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

Hi, everyone. Thank you for joining us today. We have on the call Nisaba Godrej, Executive Chairperson; Sudhir Sitapati, Managing Director and Chief Executive Officer; and Sameer Shah, CFO and Head, Investor Relations. We'll start with Sudhir sharing his perspective on the business and his last few months in GCPL. Over to you, Sudhir.

Thanks. Thanks a lot, Pratik. Good evening, everybody. Last week, I was traveling in rural Maharashtra, and I was just driving around the countryside, when I see an outlet, I just asked the car to stop and walk in. And I was very happy to see this small outlet somewhere near between Ahmednagar and Aurangabad, which had Fast Card, which is one of the brilliant innovations of GCPL. And ultimately, the battle for consumer goods in this country is fought in these 6 million, 7 million small outlets in rural and urban India. And to see the presence of a new category there gave me enormous joy. And I guess that's the segue into the title of today's presentation, which is volume growth from category development. So -- sorry -- like my trip last week in Ahmednagar, I've spent the last few months getting to know the company. I've traveled extensively in India and in Africa as well in this brief period between the COVID waves that travel was allowed. I haven't yet been to Indonesia. But I feel I've got a reasonably good sense of the company. And there were some things I knew of about GCPL well before I joined that it's been a company with a very, very rich heritage, very, very good performance, a very strong operating base from which to make a company that is really global scale and really great. And these were the statistics about GCPL that all of you know as well as I do. But what I did see a little bit more in detail, which is what I want to share with you is the first thing is that after a few rough years, I think this was a terrific performance over the last 2 decades, there was a brief period between 2016 and '20, more specifically actually '17, '18, '19, where volume growth tapered off. In the recent past, a little bit due to base, but nonetheless, I think volume growth have recovered very smartly. One of the things that financially makes me feel very happy about the business is that some of the so-called laggards of our business, which is our Africa business and Latam business have turned around. You can see that our Africa business, our GUAM business in H1 growth has been 32%. The EBITDA business of our Latam business has now moved to 17%. Just a few years ago, it had fallen to 2%, 3%. So 2 of our businesses that were traditionally not performing that well have turned around. So some very bright spots in terms of business performance. Some really terrific strengths. As I kind of try to understand over the last few months, the history of the company, I feel like some of the really strong points of this company have its origin in the history of this company, which is 120 years old. I think the first thing that really stands out about GCPL through its history is really the culture of innovation, which started 120 years ago, but as recently as the launch of Mr. Magic or Saniter in Indonesia, are great innovation that at periodic intervals, the company is able to deliver innovations that deliver great value for the company. Second thing about GCPL, again, enshrined in the DNA is the quality obsession and one of the things that really amazes me is that despite very, very volatile cost scenarios, the company is really obsessed about consumer quality and does not change consumer end quality under any circumstance. And that's a terrific strength. And finally, a very frugal cost mindset. I mean this is one of my favorite examples where the wick in our Good Knight, one of our hero products, Good Knight in India, we moved it from a plastic to a biodegradable jute-based wick. And not only was this much better for the environment, and I'll talk a little bit about the environment a little later, but it also reduced the cost by 50%. And I think these are the 3 standout strengths as I diagnose the company over the last few months. Apart from what I think are standout strengths, I think the company also has some more modest strengths. One of them is it's got strong processes, probably not best in class or best in the world but certainly more than adequate for a company of our size and scale. I think it's got very good in-market distribution. Again, my habit when I travel into the market is to go unannounced into stores. This is a store that I visited, I think, in Bengal, unannounced, and I was really happy to see well-done visibility in the store. So I think it's good, solid in-market distribution. Though India is probably better than Indonesia, which is probably better than Africa, and even in India and definitely in Indonesia and Africa, our distribution tends to be somewhat urban-centric. So I would say good distribution, solid distribution, but probably can go deeper into all the countries that we operate in. I think the most important thing, however, when I kind of dispassionately look at the strengths and weaknesses of the company is that we are really blessed to have a really top-notch portfolio. From a geographic point of view, 4 countries: India, Indonesia, Nigeria and Bangladesh are 80% of our revenues. This is a very large part of the world's population just below 1/3 of the world's population. And these are countries that have consistently grown at 2x the GDP of the world. So these are low-income countries, but growing very fast. And it's not just that we have geographical focus, we have 4 products. And I want to use the word products, not categories because products are a subset of categories that account for 40% of our revenue, 60% of our profit pool. And all of these are very, very heavily underpenetrated products. So if you take what we call liquid vaporizer, which is the electric mosquito repelling device, or aerosols in household insecticides or gray coverage in hair or air care, especially air pockets in bathrooms, just these -- I would -- these 4 hero products have plenty, plenty of space to grow. And to reinforce the point on the space to grow for our core categories and core products, I think the big point that I want to make, and I guess in some ways, it's the fundamental point about the presentation today is that the categories we operate in have nonlinear growth. And what I mean by nonlinear growth is that the growth of these categories will naturally grow faster than GDP for a long period of time. And why do I say that? Let's take household insecticides, right? It's a category that some analysts have told me that have we seen the best years of household insecticides in India. And my answer is after studying it, an emphatic no. And why I say that is that Indonesia has twice the GDP of India but 2.5x the per-capita consumption of household insecticides. And Indonesia is a cleaner country than India. So while even though sanitation improves, what does happen in household insecticides is as the market moves towards aerosols, which is what happens in -- as countries develop, they move from coils to electrics, from incense sticks to aerosols, from mosquitoes to nonmosquitoes, and you see per capita consumption going up in a nonlinear fashion. If you take air care, where I think this nonlinearity of growth is best underscored, India with $2,000 per capita income has $0.07 of air care. Indonesia, with $4,000, has $0.60. So when India becomes Indonesia, this category will go up by 10x. Or if you take Thailand, which is 2x the GDP per capita of Indonesia, you then see that the -- even then, it's a nonlinear increase in per capita consumption, where for double the per capita income, the consumption goes up by 2.5x. So it's only after about $8,000 where air care somewhat becomes linear. And in hair color as well, Chile has 6x the per capita income of India, but 9x the consumption of hair color. Again, hair color moves as countries become richer from merely gray coverage to what is called hair fashion. So in 3 of our big global categories, underpenetrated categories, there's also plenty of consumption growth to be had as the core markets of India, Indonesia, Nigeria, Bangladesh, and I used India as a specific example, but the story holds even more so actually for Nigeria and Bangladesh. And these are natural tailwinds that we have in growth momentum. And we'll talk about why it's probably better to harness tailwind rather than find new shores and new oceans to sail in. But this is my -- my wife says that I really have 2 right feet, and it's true. It's always mortifying for me to go to places where I'm asked to dance. I had to embarrass myself in our Africa factory by dancing. And like my dance moves, I have to be honest and say that GCPL, despite some great strengths, have some weaknesses as well. And I think it's a good time for us to reflect on what these weaknesses are. I think one key inability, and I've sort of laid out what the opportunities in the existing products and categories are is, I would say, the relative inability to drive category development. I took this photograph in our Chennai warehouse from something -- from a placard that was put up in 2010 and it says, "We are in the business of household and environment pest control solutions, and our objective is to accelerate the growth of the Indian household insecticide market." So category development ultimately is to grow the category. So we acknowledge it. But I do feel that if one systematically studies the category penetration of all categories across countries where GCPL is leader in, we tend to stop category development at about 1/4 of the population. There's a rapid growth of category development in, let's say, 7% to 15% and then the company tends to sort of plateau off at about 1/4 of the population. And one of the big -- many -- there are many reasons why this doesn't happen, but one of the big reasons that we have not been able to develop categories after 25% is there is a fear of downgrading. And it's true that to develop a category, at some point of time, there might be short-term downgrading. But in the markets that we operate in and the shape of pyramids of our countries, short-term downgrading often has to be taken in one's stride, if one has to really expand the category and build long-term value. So that was one sort of weakness. I think the second weakness in the company, related somewhat to market development and focus, is complexity. And I think it's the one area, I would say, across geographies and categories that we seem to be lacking. For example, there are plenty of examples here. In Kenya, we have a 60 crore FMCG business with 13 brands. In India, we have 500 SKUs, but on average, we sell 12 SKUs a store. If you look at our goal sheets, we often have 3 or 4 goals, but each goal has a sub KPI, so that everything that a person is meant to do is captured in a goal sheet. And therefore, the simplicity and focus that is required to develop categories is often missing. And this leads to 2 problems. One is, it leads to, for example, higher cost and higher inventory. So one of the things I'm really not happy with in GCPL is that we carry, I think, about 1.5 to 2x the amount of inventory that we should be carrying in terms of number of days. But more crucially than just carrying inventory, this also sometimes takes away focus from our core business. And this is a core category in Indonesia, no prizes for guessing which one. But this a category that was growing at, let's say, x percent. In FY '21, we did a huge -- whole lot of innovations, took money from a core category, put it into new categories. And as a consequence, the growth reduced. In the next year, we did the same and growth went into negative and we started losing market share. So this is a classic symptom of when you lose focus from the core to do many new things, you can often lose so much on the core that it can never get compensated by the new innovations and the new categories that one launches. And I guess that is the second consequence of complexity in doing many things. I think having said that, when I looked at a diagnosis of the big wins over the last 5 years, and when I looked at what made us win and I found 2 wins. One is our dry hair