BAJAJCONNSENovember 16, 2022

Bajaj Consumer Care Limited

11,549words
87turns
10analyst exchanges
3executives
Management on call
Jaideep Nandi
MANAGING DIRECTOR – BAJAJ CONSUMER CARE LIMITED
Dilip Kumar Maloo
CHIEF FINANCIAL
Karan Bhuwania
ICICI SECURITIES
Key numbers — 40 extracted
7.2%
ms of demand scenario and inflationary pressures, the company posted a healthy top line growth of 7.2% for the quarter and 11.1% for H1, aided by an expanding portfolio. As mentioned, the operating
11.1%
inflationary pressures, the company posted a healthy top line growth of 7.2% for the quarter and 11.1% for H1, aided by an expanding portfolio. As mentioned, the operating environment continues to pos
5.5%
about the hair oil market in the country. The overall hair oil market as per Nielsen declined by 5.5% and 5.7%, respectively, in terms of value and volume in Q2 FY '23. Urban markets declined by 2.8%
5.7%
e hair oil market in the country. The overall hair oil market as per Nielsen declined by 5.5% and 5.7%, respectively, in terms of value and volume in Q2 FY '23. Urban markets declined by 2.8%, while r
2.8%
5.5% and 5.7%, respectively, in terms of value and volume in Q2 FY '23. Urban markets declined by 2.8%, while rural markets saw a sharp decline of nearly 9%. This decline in rural was expected as cons
9%
e in Q2 FY '23. Urban markets declined by 2.8%, while rural markets saw a sharp decline of nearly 9%. This decline in rural was expected as consumers at lower income levels felt the pinch of both in
4%
as witnessed in terms of volume across all hair oils category with overall degrowth of nearly the 4% versus last year. For the quarter, light hair oil category saw a degrowth of 11.3% in terms of vo
11.3%
wth of nearly the 4% versus last year. For the quarter, light hair oil category saw a degrowth of 11.3% in terms of volume and the de-growth in high single digits in terms of value. All hair oil catego
INR 227.6 crore
th September 2022 before we open the house for questions. The company reported quarterly sales of INR 227.6 crores, as I mentioned, translating to a 7.2% value growth and a volume growth of 5.8% over the same pe
5.8%
es of INR 227.6 crores, as I mentioned, translating to a 7.2% value growth and a volume growth of 5.8% over the same period last year. bajaj CONSUMER CARE The value and volume growth o
7.1%
last year. bajaj CONSUMER CARE The value and volume growth of total hair oils was 7.1% and 6.4%, respectively, over the same period last year. For the half year ended, reported sales o
6.4%
. bajaj CONSUMER CARE The value and volume growth of total hair oils was 7.1% and 6.4%, respectively, over the same period last year. For the half year ended, reported sales of INR 471
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Guidance — 20 items
Jaideep Nandi
opening
“On a 3-year CAGR basis, the volume growth has been in mid- single digits.”
Jaideep Nandi
opening
“We'll continue to accelerate our footprint in the digital space going forward.”
Jaideep Nandi
opening
“We'll continue to nurture and develop Almond Drop extensions going forward and expect the same to become a significant part of our portfolio in the midterm.”
Jaideep Nandi
opening
“So overall, despite a weak macroeconomic environment, including subdued demand in rural, we continue to drive our business strategically with focus on mid- to long-term objectives while current demand remains weak with the festive season and a normal monsoon, we expect recovery in demand conditions in the near to midterm, and we plan our strategies accordingly.”
Jaideep Nandi
qa
“So we expect a downward price that we are seeing in mustard to go continue.”
Percy Panthaki
qa
“And what will be the drivers for the same?”
Jaideep Nandi
qa
“So with that we expect over the next two, three years to start giving far stronger results than they have already started through.”
Jaideep Nandi
qa
“One of the two, either we are able to take a price increase to offset the increasing raw material prices or expect the raw material prices to come down itself.”
