Marico Limited (531642) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Marico Industries Limited Q2 FY '21 Earnings Conference Call hosted by Axis Capital Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Gaurav Jogani from Axis Capital Limited. Thank you, and over to you, sir.

Thank you, Sarat. Good evening, everyone. On behalf of Axis Capital, I would like to welcome you all to Marico's Q2 FY '21 Earnings Conference Call. From the management, we have with us today, Mr. Saugata Gupta, MD and CEO; and Mr. Pawan Agrawal, CFO. Before we get started, I would like to remind you that the question-and-answer session is only for institutional investors and analysts. And therefore, if there is anybody else who is not an institutional investor or analyst, but would like to ask questions, please directly reach out to Marico's Investor Relations team. With that, I would like to hand the call to the management for their opening comments. Thank you, and over to you, sir.

Yes. Hi. Good evening to all those of you who have joined the call. We hope all of you, your friends and family are safe and healthy. We continue to cope with the impact of the pandemic, and our top priority is to ensure the health and safety of our employees, associates and other stakeholders. Marico has already pledged to INR 8 crores to INR 9 crores on towards various relief and rehabilitation initiatives. I would start with a quick brief on the quarter gone by. And the outlook going forward, before I leave the house open to questions. We are happy to report a domestic volume growth of 11% and a 7% constant currency growth in the international business in Q2. Secondary, growth tracked ahead of primary as we continue to operate with reduced inventory levels to protect the ROI of channel partners in the current environment. Supply chain operations stabilized and direct coverage surpassed pre-COVID levels. In terms of bottom line, we have delivered a robust 15% like-to-like growth in PAT and 10% growth in operating margins in spite of short-term input cost pressure towards the back half of the year, back half of the quarter and significant investment behind A&P this quarter. However, reported PAT grew by 7% after accounting for the onetime impact of exceptional item of INR 33 crore as we rationalized partial capacities in one of the units by moving capacities closer to the demand centers, leading to impairment of certain fixed assets and inventories. The strategic change in manufacturing footprint will benefit company in building agility and fulfilling consumer demand at the lowest possible cost in the coming years. Demand relocation due to reverse migration, government stimulus packages and a good monsoon enabled rural volume growth of 22%, thereby increasing its contribution in overall business to 35% an improvement of 3% from the previous year. If you take out Saffola and Saffola Foods and some of the portfolio that is urban, our rural contribution is significantly higher. In urban markets, general trade continued to grow in double digits, while modern trade had another subdued quarter, although showing sequential improvement in most recent times. With the festival season coming and the urban markets unlocking, we expect modern trade to see better growth in the balanced part of the year, provided the pandemic situation does not worsen. Our distribution reach is back to pre-COVID levels in this quarter, and we will continue to aggressively drive direct distribution in both urban and rural in the coming quarters. E-commerce continued to grow handsomely and contributed a sizable 8% to the overall turnover, and we expect that -- this trend to continue. The unprecedented impact of COVID-19 is transforming consumer behavior. Consumption patterns in the health and hygiene segment is witnessing rapid changes. While some of these behaviors are transient, some are more permanent resets. The accelerated demand in the hygiene category would like -- or most likely settle down as the impact of the pandemic recedes and consumers adopt to life in the new normal. Health, immunity and safety are top concerns, and we expect the consumer preference on health and immunity-boosting products to continue because of COVID-19 experience and its aftermath. Adoption of digital in everyday life will drive the increased engagement with consumers on various digital and e-commerce platforms. Delving deeper into the India business, core categories delivered strong growth. Parachute registered a 10% volume growth ahead of its medium-term aspiration. This has been achieved because of consumers unwavering trust in the brand as well as the strength of our direct distribution reach. We would like to use this opportunity to have a permanent reset of our competitive position in this category. The value-added hair oils category has bounced back to growth trajectory, recording a resilient 4% volume growth in the portfolio despite a sharp decline in CSD. Though the premium segment continued to face headwinds given the current macroeconomic situation, both mid- and Bottom of Pyramid segment recovered. Nihar Shanti Amla led the growth for the franchise. And we'll continue to invest in TV and print media to further strengthen its brand image and drive penetration. Recent innovations in the category registered healthy growth during the quarter with Parachute  Advansed Aloe Vera Enriched Coconut Hair Oil witnessing increased structure and Nihar Natural Shanti Jasmine strongly rebounding after a sharp decline in Q1. Seeing signs of revival, and we shall capitalize on the market leadership position of our brands to deliver a much stronger H2 performance in comparison to Q2. Over the medium term, our 3-pronged strategy of gaining market share in the premium segment, driving value in the mid-segment and aggressive pricing in the Bottom of Pyramid shall continue. We will continue to gain market share, just like we have done in previous years with aggressively at both Bottom of Pyramid and in the premium segment. So continued its stellar performance with 20% growth in volume terms. We are happy to report that 62% of the volume grade growth came from increased household penetration, with addition of accelerated new trials and increased retention rates. We will continue to invest towards delivering value to our consumers, building further on the gravitating consumer sentiments towards healthy cooking and increased household penetration. Food is well entrenched on a strong growth trajectory. The portfolio delivered exponential growth of 55% in value terms, with a base business of Oat franchise growing by 45% year-on-year. Saffola continues to attract new consumers, with 60% of the volume growth coming from increased household penetration.

Sir, this is the operator, sorry to interrupt you. The audio is not coming clear from your line, sir. Please check.

Yes. So can you hear me now?

Sir, it's still the same.

Yes. Can you hear me now?

Yes, sir, please go ahead.

Sir, there is a bit of disturbance. May be if you come closer to the mic.

Okay. I'm actually -- okay, fine. Yes, can you hear me now?

Yes. Better, Saugata.

Yes. Please go ahead, sir.

