part of that is also how much of back-office are we leaving everywhere, which we could be synergized increasing share from the centers as another way of becoming more efficient in some of these markets. But absolutely right, the choice of what not to focus on is as important as what you focus on, and this has been probably -- it's hard in a way because you've kind of got teams there, you've kind of got some historical sales, et cetera, but the choice of -- we can do it all, but with a different business model. And I think this is the what we are going through as a team now in remapping.

[Operator Instructions] The next question is from the line of Richard Liu from JM Financial.

Dharnesh, I'm doing a bit of tangent out here. But my question is that to us as outside observer, GCPL Africa is really a hair care business, right? And our haircare business trying to get into and we look at it that way because haircare is what GCPL acquired when they entered into Africa. But with your experience and understanding of Africa more holistically, do you, at some point, look at repositioning that business as a more total comprehensive FMCG business rather than 1 which are present in these niche areas only or like you mentioned that there is no brand recognition for GCPL or whatever, like Unilever or Nestlé had, that would be too much of a long shot?

Yes. So I sort of see the few ways. I think, which is -- the way I'm answering this question by saying that's one of the reasons why we decided to put a very focused centralized teams because the one focus will be, how do you scale up a brand? So I think the other issue is that 60% of our business is hair extension and the rest is what you would call FMCG [indiscernible]. But the opportunity on that is there. And but the question is, who does what? In the past, the way we were structured is, everybody was doing everything. And then you don't get the focus. So in the way we restructured the organization and restructured the team, total on ground execution can be 1 team, but who's setting brand strategy, who is doing the communication work, who is bringing the consumer insights? It can't be everybody's doing everything. So I started with a -- to be very honest, I mean when I joined, I started with this philosophy, we have to become an and company. We have to do hair extension and FMCG. We have to grow top and bottom line, right? So later on I realize, okay, hold on, it sounds cool, but this leads a different way and we lead a different structure. And I think this is the journey we're on now. Because the opportunity is there. And especially when you think about what can we leverage? We have certain strength, category strength and knowledge. If you look at the knowledge we have in HI, in soaps, et cetera, even in hair color from India, how are we leveraging the knowledge? Because we have amazing knowledge from technical to consumer insights, and how can we leverage this at the same time, tailor for local execution and even if it means like changing the product, but basically, the product is the same. It has been the question. And I think 1 of the barriers we've had is, the value has been focused that I'm just to illustrate, I will tell you, imagine a day life of a brand manager who, for first half an hour talks about hair extension, next half an hour talks about HI, next half an hour -- you're never going to get that focused. I think 1 of the ways of us driving that was to create the right focus structure. And I know structure doesn't do everything, but I think it will give us from clarity. We hold the right people accountable for the right category play. At the same time, understand it in our route to market. We may have 2 very different because it's about channels. And it would be a specialty channel for hair extension, whereas something else. And yet in some markets, if I just talk about Walmart, as an example, because it's the same thing in South Africa and if you find a retailer that is having all your categories, so at the customer management level, you can talk the same thing. But at the category level and how do you sell your category differently. So we feel that one of the ways to make our life easier, and maybe we'll get it right is, let's refocus the team, let's refocus what -- people to understand the key success factors, what is your KPI? And if your KPI should be everything to everybody, it's never going to work. And I think -- so this, I think, we're already feeling that it's going to work. I mean maybe we're just too close to it, and we feel like it's the right debt you have. But I think this will allow us to do what you're talking about because we can definitely do both. I think this is the key. If you're like, okay, guys, we're wasting our time, let's just become a hair extension business, then, okay, that's a different discussion. But I -- but do you see it because, look, other people have done it. So what is the rocket science? What rocket science is making sure you put the right focus because it's all about focusing.

The next question is from the line of Avi Mehta from Macquarie.

Can you hear me?

Yes.

Sorry, I just wanted to -- I had a small question about -- sorry, on hold, can I go on?

Yes.

Yes, please.

Yes. So see, at the start of the call, you highlighted that the way to succeed in Africa is on ground execution. And in the middle of the call, you were also a clearly highlighting about the difference in geographies, not just the country level, but even at a city level. I'm just trying to align these 2 data points with the organization structure, where you're talking about category. Would it not entail the geography-focused organization structure would be more able to drive growth? Or I just want to understand what am I missing, if you could please set that?

