BAJAJCONNSEQ1 FY2023August 5, 2022

Bajaj Consumer Care Limited

10,297words

120turns

11analyst exchanges

3executives

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Management on call

Karan Bhuwania

HEAD OF RESEARCH – ICICI SECURITIES

Jaideep Nandi

MANAGING DIRECTOR - BAJAJ CONSUMER CARE

Dilip Kumar Maloo

CHIEF FINANCIAL

Key numbers — 40 extracted

0.4%

e income as well as consumer spending adversely. The overall hair market declined marginally by 0.4% in terms of volume, while in value terms the growth was muted at 0.8% for Q1 FY2023 over the same

0.8%

rket declined marginally by 0.4% in terms of volume, while in value terms the growth was muted at 0.8% for Q1 FY2023 over the same period previous year. Urban markets has seen a value growth of 3.5%

3.5%

0.8% for Q1 FY2023 over the same period previous year. Urban markets has seen a value growth of 3.5% overall in hair oils as compared to rural markets where there has been a decline of 2.3%. Long-te

2.3%

rowth of 3.5% overall in hair oils as compared to rural markets where there has been a decline of 2.3%. Long-term MAT growth continues to be dominated by coconut-based oils which grew by 4.5% in terms

4.5%

cline of 2.3%. Long-term MAT growth continues to be dominated by coconut-based oils which grew by 4.5% in terms of value over the same period previous year. For the quarter, light hair oil category wa

243.8 Crore

ith a 4.5% growth in terms of value. The company has reported its highest ever quarterly sales of 243.8 Crores for the quarter, which was higher by 15% over the same period last year, while volume growth was

15%

as reported its highest ever quarterly sales of 243.8 Crores for the quarter, which was higher by 15% over the same period last year, while volume growth was at 14%. Hair oils portfolio of the comp

14%

r the quarter, which was higher by 15% over the same period last year, while volume growth was at 14%. Hair oils portfolio of the company grew by 14% by value and 15% by volume. On a sequential qua

12.8%

ompany grew by 14% by value and 15% by volume. On a sequential quarter basis sales were higher by 12.8% where volumes were higher by 9.8% over Q4 of FY2022. The gross margin for the company for Q1 FY20

9.8%

by volume. On a sequential quarter basis sales were higher by 12.8% where volumes were higher by 9.8% over Q4 of FY2022. The gross margin for the company for Q1 FY2023 at 54.6% saw a decline of aro

54.6%

volumes were higher by 9.8% over Q4 of FY2022. The gross margin for the company for Q1 FY2023 at 54.6% saw a decline of around 4% as compared to Q1 of FY2023 which is four quarters back despite pric

ver Q4 of FY2022. The gross margin for the company for Q1 FY2023 at 54.6% saw a decline of around 4% as compared to Q1 of FY2023 which is four quarters back despite price increases that has been tak

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Guidance — 20 items

Jaideep Nandi

“It will be a selective activity we will do it in ecommerce and modern trade in a case-to-case basis because as we built our portfolio and see where we need penetration and some trials bajaj coNsuMER CARE we will keep doing that and as we scale up the business we will see how it goes forward.”

Jaideep Nandi

“So the LLP still remains inflationary while RMO there has been some correction I do not think it will be completely offsetting the increase that we are seeing in LLP.”

Prakash Kapadia

“Despite our highest ever quarterly sales the three-year CAGR is 1% so we have tried to expand the addressable market so with this approach when do you think sales will come back to higher volume growth for us some of these initiatives are in mass category certain are niche category so what is your sense will it be second half will it be next year what kind of trend are we looking at.”

Jaideep Nandi

“I think if you look at the scale up in fact I mean for us 2019 April to Jun was one of the highest if you take a four-year CAGR for example the our sales growth is 3.6% on a four- year CAGR basis.”

Jaideep Nandi

“So overall if you look at in the entire hair oil space I think we are in a far better position and I think one of the things that we were seeing in terms of topsy-turvy movement as well as just because of Almond Drops portfolio is concerned that should stabilize a bit that de-risking is happening and going forward the sales growth should continue to happen I do not see too many issues in that.”

Jaideep Nandi

“As far as the D2C brand is concerned they have been scaling up well obviously there will be small numbers at this stage but we are also getting into our own D2C website and this is something that we will keep pushing.”

Prakash Kapadia

“And including sachet will be more like 30%.”