Percy Panthaki
qa
“And on this ad spend as a percentage of sales, how much do you expect it to come down by how many basis points over the next two to three years?”
Jaideep Nandi
qa
“I mean very difficult to speak of exact numbers, but we expect it to come down to that average 15%, 16%.”
Risks & concerns — 15 flagged
Inflation remains a significant challenge for many industries, including ours.
— Jaideep Nandi
While there has been some easing of commodity prices and supply chain pressures, most commodities, except copra, remain volatile and at elevated levels compared to historical averages.
— Jaideep Nandi
Urban markets declined by 2.8%, while rural markets saw a sharp decline of nearly 9%.
— Jaideep Nandi
This decline in rural was expected as consumers at lower income levels felt the pinch of both inflationary pressures and reduced disposable income, leading to downtrading and prioritizing essential over discretionary.
— Jaideep Nandi
In spite of pressure due to reduced gross margins, the company continue to make marketing investment in both its existing products as well as new launches to support its long-term growth aspiration to build significant brands in a diversified portfolio.
— Jaideep Nandi
In general trade, urban sales grew by double digits as compared to rural sales where the company witnessed a decline.
— Jaideep Nandi
Rural slowdown clearly remains a concern area, especially in the HSM markets.
— Jaideep Nandi
So overall, despite a weak macroeconomic environment, including subdued demand in rural, we continue to drive our business strategically with focus on mid- to long-term objectives while current demand remains weak with the festive season and a normal monsoon, we expect recovery in demand conditions in the near to midterm, and we plan our strategies accordingly.
— Jaideep Nandi
Is it that -- I understand there is a pressure on rural incomes, etc..
— Percy Panthaki
But hair oils is definitely, at the higher end of the band in terms of the pressure.
— Percy Panthaki
In fact -- clearly showing the same kind of a decline.
— Jaideep Nandi
So that will clearly be one driver, which will bring down overall cost pressure and hence the EBITDA margin.
— Jaideep Nandi
I mean very difficult to speak of exact numbers, but we expect it to come down to that average 15%, 16%.
— Jaideep Nandi
So at this moment, with the pressures that we have as far as inflationary pressures, as well as demand pressure is concerned, we would rather invest in our brands rather than get into a D2C straightaway.
— Jaideep Nandi
So is that a risk bajaj CONSUMER CARE because of the slowdown in India also it can happen because two, three years back, no one was expecting that.
— Abneesh Roy
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Q&A — 10 exchanges
Q
I wanted to know your extent of price increases, how much you have taken in Bajaj Almond over the last 12 months? I mean on a Y-o-Y basis, what is the price increase sitting in our results? And also, if you have actioned any price increases in the recent past, in the last two, three months and which are sort of there in the pipeline? Yes, that's my first question. bajaj CONSUMER CARE
Jaideep Nandi
So if you look at in the last six quarters, we have taken about a 7% price increase. And in the last four quarters, we have -- that is about 4% overall. And in the last three months, we have not taken a price increase given the market conditions, given what we see in terms of demand conditions, especially in rural and that too in the HSM market, we have not been able to take price increase. And on the commodity cost front, since most base commodities are now stabilizing. Some are showing some downward trend also. Do you think that the EBITDA margin that we have posted this quarter is the troug
Q
My question is essentially on the digital in terms of ad mix since you have taken over, what is the transition here? What was it – at what level when you joined? And where do you see over the next three years in terms of digital as a mix of the total ad spend. bajaj CONSUMER CARE
Jaideep Nandi
At this moment, we are at 20% in terms of the digital spend that we are there. If you're saying about 2.5 years, it was lower than 5%, and that has gone up to 20%. So that time, obviously, the entire digital spend was basically only on ADHO. Now it is a broad-based spend. So it is not only on the product, it is also on the promotion of almond drops for super food for Super hair. So that thing that we want to extend the almond drops beyond just Almond drops hair oil. So that is also where we are spending as well as on the digital first brand as well as some campaign going on Natyv Soul and 100%
Q
A couple of questions from my end. How much is LUP to our rural sales? And Jaideep, you mentioned about down trading. So what is happening? People are moving to Copra, are they buying lose oil on the rural side? What is happening?
