GODREJCPNSEQ4 FY2022May 24, 2022

Godrej Consumer Products Limited

9,105words
121turns
15analyst exchanges
4executives
Management on call
Aniket Sethi
ICICI SECURITIES LIMITED
Nisaba Godrej
EXECUTIVE CHAIRPERSON
Sudhir Sitapati
MANAGING DIRECTOR & CHIEF EXECUTIVE OFFICER
Sameer Shah
CHIEF FINANCIAL OFFICER
Key numbers — 40 extracted
7%
. We had a weak quarter in Q4 FY2022 with a few silver linings. While our overall sales grew by 7% and we achieved double-digit sales growth for the year, the growth within the quarter was driven
9%
ven entirely by pricing. Our overall EBITDA without an inventory theft in South Africa de-grew by 9%, driven by unprecedented global commodity inflation and scale deleverage in Indonesia. PAT withou
4%
d global commodity inflation and scale deleverage in Indonesia. PAT without exception declined by 4%. Our core geography of India grew top-line at 9% with a two-year CAGR of 21%. While the sales w
21%
exception declined by 4%. Our core geography of India grew top-line at 9% with a two-year CAGR of 21%. While the sales was largely driven by pricing and UVG was down by 3%, on a two-year CAGR basis
3%
9% with a two-year CAGR of 21%. While the sales was largely driven by pricing and UVG was down by 3%, on a two-year CAGR basis UVG grew by 12% and on a three-year basis, it grew by about 2%. The sil
12%
sales was largely driven by pricing and UVG was down by 3%, on a two-year CAGR basis UVG grew by 12% and on a three-year basis, it grew by about 2%. The silver lining in India, however, has been tha
2%
down by 3%, on a two-year CAGR basis UVG grew by 12% and on a three-year basis, it grew by about 2%. The silver lining in India, however, has been that EBITDA grew by 14% with EBITDA margins expand
14%
ear basis, it grew by about 2%. The silver lining in India, however, has been that EBITDA grew by 14% with EBITDA margins expanding by 100 BPS. This, points to our ability to take measured price hike
100 BPS
ver lining in India, however, has been that EBITDA grew by 14% with EBITDA margins expanding by 100 BPS. This, points to our ability to take measured price hikes to counter inflation. However, the rece
15%
rop for this quarter. Indonesia delivered a particularly weak performance with sales declining at 15% and operating EBITDA at minus 48%. This has been driven by tough market conditions, the sharp f
48%
livered a particularly weak performance with sales declining at 15% and operating EBITDA at minus 48%. This has been driven by tough market conditions, the sharp fall in COVID-19-related categories a
rs,
in COVID-19-related categories and a big reduction in our inventory in modern trade and distributors, poor sales compounded by the cost inflation and a 200 BPS investment in ATL, which we
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Guidance — 20 items
Pratik Dantara
opening
“We will be covering this evening the results for the quarter ended March 31, 2022.”
Sudhir Sitapati
opening
“Our core geography of India grew top-line at 9% with a two-year CAGR of 21%.”
Sudhir Sitapati
opening
“While the sales was largely driven by pricing and UVG was down by 3%, on a two-year CAGR basis UVG grew by 12% and on a three-year basis, it grew by about 2%.”
Sudhir Sitapati
opening
“However, the recent inflation brought about by the Ukraine crisis will hit our P&L majorly only in Q1 and we again expect a relatively sharp drop for this quarter.”
Sudhir Sitapati
opening
“With our strong market position, media increases resulting in recent share gains and our determination to reduce our trade pipelines, we expect things to start improving from Q3 FY2023.”
Sudhir Sitapati
opening
“We anticipate double-digit top line growth with low-single digit volume growth, bottom line is hard to predict.”
Sudhir Sitapati
opening
“We will be happy to share more of our category development initiatives in Q1 because some of them will only happen in June and July in our next meeting.”
Sudhir Sitapati
opening
“Rajesh Sethuraman will be joining us to take over from Akhil as the CEO of ASEAN from July 1.”
Sudhir Sitapati
qa
“And I anticipate that the Rs.30 product will continue to grow, albeit at a slightly slower pace.”
Sudhir Sitapati
qa
“And to your point on salons and so on and so forth, we have an excellent professional business that is growing really well and we target salons in B and C, so we were covering our base and that is one of our fastest growing parts of our business, it is a small part.”
Risks & concerns — 10 flagged
We had a weak quarter in Q4 FY2022 with a few silver linings.
— Sudhir Sitapati
Indonesia delivered a particularly weak performance with sales declining at 15% and operating EBITDA at minus 48%.
