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

Ladies and gentlemen, good day, and welcome to the conference call of GCPL to discuss GAUM business performance and strategy hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Aniket Sethi from ICICI Securities. Thank you, and over to you, sir. .

Thanks, Rutuja. Hi, good afternoon, everyone. Thank you for joining in. It's an absolute pleasure to welcome you all to this call. I will just hand it over to Pratik Dantara, AVP, M&A and Investor Relations to do the introduction and take the call forward. Thank you, and over to you, Pratik.

Thanks, Aniket. Good afternoon, everyone. We have on the call, Dharnesh Gordhon, Cluster Head for GAUM; and Sameer Shah, CFO for GCPL. What we'd like to do is straightaway get into Q&A because we just have an hour. We'll just wait for a couple of minutes as people line up for the Q&A, and then we can take them one by one.

Shall we start with the question and answer session?

Yes.

[Operator Instructions] The first question is from the line of Avi Mehta from Macquarie. .

Am I audible?

Yes, sir, you are. Please go ahead.

Hi Dharnesh, it's a pleasure speaking with you again after a gap of almost a year. Dharnesh, I just wanted to kind of take the string back from there and pick it up from you had highlighted that effective distribution was one of the most important lever that you had identified for driving growth. Now since then, obviously, we've seen very strong constant currency growth span out, but competition is also normalized. And I would assume that the easy gains from that investment are largely behind us. Could you give us a sense on how do you see growth kind of trending as we move forward? And what gives us confidence in sustaining the growth momentum? .

So maybe I'll just start with where the view is the competition [Audio Gap]. I'm not sure much has changed in our key geographies [Audio Gap] I look at where we were [Audio Gap] early days of [indiscernible] in terms of outlet average numeric distribution. [indiscernible]

Sorry to interrupt you Mr. Dharnesh, but we are unable to hear you.

[indiscernible] more outlet coverage and distribution [Audio Gap] across our key geographies than we did in [indiscernible] so the key objective is we're building an ecosystem and once you have that ecosystem built rather than playing the wholesaler model you [Audio Gap] far more significant [Audio Gap] long-term relationship [indiscernible] distribution [Audio Gap].

Sorry, Dharnesh, Pratik here. Sorry to interrupt. Dharnesh, we are barely able to hear you. Is it possible to be a little closer to the mic, please?

So I'm going to take it off, mic, and I'm just going to use the hand...

Yes, yes, this is absolutely fine. Absolutely fine.

Can you hear me more clearly now?

Yes, this is perfect. If you can just repeat what you said over the last 30 seconds, please?

Yes. I said the -- firstly, I think the view that competitive intensity has changed. I'm not sure. I think what happened over time is the big players got stronger across the key geographies, and sticking to your core of -- so for example, we believe that driving availability of product, driving new numeric distribution has definitely given us gains in the early days. But it is something we continue to sustain. So we've got more than 2.5x the numeric distribution or outlet coverage that we had in the early days of 2020 than we have today. So I think we are building a far more robust ecosystem of sales, which goes back to availability of our product portfolio to consumers.

Sorry for that. Please go ahead, sir.

Was that an advertising break or something?

No. I don't know what the end of to that. Sorry for that.

[indiscernible] to that.

So Dharnesh, if I understand you said it's essentially availability of product that has been increased and the distribution rates. You believe that the gains are still you have some levy still to continue. Would that be fair? Or would you kind of be able to have some guidance?

Look, it's a journey. I think consumer -- forget about consumer and shopper patterns continue changing, but building this ecosystem of having numeric distribution only in your very select geographies to having a wider expansion is a long-term investment, which we believe will certainly bear fruits because once you build an ecosystem and you carry on enhancing it, when you are really set in terms of portfolio, et cetera, et cetera. So building this is more -- is the key foundation to bringing the portfolio that we -- I mean, we are more than just a hair business or a hair care business, we have opportunities across a wider range of portfolios.

So sorry, Dharnesh, what I was trying to get to is, if you remember, I mean just the last time and we had discussed in March '21, you had said over the next 18 months, we would be focusing on driving the distribution reach. And then you would go to the next phase. So I was trying to appreciate what the next phase would be. That was what I was trying to kind of better on...

