BAJAJCONNSEAugust 18, 2023

Bajaj Consumer Care Limited

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119turns

13analyst exchanges

3executives

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Management on call

Jaideep Nandi

MANAGING DIRECTOR – BAJAJ CONSUMER CARE LIMITED

Dilip Kumar Maloo

CHIEF FINANCIAL

Karan Bhuwania

ICICI SECURITIES LIMITED

Key numbers — 40 extracted

tnessed a recovery in both value and volume terms after 8 quarters and reported a value growth of 4% nearly and a volume growth of 3% in Q1 compared to the corresponding quarter of the previous year

and volume terms after 8 quarters and reported a value growth of 4% nearly and a volume growth of 3% in Q1 compared to the corresponding quarter of the previous year. The industry registered a growt

1 compared to the corresponding quarter of the previous year. The industry registered a growth of 7% in urban markets, as compared to 3.7% in Q4 '23. Rural markets, which have been depressed, was al

3.7%

ter of the previous year. The industry registered a growth of 7% in urban markets, as compared to 3.7% in Q4 '23. Rural markets, which have been depressed, was also flat this time compared to decline

5.6%

Q4 '23. Rural markets, which have been depressed, was also flat this time compared to decline of 5.6% witnessed in Q4 FY '23. The market in Q1 saw a recovery across all categories of hair oils. The

INR 265.7 crore

saw a recovery across all categories of hair oils. The company reported a consolidated sales of INR 265.7 crores, resulting in 8% value growth with a slightly higher volume growth, as compared to the correspon

egories of hair oils. The company reported a consolidated sales of INR 265.7 crores, resulting in 8% value growth with a slightly higher volume growth, as compared to the corresponding quarter of th

to the corresponding quarter of the previous year. The hair oils portfolio of the company grew at 9% in the quarter, and double-digit volume growth. Standalone sales grew by 6.5% with a strong doubl

6.5%

f the company grew at 9% in the quarter, and double-digit volume growth. Standalone sales grew by 6.5% with a strong double-digit growth in international business. Consolidated gross margins for Q1 st

54.7%

strong double-digit growth in international business. Consolidated gross margins for Q1 stood at 54.7%, similar to the corresponding quarter of the previous year. On a sequential basis, gross margins

60 basis point

the corresponding quarter of the previous year. On a sequential basis, gross margins improved by 60 basis points, with softening of key raw material costs, mainly RMO. The EBITDA in Q1 FY '24 stood at INR 49

INR 49 crore

points, with softening of key raw material costs, mainly RMO. The EBITDA in Q1 FY '24 stood at INR 49 crores, which is a 30% growth over the same period last year. The EBITDA was at 18.4%, which is an incr

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Guidance — 20 items

Jaideep Nandi

opening

“This range, as we had mentioned earlier, will be continued to be expanded in the next coming quarters as well.”

Jaideep Nandi

opening

“In Q1, we also launched 2 new variants under the Nomarks brand directed towards blemish removal, which overlaps with core benefit and will be marketed based on trending ingredients known for their efficacy.”

Jaideep Nandi

opening

“Major initiatives, including ETP water reuse project execution in Guwahati, STP commissioning in Paonta Sahib and sustenance of water conservation led to reduction in water consumption by 15% in Guwahati and 68% in Paonta Sahib plant.”

Jaideep Nandi

opening

“With the scale up of our existing portfolio, new launches under the Bajaj almond drop extension and the Bajaj ethnic range, along with strong execution and robust channels, will be the leading factor for driving top line growth and expansion of portfolio.”

Jaideep Nandi

“And this, we expect, as you rightly said, between 20% to 22%, is clearly we see happening in the near short term because what has happened worked for us, very different things happening at modern trade and e- commerce.”

Jaideep Nandi

“Pricing-wise, those will be more tactical.”

Jaideep Nandi

“Any commodity will be cyclical, so whether copra prices go down or go up, I think in the long term it will just impact the EBITDAs for those particular quarters, but on an overall basis I think we have a long-term aspiration, as far as this product line is concerned.”

Jaideep Nandi

“Next quarter, you will see our consumption prices for LLP will be lower because, anyway, it will have a lag price.”