business in Ghana is a jewel. And it has -- we have won by focusing on 2 SKUs there, systematically and market developing 2 SKUs. And our soaps business in India has consistently been doing well. And perhaps one of the reasons is we've not tinkered with it too much. We've been consistent in advertising, pricing, product quality and both on Godrej No.1 and Cinthol, we won. So if you look at the 2 extremes of the businesses where we've done very well, there's been a focus on the core, not constantly changing things, taking a strategic call and then driving it to its logical conclusion, and that's given us great results. So I guess that gives me a lot of confidence that we do know how to focus, and when we do focus, we win really big. I think the third weakness after market -- or category development capability, a tendency to complex -- to have a complex business is that there's inadequate global collaboration. So we are a global business. This is our hair color business. It's, at the end of the day, fundamentally one benefit, which is gray hair coverage. But you can see the packaging, you can see the innovations, every country pretty much does its own thing. And we have a portfolio that doesn't learn very much from each other. In the case that we do, like, for example, after last year, we launched Good Knight in Nigeria, and we've had success in Nigeria on Good Knight Power Shots that has really surprised us. So when we take a mix that from India and Indonesia, and we roll it out with rigor in some of the other markets that we've now got pretty large scale in Nigeria as a country where we've got a pretty large-scale business in, we actually see a lot of success. So again, like in the case of simplification, when we collaborate, take our learnings and put it to the rest of the world, we see results and see them quickly. And finally, the fourth weakness of GCPL is that while it's a frugal cost culture, frugality is not often the same as being cost-effective. And being frugal sometimes is expensive. So our fixed costs -- for example, our fixed overhead can be better. I don't think it's -- I think it's middle of the pack. I don't think it's -- and it's middle of the pack because there is a culture of frugality, but probably not a culture of investment. And costs are often a combination of frugality and investments, which is basically what I've said, which is our factories don't have adequate automation and CapEx is inadequate. And most crucially, for a high-margin HPC business, our advertising and publicity and sampling budgets are significantly lower than both Indian and global peers. And these are all areas that we have been frugal, but actually to be cost effective, one has to invest. And I guess this is the sort of right balance that we have to strike as a company going forward. So to summarize, this is a really good company. And one of the reasons I really joined it is something -- it's a company that I've admired. I've known it for 20 years now, and I really admire it. And I think it's a super robust base we have. And to go to great is quite simple. I think we've already got a few things. I think, the most important thing actually is the value systems of this company. I genuinely honestly believe that the long-term companies with value systems are the ones that ultimately succeed. Purpose value, sustainability is really top of the line. The portfolio that we are blessed with is a portfolio which has got plenty of tailwinds. We just have to stay in the right direction. R&D capability and innovation, which is the heart of an FMCG company, is great. The mindset of our employees is frugal, and the processes are adequate to take our game to the next level. So I think these are 5 strengths that we should -- we really are proud of and nurture as we go along. And a few simple things that we have to change. And as I said and repeatedly is we've got to focus on a few transformative consumer tailwinds. The winds are blowing. We just have to see it and align the vectors. We have to work more collaboratively across the globe. I think the time has come for us to get the better balance between local agility and global knowledge. We have to move from a completely savings culture to a savings where required and investment were required culture. And most importantly, I would say, we've got to develop better category development capability. And I would say the fourth one is probably the single most important of the 4 things that we have to do. And what do I mean by category development? Let's say the category which is mosquitoes, right? Category development is basically based on the premise that the biggest driver of value ultimately is penetration. Consumption tends to be a function of economic growth. Consumers tend to consume what they want to as they become richer or as needs to come, and it's not easy to mediate consumption. What it is easy to mediate or relatively easy to mediate is penetration. And one has to understand with one's portfolio, where one is on the penetration curve. For example, before 5%, and I guess the analogy here is very much like 4 ages of man or woman. In infancy, firstly, a lot of luck is required. And like our Jumbo Fast Card that we launched recently broadly to take on illegal incense sticks which have become a menace in the country, the 2 big drivers are you got to have a great product and people have to know about you. Once about 5% of the people, of consumers have tried your product or your subcategory, you really have to drive distribution and trial. And that's where, for example, our aerosol businesses, and remember, I showed you the difference between Indonesia and India is largely to do with the fact that India has sub-10% aerosol penetration and Indonesia is about 25% or 30% aerosol penetration. So at the phase that our aerosol business, which is a great value driver, we have to drive distribution and trial. We have close to 90% share of the Indian market here. If you then take between 20% and 60%, which is really kind of, again, analogous to the kind of maturity of a category as it becomes more mature, one has to drive relevance. I know about this category, but I don't think it's relevant for me. So you have to find arguments with consumers on why this category is relevant to you and also to make it more accessible. And finally -- and these 3 categories which is where bulk of GCPL's portfolio lies, and I'll come to it in a minute. The bulk of the growth potential, the bulk of the turnover, certainly the bulk of the profit pool lies here, needs pretty high investments in advertising and publicity sampling and distribution. And finally, where some categories, like our coils business in household insecticides or our soaps business line, when you cross 55% or 60% penetration, you have to be efficient. You've got to extract cost. You've got to give consumers the right price. You just got to be top of mind. And luckily for the GCPL business, the center of gravity of this business is somewhere around 18% to 20% penetration or maybe 18% to 25% penetration, which is still a very, very high growth phase for this business. So that's really the kind of strategy in some sense. I just want to sort of reiterate that at the heart of our success lies existing categories, penetration-led volume growth. And I know it's not going to be easy to do this consistently, but I would certainly measure ourselves on success on a medium-term basis at consistent double-digit underlying volume growth. And the driver of underlying volume growth, certainly for the next 3 to 5 years, I see a majority of this coming from penetration-led gains on half our portfolio. If you leave our soaps business aside and the dry hair business in Africa aside, the balance 50% are all relatively underpenetrated categories, and this will be the bulwark of our volume growth. In the balance 50%, moderate share growth will give us some amount of growth. There will be some consumption-led market growth where we don't have to do much, and there will be 10% to 15%, I hope, disruptive innovation. And you have to remember that the disruptive innovation of today is the market development of tomorrow. So one must never take the eyes of disruptive innovation because, in fact, very rarely does disruptive innovation give very high dividends in a year or 2 years from now. But it's basically that 0% to 5% penetration, you take the category, may not give you a huge sort of volume growth, but that 5% to 20% is what it will do. So therefore, the disruptive innovations that we need for today, so that in the next 3- to 5-year cycle, those become the market development cells that give the bulwark -- the majority of growth. And that's really mentally roughly speaking, where we want to take -- how we want to get double-digit UVG. And where will this come from? And where will the fuel for growth come from? Ultimately, we got to save money on gross margins. Some of it from mix, some of it because I think we're sitting on relatively low comparators. We've got to reduce discounts, both to consumers and trade because discounts often mainly subsidize current consumption and they don't really build categories. We've got to reduce our overheads. We've got to reduce ATL. And while we publish ATL as one number, there is a large proportion of ATL which is nonconsumer-facing, and that needs to come down. We have to significantly increase in media and sampling in salaries. So even though we reduced overheads, we need to get -- pay top of the line to get top-of-the-line people into GCPL, digital and automation and distribution. So these are 4 areas of investment. And I hope in the next 3 to 5 years, we get 150 to 200 basis points of expansion of EBITDA as a consequence of the saving and investment. We also have to save in inventory, which is money that is blocked in, frankly, non -- pretty low returning capital and put it on to automation and CapEx, which will build our business for the future. And that's, broadly speaking, the business model that we're thinking of deploying over the next few years. But I think a business model is all right on paper, but a transformative business plan like this needs a philosophy that all of us in the company collectively believe in. And I feel, over the last few months, as I've spoken to and met many, many people in the company that there's a strong buying for some of the elements of the philosophy that I'm going to talk about. And the 5 elements of the philosophy that I want to talk about is the first principle is, and I'll give 1 or 2 examples, not too many because some of it is confidential, but some examples of what these mean. But the first is less is more and much less is much more. The second is when consumer first and business second. When you have to choose between consumer and business, always choose consumer first and business returns will come later. We have to think local. I mean there is no such thing as a global consumer. There's a Nigerian consumer, there's a Chilean consumer, there's a Maharashtrian consumer. What we have to use our knowledge of the categories that we know globally to act globally, like the case of household insecticide in Nigeria. Tomorrow before today, which is a version of consumer-first, business-second, but slightly different, which is if you have to choose between something that benefits you tomorrow and something that benefits you today, prioritize tomorrow. And finally, which is a kind of philosophy, which is better from within and different from outside. As far as possible, the team that is going to take us on this journey should largely be from within the company, and I think we've got great talent, and I'm going to talk about it in a minute, within the company. And where we don't have talent, we've got to be honest and say we got to get it from outside. But the priority is always better from within and different from outside. Let me give you an example of a few things that we want to do on less is more, much less is much more. One is to have fewer bigger innovations, right? So think of an innovation. And I think the simple mindset is an innovation should never be mentally construed as something that builds for this year's plan. You've got to just keep that out of your operating plan for the year. Your operating plan for the year has got to come from market