Yes. I think the next phase is broadening our portfolio. For example, in our Africa businesses, we have the hair extension business. And our basic FMCG portfolio, which includes hair care, household insecticides, those kind of product portfolios are very small contribution to the overall business or that small, but smaller contribution. And we've definitely seen a massive acceleration of our FMCG portfolio.

Okay. Okay. The second bit was essentially on the margin kind of commentary. And would you be able to give us some sense on how do you see EBITDA margins over the next 2, 3 years or 4, 5 years? Last time, you said 17% to 18%, but I believe things have changed from there on. So any kind of...

I think there's 2 parts to this question. I think the world was gone crazy commodity pricing, et cetera, and hopefully, the stabilization happens with oil price, et cetera, because there's a lot of our product is oil-based. And managing pricing has been key. Obviously, part of this whole margin issue is the issue of currency and managing the currencies in a careful way. So the view is there are things that we can control. We can control our own pricing, GC protection, et cetera, we're making sure at the same time, we balance our growth opportunity, but also look for internally in the business where are more efficiencies, how do we get scale from efficiencies, which absorbed fixed cost, operational cost? And I think a lot of work has been, we've actually reduced some of our operations because sweating more assets, utilizing more capacity rather than expanding capacity, challenging capacity norms. So I think bottom line profitability is a mix of managing your input pricing and your consumer pricing well. But it's a lot of effort in terms of optimizing or becoming more efficient in the way we run the business.

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

Before I can, in my question, looking for some basic sales breakup of the GAUM business. Firstly, what percentage is U.S. Secondly, ex U.S., what is the split between the main segments, which is your dry hair care, wet hair care and others? And also, if you can give some [indiscernible] as to over the last 2, 3 years, which segment has grown faster and how this mix has changed, that would be very helpful.

Sure. If you don't mind, I will let my colleague present some of that [indiscernible].

Percy, broadly, U.S. is about 20%, 25% of our business. And within the whole warm cluster, the West cluster, which comprises of Nigeria and Ghana, would be about 30%, 35%, followed by South Africa, which should be in the range of about 25%, 30%, and the rest of it will comprise of primarily Kenya, but some of the other smaller markets' aspect. So that's your -- and from a category perspective, about 55% should be dry hair and the balance should be wet hair -- sorry, FMCG. And within that, I mean, wet hair is a big part out of the 45%.

Right. And this 55% dry hair, the denominator here is only Africa, right? It does doesn't include U.S., right?

Yes, miniscule part of it. But it's okay. Dry hair is primarily asset.

Right, right, right. Got you. So basically, within Africa, it's 55-45 split between dry hair and FMCG.

No Percy. GAUM as a whole has 55% dry hair and 45% FMCG. Does that answers your question?

I see. No, I was looking for the category split ex U.S.

U.S. is primarily wet hair. It will be a part of the 45%. So the...

Understood. And can you tell me how these categories have performed? I mean has dry hair grown faster, has wet hair grown faster over the last 3 years and a rough growth rate, if you can give me over a figure basis?

See Percy, this is Sameer here. So we don't, I mean, selectively share the cuts, I mean, of categories, especially in terms of growth rates. What I can share with you is over the last, I think, now 10 to 12 quarters, both the categories, which is dry hair and wet would be growing in double digits. And I'm just looking more at ex U.S. business because U.S. per se would have grown whatever growth rate, we should be much lower than African markets, but in Africa, both the categories now grown in double digits. And directionally, FMCG would have grown at much faster pace than dry hair.

Right. Understood. So Dharnesh, if you can just give me separately for the dry hair care and the wet hair care business. What are your top 3 priorities or action points for each of these businesses separately?