Percy Panthaki

“So would it be fair to say that quarter 2 on a Y-o-Y basis, your consumption price will be down like 20%, 25% types?”

Jaideep Nandi

“So, it will be difficult to predict what it will be at the end of quarter 2 at this stage.”

Risks & concerns — 9 flagged

Rural markets, which have been depressed, was also flat this time compared to decline of 5.6% witnessed in Q4 FY '23.

— Jaideep Nandi

RMO prices continued to decline on a good harvest crop in mustard and overall correction in global edible prices.

— Jaideep Nandi

What because see, crude is down like 35% on a Y-o-Y basis, if I'm not mistaken, so would we once your high stock inventory gets exhausted, should we be expecting a similar kind of decline in the consumption of your LLP prices also?

— Percy Panthaki

So, it will be difficult to predict what it will be at the end of quarter 2 at this stage.

— Jaideep Nandi

I mean, if ADHO gets stagnated with that bajaj coNsUMER CARE kind of higher base, it will be very difficult for you to grow at those kinds of numbers.

— Jaideep Nandi

And even if you were to grow then the kind of EBITDA that will churn out will be a little difficult to digest.

— Jaideep Nandi

Last year, the market conditions were difficult but the base work that has happened, I think has slowly starting to reflect.

— Jaideep Nandi

So to compete against the own brand in a supermarket, doesn't it become a difficult issue for you guys?

— Kaushik Poddar

Because execution capability is the most difficult as far as the building is concerned.

— Jaideep Nandi

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Q&A — 13 exchanges

Thanks and congrats on a good set of numbers. My first question is on the modern trade and e- commerce. You have seen very high growth, so I wanted to understand from a product mix perspective and your profitability from these two channels versus kirana. How does this compare and medium, long term, do you see this as almost 20%, 25% of your business because most other consumer companies are already there. So, where would you see this number as a percentage of India business?

Jaideep Nandi

Thank you, Abneesh. I think, a fair question. In modern trade and e-commerce both, as you are aware, we are under-indexed for quite some time. And in the last six, seven quarters, we have been continuously scaling up. Both the segments have quarter-on-quarter been delivering pretty strong growth. At this stage, if we look at between the both the channels put together, we are having a saliency about 17%, modern trade being a little higher than e-commerce. And this, we expect, as you rightly said, between 20% to 22%, is clearly we see happening in the near short term because what has happened wo

Sir, I just wanted to understand your gross margin movement. On a Y-o-Y basis, both LLP and vegetable oils would be down quite materially, but on a Y-o-Y basis, the gross margin is relatively flat. So what is the reason for that, sir? bajaj coNsUMER CARE

Jaideep Nandi

Yes. So if you look at yes, you're right. LLP has gone down. We have also looked at if you look at our actually, on a consumption price basis, LLP is higher by that is what I also mentioned. LLP prices are higher by about 16%. It is RMO which has gone down. Compared to last year, this quarter, LLP is higher by 16%. RMO is down by about close to 20%, so... So is this just some vagaries of your stock, that you are consuming high-priced stock or something or I mean, is that true even on a spot basis, that LLP is higher than last year? So, this is on consumption basis. Next quarter, you will see o

The management line went blank for the last one and half minute we could not hear anything.

Jaideep Nandi

Okay. So, till what point did you hear because I had been speaking. So, the only thing I heard was that on a Q-o-Q basis it is up 23% after that I couldn’t hear anything else. So, basically what I was telling you is about last quarter this year sorry last year this quarter. We had three launches that had happened. We had done the national launch of CNO in general trade. So that had a high base. We also launched almond drop moisturizing soap in April. And we had the launch of the coco onion in March, which had that base as well. So, that's where last quarter last year, this quarter, the bases w

Congrats on a good set of numbers. Sir, you called out rural recovery in your comments this time. So in past four years, five years, we have seen for FMCG sector there has been many false starts on rural recovery. So how do you see rural recovery this time? And how sustainable you feel this can be?