development, from share wins, from premiumization, et cetera. And innovation is always for the future. And that way, you don't remove the plug on innovations very quickly, you're patient. So do a few big ones, a few big consumer tasks, so job to be done and much, much fewer SKUs, right, and fewer SKUs is good in many, many ways. But this is an example of what less is more tangibly means for our business. Obviously, all these are metricized and we're sort of working with many parts of the company to get this operationalized. But less is more, much less is much more also extends to our philosophy in ESG. I think the company believes and frankly, this is that environment is not a premium. One shouldn't have a green premium. One has got to have developed products that are sustainable and lower cost because sustainability ultimately is about taking costs that don't matter. And the Magic product, which GCPL innovated on, is a great example of removing plastic, removing water, reducing transportation costs and giving a product that is [ 140% ] of the cost of a handwash in the market, and succeeding really well with it. So this is an example of less is more translating not just to business, but also to our views in terms of environment and sustainability. The second one is consumer first and business second. And I think just as GCPL has historically kept quality out of the equation from short-term business performance, I think there's pretty much an adage in the company that regardless of price volatility, quality cannot be touched in order to manage price volatility, which is really laudable. We're going to do the same with media because ultimately, media is also an investment. So we are going to try and de-link media investments from short-term business performance, which is an example of consumer fast, business second. And several other things we're going to do, but this is one example that I hope you see in the future that our consumer investments in terms of media remains the same regardless of what happens to our gross contribution and gross margins in the short term. Think local, act global. On October 18, I was working -- I was taking over and doing a kind of management training stint for a few weeks before that, but I formally took over as CEO and MD on 18th October. And on 18th October itself, we set up a global category team, which we had 3 global categories, household insecticides, hair color and air care, where we are centralizing strategy, product development, innovation and brand communication. And for these 3 categories, market development or category development and brand building advertising, P&L, et cetera, will be local. The rest of our portfolio, which is largely soaps and dry hair, are less local because those tend to be local businesses. We have them operating in only one part, and there's no point in kind of mindless globalization. So we have been choiceful about which parts of our portfolio to globalize, and within that, what functions to globalize. The fourth thing is tomorrow before today. Again, many examples, I'm not very comfortable sharing many of them. But one of them I want to share with you is that often consumer goods companies get caught into a today culture because the forecasting process, you forecast for ambition, you're not able to achieve it and then you -- in order to somehow achieve the forecast, you've sort of compromised on the tomorrow, often just media cuts. And I think the big sort of change that we're trying to bring in here is we have an ambition. That ambition is not going to change, right? It's double-digit volume growth in the medium term. But at every point in time, our forecasts are always going to be for reality. And our -- we're going to hold our sales system responsible for delivering on real forecast and more senior management responsible for delivering on the ambition and sort of decouple the ambition and the forecasting. It sounds a bit prosaic. But if you think about it, this is one of the root causes that companies tend to sometimes prioritize today before tomorrow. And it's at the heart of the engine of CPG companies, which is a forecasting process. And finally, better from within and different from outside. I just want to give you a few examples. Again, many of these appointments we made on October 18, which was really the day that I sort of took over, which is -- we set up a global category structure, and we promoted Rob Menzies who worked in Bain and then he worked as Head of Strategy. And then he took the call to move to running the e-commerce business in India. We have appointed him as the Global Head of Categories. We've appointed Soma, who had 18 years of experience in GCPL, as the Chief Marketing Officer in India, again done on 18th November. We took Tom Dawes, who was working for many years, again, for 10 years in GCPL, on BBLUNT as Chief Creative Officer as an executive role as the Global Head of Equity and Communication, which basically means he will be in charge of advertising on the 3 global brands. But we also took a few other calls. For example, Amit, one of our top performers in sales with 10 years in GCPL, was doing customer marketing in India. And the Head of Sales Development left the company for an external opportunity. And rather than recruit someone else into it, this is really the philosophy on reduction in overheads, we expanded Amit Jain's role to also give him sales development and customer marketing. And that's again, to kind of get good people, stretch them more, and it's good for them, it's good for our business. But where we found that we couldn't get internal talent. For example, in Africa, we've had -- a CFO was an absolutely crucial role. That business is doing a lot better than in the past, but I would still not say that in many things like governance and volatility, it's out of the woods. We've got a top candidate, which was Adesola who's joined us, working in many multinationals like Diageo and Unilever and she's been appointed Chief Financial Officer of our GUAM business. So you can see that of the 5 appointments, senior-level appointments, 4 were in-house and 1 was really recruited from outside. And that's sort of an example of the philosophy of different from outside -- better from within, different from outside. So -- and to summarize it before I kind of move on a little bit more of the short term is that we have a relatively simple strategy for the next 3 to 5 years, which is we have to get to double-digit volume growth. And I think there are basically no excuses there. The biggest driver for that is going to be category development. And the biggest funder for category development, because category development as such needs investment, is radical simplification of the organization and focusing on the few bets that are really going to work for us. And that's like in a one page, the strategy for GCPL going forward. And while this is the right thing for the long term, I think we've got to ask the question on what it means for the short term. And in the short term, our business is faced by 2 factors that will affect us. One that is affecting a lot of CPG across the world, it affects us quite a lot because our Africa business is largely driven -- or is very affected by crude prices, our India business by palm oil and our Indonesia business by tin prices. And we have had -- I mean, unprecedented is often used, but genuinely unprecedented inflation in 3 of our largest commodities, that while dealing with this inflation, I think the principle that we have used is consumer first, business second. So while our intention is very much in the long term to recover gross contribution and gross margins, in the short term, we have to do it in a way that is right by our consumers. The second thing that we have seen in the past, and I read some articles as well. I think [ Arnab ] put out an article, and I've seen it in the inflation, I think, of 2007 and perhaps it was 2010 end, 2 inflations that I was closely part of is that 3 things happen from a consumer point of view when you have very strong inflation in commodity. One is that pipelines thin down. Often, consumption may or may not thin down. People don't generally tend to use less so because of prices because box is pretty inelastic. But there is -- when you cut grammage, there is grammage lying at our distributors, there's grammage lying at the retailers, there's grammage lying at consumers. So in the short term, you find suddenly volumes go down. So that's one thing that happens. Secondly, in developing markets, we don't see that or I haven't seen downgradation. But certainly, the rate of upgradation slows down quite significantly and the propensity of consumers to adopt new categories also tends to slow down. So there is -- one has to go with one's eye open on what happens when there is unprecedented cost inflation. The second thing is our Indonesia business. I think the Indonesia business has an environment issue where the market has slowed down and several CPG companies are not doing well, at least the listed ones. But I must be honest and transparent and say that we have also made a few mistakes in Indonesia. I think the longer-term mistakes is that we did not invest in our wipes business, which has made it susceptible to competitor attack. But more crucially, which I don't think would have been set in hindsight. So I don't think it is the -- I cannot say that this is the fault of the Indonesian team is that during COVID, a lot of companies across the world took a lot of decisions to enter new categories. Indonesia actually did a terrific job of it. It actually succeeded in building a great brand called Saniter, which was an aerosol disinfectant. However, that did come as a consequence of taking the eye of the core. And as COVID recedes, Omicron notwithstanding, what we're seeing is that the Saniter volumes are seeing sharp falls, and it is not being compensated by the core of our business. I do feel, having looked at the equity numbers, that the problems in Indonesia are not structural because the brands are very strong. And -- but nonetheless, we've got to admit that we're in a relatively weak wicket on Indonesia in the short term. We're taking actions to correcting it, investing behind our core brands and correcting some of these things, but some of these things may take a little bit of time to correct in Indonesia. So what does this mean for us? And it's always difficult in these kind of volatile times to give a prognosis on the future, and it's risky to really talk about the future, and I'm sure you'll appreciate it. And therefore, every time we speak to you, we may have to change our views because these are really unprecedented costs. But what it means for us in the short term, which is H2 FY '22 is we will see low volume growth. We will see relatively high price growth. We will see low -- high GM dilution. Part of it is because the cost hit us really fast and it takes time to price up. And part of it is because you got to do what's right by consumers. We have seen moderate EBITDA dilution because we're getting cost savings elsewhere and leverage, et cetera. But this is what I suspect H2 FY '22 is likely to look. If I look at -- sorry. If I look at FY '23 and if I were kind of trying to be a Nostradamus, I would say that -- and herein lies the big risk is moderate volume growth. Other things being equal, the first half of FY '23, volume growth will be tough. I do hope that some of the investments that we are making in market development starts to pay off. And we can move what could structurally be a low volume growth into a moderate volume growth. I feel sort of kind of cautiously optimistic that we'll move it to moderate volume growth. I think we will see high price growth. We will see good GM recovery. May not be all the way from the FY '19 levels or FY '21 levels, but certainly from the FY '22 levels. And we will see moderate EBITDA recovery because the idea is also to invest in media and go-to-market investments. So very, very broadly, without getting caught up into too many specifics, this is how I would predict these 6 months, and then after that, the next 12 months. That's really kind of what I wanted to share with you today. Thank you very much for patiently hearing me. And I guess we're open to questions now, Pratik.