— Sudhir Sitapati
In terms of categories, while market growth continues under pressure, market shares are broadly good and there is nothing new to report.
— Sudhir Sitapati
And the combination I mean, it is a difficult time even there because of input prices, but a combination of increasing salience of FMCG and the growth leverage that we were getting on our businesses because they are growing fast, we expect broadly kind of moderate margin improvement to continue in the medium to long-term.
— Sudhir Sitapati
Are you referring to further sort of pressure beyond what you are already seeing or if you can comment on that, that will be helpful.
— Trilok
It is difficult to aggregate and call out as to what it alludes, because some has got executed, some will get executed as we speak.
— Sameer Shah
I mean, the very short- term I mean, just because of severe commodity inflation, there will be kind of margin pressure.
— Sameer Shah
And I think in May, June, we were anticipating crop and also of course, the sunflower pressure continues to be there on Ukraine.
— Sudhir Sitapati
It is difficult to simplify in one word but some companies have primary task of premiumization I think our primary task is category development.
— Sudhir Sitapati
If there is not further shock in oil, none of us know in the volatile world we were living in.
— Sudhir Sitapati
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Q&A — 15 exchanges
Q
Hi, Sudhir. Thanks. My first question is on hair dye pricing in India. So we have seen the crème hair color pricing in India remain in that Rs.25 to Rs.30 for many years in India. And now, we have come out with a disruptive pricing at Rs.15, so questions here, one is, how do you drive average revenue per user, last five years, I have not seen much movement here. Second is, how do you take care of cannibalization from the Rs.15 product, and third is, competitive intensity and parlor presence remains a key work-in-progress. So, if you could discuss that also. Thanks.
Sudhir Sitapati
Abneesh, thanks for that question. I think, the two, three things, one is, the penetration of hair crème category is sub-20% in India. And as I have said in the last two meetings, one of our jobs is to drive market development. And category after category, you will see that access has been a key driver of category penetration. So, I would say that generally what we observe when we bring access into a category is, penetration goes up pretty exponentially and frequency of use also goes up in general. So I am anticipating both of these happening. There is a pretty clear use case that we have disc
Q
Just wanted to understand some of your initiatives so, this creme which is launched at Rs.15, what is the difference between that and the basic product you have at Rs.30, Rs.35. Is it just a lesser quantity of creme or is the product itself different?
Sudhir Sitapati
No, it is just a sachet. I mean, it is the same brand. So it is just the principle of the sachet which makes it more accessible for certain cohort of consumers in small town, rural India with the short crop of hair. So it is just a… Okay. So it is just basically a lesser grammage of the same product, you still have inside two separate sachets which have to be mixed and so on, right. I also wanted to understand this launch of Goodknight Activ+ at Rs.80. Again here also, is it a different product from your base product or is it just a smaller or lesser grammage product compared to the original o
Q
Hi. Thank you for taking my question. My question was regarding the raw material side of the insecticides business. So I wanted to understand what kind of raw materials are used in this business.
Sameer Shah
We use chemicals. Indirect link is crude. All right. My second question was regarding the HI strategy you have not answered, so sure what are we doing so I understand that you cannot disclose on the right now. I wanted to understand like how are you trying to penetrate deeper into the rural areas and how is the demand and is there any side effect? Yeah. I mean, again, it is the same answer that I gave Percy, which is, I can tell you how we were thinking about it, which is relevance, access and sampling. An example of access is bringing down price of Jumbo Fast Card from Rs.15 to Rs.10, of whic
Q
Thanks for the opportunity. Sudhir, my first question is essentially what Percy also asked. So, one is, what you mentioned the relevance, access, etc, on the HI. I also wanted to check with you that are you also working on efficacy? Because while relevance and penetration to my mind, I mean, consumer is fairly aware of Goodknight as a brand, but maybe incremental recruitment may need some kind of tweaks in terms of the efficacy of the product. So, wanted to get your views on the same, is it possible now?
Sudhir Sitapati
But I just prefer to answer. If you do not mind, I am not ducking it or anything, but why do not we discuss the HI strategy. I am happy to talk about Aer and hair care because it is in the market now. I mean, HI also because season starts in June really with the monsoon coming in. So, a lot of our action it is just some time away. So perhaps that is the better time to talk rather than as a discipline. Efficacy is something that we were always working on right from what Activ, can we register in news and what product. So I think that is a strength of GCPL and we were always upgrading our produc
Q
Thanks. Thanks for the opportunity. My question we have some very intense summer this time around. Which are the categories which will get, I mean, benefited and how has been the initial response? I mean, how has been the initial, what we call it, the intent for you?