Jaideep Nandi

So having said that rural has recovered, I would still watch out on rural. I think, well, what you can see in urban, clear, robust growth across markets, etc. Rural, it has been sporadic. Some of the numbers that have come for us are also based on certain initiatives we take. So rural, I still say that it is still a watch-out situation. It's not a recovery that is very, very strong that has happened. Yes, it is the major declines that we were seeing quarter-on-quarter seems to have bajaj coNsUMER CARE flattened out. It is now tracking on base, but if you look at robust recovery, it is still no

Great. So, I have two questions. First is on the coconut oil market. Could you just share with us what's the total market size and what rate is the market growing here? And who are the big players in the coconut oil market which Bajaj will now be competing with? And in the next three years to five years, where do you see Bajaj's market share in this coconut oil space?

Jaideep Nandi

The coconut market is a pretty large market. In terms of Nielsen numbers, it's close to about INR 5,000 crores. So that's on an MRP basis. So if you look at net sales, it's about INR 3,500 odd crores. It's a pretty substantial part of the hair oils market. The market has been growing decently well. It's about close to 40% saliency, as I said. It's a MAT growth of about 1.3%. So, the overall market actually de-grew. And in terms of quarter 1, it registered about a 5% growth overall, as far as all India is concerned. So coconut has been having a healthy growth on a regular basis. As far as we ar

Hi, Shubham, here from NV Alpha. My question was that if we heard right, we've spent INR 44 crores in advertising in this quarter, which roughly amounts to around 18%, 19% of as a percentage of sales. Was this number flat line at some point of time? And will we start to see trading leverage coming in? Or is this the kind of spend that we envision in the short to medium- term?

Jaideep Nandi

So with ADHO see, with ADHO remaining a focus, even if you see even if you were to compare with last year, just to give you a quick clarity, if you were to look at the numbers from last year versus this year, you will see there is a drop of about INR 2 crores that's in absolute numbers and in percentage numbers as well. Now percentage numbers exactly, that's the trend we would like to keep it at. As the sales starts moving up, we would like to keep the absolute more or less similar to these numbers so that the percentages keep, that thing. I mean that's how you would have your economy of scale

Hi, Jaideep, Maloo sir, Richard, thanks for the opportunity and good morning. I will start with the core slide number four, where you have given some numbers in terms of value and volume. Although it is good that we are seeing some recovery in the rural, but my question is, what is happening on ground in our core HSM market because that's the key to our business. So this data at the national level looks promising. But is that is reflecting a good recovery in the HSM market? That's my first question.

Jaideep Nandi

Would you want to answer -- would you want me to answer that, Shirish? Yes. Yes. So if you look at the commentary that we were giving for the last maybe four, five quarters, while the hair oils markets were down, the HSM market, especially the, let's say, the poorer markets, if I can call it, "UP, Bihar, MP" were far worse than the overall thing. As the markets are recovering, we see a sharp rebound also happening there. So those markets are also recovering well. So that is what is also getting reflected in our kind of so in the commentary, I also mentioned the HSM markets have rebounded. So n

Sir, would it be possible for you to build up absolute numbers for NPD for this quarter and same quarter last year?

Jaideep Nandi

Absolute numbers? Revenues for NPD portfolio. In the overall numbers, right? Yes. Just give me a minute. Let me just take the numbers out. It is about INR 31 crores in this year, in this quarter. In this quarter. And same quarter last year, it will be how much? bajaj coNsUMER CARE Same quarter last year, it will be about close to INR 28 odd crores. Okay. And just a clarification from what you mentioned in terms of subdued growth for NPD during the quarter. You've stated that last year, we had some major launches in the same quarters. Sorry? Sorry, I was just completing the thing. Q4 was about

Congratulations for steady improvement and great to see bunch of new launches. My question is, what has been the thought process around launch of new products? How and why are we choosing these products? And what are the parameters? And secondly, on body lotion and henna, what would be your strategy in terms of scaling both these products, if you can just highlight?

Jaideep Nandi

Okay. So see, most of the strategy or direction that we are doing is, there has been actually no change in our strategy or direction or whatever we are doing since the last 8 quarters. We are very, very clear that we wanted to expand in the beyond the Almond Drops portfolio. First thing that we wanted to do is, build a much stronger team in terms of process, system, automation, IT, etc. I think we have achieved that. I think one of the things that we are seeing in the last few months is better execution capability of the organization, which is what we wanted to build up. I mean, bajaj coNsUMER

Congrats on a good set of numbers. I have few questions. So on the direction, side. As we have earlier mentioned, we want to grow in a double-digit trajectory and double our revenues for the FY '28 - '29. So do we still maintain that target? And is it purely based on growing by adding newer products to the portfolio? Is the guidance based on that?