Thank you very much, Sudhir. We will now begin the Q&A session. [Operator Instructions] We will wait for a few seconds for people to queue up. The first question is from Percy.

Am I audible?

Yes, Percy.

Sudhir, thanks for wonderful presentation, very concise and without jargon. So thank you very much for that. My question is one point you made was very [Audio Gap] that after 25% penetration, we hit a wall in terms of increasing it further. And one of the reasons for that is that we are scared that it might dilute the premiumness of the offering or dilute the margin [Technical Difficulty]. In light of this, I just recall a few innovations done by GCPL in household insecticides, which were done with regard to worrying about the margins, and keeping in mind purely your penetration. So for example, 4, 5 years, Fast Card that was equated. Secondly, 2, 3 years ago, the Power Chip. These were innovations clearly aimed at penetration. The problem was that for whatever reason [Technical Difficulty]. So I think, and this is my assessment that the reason that [Technical Difficulty] in terms of penetration is not mere fearful of the consequences, but somehow innovations did not work. So can you throw some light on this aspect as to how to make the innovations actually more effective because that is where I see the problem.

Yes. No. Thanks, Percy. I think let me just answer this a little generally first on GCPL and get into the specific as much as I can. I think the fact is companies have DNAs, and I think GCPL's DNA is in innovations. And we can discuss innovation succeed and fail for a variety of reasons. And I don't think GCPL has ever been cautious about launching innovations, right? So what you talk about aren't innovations, they're not, in that classical sense, market development, which is much more in terms of building relevance of existing products with new consumers versus launching new products for new consumers. So I just want to differentiate. And I feel like one of the DNA changes that we have to make and the reason that GCPL penetration stop at 25% is that the playbook to get to 20% to 25% penetration is very different from the playbook to get to 20% to 60% penetration. And that's the difference. I think as far as innovations go, I mean, some have worked and some have not, but if you broadly look at the company over a decade, it has generated great innovations. And I don't think that GCPL has held back from innovations which are -- which democratize. I mean I don't think it's a company that only innovates at the premium end. In fact, Magic is a good example of something that has democratized the category. So -- and I think Power Chip had, in some sense, Fast Card fall under the category of innovations. And maybe those innovations work, maybe they didn't. I mean Fast Card, for example, I feel, has worked quite well. You're right about Power Chip that there's some lessons to be learned there. But those aren't the examples. I think the right question to ask is, in the case of a liquid vaporizer, which is the core of the categories, what do we need to do to take up the penetration of this category from 25% to 40%? I don't know if that answered your question, Percy.

Right, right. Understood. So basically you're saying that you already have the product in order to increase penetration in HI. And you don't need new formats in order to achieve that goal. Is that understanding correct?

That's exactly right. I mean, the penetration has to be done on things that already exist. Maybe you can miniaturize them, maybe you can reduce the pack size or grammage. A lot of it has to do with just media weight, a lot of it has to do with distribution, but mostly about building relevance, right? Why should someone -- I know about electric liquid vaporizers, but I'm using a coil. Why should a lady move from coils to liquid vaporizer? And often, the answer is not just about a new product. It's a way of looking at the same thing slightly differently, which is really the art of category development comes into.

Right. Second question was I was a little surprised when you said that basically, you gave the example of hair color, and you said that we need to sort of act more globally, and each region is doing their own thing. But in the past, I have seen several examples. Like example, Fast Card was actually cross-pollinated from Indonesia, the sachet was cross-pollinated from Africa. So I thought we were already doing those kind of things. So what is the gap in my understanding versus what do you mean?

No. I think Percy, you're absolutely right, which is, again, goes back to what the company does really well. It's a very product-focused innovation company. So when an innovation works in one part of the world, like the case of Fast Card and like the case of hair color sachet, you're perfectly right that we moved it really quickly to different parts of the world. What we're less good at moving is techniques of category development, communication, positioning, packaging, insights, the softer aspects of that again, goes back to the same meta question, right? Innovation, company culture, double tick, move fast, moves all over. Category development inside, much slower to move across the world. And that's really where I feel a lot more has to be done, Percy.

Your next question is from the line of Manoj Menon.

I just got quite a few questions, but I'll just [Technical Difficulty] fairly straightforward. But before that, actually, congratulations on a very, very clear [Audio Gap]. Also, I really like the fact that you've put the targets on the table. And I do know a lot of investors who like a CEO who comes and talks about measurable targets, and thanks for that clarification. A few things actually. One, when I think about HI as a category over the last [ 7 years ] which has moved into sunset in different parts of the world, I know that maybe India is like [Technical Difficulty]. Is there a technological disruption, which can actually happen in HI, which can come from multiple ways? How do we think about that? The reason I'm asking because [Audio Gap] as an example, when I think about an HUL, I don't really [Technical Difficulty] format become [Technical Difficulty] lot of changes had happened, but [Technical Difficulty]. But I just want to [Technical Difficulty] or how do we think about the long term impact? What's your initial observations? Number 1. Point number 2. Should I go ahead or kind of should I just stop?

Manoj, I think let's take one question at a time because I think your voice is also not very clear.

Okay. Sure, sure, sure. Yes, I'll stop.

Yes. No, Manoj, I think there are 2 questions to your first question. One is I couldn't fully hear it, but I thought I heard you say that HI is a sunset category in developed markets. But I hope in the presentation, I made it clear that at least up to $10,000, and our top 4 countries are well below $10,000 of per capita income. I haven't studied, to be perfectly honest, countries above $10,000 in per capita consumption. But I'm reasonably sure that up to $8,000 to $10,000, there is first a nonlinear phase of HI growth, which is to be had between $2,000 and $4,000, and between $4,000 and $8,000, linear to GDP. So I don't think in the -- and a lot of it really comes from electrics penetration in India, low, and in Nigeria, Bangladesh, Indonesia extremely low. And penetration of aerosol, India and Bangladesh, extremely low, Indonesia and Nigeria somewhat there. So I guess -- I hope that answers the question. I think we are -- and one of the things that gives me a lot of confidence, and it's probably not right for me to share specific things that we're working on. But I would say that having given you an honest assessment of the company, one of the things that I'm very reassured about the company is the R&D and product paranoia. So I think we perhaps might have been caught a little offguard with illegal incense sticks, but there's a word "illegal" there. But I feel that while obviously, everyone says that we're looking at disruptions, and we are paranoid about disruptions, I do feel like, at this company, the odds are it will be pretty paranoid about HI disruptions. I'm kind of privy to some of the work that's going on here, but probably not right to share because it's specific and future-led. But I feel personally quite reassured and I guess one should never say these things, but that the odds are relatively low. I don't know, Nisa...

Yes, I'm not sure, Manoj, what you mean. And are you talking about new technologies in terms of the mosquito breeding and other things that we are seeing? I think -- and we do a lot of work with universities and so we keep on top of these trends and what's happening and what are the new molecules that would come for the mosquito. We're also working with governments and regulatory framework so we can move faster with some of these new technologies and new products. And I think we're quite -- I mean, we're quite confident that if there is new technology or new things coming out, we would be able to bring them to the market first. And I think also in this household insecticides, which we've talked about, Sudhir just mentioned, driving penetration for LV, for aerosol, this personal repellents we talked about nonmosquito as a category to be sort of developed also. So I think we feel quite confident about this category going forward.

Understood. In fact, that was the follow-up on -- which was on the nonmosquito [Technical Difficulty] and also a different one on air care. What make these 2 segments or categories, let's say, start growing at a faster rate in your opinion, your initial observations? Because it's been an opportunity for a reasonably long period of time. Is it a case of right innovations at the right price? Or I mean, is there a market which is already there which you face? Or is it still -- you're going to just start the innovation?

Yes. I mean in the case of cockroach, one can think about the penetration curve that I put up, Manoj. In case of both cockroach and air, penetration is kind of in the vicinity of 10%. And really, the things to do here in terms of cockroach and air care is awareness increase, distribution increase and sampling. I mean, that's the playbook for these categories. So I mean, it's not rocket science, right? But you have to put that money. I mean -- and you've got to then find the money on these 2, 3 really basic. So there's no rocket science. It's just the fundamentals of category development. And both these categories are very, very far away from peaking out in terms of growth. I mean, I think the best days are coming very soon here.

Understood. And quickly, and I'm not sure I missed the slide on home care. Was there a slide on home care? Because if -- as I recall correctly, it was all about your existing categories. And I do understand, based on our conversations earlier at that conference call [Technical Difficulty] Godrej Consumer [Technical Difficulty] calculations in home care. Is there anything which you would be able to talk about today?

I think, Manoj, it's not proper for me to talk about our future. But I think the principle I hope I've been able to communicate is that we have to decisively do well where we are. In my assessment, there is huge addressable market in the categories that we are present in. It is not -- and at times, I'll tell you that this is a mature category, we've got to find new pastures. But I would say that we got to do really well in the categories that we're in. I see a lot of growth potential 5 years later. Once we kind of convince ourselves that we're doing really well in the categories we're present in, that's probably the right time for us to look at new categories and the world outside where we are present. So I would say that's the broad -- and I want to just give you a broad guidance because there will always be ups and downs and here moves and that moves. But I would broadly say that, that would be the focus of our business.

And one very last question on the P&L side. Sudhir, again, your initial observations on the parts of the portfolio where you're [Technical Difficulty] products and categories that [Technical Difficulty] where, let's say, if there are opportunities for you to eke out [Technical Difficulty] they are dominant in certain parts [Technical Difficulty]? Or are there parts where you're over-earning actually? So are these -- is there a high standardization out here?

Manoj, I'm not able to -- we weren't able to hear that question clearly, Manoj.

I was just asking, are there parts of the portfolio where you're actually, let's say, under-earning. When I say portfolio, it could be geography mix, category mix, segment mix, SKU mix, it could be multiple ways of looking at it, essentially a revenue mix management where you're under-earning? So is there an opportunity to eke out a little more because you did allude to raising resources to invest in multiple innovations? So that's one. Or are there also a case of parts of the portfolio where you're over-earning as well? How do I think about that?

