GODREJCPNSEQ1 FY2023August 08, 2022

Godrej Consumer Products Limited

11,658words
134turns
13analyst exchanges
5executives
Management on call
Jaykumar Doshi
KOTAK SECURITIES LIMITED
Nisaba Godrej
EXECUTIVE CHAIRPERSON - GODREJ CONSUMER PRODUCTS LIMITED
Sudhir Sitapati
MANAGING DIRECTOR & CHIEF
Sameer Shah
CHIEF FINANCIAL OFFICER & HEAD
Pratik Dantara
ASSISTANT VICE PRESIDENT
Key numbers — 38 extracted
5%
of it Q1 FY2023 appears optically poor but we are actually quite encouraged. We declined volumes 5% grew by 8%, declined EBITDA by 13% and PAT by 16%. However, given the various COVID disruptions,
8%
Y2023 appears optically poor but we are actually quite encouraged. We declined volumes 5% grew by 8%, declined EBITDA by 13% and PAT by 16%. However, given the various COVID disruptions, headwinds a
13%
poor but we are actually quite encouraged. We declined volumes 5% grew by 8%, declined EBITDA by 13% and PAT by 16%. However, given the various COVID disruptions, headwinds and tailwinds in the last
16%
e actually quite encouraged. We declined volumes 5% grew by 8%, declined EBITDA by 13% and PAT by 16%. However, given the various COVID disruptions, headwinds and tailwinds in the last two years we
3%
ok at 3-year CAGR and how the trajectory is changing over quarters. Our three-year CAGR volume is 3%, sales 10% and EBITDA 5%. If one takes the core geography of India we grew 4% underlying volume g
10%
ar CAGR and how the trajectory is changing over quarters. Our three-year CAGR volume is 3%, sales 10% and EBITDA 5%. If one takes the core geography of India we grew 4% underlying volume growth, 12
4%
year CAGR volume is 3%, sales 10% and EBITDA 5%. If one takes the core geography of India we grew 4% underlying volume growth, 12% sales and 11% EBITDA on a three-year basis. This compares favorably
12%
0% and EBITDA 5%. If one takes the core geography of India we grew 4% underlying volume growth, 12% sales and 11% EBITDA on a three-year basis. This compares favorably with a three-year CAGR of the
11%
A 5%. If one takes the core geography of India we grew 4% underlying volume growth, 12% sales and 11% EBITDA on a three-year basis. This compares favorably with a three-year CAGR of the prior two qua
7%
n a three-year basis. This compares favorably with a three-year CAGR of the prior two quarters of 7% sales and 0% EBITDA. We are also quite happy with the quality of results globally. Our gross marg
0%
r basis. This compares favorably with a three-year CAGR of the prior two quarters of 7% sales and 0% EBITDA. We are also quite happy with the quality of results globally. Our gross margins contracte
560 BPS
DA. We are also quite happy with the quality of results globally. Our gross margins contracted by 560 BPS and our media increased by 140 BPS but driven by cost savings we were able to limit our EBITDA dr
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Guidance — 20 items
Pratik Dantara
opening
“We will be covering the results for the quarter ended June 30, 2022.”
Sudhir Sitapati
opening
“However, given the various COVID disruptions, headwinds and tailwinds in the last two years we think that the right way to evaluate underlying performance is to look at 3-year CAGR and how the trajectory is changing over quarters.”
Sudhir Sitapati
opening
“Our three-year CAGR volume is 3%, sales 10% and EBITDA 5%.”
Sudhir Sitapati
opening
“This compares favorably with a three-year CAGR of the prior two quarters of 7% sales and 0% EBITDA.”
Sudhir Sitapati
opening
“Our Household Insecticide businesses in India while again having an optically poor one-year performance has significantly increased improved its 3-year CAGR trajectory versus the previous few quarters.”
Sudhir Sitapati
opening
“With our strong market positions media Godrej Consumer Products Limited August 04, 2022 investments resulting in recent share gains in Indonesia and our determination to reduce our trade pipelines we expect the Indonesia situation to start improving by Q3 FY2023 onwards.”
Sudhir Sitapati
opening
“We anticipate double digit topline growth with low to if we are lucky mid-single digit volume growth.”
Sudhir Sitapati
opening
“With inflationary pressures abating we expect sharp margin recovery from H2.”