Sudhir Sitapati
I mean it benefit soap. It is generally very, very hot period. I am not in favor of household insecticide but anyway May is not peak season for us but soap it will benefit. And have you seen any benefit of that in your Aer as well or it has been more of initiatives taken by you that is driving demand? Because as per our channels, Aer has done very well, I mean, during April and May. Yeah. I mean, I think a lot of the initiatives that I spoke about, which is basically on hair color and Aer, we have rolled out in April, and I can just say that the initial results are as per expectation. Again, w
Q
Hi good evening thanks for the opportunity. I wanted to ask, when the initial comment that is highlighted, the Q1 seems to be a little constrained in terms of margins. Are you referring to further sort of pressure beyond what you are already seeing or if you can comment on that, that will be helpful.
Sudhir Sitapati
Ukraine crisis started about three months ago, right, which is the middle of last quarter. And at that time, last quarter, we were still sitting on older batch stocks, so we have kind of managed EBITDA now. This new inflation will take us a little bit of time to adjust to. I mean, I am not overly worried about it, but certainly Europe form today is quoting at 6,500 MYR. It had gone to close to 7,500. Pre-Ukraine is at 5,500. So it is somewhere in between its peak and what it was pre-Ukraine. 5,500 itself is a high price, so the new stocks that comes in is coming in at higher costs. We will of
Q
Hi Sudhir as part of your strategy discussion in December you had highlighted two things both are related so I will take both of them. One was the relative inability to drive category development for which initiatives have been taken as you highlighted. The other thing that you had highlighted was high complexity with too many SKUs. Anything that you want to highlight on that front and what that has been done so far.
Sudhir Sitapati
Yeah. I mean, listen, complexity is there. I mean, I said that one of the strengths of the organization is innovation and R&D and our ability to drive new products. And I hope I can speak about a few of them next quarter. And one of our weaknesses is complexity. And complexity is in SKUs, but in many other areas, let me give you an example of Aer, right, which is the communication that we have done, which is when guests come home, you should have Aer and maybe at some point, we can send it across to all of you the communication. We have done exactly the same communication with no changes in In
Q
Hi. I just wanted to clarify just on the near-term margin bit. And if I heard you correctly, on FY2023, would it be fair to argue for a pickup in the second half at the EBITDA level? But that would mean that the earlier comment of sequential EBITDA margin expansion is no longer valid. Was that the correct read through of Sameer’s statement?
Sudhir Sitapati
No, I think what and I think Sameer will clarify is that, even if we were conservative with costs, we expect some slight margin improvement in FY2023 over FY2022. And if costs go to where we hope or where we think they will go to, it may even be better than that, but that is what I read out. Sameer, do you want to add anything to that? No, I think that is the clarification of it. So there will be a glide path. I mean, the very short- term I mean, just because of severe commodity inflation, there will be kind of margin pressure. And this will continue to invest for growth, so what, I mean, we w
Q
Yeah. Hi, thanks for the opportunity. In the opening remarks, you mentioned that you expect palm oil prices to correct by 7%, 8% and maybe further also. Can you elaborate on this visibility on the output of supply that will come starting June from Indonesia and if Russia-Ukraine conflict continues for a longer period and then supplies from those market or other edible oils. If that situation continues, do you still feel that palm oil prices will correct by June or September?
Sudhir Sitapati
In the palm oil case, there have been to three underlying drivers of price hike. One is, even pre-Ukraine, there was a supply demand mismatch, which I think will correct, and I think it is correcting. Two is that there has been the Ukraine crisis and sunflower oil from Ukraine. And three is that the Indonesian ban has further exacerbated the situation. Of these three, we are hoping two will correct. The third one, if it corrects at some point in time, we will get a further upside. But at least one of the three seems to have been corrected already from what I did not know this, but someone just
Q
Yeah, hi. Thanks for the opportunity. So, couple of questions. Firstly, on the India business, if you can share some color between rural and urban growth as to how it is currently panning out?
Sudhir Sitapati
Yeah. So, I think if you look at urban, including alternate channels, the growth has been nearly 1.5x. But directionally we have seen, I mean, because we are relatively under- indexed in rural and rural growth have been on the higher side in terms of demand trends, it feels like more of the same. I mean, we had called it out last quarter also that even if you look at full year in those trends, nothing much has changed, I mean, between both the markets. Okay. Yeah. And secondly, in terms of the Africa business margin, so you have called out the reasons for the margin fall. So leaving aside the
Q
Yeah. Hi, Sudhir. Two follow-up questions. So, first is on e-commerce in India. So we are seeing HI now, for example, get 20% of business digitally and from e-commerce 7% to 8%. And many companies are getting that. So, where would you get SVPN in this and could you also talk about e-commerce, how are you placed there? Are you getting some benefit from there? And how do you pick DTPS present in e-commerce, some of your larger competitors?