[Audio Gap] focused -- the 4 categories or the 4 products I spoke to you about, I think we are the best in the world or certainly among the best in the world. And so I would say category-wise, we're ready there. Geographically, what has given a lot of joy to me in the last few months is to see the way our Africa business is developing. I think I visited Kenya, which is our toughest business is actually Kenya and the first international market I went to was Kenya. And I was very happy to see the progress in terms of the fundamentals in Africa. And I see huge potential for growth in Africa in our FMCG business. That was the basis, I believe, when I spoke to a lot of people that we did the acquisitions in Africa, which is to get scale for our FMCG business, and we've had some hiccups on the way, I truly feel that we are ready for that, Manoj.

Thank you. The next question is from the line of Vivek Maheshwari.

And thank you, Manoj, for quantifying some of the -- let's say, the direction in which the business will go. On that piece, if I can start with the first question is you mentioned about something like 150 to 200 basis point margin expansion over the medium term, right? But the way in which you have articulated your strategy around the advertising, does that mean to be, first, the margins will take a hit, and you did mention about the near-term pressure from crew perspective. But if one has to factor in, let's say, or one believes that gross margins stay flat, even then I got a sense that margins will go down because you have to spend first and because that's the right thing to do from a consumer standpoint. So can you just elaborate on that?

We will expand and increase it. That's not our objective, right? Our objective is to invest in the consumer. I mean there might be a consequence. If there is a consequence at some point of time on margins and we are to take it, we will choose consumer over margins. But certainly, if the objective is not to have an office stake and say that we're going to reduce margins. Look, the very short term, Vivek, you know what's going on, right? So I don't want to comment on the very short term because there is unprecedented volatility. So once we get better control on the range of the business, it is not our objective to dilute margins and invest and then grow and say then we will recover it. But as I said, if push comes to shove and we believe that to do what is right for consumers, it is required, we'll do it. But that's certainly not our objective.

If I can just add, Vivek, I think you saw the slide right, which captured second half of this fiscal year and also what's the plan for FY '23. I think what will happen is the quality of profit will be much better. We do expect, I mean, at least a reverse in gross margins to move up because of mix, because of pricing and also some very serious cost saving programs. But we'll also see higher investments in kind of media, IT automation. But net-net, at this point in time with a lot of building blocks visibility, which we have at this point in time, we do feel that FY '23 will see margin expansion. Hence, it will not be sort of back-ended.

Got it. Got it. The second question, Sudhir, your impression on -- so numerically, you mentioned about the distribution touch points. But let's say versus Unilever, Godrej has a lower sales in rural India, for example. So what is your purposes on the distribution, both quality as well as quantity? And what is your expectation?

The quality, I can comment only on India and Africa because I haven't been to Indonesia yet. So it's not fair for me to comment. Let me comment on India because Africa has some challenges, and I think it's getting better, but it's so far -- India has -- but see, the quality of our distribution is good. Our distributors work well. If you go to an outlet, the odds are you'll find a GCPL product. I would say that, often, distribution is driven by consumer demand and pull. It's an off forgotten thing. It's not just a physical question of going to an outlet. If you have pull and if you have categories that stagnate penetration at '25, it is not fair to expect deep rural distribution. So I would say that the -- for rural distribution in India, I would say the orders lies on a demand chug. The moment the demand starts moving up, then it is correct for us to start demanding from our distribution system to go to more stores. So right now, I would say that even rural distribution will be driven by better quality of market development, which is why I'm focused so single-mindedly on that in India. In the case of Africa, Vivek, I do feel it's not about demand. I think it is supply first and therefore, we have to physically go to more stores and get better GTM. And in the case of Indonesia, once I visit as soon as I can, I'll talk to you about it. But that's the context on distribution.

So what will take -- just a follow-up, Sudhir, what will take, let's say, Godrej to go more closer to, let's say, half sales in India coming in from rural. So is it just a portfolio theme, the penetration in rural and, therefore, there is such a big gap? Or any thoughts on that piece, basically?

It is penetration. Really, ultimately, everything boils down to consumers trying new distribution. It's not the end of objective. Distribution is only a prior media. So I would say that once penetration starts chugging along, then we have to increase our rural distribution at a faster rate than penetration. But I would still say that the unlock here is rural market development, and that's what I would say the underlying unlock even for global distribution with it.

Okay. Sure. Sure. And last question, just you went to Africa, let's say, ahead of Indonesia. Was there any -- I mean, other than the fact that you wanted to try the moves as you were dancing in the crowd. But other than that, was there any specific reason of going to Africa before Indonesia?

Well, the primary reason was Indonesia had a 10-day quarantine and Africa didn't have a quarantine. So I don't want to spend time 10 days in -- as much as I love for the company, I don't want to spend 10 days in a quarantine. It may not have been the best use of my time. So I was hoping that the quarantine would come down. It came down to 3 days. I was supposed to travel the week -- next week. I said 3 days, I'll spend in quarantine, no problem. And then the Omicron restrictions came and it's gone back to 10 days. That's the only reason, Vivek. No other reason.

Right. And just a follow-up to that, Sudhir. So you are Godrej Consumer CEO, and each of these clusters have their CEOs, right? So how does the equation work between you and the respective CEOs and in terms of the local team?

I mean, look, this is evolving, Vivek. I think the roles and responsibilities is a fluid thing. I think firstly, we're all a team player here and all of us are trying to win. I think, definitely, the profit for the clusters is the teams are responsible for it. I think one of the things that we will try and do, Vivek, I think that's a better way for me to answer this question, is that to move from a complete independent model to an interdependent model. That's the way the world is working. People are interdependent. And the category move that I told you is an example of that, right? So it's a good thing for a few people to be involved working on the same problem. To be clear on who takes the final call, so we're also sort of trying to evolve clarity on who decides. Sometimes I might say to the cluster head, "Listen, I don't agree with you, but this is your call." Or sometimes I may say mine or sometimes Nisa. So we're also evolving a model. But I think the principle here is I don't think it is appropriate for the stage of growth that we are in or indeed, the world that we live in to have a fully independent model. And I think interdependence is the way to go ahead.

The next question is from the line of Arnab Mitra.

Thanks for the presentation. My first question was on this market development. Is it a very long-term game in the sense that if you start doing market development in some of these categories, is it going to take many years before it starts going up? Or is it in experience, this is something that starts moving the needle quite fast?

I think, Arnab, to answer your question, if you do it right, it should move reasonably fast. It doesn't move in the first quarter and second quarter, but it should move within a year. The trick here, however, and I must sort of -- if you have to get the market, the category development required at the end of the day, a trigger for category development. So often, the answers are already there. So what takes time, sometimes is getting the right trigger for it. But once you get the right trigger for it, it doesn't take a huge amount of time, Arnab.

My second question, on your Africa business, you visited the business also. In your perception, is that FMCG business in a classical sense, which has pricing power, which has brand equity. What's your perception of the quality of that business?

See, the -- when I say -- so we have 2 businesses in Africa, one which we call the dry hair business, which is -- I mean, I think it's a good, solid business with high market shares, scope for efficiency. One of those categories, which I think has 60% penetration plus. And I think there's a lot of growth opportunity in our dry hair business, which is hair extensions, which is still the majority of our business. But what I was very enthused with when I went to Kenya was in the FMCG business in a classical sense, which is driven by the -- our U.S. portfolio that we acquired, especially MegaGrowth and TCB, which are in the wet hair segment, which is basically treatment on the hair, which is non-shampoo, but leave-in condition, sheen sprays, et cetera, et cetera. I was very, very enthused by the strength of the brand, the rapidity of growth, the profitability of that portfolio, the underpenetration and just the sheer scale of growth that's possible in wet hair. I was also enthused by the opportunity for household insecticides in Africa. I do feel that given the prevalence of mosquitoes in Africa, the penetration and consumption of household insecticides is significantly lower than what it should be. Let's take even Nigeria, right? Like India has, if I'm not mistaken, I had put about 60 cents is the consumption of household insecticide. Now Nigeria has the similar kind of weather, similar per capita income, but it's got 2/3 per capita consumption of household insecticides. So on both fronts, I see it today on wet hair, which is very exciting in Africa. And I see it tomorrow in household insecticides, which I'm assuming what you mean by the FMCG categories. And we've got a dry hair business, which as I mentioned is doing a great job of driving efficiencies, taking up margins, doing the fundamentals right, simplifying that business, et cetera, et cetera.

And my last question was actually just going back to what Vivek had actually asked. I don't get money out for investments, it still looks very difficult that you could do this without sacrificing of the margin. There are scope for significant savings, which I do like that, because the team has already been doing a pretty strong job in cost savings in the past.

No. I mean I must be honest when I say I do feel that there is potential. I think GCPL has done a great job on cost efficiency and frugality, but I do think that there are fundamental area, largely in the area of simplification, which will yield cost. But as I told you, Arnab, I mean, our priority is to get the consumer investments. That hypothesis is really exaggerated. But if we don't and we have to invest, we'll invest in it because we know we're a HPC business with low penetration, high margins, and the return on investment in the future will always be good here. So I mean, there's no question of going in the company and saying, here is margin release, let's go and grow the business. Let's start. That I would say would be, from my point, a miss, and I would not be happy with it, but I would be even less happy with lower volume growth. So if I have to choose between the 2, I'd definitely choose volume growth over EBITDA reduction. But the going-in position is have modest EBITDA improvements and relatively fast volume growth, with the caveat, Arnab, which you yourself had written that the next 6 to 9 months, we'll see some fundamental headwinds on volume growth in CPG across the world.