No, no. It is a great question because it's the same question, everybody has asked us, and we have asked ourselves. And I think the way for me to describe this is the freedom of a tight brief. In other words, execution has to be local because that's what happens, right? So -- and -- but when we're talking about developing a new product or getting broad consumer insights, where is that coming from? And what we found is everybody was reinventing the wheel, if I may say so. Everybody was recreating products. And a lot of our products are very -- actually can be deployed a common from a consumer, let's say, from a certain type of crochet or a certain type of weave it is not unique to the geography. The way you make tangent your local communication or your route to market may be local. So I think there's -- what is the broad consumer insight that you can leverage, right? And then what are the -- what is -- if you dissect the 2 things this is local execution and you focus on that rather than everybody becoming a strategist. And I think the point where everybody was doing analysis and becoming a strategist rather than doing. And I'm probably making it very simplistic, but I think -- so the whole idea was if we see a big trend, and we've done this in the past, we've seen big trends happening, and -- but we didn't scale it. So it took like 6 months for Kenya to learn about a certain style of hair that was already being successful in Nigeria. Why did it -- and yet our competitor in Kenya started doing the same thing. So we left an opportunity because we didn't learn from ourselves. So I think this cross learning. And if you only know what we know, right? And I think -- so when I talk about centralized category structures, it's important that it doesn't mean that the local teams don't have the P&L responsibility. The local team doesn't have the execution or by the way, even the opportunity to challenge they -- look, this product in the way you are giving it to me doesn't work for my market. But what I want is that the broad category principles, the playbooks can be very open, the local execution of the playbook. Because oftentimes, we are reinventing a playbook. Can you imagine we talk to an agency about a communication plan. And if I had to do the same thing by market, it just doesn't become effective or efficient in any way. So getting -- and look, the key of this is, is the ways of working. And I think this is the 1 thing that the message to the team is structure is 1 thing, but the way you work. So it doesn't mean that the role of a central category team is direction, leadership, sharing ideas, et cetera, it is not doing the job that the local team is supposed to do. So it's somewhere in between. And look, other experience is still working, right? And I do think if we weigh out what it can give us, as long as it doesn't become prescriptive. I think this is the key. It's not prescriptive that whatever somebody sits in 1 place, whatever they tell me to do, I will have to do, no. Because I have to allow the local CEO, the local team to have the opportunity to say, we like what you're giving us, however, we feel it should be this. So there is that element of local -- so when I say execution, I mean that part of the -- not from total concept development, total innovation development. Because that's what we found a lot of. Everybody was creating -- and when we did do a kind of audit, you realize a lot of people in different markets are creating the same thing, the end game or the consumer solution was the same, but we wasted a lot of time rather than learn from each other. So we were not connecting our own dots in a way.

Then, if I may, I mean the way then forward would be, typically, when you have a central category team, you tend to kind of start applying principle, and then you kind of have a situation that you focus on the key markets because that's where the growth would come in, that's where the scale would come in for the category. So would that be the playbook that you would start to kind of look at that the larger markets become more the focus area rather than smaller markets? And you'd probably look to extend it, so?

Yes. Look, exactly right. Because I think this question about, if we're just playing an enterprise model in, let's -- I use or second-tier or third-tier market, where it's mainly distributor-led opportunistic play, I wouldn't want the category team focusing on that because we have to -- we know the consumer first and we have to build scale. In an ideal world, if we get Nigeria to be double in size, South Africa to be with 30%, 40% more than where it is today, when we start getting there, okay, now we are at a traction where we can now focus elsewhere. So I think in the next 18 months for sure, it's really 3, 4 big markets total focus. It doesn't mean the other stuff won't happen, but I don't want to start using money to invest in consumers, and use the example, why would I invest in Zambia and Uganda for small returns when I rather keep focus -- and even the marketing investment, where the multiple opportunity is even greater in Nigeria. So I think this is kind of what we mean.

Okay. And sir, lastly, if I may? Sameer, when you say scale, then does this kind of flow into scale being more geography driven rather than on overall basis? Is that how -- is the right way to look at it, Sameer?

Yes, I think it'll go hand in hand-in-hand, Avi, right? I mean the large markets, I mean, should get a scale, and we are a relatively large one, right, in the overall portfolio. I mean for example, Nigeria today itself would be close to 25% and best cluster which is Nigerian would be like more than a right? So I think the task is to sort of maintain the Tier 2, Tier 3 kind of countries at steady-state growth rates, right? And purely from prioritization overinvest and in across resources in some of the large markets like Nigeria, South Africa, which would see kind of strong growth rates, right? So that's the kind of playbook at least at this point in time, which we are sort of executing upon.