Sudhir Sitapati
opening
“With inflationary pressures abating we expect that these controllable cost savings along with the marketing investment will give us significant fuel for growth and digital transformation.”
Sudhir Sitapati
qa
“Especially if you look at India where things are stable (Indonesia we have been doing a lot of pipeline corrections), if you take our last two quarters our three-year CAGR was about 7% and it has now moved to 12% in this quarter so that in itself is quite encouraging for us because when we look at three-year CAGR polarity we feel it is changed in Q1.”
Risks & concerns — 6 flagged
Indonesia delivered a particularly weak performance with sales declining at 12% and EBITDA at -40%.
— Sudhir Sitapati
Weak sales compounded by cost inflation and 120 bps investment in advertising and promotion, which we continue despite the gross margin fall has meant that EBITDA drop has been very large.
— Sudhir Sitapati
The EBITDA margin decline in GAUM was largely due to higher marketing investments.
— Sudhir Sitapati
Okay and just a follow-up on this again do you not think that time is conducive right now to actually spend while gross margins are going down for you so is the case with competition and this is the time for you to basically maybe outspend some of the competition and basically gain share so is that not the fair strategy given that you do not have any balance sheet concern, you do not have any other cash flow related constraints?
— Vivek Maheshwari
I think it is difficult to give the guidance on that Shirish but Sudhir did mention in his opening remarks right and as of today on full year basis we do expect conservatively our margins at overall level will be maintained but what will be more important over there is the quality of profits.
— Sameer Shah
It is difficult to now judge the future and what will happen but as I see it now in the foreseeable future nothing in Africa that we will have to surprise that is there but one of thing about surprise is that you never know right.
— Sudhir Sitapati
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Q&A — 13 exchanges
Q
Thanks Sudhir so my first question is essentially on the steps which you have taken post joining so essentially past few quarters numbers have been optically weak in some of the quarters and your three-year growth is still looking decent so my question is based on the steps which you have taken say better emotional messaging in your advertisement, better go to market focusing on core and higher A&P also, the numbers, etc., obviously we cannot decipher the impact of these steps because Godrej Consumer Products Limited August 04, 2022 they are optically weak so my question is any anecdotal evide
Sudhir Sitapati
Abneesh more than anecdotal simple way of looking at the numbers is to look at what was our trajectory pre-COVID and now we are in a post-COVID period and as our trajectory changed this quarter over the last few year quarters is simple question to ask. Especially if you look at India where things are stable (Indonesia we have been doing a lot of pipeline corrections), if you take our last two quarters our three-year CAGR was about 7% and it has now moved to 12% in this quarter so that in itself is quite encouraging for us because when we look at three-year CAGR polarity we feel it is changed i
Q
Hi good morning Sudhir and team. My first question is on Indonesia in your understanding how much of the issue that you are seeing on the ground are right now let us say external factors and how much of those will be something which are more internal and you would be able to address those in next let us say couple of quarters?
Sudhir Sitapati
I think Vivek in the case of Indonesia there has been two sets of issues one is that in the past few years the macros were indeed quite poor in Indonesia and I think over a longer period we have probably not invested enough in Indonesia. In both cases we have changed our investment patterns in Indonesia over the last five to six months and we are actually seeing macro improvement in Indonesia in the last few months and the very first measure that we have of whether there is light at the end of the tunnel is to see offtake and that has actually quite encouraging in this quarter not spectacular
Q
Hi everyone good morning. My first question is on HI so just like you have given the three-year CAGR for the overall business in India at around 11% to 12% what would be the three-year CAGR in home care?
Sudhir Sitapati
So Percy we do not now declare HI results separately but I think it is suffice to say that there has been significant polarity improvement in HI in Q1 on a three-year CAGR versus the prior quarters. We do not report HI but we report home care so home care three-year CAGR is it possible to give? Percy just in terms of data and direction I think three-year HI CAGR is close to double digits for us. Secondly I just wanted to ask Sudhir I think you were not there so maybe Sameer can give a perspective across time period when this illegal incense stick problem had come up immediately we had launched
Q
So my first question is with regards to the body wash segment of Rs.45 that you have launched so wanted to understand who will be our target consumer segment in this launch that we are targeting while the mass or the mid premium guys would be soap and it is only the top end guys who are using the body washes so what kind of strategy you will be targeting here?