Jaideep Nandi
So if you look at the low unit packs, and I would include even given the sachet pack inside that in that because our contribution in the INR 10, INR 20 as far as ADHO is concerned, is very low. Our own contribution to our portfolio. But if you were to include the sachet, then it becomes about close to about 15%, 18%. So that is the kind of contribution that I have. But for us, if you look at the bigger chunk of it has happened in the mid pack. The larger packs are doing well because the urban markets are doing well. in terms of modern trade e-commerce have been doing well. So the larger packs
Q
First of all, congratulations on decent volume growth despite of time. And also very happy to see that you're continuing our investment in A&P despite such a tough time. So sir, one question on new products. So new products in first half were around INR 58 crores, roughly 12% of sales. So I just want to understand from you where do you see this contribution of new products going over a period of time? That's number one. And secondly, as a portfolio, this entire new product, do they have higher gross margin than there were average portfolio gross margin or they are lower gross margin? bajaj CON
Jaideep Nandi
So Samir, as I said, at this moment, we stand at 12%, and our expectation over a longer-term period is to take this number to about 40%, about 40% or even higher depending upon what kind of portfolio we build, while ADHO continues to deliver the growth. We'll continue to invest in ADHO. We'll continue to push all the pillars to exploit ADHO as much as possible. But on the other side, we want to develop a portfolio, which goes to about 40% in terms of. So we are just about started on that journey. Some of the products have started tracking well. And our objective was to build about three, four
Q
First question is on modern trade. Obviously, remaining good growth or increasing as a percentage of sales. Can you talk about which brand is kind of driving this growth? And secondly, are there any other white spaces which we can target to kind of increase this even further?
Jaideep Nandi
So modern trade is obviously led by ADHO and the entire growth that you see is led by ADHO. So one of the good things that we see, both in e-commerce as well as in modern trade because of our sheer contribution of our ADHO to all our channel salience. ADHO has been what has given us this growth. It would not have been possible without ADHO to give this growth. Other brands, fortunately for us, both in modern trade as well as the e-commerce or other brands are also tracking the result. Some of the brands in GT are also tracking well. But in modern trade and e-commerce specifically, It's fair to
Q
Yes. Just one question on the ad spend that you mentioned. You want to take it from 18%, 18.5% to 15%-odd or as a percentage of sales. Any time horizon that you mentioned? I probably missed that.
Jaideep Nandi
So we have not mentioned the time line. Typically, it would be about a two year to three year time horizon. I don't think it will happen in very short duration. It's more the midterm that we are looking at going there. Where as the volumes keep tracking, as the volumes keep going up for some of these other brands, I mean, that 17% as that number keeps going up, you will see the spend as well ad spend going down as a percent. So it will be a graded drop to that 15%. But it will be more a function of top line growing and percentage declining rather than those kind of earlier philosophy of spendi
Q
I have one fundamental question. And if I go back five, six years before, you used to get about 50% plus sales from the wholesale, though I completely agree with your strategy expanding retail and giving more impetus to D2C brand and with time we have changed? Bit is it a good conscious strategy that we have cut the wholesale. And now you think we have become irrelevant to the wholesale, and that's why the wholesale has declined? Or you think there is a genuine rural demand, which is slackening for the kind of portfolio we are holding?