Jaideep Nandi

“So this cycles will keep happening so gross margin will be a function of that as well.”

Shirish Pardeshi

“I think sometime back you told us that maybe another one quarter we will be ready with the directive strategy so if you can spell out what is the strategy going forward.”

Jaideep Nandi

“So this quarter has been about 3% next quarter will be a little more maybe slightly more and as we scale up then we will talk about it has to what we are planning and in Q3 I should be able to tell you where we have invested and what we are trying to.”

Risks & concerns — 15 flagged

Urban markets has seen a value growth of 3.5% overall in hair oils as compared to rural markets where there has been a decline of 2.3%.

— Jaideep Nandi

The gross margin for the company for Q1 FY2023 at 54.6% saw a decline of around 4% as compared to Q1 of FY2023 which is four quarters back despite price increases that has been taken by the company during the year.

— Jaideep Nandi

Bangladesh and rest of world saw a decline due to lower demand.

— Jaideep Nandi

The dual challenge of a difficult market condition especially in rural combined with unprecedented increase in input cost will need to be monitored closely.

— Jaideep Nandi

Having said that if you look at the sequential business generation that has been happening I think almond drops has been facing pressure because of the inflationary the pressures that are there in terms of the raw material prices so both ways it has been affected one is in terms of the rural demand for a large premium brand it has had an impact as well as in terms of our capability to take price increases with this kind of unprecedented event.

— Jaideep Nandi

And secondly on COGS, historically have we seen more pressure in packing materials what has been the packing material to total COGS or this time around even that is seeing a higher inflationary pressure due to crude prices.

— Prakash Kapadia

So some experimentation is anyway bajaj coNsuMER CARE happening on a larger pack to see the conversion from glass to PET which is not only from the price point of view but also from a market feedback where the larger bottles are difficult to handle in terms of breakage this has been going on for quite some time for a long period and that is a changeover that we are getting into.

— Jaideep Nandi

So if you can give some sense because loosing 400 plus basis points decline on gross margin is really worrying because this kind of decline we have not seen in other discretionary companies.

— Shirish Pardeshi

Just one follow up Jaideep, this primarily 400 basis point decline which has happened is purely because of the input prices or we have up the trade spends.

— Shirish Pardeshi

My only worry is that on one side we might be expanding international market but it should not be the margin dilutive otherwise we will still remain in the less than 60% gross margin that would be a concern.

— Shirish Pardeshi

And internally do you have thresholds beyond which you will not kind of invest if you do not see success on the ground especially let us say for a category like soap where again going back to the point where competition is so well entrench that getting success is relatively difficult versus something like a serum or something like argon oil where you can do something on ecommerce or on the digital side of it.

— Rahul Ranade

remains under pressure and that is why we are going into price announcers etc.

— Jaideep Nandi

So we may be getting for further decline in gross margin in the coming quarter.

— Sunil Jain

Both LLP, RMO remains so the pricing pressure is still remain the gross margins pressure is still remain as far as Q2 is concerned.

— Jaideep Nandi

I think the market condition still remain quite a bit of a difficult market conditions with the rural market clearly under pressure but as a company we continue with our long-term plans of expanding the portfolio so that ADHO remain de-risk.

— Jaideep Nandi

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Q&A — 11 exchanges

Thanks. My first question is on coconut hair oil. So recently I saw Bajaj Consumer along with one more company offer one-on-one offer on one of the e-commerce sites. So want to understand are you doing this on modern trade also and this is a sporadic activity or you want to go aggressive on both e-commerce and modern trade across channels.

Jaideep Nandi

It will be a selective activity we will do it in ecommerce and modern trade in a case-to-case basis because as we built our portfolio and see where we need penetration and some trials bajaj coNsuMER CARE we will keep doing that and as we scale up the business we will see how it goes forward. So at this moment it is tactical move that we have continued. but at that kind of offer you will not make any money at even gross profit level. Fortunately with the kind of pricing that we have put we still have a gross margin and a decent EBITDA margin that we are getting and not only gross margins but ev

Thanks. Couple of questions from my end. Despite our highest ever quarterly sales the three-year CAGR is 1% so we have tried to expand the addressable market so with this approach when do you think sales will come back to higher volume growth for us some of these initiatives are in mass category certain are niche category so what is your sense will it be second half will it be next year what kind of trend are we looking at. bajaj coNsuMER CARE