Sudhir Sitapati
Gaurav look the body wash offers some significant benefits to soap for everybody whichever high income or low income the reason that only high-income consumers in India use body wash is the price index to soap is 1:3 so bringing the price index to 1:1 we are hoping that body wash becomes a mass market offering. It is a game changing innovation but it is mass innovation aimed at mid income and low-income consumers. So my next question is with regards to the price mix that you have taken down over the past five to six months though the hair colour is growing the Rs.15 launch or for example even
Q
Hi good morning. Thanks for the opportunity Sudhir and Sameer. I have two questions one is on India business and when I see that you have reported on slide 13 personal care growths at 25% I just wanted to understand what is the price and volume in personal care?
Sameer Shah
I think for competitive reasons we do not share the cutoff category for unit basis but if you double click towards personal care in soaps I think good part of growth is pricing less but equivalently in hair colour which is the other major component in personal care good path of growth is actually volume led so I would say the underlying volume growth (UVG) would be reasonably steady over there. Thank you Sameer but at least for India business will you be able to share what is the volume growth? Yes we have done that. On the same slide actually you see India’s UVG on Y-o-Y basis has declined by
Q
Thank you very much for taking my question. Hello Sudhir. Hello Sameer. My first question was with respect to the category development which you have talked about Sudhir I understand around HI what the plan is but on the personal care side do you think that we will be expanding this category beyond body wash, are we thinking about going deeper into the personal care category in the course of next couple of years and a sub question to that is do we have plan around our distribution target which we plan to reach in the next 2 to 3 years this is across the spectrum so this is my first question?
Sudhir Sitapati
See in personal care we have two businesses which are large today one is soaps and one is hair colour. I think soaps is not a category development task it is a market share task; the category development task is really in hair colour and that is going to be the focus of our development. The one of the things that we have done is to launch an access pack and that is yielding good results so far. I would say that while of course we have done Magic Body Wash and that is kind of something that can really do well for us. I would still say that the focus of our personal care business in the next sho
Q
Hi Sudhir. Hi Sameer. Just two questions. Sudhir on this HI focus does the focus on communications entail more a market share gain kind of thought process rather than category development would that be a right way to look at this at least in the near term?
Sudhir Sitapati
No Avi I do not think so. I think that firstly the HI solution is a combination frankly of three things of relevance which is communication driven trial which is sampling driven and access which is to get the right price points in the category that we operate in. We have started off and it is most visible because of media spends, etc., on relevance. If you see for Google the latest Goodknight communication it is not a market share kind of communication it is growing the pie kind of communication. The reason is when you kind of mention it you said that to counter the incense stick it is felt th
Q
Hi good morning. Thank you for the opportunity My first question is Sudhir in the previous quarter in the 4Q conference call when there was question on HI you said that we will discuss that in detail in 1Q, in this presentation and the conference call what we understand is about the new marketing message, etc., so am I missing something over here or is my understanding correct that the change is largely on the marketing piece?
Sudhir Sitapati
I did not quite get the first part of your question I think on HI so let us ask the question what is that we have changed in our HI business what is that we will work towards and what is the early results so that is probably the good way of looking at it and let us look at India because Indonesia there is lot of noise around the data. I think we have increased our marketing spends that is a fact. We have changed the positioning of Goodknight it is a significant change moving it from efficacy and performance to good night sleep we are doing a reasonable amount of trial generation and we are fig
Q
Hi Sudhir. Hi Sameer thanks for the opportunity. I heard your comments on some of the categories. I just had a few follow-ups the first one was on HI. It seems that you are reducing your focus on burning formats and incrementally the focus is on the premium side which is aerosol and vaporizers so is it fair to assume that probably the next big intervention that could possibly come in this category from you are the lower price points in these premium factor and the second part was if you could want to share some thoughts on the non-mosquito part of that business that seems to be doing well what
Sudhir Sitapati
Latika on question one definitely aerosol and liquid vaporizer is where our focus is and we are appropriately playing within burning formats were required for example a jumbo fast card which we have dropped to Rs.10, etc., and we will definitely work towards market development on these categories. It is not correct for me to say what exactly we will do in the future but definitely focus in India on development of all categories so that we will do. I think on the non-mosquito the big Godrej Consumer Products Limited August 04, 2022 area of development is cockroach products and cockroach penetra