The next question is from the line of Richard.

Just honestly that I was seeing out here. If I look at Godrej as a brand, India is back. But if you look at it from an FMCG brand, effective officially when we are talking about premiumization, do you think that there's a bit of a back foot involved out there that can swing that Indians are also, I would guess, is the most profitable -- for all honesty, that is what we've been hearing about from some vendor are seeing. So do you think when the premiumization of the brand plays out, the Godrej brand could -- moving the Godrej brand to premiumize the GCPL portfolio consequently on a little of a setback.

Yes. So the answer to that would be no. And we also have a choice at any time not to brand with Godrej like we did with [indiscernible], which was a very sort of high-end hair care brand. But I just want to point out, actually, we do have like a real estate business where we sell apartments in the [indiscernible], and all the resorts that we've done actually in GCPL, even on more sort of premium brands that we have developed. And when we show consumers the brand with and without the Godrej name, the Godrej logo in itself gives us a lot of advantage. So I don't think GCPL is tied in any way to doing premiumization. And we always have the choice not to use the Godrej brand, but our understanding is that it gives us quite a lot of strength.

And second one, if I may. I remember you talked about Indonesia very emphatically even in the Q3 earnings call, right? You alluded to certain department steps that have been taken strategically. And you talked about that even today. And one of the aspects you talked about was about the wipe category there that you said that you haven't invested a lot. I mean considering the timing of this topic, comments aside, the previous reductions that we had, can you elaborate a little bit more on what are you seeing are the low-hanging fruits out there that could be [indiscernible]. And what are the long-term gains that market looks forward to out there?

Sorry, Richard, I couldn't fully follow your question. I heard something on our wipes business and what my diagnosis in the wipes business is. What was your second question?

No. So my question was [indiscernible]. My question was that -- what -- you talked about, so much about Indonesian percent, and you referred to that in the Q3 past calls, and you talked about it today. I just wanted to get your initial view on what you think are the real low-hanging fruits out there immediately? And what more could come by as you correct the miss?

It's a very, very rock solid business going through a rough weather in the short term. And to compare with our Africa business, which is on a correction mode, but I wouldn't -- like our Indonesia business -- and I haven't been there yet, from what I see, what I hear when I look at the numbers is a top-notch business with a few very high-margin categories and great positions that we have there. I mean the -- I think the missteps that we made in Indonesia strategically, I guess, is we got to reorient ourselves in Indonesia, like in India, to category development, Richard. It's still only a $4,000 per capita country and between $4,000 and $8,000, many of the categories that we play in have nonlinear growth, and we just have to expand categories. So even in Indonesia, the household insecticide aerosol category has a penetration ballpark of 25% to 30%. Our hair business has 15-odd penetration. So there's plenty of penetration gain to be had in Indonesia, and that's why we've got to reorient ourselves in Indonesia. On [indiscernible], in particular, I would say -- and I hope a year from now, because I can say this with as much candor when I make, as I definitely will make mistakes in the future, and I hope in these forums I can admit it. So on hindsight, it's quite clear that it was a category that we had leadership and we should probably have invested more in keeping the equity strong in [indiscernible] and that's the lesson for us all over. That just because competition is weak, and someone asked the question on disruption, if one doesn't invest in a category, even if one doesn't find obvious growth drivers, like it may not be that obvious in baby wipe what the growth driver is, let's say, compared to household insecticide or hair, one's got to continuously seeking for the growth driver and continuously invest. And I guess that is the broader misstep, is not to be complacent in categories and to sort of make more cash than required from them.

Last one is do you see M&A means any role in your growth template? Or do you think that can be put off the table for at least, let's say, 5, 6 years?

Yes. I mean, listen, I think the thrust of this presentation was to, I hope, give you confidence. Certainly, we feel very confident. I do. That there's a lot of very good growth that we can get if we focus on what we're doing now and get better at what we're doing now, right? So clearly, it's not like a phase where we're going to be looking at lots and lots of M&A. But if there's a good opportunity that comes our way in categories that are existing or allied, I guess we will definitely look at it and we continue to look at it. So I guess that's the qualified answer.

I think our strategy, which we've been -- we've talked about in the last few years is this high focus on double-digit organic growth. Sudhir has come and defined it also as underlying volume growth has to be in double digits. So I think that will be our main focus, but M&A and having a playbook is -- we definitely have an M&A playbook, like I've said before, to be more focused on India and Indonesia versus Africa for the moment. So I don't think there's much of a shift on that strategy.

The next question is from Harit Kapoor.

I just have 2 questions. First question is on the penetration side. So I just wanted to understand, would we require format innovations to drive your agenda of penetration? Going forward, you do believe that the current formats across categories are good enough to drive sampling and enhance penetration.

Yes. No, I won't answer that specifically, but I'll answer it in general terms that sometimes format innovations are required for penetration increase. But more often than not, what is required is getting a consumer trigger for existing formats and building awareness and distribution. It's a more general answer, but that's how it is, I guess.

Got it. The second question was on the global category head strategy. Some of the peers utilize this strategy given they have global businesses. I just wanted to understand, in certain cases, it also leads to a slower execution on local innovations on ground. So how do you kind of guard against something like this?

Again, the first is we don't globalize everything. We only globalize what is naturally global, right? I mean, a mosquito is a mosquito in most parts of the world, right? So it's a naturally global category and therefore, what is not naturally global, like hair extensions, continue to remain local and it's 50-50 for our business. Then within that, we have also defined the guardrails in terms of what is global and what is not global. Now really, innovations, which are breakthrough and I'm one of those guys who's in the camp of breakthrough innovations, tend to be global in nature. They tend to come once and every few years. They're not generally -- so they don't come back -- the speed is not the important thing in innovations often. It is really a deep consumer understanding and really a breakthrough product. There's no reason why that can't be global. What can be, again, incite and triggers, as I said, tend to be global. So why does the mother use liquid vaporizer or why does she use an aerosol. The reasons tend to be pretty global. So these 2 things by nature tend to be global. But many other things tend to be local. Pricing tends to be local, the amount of media that you spend tends to be local. Well, how to sample and how much the sample tends to be local. So in the marketing mix, what tends to, over a period of time, be global, we have globalized, and what tends to be locally, localized. But finally, here, this is a small company, right? It's a relatively small company with a few of us are working closely together. And ultimately, there is no substitute in these kind of things to pick up the phone and say, "Hey, I'm having this problem and let solve it together." And I guess whatever structure you form, ultimately, what matters is the cohesion that we have on the top team that we're in this together and solving it together. And I feel like when that is done, when that cation is there and when people in the team play for each other and not just with each other, I think then magic happens and the best of global and local come in. That's a cultural problem to solve, but that's, at the end of it, the heart of the answer.

And I think in your last, it's more sort of to go up would be what I've seen in the last few months. GCPL is moving faster than it's ever moved, correct. So I don't think actually the question is global versus local, but is it -- its focus, clarity and agility, and the choice making around that. So I actually think this change is going to be very powerful for GCPL. And we talked about -- someone mentioned this cross-pollination of hair color or a fast cart. I know how slowly some of that moves. So I think, say, even HI in Africa, in this new structure, what we do in Indonesia and India, it will actually move much faster than in our previous model.

The last question was on the volume growth for FY '23. I mean you mentioned moderate volume growth. But I just wanted to understand, is that a function of gram-age reduction led actions that you've taken? Or is it more a function of the demand in the market? Or is it a function of the fact that some of the initiatives that you're taking will take that kind of time to kind of develop?

No. Listen, I mean the reason I said volume growth is we know what we've got stacked against our side. There's nothing to hide in the inflation that we have. And as I told you, what tends to happen when there's high inflation is that actually volume is not moderate, it tends to be low. I'm betting on the fact that a few of the market development, not all, and there will be failures and as we have failures, I promised we share transparently. But a few of the market development activities that we have planned, if they work, I think they will take us to kind of moderate volume, and moderate volume in consonance with high pricing and moderate EBITDA could be pretty good earnings next year.

The next question is from Avi Mehta.

Thanks, Sudhir, for sharing the broad framework for the strategy. I wanted to understand the management structure for this. Who would the global category teams report to? Is this going to be -- they would kind of bring out innovations for each of the geographies and developers would choose from them? Could you kind of share some -- share a little more detail on that front?

Yes. The head of the global category is Robert Menzies and he sits from the GCPL MC, and he reports into me. And for the global categories, both innovation and communication resides with the categories, and that's his responsibility.

And R&D is led -- was already global.

R&D was already global. Sorry, I didn't add that. It was already a global category. So in some sense, innovations are already global. Marketing was not, and maybe that's what Nisa said, which is we had products, but we weren't able to roll them out as fast as we can. And in some sense, the global category is really a global marketing structure and R&D continues to be global as it is today.

So essentially, in terms of localizing the product, I mean there is so much work -- or so much work to cut in kind of getting the product across global channels. This is why you've kind of chosen the structure. That's the right way to look at this.