Okay. Can you hear? Okay. Let me just -- Saffola Honey, launched in the previous quarter, has already garnered a market share of 8% in modern trade within 3 months of its launch. We had a digital launch of Kara and Haldi-Doodh under the Saffola ImmuniVeda range and to further strengthen our play in the mass immunity-boosting category, we have forayed into the Chywanprash segment with the launch of Saffola Arogyam Chywan Amrut. It is an enhanced version of traditional Chywanprash, with added ingredients of Ayush Kwath herbs, Ashwagandha, turmeric, giloy and amla, which boosts respiratory immunity. We are very much on track to deliver INR 300 crores to INR 350 crores of food turnover this fiscal. Although weakness in discretionary spending led to year-on-year decline in the premium personal care portfolios, the brands performed better sequentially with Livon Serums regaining traction and delivered marginal volume growth. We will now double our efforts to get in -- to get this portfolio back on track. And as the situation improves, we will start to invest in this portfolio over the medium term to drive disproportionate growth. The Hygiene segment has been settling down as the accelerated demand begins to taper off and the category contributed to about 1.5% of the turnover in the current quarter. Going forward, we will continue to focus on the differentiated segments of the portfolio and maintain sales at these levels. On the input costs, copra and rice bran oil are witnessing inflationary trend. However, we will tie over the cost impact with a host of cost-saving initiatives and do not expect to do any significant pricing intervention. We expect input costs to soften in Q4 with seasonal arrivals. Advertising spend at 9.5% is almost back to pre-COVID levels. We will continue to invest behind growth and market share in core and to scale the new mass offerings in food. Coming to international business, Bangladesh marched ahead with 16% constant currency growth. The noncoconut oil portfolio in Bangladesh grew by a strong 31% increasing the nonCNO contribution to 35% as compared to 25% in FY '18. South Africa had a good quarter on the back of buoyancy in the healthcare portfolio. Vietnam posted a decline in the quarter due to a sluggishness in demand in the Personal Care segment. However, we signed a revival in Q3, and we'll exit the year in growth. We remain cautious about the Middle East, North Africa business, but we will continue to focus on getting it back on growth by the end of the year. With restrictions having significantly eased across the country, the company will strive to sustain the momentum and aim to deliver 8% to 10% volume growth in the India business in the balance part of the year. We will aggressively chase market share and volume growth, and we see a transient pressure on margins in Q3. But with an aggressive cost optimization initiative of delivering INR 150 crores plus in structured savings, we are confident of maintaining a threshold operating margin of 20% this year. We believe that delivering consumer value through pricing will be critical to deliver high-volume growth and market share gain in the near term. On the international front, while Bangladesh stands on a firm footing, we see signs of recovery in other geographies and are confident of delivering high single-digit constant currency growth in H2. To summarize, we shall be gunning for 8% to 10% volume growth over medium term by concentrating on volume growth and market share gain in core franchises, scaling up our food business and delivering strong growth in the international business. What is extremely reassuring is that 75% of our international business comes from high growth, high potential countries like Vietnam and Bangladesh, and we are now ready to replicate the successful Bangladesh playbook in Vietnam. We have 4 clear focus areas over the next 2 years, continue to deliver medium-term aspirational growth on the core consistently. Get aggressive scale up in foods, INR 450 crores to INR 500 crores by FY '22, deliver steady performance in majority of the markets in the international business; and finally, establishing at least 2, 3 more successful digital brands other than beard. While we continue to fiercely defend and gain market share in our core, we have shown the ability to gain market share in segments we have challenges. Contrary to some perceptions, our historical track record, on market share is very good. However, we will not be mindlessly competition focused but only consumer and customer focused. Our objective is to win in the consumers' hearts and in the marketplace and in not anywhere else. Before I conclude, I would like to say that we have not only been resilient but also emerged stronger from the effect of the pandemic. Agile execution, high degree of experimentation, our inherent distribution strength in strong brands and culture are the pillars on which Marico shall continue building itself. Our philosophy of people first business next and profits last is a true testament of what Marico stands for. And I would like to thank all Marico members and associates who have made this journey possible in these difficult times. Thank you for your patient listening, and we're happy to take questions.

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

Congrats, Saugata, on very good volume growth and recovery almost across all the key businesses. My first question is on Saffola. So in both Saffola Oats, Foods and Saffola Edible Oil, you have commented that 60% to 62% of the growth is coming from increased penetration on account of new users or increased retention. Now that's a very high number. So what have you done differently? Is this a Nielsen data? And is it sustainable?

So I think -- I'm just -- when we were growing in Saffola, last few quarters, there was this question, whether it is the entire -- volume growth is coming from either towards first quarter 4, it was pantry loading, then there was a -- I think there was a question of increased cooking. Now that people are moving out. And I think a lot of -- and a lot of unlock has happened across, and people are going back to work. The quantity of household cooking and others have reduced. I believe some food companies have commented on it. In spite of that, our Q2 numbers are actually higher than Q1 numbers, despite the fact that modern trade and CSD continues to be impacted. So I think -- so this is household penetration data, which has been done. And what has happened essentially is 3 things. One is people moving towards trusted brands. The share of requirement in multi-brand households like Saffola and other oils, actually Saffola has increased the market share. And also the retention rate or the number of lapses are coming back to the category. I think it's a function of that. Now obviously, any brand that goes through increased penetration, which is increasing new trialist and higher retention that growth is retained. Rather interesting fact, we have noticed is some of the new set of consumers that come into the brass -- that has come into the brand, also actually are heavier users. So I think it's a combination of all 4, and we are fairly confident that we'll maintain a good volume growth track record in Saffola. Having said that, you must also keep in mind that in last year, Q4, we had significant pantry loading, which resulted in a 24% growth. We were actually tracking a growth of 13% to 15% Saffola till March 1, second week and then the core growth spiked to 24%. Having said that, I think the fact that whether the brand, whether because of communication, pricing, the promotion strategy and overall work which we have done, I think the brand is on a healthy track. Now how much volume growth will happen in Q3, Q4, our first, is obviously to consistently deliver double-digit growth of the brand. And I think that is something which we'll first -- I think we should be able to deliver.

One follow-up Saugata there. So biscuits have seen significant slower growth in the last few months versus Q1 while oats if you see is largely a formal category where all the top 2, 3 players are all big players so there, it's not much of market share gain. So in oats what explains the higher growth versus Q1 and when seen against biscuits. So is it essentially consumers are focusing much more on health because in Q2, there will be some negative impact of work for home reducing also.