Q
Thanks a lot for this opportunity. Just one thing that I wanted to understand for the company is the strategy in terms of what you guys are looking in for, are you looking to be in mass categories or looking to premiumize the brand also because what I see every time there is to and fro in terms of your strategy, in HI it was incense sticks, now we are aerosol which is slightly on the premium side Godrej No 1 on soap side it is more of mass side, you tried on Cinthol to premiumize, similarly for hair colour it was crème then there was some focus on the powder side then again on the crème Godrej
Sudhir Sitapati
I think there are several questions that you are asking so let me answer them separately. So there are a lot of to and fro in the strategy that you guys have been adopting in the last 5 to 7 years. I agree you were new but probably Sameer has been there both Sameer and you can talk about how you are now going to take it because you have not been very successful in taking the brand to premium side. Godrej No 1 was good soap brands say 7 to 10 years back but now it is considered to be a lower end brand, similarly for other categories that you have been there. I have not been in the company but t
Harit· Investec so just had two questions
Q
Hi this is Harit from Investec so just had two questions. In your release you mentioned that we expect recovery in consumption with inflation coming up just wanted to get your sense about whether you are already seeing this on ground and any early signs especially on the consumption side inflation probably has not come off so much for the end consumer but any on ground trend that you are seeing even post Q1 that you can kind of just talk about this is specifically for India? Got it. The second question is on Africa one was on the change in mix side, so when you invest in FMCG in Africa I think
Sudhir Sitapati
I was just talking to Sameer as I told you we are quite enthused with our Q1 three-year CAGR which is the right way to look at it. Lot of people ask questions on what is happening to the rural slow down, urban slow down my answer is look at three-year CAGR on rural urban and you will them pretty similar so I do feel that given the polarity has changed a little bit in Q1. I am sure some of it has to do with consumption coming back in India so it is hard within the quarter to judge when you see a green shoot is it because of your action or is it because of a macro trend of course it is a combina
Q
Good morning Sir. Sir I have got few questions are we planning to develop more of the products since we have our distribution network, are we planning to go more into detergents, toothpaste and shampoos, which are the categories which we are not still catering to?
Sudhir Sitapati
Thanks Ashwini again it is not proper one way to say what we will get into and what we would not get into but I guess the answer remains the same that our business is going to focus on the core and on category development and a few blockbuster innovations where we genuinely believe we can solve the consumer problem in a differentiated manner. I do not think we will get into categories for the sake of getting into category and Magic Body Wash is a good example. It is entry into body wash but it is a very differentiated entry into that category but those will be few and far between, a bulk of ou
Q
Thanks everyone for joining the call. If you have any further questions do reach out to the IR team. Thank you.
Management
Speaking time
Sudhir Sitapati
44
Moderator
15
Sameer Shah
12
Vivek Maheshwari
7
Percy Panthaki
7
Sheela Rathi
6
Alok Shah
6
Shirish Pardeshi
5
Avi Mehta
5
Sumeet Agarwal
5
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Opening remarks
Jaykumar Doshi
Thank you. Good morning everyone. On behalf of Kotak Institutional Equities I welcome you all to Godrej Consumer Products 1Q FY2023 earnings call. I will now hand over the call to Pratik Dantara, AVP, M&A and Investor relations for initial introduction. Over to you Pratik!
Pratik Dantara
Thank you Jay. Good morning and welcome to the call. We will be covering the results for the quarter ended June 30, 2022. On the call with me from GCPL are Nisaba Godrej, Executive Chairperson, Sudhir Sitapati, MD and CEO and Sameer CFO. We can start. Sudhir over to you!
Sudhir Sitapati
Thanks Pratik. Good morning everyone. I hope you and your families are doing well and thank you so much for joining us on the call today. I will first start with an update on our quarterly performance. On the face of it Q1 FY2023 appears optically poor but we are actually quite encouraged. We declined volumes 5% grew by 8%, declined EBITDA by 13% and PAT by 16%. However, given the various COVID disruptions, headwinds and tailwinds in the last two years we think that the right way to evaluate underlying performance is to look at 3-year CAGR and how the trajectory is changing over quarters. Our three-year CAGR volume is 3%, sales 10% and EBITDA 5%. If one takes the core geography of India we grew 4% underlying volume growth, 12% sales and 11% EBITDA on a three-year basis. This compares favorably with a three-year CAGR of the prior two quarters of 7% sales and 0% EBITDA. We are also quite happy with the quality of results globally. Our gross margins contracted by 560 BPS and our media inc
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