Yes. So I think -- so let me start with wet hair. I think when we talk about driving distribution, making ourselves available, we have a basket of what we call, if you take the broader term of FMCG portfolio, and within the FMCG portfolio, one of the important consumer touch point is the ability to serve the needs of women of Africa origin, the challenges they have on the hair -- the hair challenges beyond the hair extensions. So caring for the hair, moisturizing, the issue of scalp health, et cetera. We have a very interesting portfolio, which I think over the years was developed originally out of the U.S. but we managed to translate that into Africa. So that portfolio is where we're seeing the biggest opportunity. But the play is very much a typical FMCG play, investing behind on consumer communication, investing behind sales and distribution with obviously the right product portfolio that consumers value. And we see that it is -- and it is strong double digit. It is very strong double-digit growth across -- over the last 18 months, and we see a lot of upside in the what we call hair care portfolio. When it comes to the hair extension business, it is -- there's a lot of changes in the market. I think when you look at the impact of inflation, you look at the impact on people's incomes, et cetera, there are parts of the portfolio that are more -- that change. So the core of the portfolio is what we call braids. And there's the other part that is more discretionary, more fashion like -- and becoming more in the times we face and the consumer challenges you face, you need to become much more smarter in the way you drive your core of your portfolio. So improvement in sourcing of the raw materials, improvements in manufacturing, et cetera, and coming up with new styles that are more value-based styles rather than high-end discretionary style. So we're seeing slight shifts in the hair extension portfolio, but it is going back to more core rather than more high fashion.

Right, right. Got you. And last question from my side, household insecticides has been in Africa for quite a few years, but hasn't really scaled up. So what is really stopping this business from becoming larger than what it is today?

So my first question -- my first answer that is nothing. And if I show -- if you guys see what we've done now in our West Africa business and Ghana was our test markets. Nigeria was our test market. And if you look at the growth in Nigeria, I was just there last week. It is really exceptional. Our Goodknight brand is growing very well. Consumer acceptance has been really good. I think we also have a format that is differentiated. We have an offering that is very differentiated from the normal players. And our share gains have been really, really very promising over this very short period that we've been strong in the market. So the play has been around 7 -- say, 8, 9 months in totality, but the acceleration of the last 6 months, our share of shelf, consumer recall on our marketing efforts, very, very interesting. And now we also -- most of the products in region actually being produced in Nigeria in our factory, which also gives us a much more -- a better advantage. And it is a very different play to the usual household insecticides. So I think finding the right portfolio, finding a point of differentiation rather than being a me-too with everyone else was key, but we also realized that in some of these categories, -- no one has done the category development work. In other words, people know that household insecticide is something I need, but educating on choices is something that was not very done. In fact, all the players in -- and I'm just using West Africa as a good example. South Africa is a different challenge. It's a much more developed category. But it's an underdeveloped category, although the product availability is there. So it's a very interesting dynamic. And I think given our experience and category knowledge, I think we have a role to play, but definitely very promising results. And maybe 1 day, if you talk nicely to Sameer, he can show you some of the numbers of where we're going. And it's really for me and quite encouraging.

The next question is from the line of Arnab Mitra from Goldman Sachs.

Dharnesh, my first question was that a few quarters back, when I think Sudhir made one of his presentations, one of the key things he highlighted [indiscernible] complexity that is required in Africa. Could you kind of talk about what level of complexity reduction are you looking at? And as you do that, could there be some negative impact on growth because we will probably be reducing SKUs and some markets to maybe moving into a different model. So what does it mean for growth as well as profitability as you reduce complexity?

So I think this issue about simplicity, right? And when you look at the portfolio that we have, that we had over time across the different markets, what does simplicity bring you, right? I think we were trying to do many things rightfully, wrongfully, but we are trying to figure out what are -- where are the areas that we could really expand, what are the opportunities. So when I look at portfolio complexity, SKU complexity, there are all of these things, right? And just think about simply what is it that we have. Most companies across -- and I just use Africa, right, and in my previous experience. Most successful organizations have 3 or 4 hero categories with 3 or 4 hero SKUs itself. Now given our portfolio and the breadth of our portfolio, there was definitely a need to optimize, to rationalize the SKUs in order to drive simplification on the ground. Because if you think about -- if your goal is to drive availability, you can't have a sales guy taking 200 SKUs in baskets trying to drive into the outer lying regions of Northwest Nigeria, for example. So I think this making -- at each part of your operation, what is the ability to manage in order to drive growth. And to be honest, most consumers in these markets, they don't need 500 items to choose from. You need a value proposition in 2 or 3 SKUs, and actually, I feel with less, we will do more because our ability to focus, and I'm using the most lowest rank of a sales guy. His ability to sell 10 SKUs are far more powerful than when you start clouding him with 50 SKUs in your basket. So I think that kind of complexity. And obviously, the manufacturing supply chain complexity is something that everyone fully understands. If I could get high economies of scale driving 1 SKU and running a factory 24 hours with less change over time, there's money on the table there. So I think that kind of complexity we give -- it's very interesting. I think it's a lot of about -- actually, it's about the share of mind as well of the teams. And you see this over across -- the really successful multinationals have done the same. If you look at each of them have a core range and the ability to keep that focus and have the discipline, has the positive results in the end. I mean this has been my experience, and I see that some of the stuff we are doing already now, it's beginning to play out in the right way.