The next question is from the line of Mihir Shah from Nomura.

Dharnesh, if you can just throw some light on what is the kind of distribution overlap between categories like hair extensions and HI and maybe also wet hair? So that's one.

Okay. So it depends on geography, but you would often find that whether it's a large distributor or a large modernized trades -- I'll use the word modernized trade, you would see overlaps. But if you go lower down and the sales of, for example, hair extension in salon would be higher or what they call beauty stores. So the specialty channels have a different play. The question is where is the special channel buying this product from, it could be a big wholesaler. But the wholesaler could keep a multiple portfolio because he has different set of customers. So the difference set of the customers could be a salon as well as a mom-and-pop store. So I think it -- where is the -- if you take retailer 1, retailer 2, retailer 3, means retailer 3 is the one who gets to the actual consumer, mapping that out and understanding that there are synergies. But oftentimes, the mistake we make is thinking that they -- if we don't -- is that we should do all that. For example, in Nigeria -- I'm sorry, in Kenya it's very different. In Kenya, it's really beauty store and salon is much higher in salience rather than a cash-and-carry kind of place. What we are finding as well is more and more modern retailers, and I use the word modernized or modern retail is in terms of kind of a midsize or a mini mart or a supermart, more and more -- and I think COVID has probably done this more. They're looking for opportunities. We're getting a lot more discussions happening where we've been asked to supply hair extension into this. And if you just think about, why did Walmart, Walmart have never saw a extension, why have we managed to get this? I think even at a Walmart level realizing that consumers are -- the shopper wants to kind of have an option of buying as much as they can in a 1 stop rather than scootching around, then maybe it's 1 of the dynamics of COVID, but we're seeing the same beginning to pay -- and South Africa is a good example, where retailers have never ever thought hair extension was an important category for them are now really beginning to talk to us. Some of them are scaling with us already. So we're seeing that play. But what we do have to have is that even at a -- I know I'm now sounding right to the last level, but even a key account manager the sales guy, the focus has to be different because the buyers are generally different, the category play is different. So I think this -- so in a ideal world, I would like to have 1 person doing everything, but I think this will be one of the mistakes. So we could -- I can try to be efficient and have 1 sales organization doing everything, the problem is that efficiency is 1 thing, but effectiveness is another. And in some of the places, we'll be keeping a track strategy, which is at the last mile, the focus is the sales activation chain is focusing mainly on hair extension and a lot of time hair extension and hair regimen products, hair care products go together. And in others, the FMCG, and I think Kenya is a good example where it's very different today. We do see opportunity to synergize more, but this is more retailer-led rather than us leading this change. And I think 1 of the things that I see happening in the future, the consolidation, firstly, of retailers, but also consolidation of offerings where shoppers will start making less choices. Why do I need to go to 5 different outlooks for 5 different categories in some of these markets? And we've seen that happening. So I think this question about, in an ideal world, I would love to say a single sales force with all our products. And I mean what I mean sales force, I mean, the on ground execution sales team. But today, we are preferring to keep the effectiveness and possibly find synergies and efficiencies later in the cost to serve.

Understood. No, I was trying to just understand the potential of any new category launches that you can do, especially like in hygiene and have more carrier packs, if you have higher distribution overlap and it can strengthen, especially when you're strengthening your go-to-market strategy currently. Right. My second question, actually, if you can throw some light on...

Sorry, just if I may? If I may, it's absolutely the right point. I think the -- for example, we just launched Mr. Magic in South Africa, which is a powder to liquid hand wash. And it's exactly that, that suddenly, we have a basket -- so we have -- we've been dealing with those channels and these customers, we are now dealing way too well, leveraging our relationship to have new offerings. And this is a -- it's a totally new offering, it's a category we did not play in in South Africa. We launched now 3.5 weeks ago. So that is a signal of kind of opportunities I think you are talking about?

Exactly. Fantastic. That's very pleasing to hear. Second question, Dharnesh, was actually on the wet hair category. If you could throw some light on San or we have, you understand the high relevance in the U.S. market. How do we think about it in the Africa market, the success that you've had here and the potential that we see here, some insight would be very helpful?