So I think 2 things are happening is that. I believe that the share of healthy products in in-home snacking is increasing. Number two, I think we have also increased market share in oats in over the last couple of quarters and the last year. It's a combination of 2 things. And I believe that the kind of -- see, the other interesting thing we did, while everybody knocked off advertising in Q1, we have consistently actually invested behind A&P on oats right from first week of April, actually. So we have continued to invest behind oats. And I think it's a combination of the 3 that has happened. And as I said, that a significant portion of the growth has happened to penetration, and there has been also a growth in market share.

Right. Saugata, my second question is on the gross margin. So 160 bps dip Y-o-Y. You have mentioned copra is up around 9%, 10% sequentially and Y-o-Y. So is it largely because of copra because you have also mentioned in VAHO, the mix has been adverse with the bottom and the mid-end growing much faster than the premium end. Also in the Saffola Edible Oil, if you could comment the impact of higher rice bran oil. So -- and you're also saying you will not increase the price as much. So gross margin, are you willing to sacrifice? So is that a conscious strategy that in the near term till prices are high, better to focus on volume growth and market share gains?

So, this is -- I think our first endeavor is to ensure that, as I said that we are -- if the COVID situation doesn't deteriorate sharply, we are reasonably confident of delivering 8% to 10% volume growth in the -- over the next H2. And our first endeavor is to do that. We are also acutely conscious of the fact that the economic situation in consumers, especially in a large extent in urban, will continue to be challenged till there is a full blown economic recovery. And therefore, we would like people to down trade within our portfolio, if at all, but not outside our portfolio or outside our brands. So if we look at the current forecast or the current foresight, what we have, this input costs increase is a transient. In fact, we're already seeing slight softening in the last 10 days. So we believe this impact is going to last us maximum between edible and copra between December, Jan. And then things will start again softening. So therefore, taking a temporary pricing action and then reducing it, especially when the consumer wallet is challenged, it might not be a good idea. So a short-term absorbing on costs. And as I said, that we are putting an aggressive cost management plan where the accruals will now happen. A significant portion of the accruals because we started the cost management program sometime in July. A significant portion of cost accruals will happen cost saving accrual coming from October till March. So we'll be able to hold on to this input cost pressure for 2 to 3 months, and that's the smarter thing to do.

But my question that most of the pressure is because of copra only or it's across businesses, some pressure is there?

There's a transient one in edible oil and some in copra. That's it. The rest of the stuff is -- there's no pressure in other because that has linked to crude.

And last small question. So VAHO, you have done extremely well versus earlier and definitely in the current context. Now my question is in hair oil, when I see who are also very aggressive and want to get volume growth market share. Bajaj consumer under new MD is exactly doing the same strategy. Dabur exactly same. So will you -- 3 players essentially get market share from each other, I think, 1 will win and 2 will loose or you will get from regional? Where do you see? Is it a price war? Is it high ad intensity versus say 1 year, 2 year back? That is my question.

So I can't comment on others. I think -- all, I can say on market share, there are no alternative facts or alternative truth. There is only one truth. And if you look at in value-added hair oils, over a 3-year period, our -- amongst all players, we have grown actually 2% in volume share. So I can't comment on others, and that is the only fact. Now coming to -- I think what has changed is this, that I think the market because of certain demand condition last year and post-COVID, the market has structurally shifted a little bit towards mid and value. Having said that, while we don't participate in it, I think there are opportunities in areas like hair fall so -- which is at a slightly more premium end of the market. So I think our objective is to have a far more broader participation strategy. I think last year, we had some issues and all that is behind us. And we are extremely confident of delivering higher volume growth in the back half of the year compared to Q2. I can't really comment about others, really.

So my question was competitive intensity has not worsened significantly, right, versus 1 year, 2 year, but that was a limited answer I wanted.

No, I think there is a competition, but as I said -- I have spoken my narrative, but we will not be mindlessly competition focus, but our job is to win in the consumers' hearts and in the marketplace. So I don't want to comment on it. I'm going to say that perception around market share gain, as I gave you that amongst all players, our market share gain in volume has been 2% over the last 2 years. And I believe we were not participating in the Bottom of Pyramid. We are now reasonably participating in that. The other players who have not been participating, and I believe there's enough opportunity is in the premium end in which we are not actively participated other than in hair fall in the south. So there are opportunities there. And maybe there are smaller players who might be losing market share and maybe 1 or 2 players who will be consolidating their market share.

[Operator Instructions] The next question is from the line of Percy Panthaki from IIFL Securities.

Congrats on a good set of numbers. My question is on the ramp-up of different categories. So VAHO versus the coconut oil categories. So why is the ramp-up so different? Why is Parachute at a 10% and VAHO at 4%, is this reflective of the underlying industries of VAHO and coconut, respectively? Or is it that Parachute has done 10% because there is some tremendous market share gain and the copra industry as a whole has grown similar to VAHO?

Let me address, I think, our strategy on coconut oil has continued to drive conversion from unbranded to branded. Also, as you know that our market share in urban is close to 60%, but our market share in rural is 46%. And I think given our brand distribution strength and the fact that people will go for trusted brands, especially Parachute is produced untouched by hand. I think it has had its impact. As regards -- so that is, I believe, the medium-term aspiration of Parachute has been 5% to 7% growth. And I think if we continue to get the pricing right, continue to drive direct distribution and continue to drive rural market share, the 5% to 7% medium-term growth aspiration will continue. And as I said, and I have told is that there is at least a runway for 8 to 10 years before saturation happens just like in Bangladesh, where we are growing in Parachute only 2%, 3%, but we have diversified the portfolio. And that runway is around 8 to 9 years. Coming to value-added hair oil, I think the dynamics are different. First of all, you must appreciate that there are different parts of the portfolio in the value-added hair oil. There's a significant premium part of the portfolio, especially the nonsticky part of the premium part of the portfolio where because of -- which is used post rush and the usage is far more setting your hair and grooming. That had a significant impact as people were staying at home. And a lot of part of the portfolio, which has been used in the VAHO, which are used at the Bottom of Pyramid has continued to do well. I believe that even the value-added hair oil growth for us, the volume growth will continue to improve, and we expect much more better volume numbers in the second half of the year as compared to the second quarter. Having said that, I think the -- maybe I don't know, I think we should be able to get Nielsen stabilized in the second half of the year. Once the -- maybe the potential for market share gain, given the competitive position in coconut oil is higher.