And just a follow-up on that. So are you in the initial phase of that simplification or -- and therefore, a lot more to happen in the next 12 months? Or have you already been on a significant part of it?

Yes, I don't know if it will never end. But definitely, we've got to take some really tough calls and in some of the markets, and I'm actually seeing the positive results of the tough calls. When you make these tough calls, you're always like, "Okay, what will I lose?" But actually further accelerating your key SKUs and losing your bottom SKUs actually brings you more benefit, right? And it's very interesting. You get a lot -- like you always think about, but I will lose sales. Actually, the consumer, if you ask the consumer, out of 2 or 3 [ packs ] maximum in this category and that brand is all they want. So you have to understand what is your positioning of the SKU. In some brands, to be honest, we had 20, 30 SKUs in a particular category, where we ask ourselves a simple question, did any consumer even ask us for it? Or did we always have this because we always have a new brand manager who decides to launch a new SKU. It's kind of the asset test of what you need to position yourself with.

Arnab. Sorry, Arnab, just 1 more, just to add to what Dharnesh was saying. I think broadly for each cluster ex U.S., we probably will have about 2,000 SKUs across dry and wet. I think the idea is that if I take 1 example of Kenya, we kind of have reduced the number of SKUs to half from where it was. And the plan is to kind of simplify and reduce it further. So I think the whole momentum around reducing complexity and improving productivity is very much on track, though it's kind of deferring across markets.

And just 1 follow-up question on the HI question that was previously asked. So one is the initial 2 markets where you said the traction is pretty good versus rolling out in other markets in terms of registration time lines, your plan, would it, over the next 24 months, how would you see your geographical footprint [indiscernible]?

So we're ready to -- we will -- in the next few weeks, we're going to have a strong rollout in Ghana, as an example, on Goodknight. We also need some interesting top in other markets where we're growing. I think the big one, if we got to crack, if we can crack South Africa, which is a very tough household insecticide market, obviously, every player in the world is there. But if you look at the Middle East, we are growing across our HIT portfolio in the Democratic Republic of Congo. We are growing, and this is all new green shoots that are coming up. But Nigeria is the one to win. I mean if we really win there and the scale we would get. But we definitely have plans. The challenge is, again, this issue of, while some of the markets have to fix the complexity issue. I don't want to throw new things at them, to be honest, because you need the muscle power, you need the brain power to make -- to drive the execution. But Nigeria, so West Africa, Middle East, we already, for example, #2 player in the UAE already, which is a small market, but it charge us what we can do and the fact that we have products that have winning consumer proposition. So -- it's -- I think it's a long road. We've just introduced liquid vaporizer, which I think is another really interesting play, and we're going to introduce this even in East Africa now. So it's more the upper end, but there is a consumer pain point that we think we have a solution for. And if we put enough focus on an investment behind it, we think there's another opportunity to have another winning portfolio.

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

Dharnesh, I just wanted to check if you could talk a bit about the progress of building retail infrastructure in Nigeria specifically. I recall, you had highlighted that the numeric distribution that you aim to achieve in Nigeria was about 40% and about 85% to 90% in South Africa. Where are you in that journey currently? And yes, so that's my first question.

Yes. So if I just take Nigeria, we are -- I'll give you exact numbers. In 2020, we were reaching directly about 10,000 stores. Today, we are about 80 -- 80-some-odd-thousand stores. By mid-next year, we have a plan to get to 120,000 stores. Now the way we are doing this is -- one is we are expanding our -- what we call a key distributor model. And related to the key distributor model is an ecosystem, which includes sales vans, sales motorcycles and sell our ambassadors because we also have a sell-on program on the hair extension, which we also expand into our hair care portfolio. And our sales vans, which then drives into sub-distributor model, et cetera. So I think we -- look, that will only take us to about 25% of the outside universe. And this is over the 3-year period, but we were coming from the low teens. It comes with the investment in sales distribution, it comes in, obviously, investment in vans, et cetera. Also comes to reinvestment in the right information technology systems because once you have -- you're able to track, monitor your sales efforts and understand the cost-to-serve models that you are doing with the appropriate tools, then we know where we're spending our money. I think this is 1 of the concerns. It's easy to just drive distribution, but if you don't understand your cost-to-serve and you make sure that you're getting the right return on the sales investment, and some of this is coming from a lot of trading. We've been also -- we need to become more a training organization in sales. So some of the efforts where we're building like a sales academy, we're building our salespeople because it is more than just this transactional play. And I'm very encouraged by what we've seen. And I was there last week, seeing some of them. And to be honest, 1 of the reasons why we have succeeded in our Goodknight launch, and why we continue to get traction is if we didn't have this van sales model and the outreach program with these ambassadors walking the streets, I don't think we could have achieved the numbers that we're getting.