Jaideep Nandi

I think if you look at the scale up in fact I mean for us 2019 April to Jun was one of the highest if you take a four-year CAGR for example the our sales growth is 3.6% on a four- year CAGR basis. So I understand that pre-COVID that particular quarter is the one that we take a base at this moment so that it is a normalized base. But that was one of the highest quarters for us three years back and hence I do not want to nitpick on numbers, but that is how the lay of the land is for us. Having said that if you look at the sequential business generation that has been happening I think almond drop

Hi Jaideep and team good morning. Thanks for the opportunity. Sir I have three questions the first question which is really worrying me that over 10 quarters our gross margin used to 65 which has come down to 54.5 and your EBITDA has also declined by almost 10%. Now bajaj coNsuMER cARE on one side we are investing into the brand portfolio distribution these all things but we are also foregoing the margins now if I recollect a year before you said that the margin will remain in low teens and which has happened but it is deteriorating further. So if you can give some sense because loosing 400 pl

Jaideep Nandi

If you look at there are two ways to handle this issue one is obviously in terms of the gross margin that you are looking at and the other is obviously the EBITDA that you are looking at so gross margin will obviously remain under a bit of pressure with this inflationary pressure that we see on LLP and RMO and I think the product mix basket in terms of raw material input cost is different across different companies so I would not get into a direct comparison of each of them so let us say between the period of 15 to 19 both LLP and RMO were absolutely flat there was a zero CAGR as far as the in

Good morning everyone and thanks a lot for the opportunity. Sir, firstly I want to understand are we seeing improvement in the wholesale trade segment in our core markets of Hindi speaking belt.

Jaideep Nandi

If you look at last quarter we had done quite a bit of correction in terms of the basic hygiene so we have seen the wholesale come back the wholesale has grown I mean very close to 10% this year which is a reversal from quite a few quarters of where wholesale has not been doing well in fact this year this quarter the secondary grew by 10 Crores more than the primary so which is also an objective that we have taken up that secondary is where we should be focusing on in fact our incentive structure etc., has also been changed towards for the frontline which is only on the secondary sales and not

Thank you for the opportunity. My first question is just want to confirm the volume growth number for this quarter I know you said in your comments can you just clarify.

Jaideep Nandi

The volume growth for the quarter is 14%. Year-on-year right. Year-on-year and hair oils volume growth is 15%. So with the volume growth of 14% your value growth will be 15% we have not taken any price increases and can you just comment a bit on in fact the price increases… No, that is not correct the price increases happened but that is only on ADHO and the growth that you see is also because of the other portfolios expansion that has happened like the Amla as well as Coco Onion as well as coconut all of them with the price being much lower than, not much lower, lower than Almond Drops hair o

Sir, I had just maintained some old prices I was seeing for your 100 ml pack three years ago the price was Rs.65 for 100 ml and today the price is Rs.70 for 95 ml which is like a 13% pricing growth across a three year period so in spite of this our EBITDA margins have fallen like close to 13% to 15% over a three year period I understand that there is a input cost inflation but I mean what is it that is driving the margins down so much apart from input cost is there any other factor and how do we see the margins going back to those levels and over what period of time.

Jaideep Nandi

As I said that 15 to 19 period where the LLP prices and both RMO was the most benign I am not sure whether we will be reaching those kind of prices I mean today the prices if you look at LLP has gone from Q1 of FY2021 which was at Rs.46 now is at Rs.91 that is bajaj coNsuMER CARE exactly in two years it has gone to 2x if you look at RMO it was at Rs.89 at this period and now it is at Rs.156 so unless the prices were to go back to those kind of levels it will be very difficult to have that kind of a margin. The other point that you mentioned you took out 100 ml which is where we have taken the

So if you look at this is more a overall portfolio strategy that we see and in fact as far as e- commerce pricing is concerned you look at one side you look at the MRP and finally you look at the net selling price that you get to the consumer in terms of discount so we are seeing that overall as a part of our e-commerce digital first brand so you look at the larger digital first brands most of them have it at a little higher MRP and you give those discounts on platform to the consumers. So we have decided that is a path we will follow and we are seeing good tractions happening as far as the Ca

Anup Ramachandra

You hit the bulls eye exactly I am also talking about the net selling price itself we are selling at Rs.280 and our competitors are selling at Rs.293 for a 500 ml pack So we are actually not targeting the mass end, the discounted virgin ones that you are talking about is more towards the cooking usage so we are going to target more on the hair and skin usage which is basically the kind of pricing that we are looking at. See again I am talking about also most popular brand where they have done a premiumization with respect to their virgin coconut oil with another they are not using their the bl