So just a sub-question to this Saugata. Earlier -- in the earlier calls you had mentioned that VAHO, you have one brand in which there are some issues in terms of brand equity and you need to bring that back. So any update on how that is progressing?

As I said earlier, I think all the issues in VAHO is solved. And we are more or less back on track, and therefore, we are far more confident of delivering a stronger growth in the second half as compared to quarter 2.

And my second question is on Saffola Oil. Here also, the growth trajectory has really more or less maintained versus Q1, and it has not dropped at all. So I just wanted to understand what is happening there? Because my understanding was that this has gone up because people are staying at home and not eating outside food. And obviously, when you cook at home, you will use Saffola versus outside oil might use something else, and that's why Saffola is benefiting. But now people have started eating out, et cetera. I mean, to a large extent, those habits are normalized. But still, your top line growth has not come down at all. So is this just a sort of slight delay in that normalization? Or you expect this kind of growth trajectory to continue for some more time?

I think there is a movement, I mean, while I'm -- I can't -- I'm not in a position to completely share data, but there are certain indicators that within a repertoire of brands in this category, people are searching for healthy brands. And if you are pricing is reasonably attractive and availability is there, you have a chance of a better performance compared to other brands. And you also must realize that Saffola has continued to invest behind A&P, and we are reasonably salient. So it's a combination of all the 3. And I think the last thing, as I mentioned in the opening commentary was, we believe that the other interesting fact is that the lapsation rate has come down. So the retention has moved up. And number two, which is very interesting, which is that within rural households or multi-brand households, the market share of Saffola has gone up. I think people are going for trusted brands, which are supposed to be much more healthy.

Mr. Panthaki, may we request that you return to the question queue for follow-up questions. We'll take the next question from the line of Vivek Maheshwari from Jefferies India.

My question is essentially on the new launches. So beyond this community segment...

The audio is not coming clear, sir, from your line. Please check?

Is it better?

No sir, it's still breaking. Please use the handset mode?

Am I audible now?

Sir, the audio is still breaking. Please go ahead.

Okay. If I am audible then sir, my question...

I can't hear you.

Mr. Maheshwari, I will request you to please rejoin the conference. We'll move to the next question from the line Aditya Soman from Goldman Sachs.

Sir, just a couple of questions on my end. Firstly, in terms of modern retail, do you expect that to have an impact on growth? And the reason I ask is, obviously, in traditional retail, for example, a trusted brand like Saffola, when a consumer ask for that brand. We'll have a better recall and might do well. So on the shelves where people compare prices would Saffola stack up as well? Or do you think now the prices have been readjusted to a level where you don't see that competitive dynamic being negative anymore?

I think Saffola had a far significant skew on modern retail and Saffola continues to do well in modern retail. I think the -- and of course, there has been also, Saffola has a dependency on CSD. You know CSD as a channel has not done well. I think the issue is, I believe, logically, if you look at quarter 1, we felt that the decline in modern retail disproportionately had impacted the Saffola growth. In fact, the fact that modern retail for us has come into a better performance actually positively impact Saffola. Having said that, yes, I think the related pricing, as you know, there has been volatility in both input costs and there's volatility into supply chain. Saffola has maintained a steady pricing. Saffola has also, I think, in terms of fill rates and supply chain has been advantaged. So maybe some part of it would have come from there. But I think a significant portion, and this is whatever consumer analytics we have also done is that people have moved to oils, which are perceived far more healthy, there is a conscious drive of people during these times to opt for safe, trusted and healthier brands.

We'll move to the next question from the line of Harit Kapoor from Investec.

So just wanted to get your sense on -- you said that the secondary sales were ahead. I just wanted to get your sense on where we are in terms of the distribution channel pipeline now? And by when do we expect this channel pipeline to normalize?

Okay. So let me just give you a perspective. We must be the lowest in the last 3, 4 years, our current pipeline and the distributor stock. Now as we know last year, because of, obviously, the growth of alternate channels, the general trade systems, the distributors were in a bit of a stress in terms of ROI. I think what we did was post-March, when we had a significant reduction in stock when the lockdown started. We haven't replenished the stock. You will also notice from our financials, we have kept a very tight control on our receivables and our credit in the market. So I think to -- we believe that this model is fine because we have a lot of replenishment model. The other thing we have done is we have significantly simplified by reducing a lot of SKUs, a simpler -- we have tried out different supply chain models to increase fill rates. So we are very, very comfortable with distributors maintaining this kind of a pipeline, also ensuring very healthy ROI. And also that ensures our credit outstanding and everything a system health. So we are quite happy to operate at these levels.

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

I just -- back to the metric that you spoke about in Q1. You said the quarter's performance kind of mostly average of FY '20. And if I remembered correctly, you had talked about a couple of...

Sorry to interrupt you, sir, the audio is breaking from your line. Please, check?

Is this better? Can you hear me?

No, Richard. It's...

No, sir, it's still breaking now.

Can you hear me? Hello?

Yes, sir, please go ahead.

Yes. Saugata, I was asking...

Richard, I can't hear you, sorry.

We will take the next question from the line of Manoj Menon from ICICI Securities Limited.

I only had 2 questions, but I will ask only one for the time being. Saugata, one, top of the mind investor question, which I thought it's important to ask in this forum, has been actually the Saffola equity to extend to some of the perceived ayurvedic natural organic. I'm using all this but interchangeable, I know it's all not the same, something like Chywanprash and some of those other products. Honey is -- it seems that in some sort of a consensus that it is. So I'm just trying to understand from you on the -- what the consumer has told you in your research and kind of the ability of Saffola to stand on its own in the otherwise perceived as ayurvedic segments.