Understood. No, fantastic to hear that. And I think there's a long way to go if you're only just doing 25%...

Exactly.

So mid-teens, sustainable growth mid-teens can be granted, right? I mean it should be taken for granted that team's growth is not going anywhere in -- at least in the near future on an overall basis?

You sound like my boss, who thinks. Just give me a target. Look, look, I mean -- and it's not -- I've been down this road before. The issue is that the opportunity is there. I think it's about focus, and it's about very calibrated efforts because I can get 50% growth in year 1. And I honestly mean that. But is the sustainability, is the right governance in place, there is it a healthy growth? And I think being able to balance growth and governance when we grow is really important because many people become superstars in 1 year and they collapse the next year. And I don't think that's what we want to do. It's really, really -- sometimes, you just got to be -- you've got to love it to say no. Sometimes I tell my guys, they will not sell. And they -- it's like the growth is there, but let's make sure. And I think that's what will define our success over a long period is also balancing the discipline, because the opportunity is there. But you have to manage your cash, right? You have to build a credible ecosystem that not just opportunistic wholesaler who buy 5,000 cases of a product today and then you don't see the guy for the next 2 years. And I don't think that's kind of the business we want.

Right. No, absolutely. Secondly, Sameer Shah, if you can talk a bit about -- earlier you had highlighted that you were implementing a centralized category management structure. And that is also an integral part of your core sustainable growth. So how is -- and I recall that you also highlighted that you are getting good talent now versus what Godrej Africa was getting earlier. So how is that really shaping up? Where are we in that journey? some insights will be very helpful, so...

Look, I think the first thing is that the kind of talent we have, and honestly, I was last week in Ghana and Nigeria and the privilege of having Nisa join me there. And I think she herself was also excited because the kind of challenge we are bringing in now, the level of professionalism, the experience, it's really, really encouraging. And it tells -- it shows you that with the right people, anything is possible. So -- but at the same time, we cannot always have to look for talent outside. We have got to -- and I think we haven't -- we need to invest more in capability developing. And when you build local talent, just to tell you, for example, my new CEO in Ghana, he's been 3 months in the job, and he's done an amazing -- what I saw from hygiene, from the right things being done, the right focus areas -- and he's a Nigerian. He was head of our FMCG marketing. He's now taken on the CEO job. So really giving local talent opportunities, and especially people with the kind of experience that they come with is such a positive. I think this issue with the central teams, it goes back to, how is -- what is your ability to focus? And -- just to give you a reason when we -- when -- and I think the -- when we talked about the number of SKUs, and at some stage, we have such a proliferation of SKUs, for example, in Kenya. One of the reasons why it happened is the local team were just developing stuff without having maybe a broader category knowledge or having the discipline. So I think a lot of that is -- Can we get -- can we focus on a category, SKU, et cetera, and scale it across the continent, number one. Number 2 is if the communication has to change, for example, a piece of communication -- marketing communication in Nigeria is very different to the way a Ghanaian will accept the communication. So -- we rather tailor that part, but the actual product, why do we need a different formulation unless there's a regulatory reason. So I think centralization has brought that, has brought what we need to do was more deep category knowledge and not everybody is being a hustler without really understanding why does somebody use it this category? What are the triggers to consumption? What are the triggers to purchase? That kind of depth of knowledge was something that was being kind of diluted across the way we were operating in before. Now what we are doing is creativity must be in execution, not in developing products, et cetera. So the local teams focus on driving execution on agreed activity, on agreed launches, et cetera, and the other team really figures out what is the best household insecticide, which will have the most efficacy, what is the right piece of communication, what kind of value proposition, what is the competitor set? All of those things can come from a central repository of knowledge rather than trying to be dissipated over across so many geographies. And we felt that we were not getting enough knowledge. We've got really good hustlers who are trying their best, but didn't have the depth of knowledge that you should have for to be a category champion in markets, right?