Thanks for the opportunity. Just one question most of the questions have been answered. Just wanted to get the thought process behind entering category like soap obviously there are much bigger brands well intense brands so what was the thought process behind entering that so if I recall correctly the last time we did such an entry let us say in terms of having well entrench brands let us say in the terms of the coconut oil one of the rationale for that was also that coconut would play the role in terms of expanding distribution for the core ADHO also so is that the similar thought process her

Jaideep Nandi

No, so this is a completely different thought process coconut you are absolutely right I mean getting our footprint more well entrench as far as the hair oils is concerned not only increasing our distribution in ADHO but also covering ADHOs plans where the pricing requirement will be there as far as coconut is concerned. So coconut is also tracking decently well as far as the HSM markets are concerned and some of the HSM markets specifically where ADHO alone may not be the answer into this context. So that is how coconut played out. As far as the Almond Drop Soap is concerned which is the poin

If you look at about we have spend about 20% as far as the NPDs are concerned while the balance is ADHO. Pathanjali Srinivasan: And Sir this generally like you have given that 13% is from LUPs and LUPs plus other smaller packs totally some 17%, 18% so about 80% of our total sales from larger packs.

Jaideep Nandi

Mid packs and larger packs yes. So what is the pricing like the reason why we cannot take price hikes given that most of our competitors have relatively better affordability. No what I think if you look at in terms of again it is back to the demand traction that you see and most of our HSM markets you will see all the larger HSM markets of it say Bihar, UP, MP, Rajasthan to that extent these are the markets which are more affected during the last six quarters in terms of demand let us say compared to a little more affluent markets of bajaj coNsuMER CARE Maharashtra, Punjab, South for example.

Thanks for taking my question. Sir my question relates to as we are not taking any price increase and you said that the cost pressures are still there. So we may be getting for further decline in gross margin in the coming quarter.

Jaideep Nandi

See that we will have to monitor so as I said the inflationary pressures have not yet gone out. Both LLP, RMO remains so the pricing pressure is still remain the gross margins pressure is still remain as far as Q2 is concerned. And second question is led to one of our the launch of the product so a lot of products we have launched already in last one, one and a half years and going forward also so it will be the next launch of products will be more of a near-term or will it be taking sometime. bajaj coNsuMER CARE No so it will be gradual launches which will keep happening so we started with th

Thank you so much for attending our call. I think the market condition still remain quite a bit of a difficult market conditions with the rural market clearly under pressure but as a company we continue with our long-term plans of expanding the portfolio so that ADHO remain de-risk. At this moment we are continuing to invest a little ahead of time so that at bajaj coNsuMER CARE least we are able to build a credible portfolio of brands beyond Almond Drops I think clearly we are on our way towards that some of the brands which have been launched one and a half year two years back has already sta

Management

Speaking time

Jaideep Nandi

Moderator

Anup Ramachandra

Shirish Pardeshi

Naysar Parikh

Prakash Kapadia

Abneesh Roy

Deepan S Narayanan

Sunil Jain

Rahul Ranade

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Opening remarks

Karan Bhuwania

Good morning everyone. A warm welcome to Q1 FY2023 Results Conference Call of Bajaj Consumer. The management is today represented by Mr. Jaideep Nandi - Managing Director, Mr. Dilip Kumar Maloo - Chief Financial Officer, and Mr. Richard D’Souza – General Manager - Finance. I would like to hand over to Mr. Jaideep Nandi for his opening remarks. Over to you, Sir!

Jaideep Nandi

Thank you Karan for hosting this call and good morning from India. Let me take you through the performance of the company during Q1 of FY2022-2023 before we open the house for questions. On a background the inflationary pressures in the economy continue to impact disposable income as well as consumer spending adversely. The overall hair market declined marginally by 0.4% in terms of volume, while in value terms the growth was muted at 0.8% for Q1 FY2023 over the same period previous year. Urban markets has seen a value growth of 3.5% overall in hair oils as compared to rural markets where there has been a decline of 2.3%. Long-term MAT growth continues to be dominated by coconut-based oils which grew by 4.5% in terms of value over the same period previous year. For the quarter, light hair oil category was flat in terms of volume growth with a 4.5% growth in terms of value. The company has reported its highest ever quarterly sales of 243.8 Crores for the quarter, which was higher by 15%

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