Okay. Let me answer it in 2 parts. If you look at the history of Saffola, it started off as a very strong heart equity therapeutic brand. It moved into sometime in the late 2010s, '08, '09 into a more preventive kind of a brand. With the launch of oats and other things, it has moved into a healthy better-for-you brand. And that's the journey of Saffola. Saffola has to remain in health. And even in sports, I think when we initially started in health and weight management. We have now moved to healthy snacking or healthy eating, and that's how the exponential growth of oats happened. Initially, I think the penetration was restricted. So therefore, for any food brand to succeed, first thing, it has to deliver in taste. Number two, it has to take on a further, far more inclusive positioning, which is good for you, a healthy living. And Saffola symbolizes healthy living. Now as far as honey and all this is concerned, you are right, it's a very straight extension because anything which is healthy living better-for-you Saffola extends into. What is the extend on ayurveda? Well, I think the way we are looking at ayurvedic space is about modern ayurveda as opposed to traditional ayurveda? Because obviously, at the end of the day, one of the interesting things we have been noticing is earlier, for example, a brand, a category like Chywanprash was very skewed towards a certain season. It was skewed towards certain section of consumers and a certain regions. Post-COVID, the interest in immunity and interest in having something which is preventive, so-called preventive, has increased. And therefore, I think that is a space for something in a very traditional space a modern kind of a version. So Saffola in the ayurvedic range is a more endorser rather than a brand. And therefore, between ImmuniVeda and Arogyam, we will obviously sometimes translate into a sub-brand, which we'll perhaps take it on after some time. This is different in Saffola Honey and Saffola Oats, but Saffola continues to be the main brand. That's how I see the difference.

Understood. Understood. So Arogyam is the sort of messaging to the consumer about the -- I mean, Saffola is modern and Arogyam. Understood. I'll catch up later, actually on the follow-up actually. I have only one request. If you had to -- we should restrict everybody to 1 or 2 questions rather than one participant probably asking 6, 7 and others kind of struggling to really have a conversation. Just a request from my side.

Now you could go ahead because anyway, there is problem with the line. So you could go ahead and ask further question.

Sure. Sure. Sure, Pawan. So the second one actually is on the premium oil opportunity, which is on Parachute Gold, which you already have, some update on the ramp-up beyond what is there in the information update. The reason I'm asking this is because it is a product, which is largely in in-home consumption. I know that things will change in a year's time. When you look back, would you think that you should have invested a little more in this? What are the current thought process on the premium, the functional oil?

You're absolutely right. I think there is a role for premiumization. Having said that, I think if you really look at the driver of premiumization in terms of channel, it had been earlier, modern trade, e-com and beauty and cosmetic outlets. During these times, both modern trade because of the fact that social distancing, there is no way for promoters to drive experiences or sampling or even in the case of cosmetic outlets, personal care outlets where there used to be beauty advisers to drive new products or new brands. I believe this might not be the right time to invest. I think today, we are seeing a lot of personal care products being driven either from e-comm or through chemist channels. So I think we'll wait and watch. I completely agree with you. This is an opportunity because in VAHO, if we have to grow consistently in volume terms, we have to participate also actively in the premium end. Whether it's hair fall, whether it's a thing like a Parachute Advansed Gold.

The next question is from the line of Tejash Shah from Spark Capital.

Congrats on good set of numbers. Saugata, you explained in detail about extending the brand equity of Saffola to many healthy ayurveda platforms. But surely from GT's investment ability or standpoint in current environment, do you think that GT can support this many launches in such a short period of time?

Actually, if you ask us -- ask me that we have not launched too many products. What we have done is see there is a -- I don't want to get into details because it's a competitive, this one. There is obviously a channel region kind of a portfolio approach we are doing. So I don't think a particular city or particular GT will have to stock 5 Marico products.

Sure. And then you spoke about Honey gaining 8% market share in modern trade. If you can help us, what will be the share of modern trade in overall Honey category?

So Nielsen only capture -- has given us a modern trade. Modern trade is a significant -- e-com is a significant driver of honey.

The next question is from the line of Kunal Vora from BNP Paribas.

My question is on e-commerce. A fairly strong growth of 39% and you have amongst the largest e-com contribution across your peer group. Do you see this -- the growth rate is sustainable and e-com getting to, let's say, some 8%, 12% to 15% in a couple of years? And -- or was there some one-off boost because modern trade demand shifted to e-commerce and Saffola had strong good payments. So if you can comment on your expectations from e-com going forward?

I think you're absolutely right. I think it -- there has been an accelerated growth of e-commerce, so which is in some way also a permanent reset. Perhaps 2 years growth has got compressed into 1 year. And therefore, I think this has been something which also consumers, a lot of consumer behavior has changed once they are used to this. I would say in a larger phase, I think what consumer behavior is -- change is a more digital adoption and digital adoption could be in the form of how consumers choose a brand. It did not be always shop from there. Also it has thrown open the opportunity of actually even GT to participate in -- GT to participate in actually -- and a lot of buying today happen through WhatsApp and all this. So I think it's a digital adoption of the consumer. I would say that I can't guess a number in terms of the e-com contribution. E-com will grow, modern trade will grow. I think modern trade should come back into shape at some part of growth, obviously, in e-com has been because of modern trade, not participating in the growth trajectory in these times. But I think one of the biggest interesting things that we are seeing is also the so-called the resilience and the rebirth of GT. And I think GT, you will see a lot of -- more adoption of digital, a lot of automation. And even in the general trade distribution, I see a lot of consolidation and automation coming in. In fact, we are ourselves doing a lot of experiments in the way we service GT and the way -- and I think that revolution will happen. And in India, it will be an and story rather than an or story.

The next question is from the line of Vishal Punmiya from Nirmal Bang Institutional Equities.

Congratulations on good performance. My question is on edible oils. So there seems to be a sharp price hike of around INR 20 to INR 25 in some smaller brands. So while we haven't taken any price hike. So the premium between Saffola Active and Tasty, with these brands have kind of reduced from INR 35, INR 38 to INR 15. So my question is, does this kind of benefit us with new customer additions? Or the customers do not actually pay the reduced premium in the current environment where there is a pain in the pocket?

So just to maybe -- okay. I haven't covered this, but we have also taken a price increase in Saffola in September. And I believe that, that increase has not been disproportioned to the input cost increase because that input costs increase tweaked in somewhere -- first -- until the first week of October, and it started cooling down. So I think the price increases we have taken in Saffola, and maybe we will take one more tweak, small tweaking in pricing, but enough to ensure that we maintain a threshold level of margins. Having said that, for a certain period of time, it could be that we were relatively more attractive than in the past.