Right. No, absolutely. And given that you were anyway having a structure and you're trying to normalize the SKU and reduce the complexity, I'm not entirely sure if my next question will be fair. But I just want to understand how are you looking at the cross-pollination opportunity. You already have an existing portfolio -- and I recollect last year when we spoke to you had just introduced or launched Mr. Magic Handwash in South Africa. So would it be fair to understand the cross-pollination opportunity maybe at a back seat at this point of time as you're kind of reducing the supply chain complexity and driving all the call that you just highlighted? Or will it also run parallelly along with it?

No, I think this is the key. If -- for example, if I have a head of Household Insecticide, from a total Africa, U.S. Middle East land, who's basically looking for category opportunity, seizing the opportunity, building the playbook for a country to launch. So for example, if I just use -- let me use a hypothetical case. If we think that across Africa, there are 5 key countries that we should launch Goodknight. What is the size of price, where are the white spaces, what are the right pricing? So this kind of work is done in a central level. And I think if you ask each country to go and search for their own opportunities, we won't have the kind of depth of knowledge or the kind of weight of team working on it because it will be diluted. When the playbook is that each of my market heads, we'll have to sign off a contract where we say the central team sells the idea, the local team says, "Okay, we are good with this. We commit to execution. These are the time lines," blah, blah, blah. So I think that working together has been -- it's been not so easy because you are changing the way people watch in the past. But I think with the team I have today and especially recently, I'm feeling more comfortable that there is a level of cohesiveness with necessary positive attention that you need in teams to get that focus. So I think it's kind of somebody studying for a part and looking for the opportunities and going, "Hey, you know what, by the way, in Ghana, we think you have an opportunity. We have a value proposition that makes sense. We have a kind of a communication piece that could be tailored to the local market. Do you miss the customer want to buy it." That's how the kind of way I'm getting the teams to work together.

Got it. my last question, Mr. Gordhon is on margins. I mean, we know that the aspirations are somewhere in mid-teens and there is -- your glide part to margin is called out by Sameer and team, that there will be 150 basis points of margin expansion in GAUM region. However, I just want to understand if your wet hair care portfolio has been growing quite well, I'm assuming your wet hair care portfolio margins and your HI margins are far superior than your dry hair care. But then the mix improvement in the margins is still not visible as much -- is there anything that we are getting it wrong? Are we triangulating in the wrong manner? What is the real reason for margins to continue to remain subdued despite the sales portfolio mix improving?

Yes. Look, my simple answer, and I'll let Sameer and the team answer more, but my simple answer is this. If in my ideal dream world, I had the currency where it was 2 years ago in most of my key markets. I will be -- today, we will be celebrating 600, 700 basis points improvement on margin. And I think this was a challenge. So what's within our control in input costs? What was our control in cost savings, driving efficiencies, driving a better mix because actually, if you -- on a like-for-like basis, we have a far more profitable mix today. However, when you're buying something that is like raw materials that are dollar based, when you have a currency devaluing at 25%, 30%, you can imagine the challenge. So -- but look, I also understand that's how business is, right? So we've got to -- I think the reason why you're not seeing it now is if we had more stability on key -- oil, et cetera, if you look at just freight costs, thousands of containers going all over the -- in any month. We look at freight costs about the container, it was $7,000 a container to $21,000 at the peak. So these are not things we -- you expected a fair increase, but nobody thought it will be 3x more. So it's not an excuse. But I think that's something that we are very, very well aware of. And sometimes, we just got -- we got to know the long game is definitely having a portfolio that consumers value, but also have a higher, better profit mix because that gives us more money to invest behind the consumer and driving more distribution.

Yes. me, just to add, I think the strategy of simplifying and trying and amplifying the FMCG portfolio is working very well actually over the last 2 years, both in terms of mix and also its impact on profitability, but we are also, by the way, in the period of inflation, right, generally, which has, I mean, resulted in lag between increase in input cost as well as any consumer pricing. And in some of the African markets, you also have currency depreciation, which is part of your inflation. So that has actually taken away the entire sheen from otherwise what would have been a highly profitable mix and a meaningful kind of expansion in margins over the past couple of years.