Yes. I mean, listen, if there's a local need, the consumer is local and the global teams need not all be based in Bombay, they can be based anywhere in the world, right? So they have to work with local consumers. And if we find that there is a local need in a country, we will meet those local needs even if the global team works in it. I think the bet is that for these 3 categories, they tend to predominantly be global. They tend to have global needs. And I mean our general principle is adopt, adapt and only then originate. I mean that's the efficient way of doing it. Somebody was asking the question on how will EBITDA come. I mean, this is how it will come, when we adopt what's best in GCPL. And when it doesn't work, only then originate, but we're still open to originating locally if the need requires.

And I think what Sudhir has said so far, market development not being as strong as it should, so if I take, say, a partnership in India, is my insider market there's development strong enough? Maybe not. And I need to -- am I investing enough, no, for that penetration. But once I'm getting it right, am I able to take that whole mix to Nigeria and Indonesia fast enough? So I think this, in the core categories, which go across the globe, will give us a lot of speed, focus and agility.

Perfectly clear. Just on the margin front. Sorry for reiterating, but would it be fair to argue that contribution margin would probably see an impact, but the SKU rationalization and cost savings will allow us to offset that and even drive higher media investments. Is that the broad flavor?

No, Avi, I think that gross contribution margins will certainly contract and, as I have mentioned there in H2 FY '22, I mean there's no metric in that. I mean sitting relatively low comparator, and we may or may not -- certainly, my intention is -- see, our intention is to price sensibly with consumers. And we're faced with cost inflation, we have the ability in the category, we have the equity to pass these on, but we must do it judiciously and in a way that is consumer sensitive. But in my reckoning, if costs remain at the level they are or even fall marginally from where they are, I don't think they will -- and you never say never in this kind of thing. But if they don't go up significantly from where we are today, I would bet that we would be gross margin positive next year versus the relatively low competitor of this year.

Just to clarify, I didn't mean this year. I was looking at it more from a structure with margins to move on as we focus more on volume and distribution expansion. That was where I was coming from in our company, mostly FY '19, '20 that we had a more normalized basis.

That may be the case, Avi, which is we may get back to normalized GCs and get very moderate GC. Once we get to the normal -- normative, as I call it, gross margin levels, which we are not right now at, the improvement in gross margin will come primarily from mix and simplification rather than anything else. So you are right on that front.

Sudhir, we have a few questions in the chat box. I'll try and take them. The first one is around thoughts on rationalization of the geographical footprint for GCPL.

I mean, listen, we're present. I mean, again, it's not proper to specifically talk about geographies. But I would broadly say that we are present in fast-growing D&E markets with very good presence in the categories that we operate. The only real exception to this in some sense is the U.S. market. The U.S. market plays a very important strategic role, as I mentioned, in terms of the U.S. market is actually a focused business on black hair, and that plays a great role in innovation and market development of our wet hair portfolio in Africa. So that's the only one that somehow sticks out. I don't know if, Nisa, you want to...

Yes. I mean it's not a developing market, but I think the consumer and category still has quite a lot of scope even in the U.S.

The second one is any thoughts on getting new categories in India -- entering into newer categories in India with your experience?

I mean we're constantly studying and looking at new categories, but I would put the maxim thing, first, do what you do well. I mean it's the easiest thing to enter new categories, right? And the right way to frame the problem is not new categories to enter because that frames it from our point of view. I mean if there are new unsolved problems that we have the capability of solving, you solve those problems, whether it comes in our category or other categories. I would still say, first, prove to ourselves that where we are we can do better than where we are and constantly look out in the ambit of adjacent categories that we play in for unsolved problems. So I would put this as entering and solving unsolved problems rather than entering new categories. I see it as a more consumer-friendly way of phrasing expansion strategies.

The next one is around HI. So last few quarters have indicated a shift in consumer preference for the burning formats in HI, cards, sticks, et cetera, which provides quicker gratification. In this context, how should one think about the outlook for premium electronic format?

Yes. So listen, I mean, I don't know about the last few quarters, but the last few years, certainly illegal incense sticks have done well in India. And our strategy to combat is, firstly, it's illegal. So it's a regulatory issue and we've got to come back in there because it's not good for the health of our children, right, to use illegal incense sticks. But we have launched our Jumbo Fast Card, which is an innovation that is doing very well, which it competes at the heart of incense stick from a value point of view. But if you actually look at the electric, it solves many of the problems that incense sticks give us, too. It doesn't have smoke. It is actually, on a cost-per-night basis, very economical. It has a high fixed cost. So I guess if your question is what is the answer to compete with illegal incense sticks in the household insecticide market, a, regulatory and consumer awareness on the ill health of incense sticks; b, through product innovation, which is Jumbo Fast Card and it's a very -- again, it's a great innovation. But it needs stamina. We've got to kind of be at it for several quarters, several years before consumers change habit; and 3, which is market development on liquid vaporizers, which are not bad economically. You just need to communicate to consumers these safety and economy benefits of -- so that's a good answer because it encapsulates in one sense many solutions to the same problem of illegal incense sticks.

Thanks, Sudhir. The next one is the Winning in Many Indias exercise was one of the key vectors driving growth in many categories in your previous organization. Do you think the time is right for something similar at a larger scale at GCPL? Which of GCPL's domestic segments in your view offer maximum potential for these regional strategies?

Okay. There are 2 questions here, and again, I'll answer them in a simple, straightforward manner, which is if I look at the drivers of GCPL growth, which is market development of a few core categories, I feel that they are not just Pan-India, but pan global in some sense. There is, of course, the soaps category, which is very much a local category. With GCPL, it's actually been doing a fantastic job of winning in many Indias. So -- and I think it's succeeding and it's doing a really good job of winning in many Indias. So I'm not quite sure that in household insecticides or in hair colors, there is a necessity to have our hair care, for example. I'm not quite sure that our tools are different in the north of India and in the south of India. So I'm not sure of the full relevance. There might be at the margin things here and there, but I wouldn't say that, that's the thrust for market development.

In your overall view, Sudhir, which of the categories are closer to your heart or you expect lesser work to be done and kind of a faster progress to be made? Any thoughts around that?

Let me not be diplomatic. Let me just say that I feel like the category that has the greatest potential, but this is a feeling, right, and this doesn't matter much because what happens will happen. I certainly feel when I look at the numbers, when I look at the product that we have, that the hair care category in India is certainly at a takeoff. I mean the HI category is the core of our business and there's plenty of growth. But I do feel like if India's per capita consumption is $0.07 and Indonesia is $0.60, a doubling of this thing, you can just see where a lot of it will come. But that's just a personal view on it. I think all the categories that I spoke about have lots and lots of growth potential.

[Operator Instructions] Next question is from the line of Shirish Pardeshi.

Am I audible?

Yes.

So that was my previous question, which I asked, but since I'm a little excited, thanks for your detailed and candid presentation. What I wanted to understand -- I mean, from the past company, your understanding and then you put that framework for GCPL, what I wanted to understand, where do you think a quick win? And why I'm asking this question because you alluded saying there was a fast innovation which is happening, but there was no focus which was there. Maybe -- what I misconstrued saying that the innovations are going to be more on the mass end and less on the focus? Or is it that the innovation pace at which we have grown will be very well measured.

I do think that the biggest trigger for growth is category development and it will be driven by increased investments in above the line, which is communication and sampling and then distribution. But that is the simple answer to your question. Shirish, does that answer your question? Let me follow with your second question. I understood your first one on what do I think is the short-term driver category development driven by ATL, but, sorry, Shirish.

So what I was saying that the pace of innovation, which we have seen was much faster. But what I gathered from your presentation and your views, there was [ concentration ] for the short-term perspective and not long-term perspective. So do you really think the whole GCPL world has to think the category development is one of the big work, which we need to do?

100%. I think that is -- I think the 2 big shifts are we've got to focus on blockbuster innovation. So it's not doing a little bit of many things, it's doing a lot of a few things. I mean Jumbo Fast Card is a good example of what I think is a blockbuster innovation. We've got to be patient. You'll always have road blocks on the way and speed bumps on the way, but we've got to invest there. And to this, we have to add the belief that it is not only innovation, but companies can grow with category development as well. That's very much a cultural thing that we've got to add to the company.

And I think, Shirish, also one of the things Sudhir brought is I think we've been good at innovation when it's been a blockbuster the first year and not so good especially on some of the bigger stuff when we've had to do this market development or more sampling or put media in for a few years. So I think this invest for tomorrow will help both category development and innovation at GCPL.

I got, Nisaba, what I'm saying, but Sudhir preempted my thoughts. Is that the culture which, of course, you are bringing a different culture together. But the pace of innovation and the culture behind that is fixed on the short term and don't look at long term, is that the quick win you are trying to work?

No. I don't think that is a quick win, Shirish. I think the quick win is a belief in the company that category development drives value, which is there. And the category development happens with increase in investments in communication, staffing and not just new products. So yes, I mean, in the sense that new product is one driver of growth. And often, if you think about it, right, a lot of people speak a lot about new products, but the really big new products take many, many years of patient, hard work. And you've got to really slog it out with new products. Really you have evangelist for it and so on and so forth. And then there's a lot of growth to be had in what's already existing, I guess. That is certainly something that I think the organization is also kind of buying into and I think there is increased belief in that.

The next question is from the line of Krishnan.

Yes. Can you hear me?

Yes, yes.