Yes. So I mean, it's 2 very different things is, one is what we've often done in the past is we've taken products from the U.S. and put it into Africa. We have -- one of things we've done recently is begin to localize production, for example, of African et cetera, in Nigeria because the efficiencies are there, we can produce at a lower cost. So I think that's the 1 part. The other, but really from a consumer perspective. Again, it's about focus, but this category, the move to naturals, et cetera, has been quite a big tangent. We didn't scale up fast enough, and we've seen this -- so now we begin to see some success. And I think with wets, especially during the COVID environment, the consumer behavior was a bit different. We -- did we have the right product offerings to take advantage of that or not? So we have different success story. We've seen good sales coming through in East Africa, Kenya, Tanzania. Nigeria, very good traction; South Africa, not so much. And very interestingly, we were a bit slow on e-commerce in South Africa. So the sales of e-commerce became much more, and this is because of all the multiple lockdowns that was experienced in South Africa. And we were not ready for this. So could be ramping that up. One other thing is, for example, in Nigeria, we started a B2C direct-to-consumer model with very great traction, which we started. And now it's -- so we started with hair extension, and now we are expanding it into hair regimen, which is wet hair, et cetera. So very different. I think the -- this question in a way is very similar to this question about why have a category structure? What was happening is, we had a lot of different tangents, different look and feel, different product offerings in the various geographies. We were not synergizing. We didn't come across from a -- who is the consumer you want to win with, what is the price? What is the offering? What is the value offering, et cetera? And then say, how do we then execute locally with a local creative execution, et cetera. And this was an area that was missing. So we were very much opportunistic in this across different geographies. And I think the real focus is that I believe it will help us also understanding more. And one of the things that gives us more visibility to watch for the future because we often see a lot of stuff that's happened, especially in the U.S., we are a bit slow to scale it across some of the key African markets. So now where we're really getting a where we're getting the insight We have -- we are scanning the market which are the competitors, what are people launching? What is the latest trend in the U.S. that could you quickly take into Africa, et cetera? You just asked a question about the U.S. wet business, right?

Yes. No, I was just -- wanted to more understand more from the Africa point of view. I think that's...

Okay, okay, okay.

If I can just 1 more maybe a small one? What is the percentage of sales in e-com -- from e-commerce right now for our Africa business?

So basically, it's only Nigeria that we really scale, and it's like really nothing -- so I don't even want to talk about it. But when you look at the month-on-month growth, it's really coming through. And we only did Nigeria, we only did Lagos in B2C, to see if the model works. South Africa, we're now listing in places like [indiscernible], et cetera. And we've also started this concept called viva stores, which is like gathering stores while in branded online stores, so it's called viva stores. So we're playing with this now in Kenya, Nigeria and South Africa because, look, also at the back end of e-com has always been the challenge really the different type of distributor, we need to figure out the logistics partners. But from 0 to 0.1 has been very quick. So it means the opportunity is there. And part of our play for this year is getting it right because to be honest, we've struggled a lot on the logistics side. So we knew we could get the consumer, but getting it to the consumer at the right price, the logistics cost, finding the right partner, finding the right way to manage the back-office of this has been some of the learnings, and I think we've want a lot, but we -- what we'll be doing is adopting some play models in terms of let's play with this and see if it works, what is -- and then what's the model of -- but it's honestly like not even 0.2% or something. So -- but when we started it, the traction is good and the repeat purchase is good. So it turns out that we're on to something, we just have to get -- we have to play with the model till we get it right. And it's also about consumer acceptance or finding -- I -- for the last 20 years, I bought my hair at a salon, and suddenly I'm going to buy it online. What is that -- and this is where the value of the brand comes in, and I think this is what's helping us a lot. We have some -- we have good credibility on the Darling brand, and it's easier to facilitate online shopping with a brand. And we've seen -- if I go to the U.S. business, it's not our business, but the category in the U.S., it's only about 3% online for hair extension. And part of the issue, it's a lot about I want to see styles, I want to see colors, I want to see lens. It's a very high-touch kind of category when I'm buying it. But once I'm into it, and I know exactly my repeat purchase, we've seen that kind of sales coming through. In the U.S., for example, one of our things that walmart.com, we will put -- all our Darling products will be on walmart.com, and this, I think, will give us a lot of learnings for -- in hair extension, which is probably at a scale that we've not done in the past.

Thank you. As this was the last question today, we conclude here. On behalf of Axis Capital Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.

Thank you, everybody, for your time. We appreciate it.