The next question is from the line of Latika Chopra from JPMorgan.

Dharnesh, thanks for the insight so far. You talked a lot about reducing SKU complexity. I was just wondering if you have plans to lower footprint or is it any of the smaller markets to reduce geographical complexity here?

So my -- actually, my answer will be no. And no means -- I'm not going to reduce geographic footprint, but I'm going to reduce complexity. And I think the question, the way to answer this is, -- we don't have to be colonialists. We don't have to put a flag operation in every country. And I think we've done some of that not so well in the past. I think the fact that our category and our products have value in the market, we have to find other business models. And 1 of the big steps we are taking right now is doing a tailored revision. For example, today, in the DRC, and I'll just use a simple example. Hypothetically, we are selling ex amount. It doesn't stack up that you'd have to put a CEO or supply chain sales, et cetera. But if we find credible distributors, the right business partners who can take in the product, I think there's a light touch model that we are working on. But definitely reducing the -- our play in the geography from a flag operation, but at the same time, accelerating our play from a category opportunity is kind of the model that we are working on. And we have a very clear idea of which countries we shouldn't have had a flag operation in -- why do you need -- in many of these markets, why do you even need a factory in some market, right? It depends on the trading block. It depends on the customs union in East Africa or Southern Africa or West Africa. So a lot of that stuff is happening right now. Obviously, from a manufacturing perspective, it's not just customs duties, et cetera, but it also -- sometimes it's easier to get a product from Europe into 1 place in West Africa then from one place in West Africa to another given the challenges of road connectivity, et cetera. So -- but to answer your question simply, absolutely, we are reducing, we have a plan to reduce our, let's say, operational or flag operations in some of the smaller markets. But at the same time, we're also being a parallel play of expanding distribution of our portfolio with other kind of distributor partners, et cetera.

Understood. The second question, if I may. You did mention that you get targets from your boss and we all do as well. But I was just curious to know what are the key asks you have from Sudhir for scaling up the Africa business. Is it more investments? Is it more flexibility? It could be more technology, data analytics imports. Any thoughts here?

It's everything. I think that the point is that the more even mean I myself try to understand the business, and it's been just over 2.5 years, I understand the portfolio and you realize the opportunities we've had. And the question is why -- what has stopped us from really accelerating or seizing these opportunities. I think 1 thing is we were complex from multiple levels about who are the key decision-makers to decide to move into a market? What is the range? So it was more kind of a wholesaler mindset rather than a strategic FMCG player mindset, right? And all of this comes with I think if you ask me singularly what Sudhir really is -- how do we win with the consumer, firstly? Meaning, what do we invest in with the right product portfolio, what is the right consumer investment in marketing spend, in communication, in sales and distribution? So the rest will fall into play. And definitely, the technology has a big role. I think in many aspects about our operations, embracing the right level of technology, and I think I mentioned the issue about sales. Selling blind is not a very smart thing to do. If you really understand your cost-to-serve, understand where your SKU optimization, where are the portfolio gaps in your retailer, et cetera. I think when you start looking at that, you realize where the opportunities are. So we are doing a lot of these things that -- I mean it's multiple things happening at one time. So I think building a sustainable business over period is one, but also being faster because these gaps won't stay for long because everybody sees the opportunity and everybody will want to come and seize the opportunity. So being -- and in many of these markets being a strong first mover has a lot of value.

Sure. And just a follow-up since you said being a first mover is definitely advantageous. We talked about hair care, we talked about HI. Any other categories from Godrej portfolio globally that you may want to bring in Africa or you see as a business case over the next 3 to 5 years?