Thanks, Sudhir and team. Very detailed presentation and fairly candid answers. Sudhir, my question is regarding the skin cleansing category. You were closely involved in your previous job in the category like detergents where premiumization was very significant over the last decade. My question on skin cleansing is in 3 parts. What is your view has delayed premiumization in skin cleansing. Has there been missed opportunities by the leading category players in the past? And lastly, does COVID as well as particularly e-commerce gave a significant opportunity for premiumization?

So let me answer this question not from anybody else's perspective, but from GCPL's perspective. I think from GCPL's perspective, we have 2 really good brands, Godrej No. 1 and Cinthol. Both these brands have been doing extremely well over the last several years and it has been doing well by being very, very steady there. It is not -- and it has been winning consistent market share. So I would still say that the role of our skin cleansing business in our portfolio is to beat and to gain some amount of share year-on-year and run a very steady, efficient business. Going back to the chart on category development, this is a category that has got 97%, 98% penetration. There's no real category development to be done here. I would say that our #1 growth driver is on winning moderate share and growing with the market. There are opportunities that are there, which I probably may not want to speak about in premiumization. And as and when we do something there, I'm sure you'll get to know of it.

Just a final question on the e-commerce part, does this open up a significant opportunity for category premiumization? A competitor of yours actually indicated that there has been about 18% compounded annual growth rate in skin cleansing products over the last 5 years compared to flattish growth for the category.

I mean, look, the e-commerce business is -- firstly, let me give you a lay of the land of our e-commerce business, right? I think our e-commerce business in India is very good. And I think our e-commerce business in the rest of the world has a lot of scope for improvement. I think our principle on e-commerce is primarily to -- our principle on e-commerce is like what it is for every other channel, which is to be available so that shoppers can buy what they want with great ease. And I think in India, we're doing a really good job of that. I mean I just want to clarify one thing, which is the meta narrative for us is not premiumization, right? So there's an implicit assumption even in Richard's question, and obviously, as and when there are tactical opportunities for premiumization, we will use them. I mean like, for example, in dry hair in Africa, there is a narrative on premiumization. In soaps, in many parts of India, there is a narrative for premiumization. But our predominant narrative is, one -- a, of category development; b, one of moderate share gains; and c, of innovation; and probably d, of premiumization if I were to kind of tell you which way the cookie crumbles on premiumization. Just to put it in perspective on what's our big drivers for growth.

The next question is from the line of Prashant Kothari.

I just wanted to understand on the e-commerce part. I mean how do we see this as maybe also the rest of us. We have certain categories like HI or hair care where there could be actually competition from private label from the e-commerce giants, Internet giants. How do we see kind of risk of commoditization playing out in some of our business lines?

Yes. No, I mean if your question is commoditization from private labels and e-commerce, look, the problem of commoditization in India is not a new one. Maybe theirs are different, but there have always been competitors who, if you don't build functional and emotional distinctiveness on your product, you get commoditized. I mean the Mitu example I gave you is an example of us not investing. And therefore, the answer to commoditization, I don't think there's any new phenomenon here. I think it's always been there. And except that the players are different, and the answer is the same: one has got to have better products that consumers are willing to pay more for and one has got to have brands that consumers feel like being part of. I mean if you do these 2 things, you mitigate commoditization risks regardless of who the commoditizer or who the competitor is. And I guess that's what we have to do regardless of what's changing in the market.

All right. Okay. And the other question was in the first [indiscernible] have the advantage of looking at what is also from outside as well as inside now. Do you think that the business is under earning versus what was shared? And one [ risk ] that comes to mind is that as you drive for efficiencies and maybe margin gains in future, we start losing [indiscernible] you had when there was the focus on margins and they lost some of share in the last 5, 7 years.

I mean, look, our soap business is doing really well. And one of the good [indiscernible] in these things is there's also a very good strategy in business, which is kind of do nothing, which is it's doing well, you continue doing with it. So I have no intention of tampering with what's going well in many parts of our business, soaps is one of them. And it has a record of share gain doing what it's doing and I see no particular reason for that to change. And if it changes, we will correct as and when it comes. But neither do we want to fundamentally -- we don't want to change anything fundamentally in the way we're running our soaps business.

There's a follow-up question from the line of Percy. Percy, you want to go ahead?

Yes. Audible?

Yes.

Okay. So Sudhir, you've been very clear in saying that the main growth driver is going to be market development and increasing the size of the category and driving the current format. And you also mentioned that the main tools you will use to drive that is higher sampling, more advertising. And then when the demand comes up, higher distribution. So sampling and distribution, I understand. But on the advertising part, what I wanted to ask was that is this just a case of increasing the advertising spend than, let's say, instead of having a consumer who is watching 10 spots, let's say. So that he watches 15 spots? Do you think that basically you need to communicate some kind of message which has not been communicated earlier. So what I'm trying to say is that do you think that the problem is that you have a clear message and a clear reason for the customer to use, which is not reaching that message to the consumer? Or do you think that maybe the message itself is not attractive enough, although the product may be and you need to actually tinker [indiscernible] customer understand why this product is necessary for life.

So thanks, Percy. I think the increasing advertising is shorthand for saying increasing media reach. So the last thing one should do is to increase frequency. Across many of our market development categories, we still see a lot of potential to reach more consumers. Even now in India, TV tends to be the predominant medium once you go after the top 25%. And remember, we're talking of going beyond the 25%. So the India TV penetration is still -- when I last saw, between 70% and 75%. Within TV, you don't reach everybody, lots of light users. So one has got to be very clever not in spending more money for the sake of spending more money, but in terms of reaching more consumers with the message. So I think that's point number one. And that is the big trigger for market development that I'm a rural consumer and I haven't heard of Goodknight Liquid Vapouriser and I hear about what it does. And secondly, in some cases, it is indeed to treat the message to make it more relevant to the next 75% of consumers. So I probably don't want to tell you which is what right now in our portfolio, but it's a combination of media reach increase and changing the message where appropriate. It's not about making someone who's seeing 10 pieces of advertising on our product seeing 15, maybe. If they're not buying you after seeing 10, they won't buy you after seeing 15.

Sure. So that's on rural where basically -- yes, I was just saying it makes sense on rural where rural hasn't heard of the product and you're increasing media reach. But in urban, even there is room for penetration growth, especially liquid vaporizers. So why do you think that penetration of urban has not increased? I mean everyone has heard of this. Everyone has a knowledge or awareness of what this product is. But yet certain areas [indiscernible]. Does it mean that they really don't see any benefit to using this? And if that's the case, then how do you solve that problem?

Yes. No, I think that's -- firstly, I think it's an assumption that everyone's heard of it. So when I go and meet people, maybe not in Bombay and Delhi and all, but if you go to small town India, even there TV reached the presence -- or TV doesn't mean the reach of the advertising, by the way, because very few TV plans reach more than 55% of people because there are a large number of TV users who are very light users. So it's an assumption firstly that everybody has heard about it. But you're absolutely right that if someone heard about liquid vaporizer and is not using it, then you have to find what I call the category development trigger, and we have some ideas which, again, it's probably not appropriate to share now on what is going to make someone who knows about liquid vaporizer who's using coil, but chosen not to use liquid vaporizers, what's going to make her shift to liquid vaporizers. That's very much -- a very, very important question firstly to answer. And I hope in 6, 8 months, some of these questions we'll be able to answer. And the only reason I don't want to share it is we don't want to share plans before we put them out into the market, right?

The next question is from the line of Richard. Richard, you want to go ahead?

Sudhir, I wanted to check this with you, right? I mean if I remember section when you talked about at GHPL when you're talking about a new product, I think you mentioned out there that the price of the product is decided in advance -- the profitability that we seek to achieve from the product is also decided in advance. And therefore, the balancing figure is really the cost that the team has to do whatever it has to do to put in the cost so that it leads the pricing at the profitability figure. And I think one of the important points would [indiscernible] out here really is that GCPL does not really believe in quality irrespective of whatever happens, right, and that's an important [indiscernible]. In this regard, do you think what we talked about pricing and margin business is still [indiscernible]

Yes. No, I mean, Richard, listen, I think this is a general principle, which is when you're doing market development, you have to figure out what the consumer is going to pay. You've got to figure out you have to make a certain return on our capital and certain margin and certainly you're going to design the product that's right. But designing a product that's right for consumers does not, and I want to underscore, does not imply a reduction in quality. It just means understanding very, very deeply what that consumer who is not using really values and what she doesn't value, right? And different consumers value different things. So a high-income consumer will value something more. A low-income consumer may value something more and something less. And that goes back to the question, of course. This is the hard work. I think Arnab asked this question, which is how quickly can we do this? When we unlock understanding what it is that the consumer who is not using it values and design for value, that's when we will see explosive growth. It will come from neither of the 2, which is...

And this has also been a strength of GCPL if you look at the Fast Card, you look at Expert Creme in sachet, you look at are pocket. Very good quality products, a lot of consumer delight but at these accessible price points. So this, I think, combining that with more of this market development and media investment is something that can be quite explosive.

Yes. So I'd agree with that, Richard. I think it's a strong suit of the company to do -- to figure out the price, to figure out the margin and then design what's right for that consumer.

That was the last question. I think we can wind up. Thank you, everyone, for joining today's call. If there are any unanswered questions, we'll be happy to take them off-line. Do reach out to the IR team. Stay safe, stay healthy. Thank you.

Thank you.

Thank you.