Okay. So I couldn't see the price increase in the information update. So that's why the question came.

No. It has been taken in the last -- so in the market, it would have got reflected in this quarter.

Okay. Got it. Got it. But still, we can -- we will kind of benefit in the near term at least when the premium kind of releases, right?

But again, as I said, that given our strong cost management initiative, our ability to absorb transient input costs are far higher. And therefore, it's okay in order to ensure that we maximize volumes and drive penetration of the brand, we are okay to withstand it for a couple of months. Our belief is that the table will cool down. It has already started cooling down a bit.

The next question is from the line of Amit Sachdeva from HSBC.

Hello, can you hear me?

Yes, Amit.

Congratulations on good set of numbers. So just one small question, if I may. Saugata, you mentioned that the Bangladesh playbook, would sort of be replicated in even Southeast Asia like Vietnam, which, obviously, these are growth markets. Because I was very curious to know that given the portfolios are so -- too different, at least in both countries and maybe consumer may be different as well. And how this strategy there of Bangladesh would perhaps be replicated in Vietnam, which probably has been struggling for a while or at least, it grows and then slows down and things like that. Although it's a growth market, but what is really the game plan there?

So firstly, I think I would talk about it as a process playbook. It's a, I would say, an FMCG process playbook. No, I don't want to get into details of the process playbook. But I think there is some what I call a secret sauce, which has been -- we have been cooking in Bangladesh, that is delivering. Yes, the market conditions could be different. The categories could be different. But I think the -- what I call the moves or the kind of the -- if you look at it as a disciplined, repeatable model in order to get our business getting into a predictable kind of growth, they are similar in different markets. And both these markets are similar in some ways. They are high-growth economies. They have -- they are otherwise stable. In spite of having a competitive, much more competitive category, we are a market leader in male shampoo's. X-Men is a very strongly entrenched brand. I think it's a combination of -- and obviously, so we are trying to replicate some of the learnings from that, whether it's in go to market, whether it's a kind of processes, structure portfolio. And I strongly believe we have already unleashed a lot of things. I would urge all of you to wait. I think you will see some results, the initial signs are positive. We will start seeing the results in Vietnam from quarter 4.

Sure. Sure, sir. I mean that's very helpful. But is there any portfolio change plan or at least or you will go with the same sort of portfolio...

So obviously and one of the biggest success has happened in Bangladesh after diversification of the portfolio. This is something we are also going to look at in Vietnam.

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

I have 2 questions. The first one was the price/mix change kind of widened in this quarter sequentially versus the prior quarter across the 3 categories. Is it on account of just adverse mix? Or was there some more promotional intensity in the quarter?

No, no. I think if you really look at it, there are 2 parts of it. One is, obviously, we had a firm idea about what we intend to do in terms of -- in terms of driving volume this quarter, the kind of promotion, the kind of below the line spends. In quarter 1, I think it was all a question of availability. So a lot of promotional spend, a lot of BTL was not being spent. But I think here, we have systematically gone to say that what is the kind of pricing, what is the kind of spend, and this is also reflected in even our A&P spend that -- which will drive maximization of volume in this one. And obviously, one of the things we engineered is by June is what is the likely pricing of Parachute, given the fact that we want to maximize volume. In the case of VAHO, it is also mixed because in VAHO obviously, the brands which were at the lower end had grown more than the whole brands at the mid-end. Anyway, we don't participate -- hardly participate at the premium end.

Sure. The second question was on digital brands. In your opening comments, you mentioned beard, you want to launch more digital brands beyond Beardo. If you could elaborate more on what are the kind of segments you're looking at? And if it's possible to share the size and scale of Beardo, now that it's going to be consolidated?

So I think for us for any brand to do well, digital, it should hit INR 50 crores, I think. So our aspiration is over a 3-year period, can we actually create some more brand like this 3-, 4-year period. And we are looking at primarily 2 things. One is we launched a couple of brands last year in foods, which is FITTIFY and Coco Soul. We have launched this year, ImmuniVeda, which is a modern ayurveda, and we also have 1 or 2 brands in skincare like Kaya Youth. So I think this will be a journey of experimentation fail fast. But invest, and I think we have also invested seriously in digital capability. And I think Beardo has given us a lot of learning. So based on that between skin care and premium foods, male grooming, obviously, we already have a brand in Beardo, you would look at -- this is the area of play for digital brands.

The next question is from the line of Gaurang Kakkad from Haitong Securities.

So I just have one question. In terms of this exceptional item. If you can share some more details in terms of what is this category, wherein the manufacturing location has been moved closer to the demand. And does this lead to any incremental CapEx? And also the cost savings from this, if they are material enough to be quantified? Yes, that's it.

This is basically on account of certain unvisible fixed asset, and this will be sort of taken care of in the next 1 or 2 years. And we've not been in a position to specify which particular plant it is.

So I think just to add to what Pawan said, I think we have been -- COVID has given us the opportunity in terms of relooking at our supply chain because at the end of the day, you have to be closer to the customer. And therefore, we have looked at a reconfiguration of the manufacturing footprint. And as Pawan said, obviously, we have taken this going fully well that we will get benefit from next year. And a very quick, if you call it, a breakeven or this -- one of the impairment costs, that will happen very, very quickly. But it will also do one is very better, much better quality of BCP should COVID or any such black swan happens well, far better fill rates and obviously, lower delivered cost.

Okay. Okay. So currently, this category like this plant was way off from where the demand was, is what I get to know from the information.

We have not said one plant. It could be a section of certain plants, okay?

Okay.

Just to add. This does not lead to any additional CapEx to clarify.

Okay.

It's a more reconfiguration of the manufacturing footprint, that's all.

The next question is from the line of Abhijeet Kundu from Antique Stockbroking Ltd.