So I think the one for me is that -- and just because of this, we have a hair color business in South Africa, which we've never scaled. And obviously, we have a hair color business in India. My recent visit to West Africa now, which -- and we've never seen it play out as strongly as we're seeing it now. I think given the inflationary, the consumer pressure, people are even growing natural for periods of a time. In other words, let's say, I will put my hair extensions and I replace it every 4 weeks, but I decide that after 4 weeks, I take a week's break. And what's happening is that people are coloring and coloring for vibrancy, not coloring for gray cover. And I think we had some really interesting opportunity, and I spoke to the team about this after the visit. So I think there's a lot of that kind of opportunity. I think hair color has a -- it's a very different need state for the African consumer. But as a product -- sorry, I can't cut and paste the India model in terms of the way we market or the way the communication. But the product portfolio is something that I can leverage on. And I think up to now, we haven't really understood how to deal with it. But it's like very interesting. You talk to consumers and they say, "I want my black to be blacker. I don't want my gray to be covered." And I think it's a very different play. So there is definitely a play there. And for me, that's exciting. Definitely. I mean HI is the one that we have to track the most. Honestly, I'm not sure about soap, and I think there's just too many players. I'm not sure for me, it's not my personal focus, maybe we decide someday. But definitely, I think hair color, HI and wet. And to be honest, I just need this for the next 5 years. I don't want to add anything else because we have enough challenges anyway.

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

Yes. Dharnesh, thanks for the opportunity to interact with you again. I have 2 questions. One is with respect to HI market in the GAUM cluster or largely Africa. Just wanted to get a sense how big that category size is? And what would be the larger split between aerosols and LV and if you have a coil also over there? That's my first one?

I don't know the answers to all your questions, except to tell you total HI is probably about $800 million, what we can establish. The key market is actually South Africa, by far, the most developed and the most competitive and it's mainly in aerosol. LV is very new and it's very upper income in most in like if I take South Africa or even Kenya, a little bit in Nigeria or... What I do think is really interesting is our play, which is we've launched this thing called Power Shots, which is a very different place, and it's really exciting because it really sets us apart from the regular aerosol player. It also -- the kind of campaign and maybe at some stage, we can present this kind of portfolio to you guys, so you have an understanding what we're playing in. So -- I mean in my dream world, I would love to get a share of the South African market, but you're going to have to come up with something different. The regular aerosol, everyone is doing it. I mean I grew up [indiscernible] when I was from a young boy in South Africa. So -- and I know how strong the players are, whether it's Tiger Brands or [indiscernible]. So any of the players are all strong and they all have focused because it was the money to be made. Nigeria is, for me, still the big opportunity. And if we crack it in the right way, I think we have got something now in our portfolio that is so differentiated and the traction we're getting already is very encouraging.

Got it. Got it. Just a follow-up to that. So what sort of distribution changes that we will need to do in order to ramp this? Or is there sufficient overlap with respect to...

If I could quadruple my current van operations and -- I'm just using Nigeria as an example. South Africa is a very different play. South Africa is a modern retail, I think you guys know this anyway. I think South Africa is more a product portfolio play rather than a sales distribution play. Nigeria, Ghana, Kenya, et cetera, it's a sales distribution play. And we are a long way off. And look, it comes with money. I need investment. Even my ideal, well, I could have another 500 sales vans and another 5,000 people, but we also got to calibrate this in the right way. We have to find the right partners and we also have to build a competence because it's just deploying an army and sending them all over and not getting the -- understanding our return and what the cost is, we will wake up with a headache another day.

Right, right. Absolutely. Second question was you've spoken a bit about how -- how do we plan to reduce the complexity, focus on core braid than the fashion selling, et cetera. So any sense, any number, any percentage that you can give in terms of working capital release that has happened over the last 12, 18 months? And what sort of capital deployment that we have been doing from that working capital release?

So I don't know if the India team wants to discuss this.

So, Alok, the piece around working capital inventory reduction is definitely happening while -- it is definitely happening, while we are not kind of giving out specific numbers, but you should kind of see inventory to start off with going down significantly across GAUM. And then the focus there is also on receivables and especially in terms...

[indiscernible] they cut me off the call.

Okay. Okay. Rutuja, I think Dharnesh got locked off.

I am calling him back, sir.

Sorry, Alok. So I think one was the inventory reduction and the second is focus on receivables, especially in certain parts of Africa, where it's pretty high.

Does that answer your question, Mr. Alok?

Yes, yes.

Ladies and gentlemen, as this was the last question for today, I would now like to hand the conference over to Mr. Pratik for closing comments.

Guys, I'm sorry, but I think Dharnesh got locked up and we're not able to reach them, but I think it's time to wind up. Thanks, everyone, for joining the call. If you have any further questions, do reach out to the IR team, and we'll be happy to answer them. Thank you.

On behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.