Jaideep Nandi
So firstly, I would like to politely disagree with Shirish, that wholesale is not a focus area for us. Wholesale is very much a focus area for us. And in fact, if you for a large penetrated category for us, if wholesale is something that we defocus on or we were to ignore you will never be able bajaj CONSUMER CARE to make progress. Wholesale continues to be a very-very important area for us, but we are also doing things that we were not trying anyway. This is more a complementary thing that we are doing rather than an either of. So wholesale, if you look at in spite of these difficult conditio
Q
Sir, the ADHO that you mentioned, 83% of the revision, is it for the first half or the second quarter?
Jaideep Nandi
The second quarter. And what would be that for the first half in Q2? First half is similar. I mean it is about 84%. And I mean, NPD. So when you mentioned it is 12% premium. So what is not included in NPD? bajaj CONSUMER CARE What is not included in NPD, so let's put at what we take, what we define as NPD. NPD is what we define as, and that's a traditional definition, I would assume most companies follow, which is any product that has been launched in the last three years. So by that definition, what is covered NPD starting from the Amla, Aloevera that we started, and the Sarso Amla, the Bajaj
Q
Essentially, I was just reconciling the revenue growth. So if we see that modern trade has a 9% of sales, general trade has 75%, again e-comm has 9% of sales, it has grown at about 180%. International business also has grown at 50% at. So my question is, firstly, what will be the contribution of international business in the current quarter? And we have seen the general trade has slightly declined. But when, if you have to do the math, then the general trade has been declined at a higher rate basis. I mean just where am I going wrong just to just need to get that detail?
Jaideep Nandi
So I'll just help you with the numbers. So general trade is at about 73%, 74% of the saliency, organized trade as we call it, modern plus e-commerce plus canteen's business is about 22%, 23% and international business is at 4%. And general trade at this stage, at a half year level, has grown at about 2%, 2.5%. And in the quarter level, it has grown slightly a mid-single-digit number. Because I was just, I mean, because general trade, modern trade and e-commerce…. bajaj CONSUMER CARE These are reconciled numbers. You can add them up and this is exactly how they pan out.
Q
So thank you, everybody, and thank you for the incisive questions and your interest in the business. I mean, obviously, it's been quite a few quarters of challenging times. I remember two years back, when we were looking at exactly the strategy, two things we clearly had not anticipated, which is that unprecedented inflation that we saw as well as the demand conditions, which actually slumped. So if you ask me more than the inflation, I think we are more hurt by the demand condition slump that we saw because if the demand conditions were a little better off, we could have actually been able to
Management
Speaking time
Jaideep Nandi
38
Moderator
11
Shirish Pardeshi
8
Percy Panthaki
6
Abneesh Roy
4
Prakash Kapadia
4
Vaibhav Badjatya
4
Naysar Parekh
3
Rahul Ranade
3
Samir Rachh
2
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Opening remarks
Karan Bhuwania
Hi, good morning, everyone. It's our pleasure at ICICI to host the Bajaj Consumer Care Q2 FY '23 Results Conference Call. From the management, we have Mr. Jaideep Nandi, Managing Director; Mr. Dilip Kumar Maloo, Chief Financial Officer; and Mr. Richard Dsouza, AVP Finance. I'll hand over the call to Mr. Jaideep sir for introduction. Thank you. Over to you, sir.
Jaideep Nandi
Thank you, Karan, for hosting this call, and good morning, everyone. Along with me, Mr. DK Maloo, Chief Financial Officer, Richard Dsouza -- I also have some senior colleagues from my management team joining in this call. Despite tough market conditions, both in terms of demand scenario and inflationary pressures, the company posted a healthy top line growth of 7.2% for the quarter and 11.1% for H1, aided by an expanding portfolio. As mentioned, the operating environment continues to pose challenges. We continue to witness unprecedented inflation impact the disposable income and as a result, consumer spendings adversely. This is more pronounced in rural as compared to urban. Inflation remains a significant challenge for many industries, including ours. While there has been some easing of commodity prices and supply chain pressures, most commodities, except copra, remain volatile and at elevated levels compared to historical averages. The consumer price index inflation continues to be a
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