My question was on value-added hair oils. When we look at Parachute Rigids, you have a medium-term goal of about 5% to 7% volume. What would be the goal in value-added hair oils? And within value-added hair oils, I mean in the mid segment, the price segment, Hair & Care was facing a problem and you had restaged it last quarter. And from the commentary, what I could understand is that you are seeing some amount of good, favorable responses happening there. So what has to go right in value-added hair oils? And can we get back to that 12%, 15% kind of volume growth trajectory over the next 3 to 4 years? I mean what's the thought process over there? Because this is one of the categories which have been one of the key drivers for you in the last 7, 8 years.

So just to, I think, reinforce our medium-term aspiration getting into double-digit growth remains. What we are confident about is for us getting into, we have gone into low to mid-single digits. So immediately get in the second half of the year into high single digits. And obviously, and then growing from there. And I believe that most of the -- there are some, I think, some were lack of participation or empty spaces. We still -- there are some empty spaces, as I talked about, maybe hair fall or some of the premium end, but in the mid and the Bottom of Pyramid, most of the spaces we are participating in. Pooling, of course, is a different kettle of fish we don't intend to participate right now because the benefit is different from what we -- I mean normally and the value-added hair oil type. So I would think that progression from the current 4% to a high single digits to double digits is very much possible. And that aspiration remains. We will try to obviously do it quicker. And then what we are planning to do. But maybe I would think that significant improvement in that traction is very much possible. And this will be possible because of aided by, of course, overall category growth, market share gain and additional participation in some of the categories we are not participating.

Okay. And secondly, on the CSD part, there has been a sharp fall. So is -- there was scale down of operations. Now is this permanent and the absolute revenues from this business will -- how should we look at it? In the sense that if it was -- if it has declined by say, 29% and for the half, it has declined by a certain percentage. Would this -- I mean, would this settle down at this value revenue and then grow from these levels? How should we look at it? I mean, has there -- is the fall permanent for this year?

I would guess it's very difficult to, I think -- to me, I mean forecast something is very difficult. But my best guess will be that, it will then settle down and start moving up again. And it's not that consumption would have declined by that kind of a part of it because, obviously, some consumption would have happened otherwise. So I would think that going forward from next year, I don't think it is going to decline beyond this. So I guess this is -- it has reached its bottom level and will now steadily grow, I guess.

Any reason that you can find out that why this scale down in operations will happen because in defense -- in CSD's case, I mean there should not have been ideally any reduction in consumption. I mean footfalls and all should not have been impacted.

Well, I can't comment on it.

The next question is from the line of Prakash Kapadia from Anived Portfolio Managers.

Could you help us understand the cost savings program, which you talked about as to which areas are we working on? What is the kind of savings we are looking at? And on Bangladesh, was the lockdown, not so strict withheld. Obviously, we've done well in terms of derisking from copra and Parachute versus throw some light, that would be helpful.

So as far as the cost-saving program is concerned, I think we have looked at everything. The 2 things we said, as I said, our philosophy of people first, business next and profits come last. The first assurance we gave is that we will ensure we protect everybody's jobs and everybody's salaries. Number two, we will continue to invest behind leadership capability, innovation and digital. Other than that, nothing was a holly cow, we looked at all costs. And we have looked at structural savings rather than temporary savings because just because your office is not working, you are not saving on electricity. Doesn't mean next year if your office works, that's a savings. So we looked at structural savings. We are extremely confident of delivering a INR 150-crore plus. Now as regards, Bangladesh is concerned, I think Bangladesh's approach to the lockdown was slightly different. So they did have some lockdown, but they continue to run business. And I think more than that, I think we have been successful more because of our aggressive and accelerated diversification of the business and the way we are rapidly expanded into new categories. If you see the reduction in dependence on Parachute. So while Parachute might be growing a couple of percentage, 3%, 4%, 4%, 5%, the rest of the business is growing at 40%, 50% by addition. And I think that has driven the growth of Bangladesh. And I believe that as I talked about, there is a playbook, which actually -- which is the biggest critical and a differentiating factor is, of course, strong brand, strong distribution, but a strong and committed leadership and culture. I think a culture of an organization and strong brands and people. These are, I think, the biggest and priced assets, and we are extremely proud of what we have been able to create in Bangladesh. And the Bangladesh team, I think they have braved all the difficulties during the COVID time and continued to deliver an above-average in our top quartile growth.

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

My questions were answered.

Thank you.

I think Richard and Vivek were on the call, and they are dropped of and they are in the queue. Happy to take their questions.

Sir, we'll check. One moment. Sir, Mr. Vivek is not there in the question queue. We'll take the next question from the line of Prashant Kothari from Pictet.

I had 2 questions so just tell me if I asking. So first question was on the working capital side. There is a strong improvement both in the debtors as well as inventory side. Somehow it's not getting reflected on the net working capital. So I'm assuming that the payables have kind of gone up, can you just explain that? And is there any structural kind of a change that we should assume in terms of our net working capital position I mean through all these efforts that you are doing through changing inventory norms and rationalization. Is there any structural change that could happen for us to the determine capital requirements from?

So Pawan, you would like to take the question.

Yes. If you look at the working capital, Prashant, it's largely on account of reduction in the debtor turnover and inventory turnover day. And if you look at debtor turnover, it's largely on account of 3 different peoples. So one is on account of a reduction of modern trade's contribution. As you would have seen that the modern trade contribution has gone down both in quarter 2 and quarter 1 and, therefore, at a H1 level, it is reduced by about 1%. Similarly, contribution from CSD has reduced by about 2%, and these have typically higher outstanding days. And thirdly, also, Saugata, alluded into his commentary that we had tighter credit management because we had reduced inventory even in GT. So all this have sort of led to reduction of inventory days from 37 to 26. Inventory days from 37 to 26. Similarly, our inventory, we did a lot of work with respect to tightening inventory norms and SKU rationalization. And we have put in a lot of automated systems because of which the inventory turnover days has come from 66 to 58. So that is largely the reason as to why our working capital has gone down. And we expect the working capital to be in this range as we move ahead.

So just to, I think -- just to add, I think a lot of it will be permanent. And I think the fact that our new manufacturing footprint, different -- in terms of reduced inventory days at the depots or at the distributor and also a very, very aggressive SKU rationalization exercise, which we have done. So I think a combination of all 3.

Sorry, the net working capital days have not really fallen much just to change the one -- while the debtors and inventory days have gone down. So I'm just trying to understand what is that?