Sudhir Sitapati
Yeah. I think, on e-commerce, the right way to look at it is not just about salience of our e- commerce and what is e-commerce salience. I think there are two or three measures that we look at. One is our share within e-commerce, which we were happy with. Two is our findability when people search for our categories, and we were quite happy with that. And three is, it must be accretive in terms of margins to our portfolio, which we think there is still work to be done on. That is how I would look at e-commerce. So I think rather than just worry about salience as a number and just under all circ
Q
Hi. Thanks for the opportunity. Sudhir has said, you can discuss the thought process on divestment of BBlunt. If I recollect, the company always had ambition and fashion and premium hair colors. Is it part of the business simplification process? And what are the current ambitions for premium hair colors going forward?
Sudhir Sitapati
Yeah. No, I mean, look, BBlunt is a great brand and it is got a great consumer franchise. I think we have, as we articulated, our drive towards simplification and the core of our business and most of that is market development of some of the categories, right. So, in that we felt that the home for BBlunt brand was probably better somewhere else. So, it is just a set of choices that we make. And if you are about to ask me, while of course there are examples of premiumization like in Africa, in general, I would say that GCPL over the next few years should focus on category development. That is w
Q
Hi. Just couple of questions from my side. One, as you alluded to, Africa margins improving on a yearly basis and not being worried about the quarter. Assuming the crude phase where we are, we expect EBITDA margins, margin in Africa to continue to improve for FY2023, that is first. Second, on the palm oil, you alluded to three reasons why there has been a spike. So obviously second and third is something which is event-based and temporary, which is essentially your Ukraine situation or what happened in Indonesia in terms of ban. So I would not worry about that honestly, because there is very l
Sudhir Sitapati
See, I mean, we are always working on blend flex and various oils and so on and so forth. But I think the pre-Ukraine pre kind of Indonesia export ban, if you look at our India margins in Q4, they give you a good sense that we were on our way towards solving that. By this quarter, we would have started that out. So, even if there is a long-term supply demand gap in palm oil, generally soaps is a category which is a relatively small user of palm oil in the larger scheme of things, should be able to manage. I do not think this category is not going to be the one that gets massively affected by i
Q
I need some clarification on the marketing side of it. So, on an industry-wide basis, some companies have lost, degrowing in the digital transformation segment. And we have had a stronger personal care growth this quarter. So, is it fair to assume that this kind of gain from market share from some of the organized players?
Sudhir Sitapati
I mean if 85% of our business is gaining on a MAT basis. Certainly in soaps we are doing very well in terms of market share. Okay thank you.
Q
Thanks everyone for joining the call. If you have any further questions to reach out to IR Team. Thank you.
Management
Speaking time
Sudhir Sitapati
35
Moderator
17
Sameer Shah
9
Percy Panthaki
8
Abneesh Roy
7
Priyum Daga
6
Aniket Sethi
5
Trilok
5
Gaurang Kakkad
5
Alok Shah
4
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Opening remarks
Aniket Sethi
Thanks. Good evening, everyone. Thank you for joining. At ISEC, it is our pleasure to host the senior management team of Godrej Consumer Products Limited for the 4Q FY2022 earnings call.
Pratik Dantara
Thank you. Good evening and welcome to the conference call. We will be covering this evening the results for the quarter ended March 31, 2022. On the call with me from GCPL is Ms. Nisaba Godrej, Executive Chairperson; Sudhir Sitapati, Managing Director and CEO; and Sameer Shah, CFO.
Sudhir Sitapati
Thanks, Pratik. Good evening, everyone. I hope you and your families are safe and healthy, and thank you for joining us on the call today. I will first start with an update of our quarterly performance. We had a weak quarter in Q4 FY2022 with a few silver linings. While our overall sales grew by 7% and we achieved double-digit sales growth for the year, the growth within the quarter was driven entirely by pricing. Our overall EBITDA without an inventory theft in South Africa de-grew by 9%, driven by unprecedented global commodity inflation and scale deleverage in Indonesia. PAT without exception declined by 4%. Our core geography of India grew top-line at 9% with a two-year CAGR of 21%. While the sales was largely driven by pricing and UVG was down by 3%, on a two-year CAGR basis UVG grew by 12% and on a three-year basis, it grew by about 2%. The silver lining in India, however, has been that EBITDA grew by 14% with EBITDA margins expanding by 100 BPS. This, points to our ability to ta
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