Jaideep Nandi

So it will be a combination of multiple things that I just answered in the previous question. So one is, obviously, your core needs to keep growing. I mean, if ADHO gets stagnated with that bajaj coNsUMER CARE kind of higher base, it will be very difficult for you to grow at those kinds of numbers. And even if you were to grow then the kind of EBITDA that will churn out will be a little difficult to digest. So ADHO, the focus for us has been to on ADHO, both in terms of distribution. I think there is still enough and more for distribution to be done. Last year, the market conditions were diffi

Yes. So annual run rate that you look at and also the annual run rate on the ad spends, around INR170 crores, INR180 crores?

Jaideep Nandi

So as I said, 16% to 18% is what we have guided and that is what we are going to remain in the short term, at least short to midterm and that we will see, how it goes up. bajaj coNsUMER CARE As far as capex is concerned, we don't see any such large capex that is happening. We are a looking at our manufacturing footprint, as we discussed in the previous question. In '27, our tax MAT breakup stops in Guwahati. And we have to look at logistics, cost-wise, what is the best servicing depot, both in terms of incoming raw material logistics as well as outgoing FG logistics costs, which is the best lo

Yes. See, there is a line item in your profit and loss statement, which is royalty. Royalty, I guess, from the figures I can figure out that it's around 1% of the turnover. Is this true, number one, and number two, who owns this royalty? Does the Kushagra Bajaj family own the royalty or other Bajaj members are also part of it?

Jaideep Nandi

The Bajaj Resource. So Bajaj Resource which holds the trademark plus the royalty. And Bajaj Resource is owned by Kushagra Bajaj family or there are other members of the cousins or brothers or whatever, they're also part of it? No, it is held by the Kushagra Bajaj family. So it's exclusively owned by Kushagra Bajaj family, right? That is correct. Okay, okay. And second thing is that I mean all these supermarkets and all these things, when I go to a, say, Reliance Smart Store, they have their own brands of, say, coconut oil and also almond oil. So to compete against the own brand in a supermarke

Okay. Thank you, everybody, for joining in. I think this quarter, for the second time, we saw that our execution skills have little become a little better. And strategically or in terms of process improvement, systems, etc, I don't think we had any doubts on where we were going. It's just bajaj coNsUMER CARE that execution capability, we wanted to scale it up because we are now looking at far more robust business models with the newer products getting into newer channels, getting into newer geographies, getting into retailing much more, not just be more focused on wholesale and through... So t

Management

Speaking time

Jaideep Nandi

Moderator

Kaushik Poddar

Percy Panthaki

Shirish Pardeshi

Ankush Agrawal

Tejash Shah

Reshab Sisodiya

Abneesh Roy

Varun Bang

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Opening remarks

Karan Bhuwania

Thank you. Good morning, everyone. It's our pleasure at I-Sec to host Q1 FY '24 Earnings Call for Bajaj Consumer Care. From the management today, we have Mr. Jaideep Nandi, Managing Director; Mr. Dilip Kumar Maloo, CFO; Mr. Richard Dsouza, AVP, Finance. I would like to hand over the call to Mr. Jaideep Nandi for his opening remarks. And then we can open the queue for Q&A. Thank you.

Jaideep Nandi

Thank you, Karan, for hosting this call. Good morning, everyone, and I'm pleased that all of you have joined in. Let me take you through the performance of the company for quarter ended 30th June 2023 before we open the floor for questions. The overall hair oil market witnessed a recovery in both value and volume terms after 8 quarters and reported a value growth of 4% nearly and a volume growth of 3% in Q1 compared to the corresponding quarter of the previous year. The industry registered a growth of 7% in urban markets, as compared to 3.7% in Q4 '23. Rural markets, which have been depressed, was also flat this time compared to decline of 5.6% witnessed in Q4 FY '23. The market in Q1 saw a recovery across all categories of hair oils. The company reported a consolidated sales of INR 265.7 crores, resulting in 8% value growth with a slightly higher volume growth, as compared to the corresponding quarter of the previous year. The hair oils portfolio of the company grew at 9% in the quart

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