So Prashant, that is because of the supply finance program, relatively supply chain finance where our trade payables go up. While there has been reduction in the debtor turnover and inventory turnover where at the same time, there has been an increase in the payables because of the supply finance program. But what is more essential is that how we manage our debtors and inventory, as I explained that, the reasons for them because we have much there to control. And also with respect to debtor, now it's a completely order management system, which is with 0 manual intervention, that will help us kind of keep the debtors -- when it is completely into the stocks will be under the control. And therefore, where overall receivables level.

All right. Okay. Do you have time for another one?

Yes, please go ahead.

Yes. The other question was on your international business. I mean you have Bangladesh and Vietnam, which are high-growth markets, but there are also other markets which are not maybe as exciting as those. I mean any thoughts on that we should continue investing behind those markets? Or we should kind of focus our efforts only in the high-growth geographies? And we also have these emerging countries where you are trying to incubate international business. Are these high-growth markets in your definition? Or are they not as exciting? If you can throw some light there?

Okay. Firstly, I think we are extremely privileged to have 75% of our international business from high-growth markets. I think you would have all seen extensive market coverage on the Bangladesh and the Vietnam growth this year in spite of -- I mean, these are the 2 shining this one. So I think for us, getting these 2 markets on growth. I think Bangladesh is already on growth, how do you maintain these double-digit growth levels, getting Vietnam on growth. So a significant portion of our investment share or management time will go towards these markets. Having said that, I think in Middle East and North Africa and as well as South Africa, they contribute to around 20% -- 15% to 20% of our top line. I would say that it is much more on a sustained rather than trying to aggressively invest behind these markets because we have to -- the short-term outlook in terms of whether economic growth or significant demand is currently a little muted. Having said that, if there are opportunities in Middle East and North Africa to gain market share versus someone, we will definitely go ahead with that. Lastly, I think we are -- we were looking at some of the other international markets in the pre-COVID time we are opening up in Srilanka. We opened up Nepal, some of the South Asian markets, we looked at Africa. Our current thing is, given all the issues we are -- other than maybe South Asia part, we will be slightly less active on it. And we will wait for the situation to normalize. And we will take a call maybe by 2022, not before that.

Ladies and gentlemen, we will take one last question from the line of Richard Liu from JM Financial.

Saugata, Pawan, are you able to hear me this time?

Yes, perfect Richard.

Clear.

Saugata, what I was asking was that in terms of the metric that you looked at in Q1, in terms of judging the quarter's run rate, versus the FY '20 monthly run rate. And I recall that you had said that there used to be a lot of -- not really seasonality, but you used to have a very big Q1, not because of reason of seasonality and based on that, your Q1 number was actually 1.04x of FY '20 based on a monthly run rate basis. If I use that same metric, the number for Q2 is actually 1.06 that of FY '20 run rate. Now considering that Q1 had only -- had 1 month of huge disturbance, which was April, and Q3 had 3 normal months plus you also had a lot more new products coming in. Is this progression from 1.04x FY '20 monthly run rate to just 1.06x FY '20 month rate from Q1 to Q2. Is that a satisfying progress -- satisfactory progress to you?

Absolutely. Because I think we have now, as I said, Pawan also mentioned, we have gone into a complete order management system. We hardly have a month SKU. We are within a month and a quarter. So we actually almost have -- almost like a daily sale kind of a rhythm. So as long as there's a sequential improvement, we are happy. And now also, you must realize, this is the primary sale. So as I mentioned that the secondary sales has been a little higher, and we didn't fill up the channel at all in the sense that both, the distributors and may have been there -- could have been some channel filling in -- the retail channel filling in June. So I would think it's -- if you look at our seasonality, some could have been because of our actions, some could have been this one. We normally have a kind of used to have a 28%, 30% quarter 1. I think it has now normalized. And as I said, that we have introduced certain and -- certain ways, and that's the reason why our distributor stocks are also low that almost like a replenishment model, which is now fully executed. So you will see far less skew in our numbers going forward.

And just to clarify, Richard, on index number, this number is 1.08 and not 1.04. To that extent, it is slightly better. And also as Saugata suggested, there are 2 things. One is that we have removed peaks and troughs, both at intramonth level and inter-month level. So within the month, now it is a very, very normalized sort of sales on a daily basis. And also we have remove peaks and troughs for different months, what we used to have.

Yes. So the other way to look at it is that your Q2 turnover is higher than Q1 by about INR 28 crore. And Q2 was a more normalized quarter, so to say. Is that INR 28 crore Q-on-Q growth in the absence of seasonality in the business, that was what I was alluding to. I mean, doesn't that look a little on the lower side given that Q1 had a very, very disturbed April.

So you also need to just see, Richard, that there is also deflation component. So while you're looking at purely from an overall value perspective. But as I said, if you look at from an index that is in year date, it is about 1.08 of the annual average. And if there's problem, even higher for Q2 to Q1 as well.

And Richard, just to add, I think you are looking at primary to primary, the secondary sequential is higher.

Okay. Great. All right.

Value to growth, we are not -- I think we are doing business, I think, in a very, very methodical manner now. And this is something which is a deviation from a lot of industry practices, as I said, that no month end SKUs, no quarter end SKUs, but almost trying to say that can I sell the same number every day in a 90-day quarter.

Thank you. Ladies and gentlemen, due to time constraint, we will take that as the last question. I would now like to hand the conference over to the management for closing comments.

Thanks for listening on the call. To sum up, we have had a very satisfactory quarter 2 as we witness improving trends across all categories in India and in our key international markets. As Saugata mentioned, we will carry the momentum and will strive to deliver strong volume growth in second half to sustained investment in the core and participation in new categories with a differentiated proposition. There are some immediate commodity-led cost pressures. But on the back of aggressive cost optimization, we are confident that we will deliver 20% plus margins in FY '21, which will be the highest ever and also under unusually challenging circumstances. If you have any further query, please feel free to reach out to our IR team, and we will be happy to address the same. I wish you all a safe and happy festive season ahead. That is it from our side. Thank you once again.

Thank you. Thank you, everybody.

Thank you. Ladies and gentlemen, on behalf of Axis Capital Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.