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Bajaj Consumer Care Ltd
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Ladies and gentlemen, good day and welcome to the Bajaj Consumer Care Limited Q1 FY '23 Earnings Conference Call hosted by ICICI Securities. [Operator Instructions]
I now hand the conference over to Mr. Karan Bhuwania from ICICI Securities. Thank you and over to you sir.
Hi, good morning everyone. A warm welcome to Q1 FY '23 results conference Call of Bajaj Consumer. The management is represented by Mr. Jaideep Nandi, Managing Director; Mr. Dilip Kumar Maloo, Chief Financial Officer; and Mr. Richard D'Souza, General Manager Finance.
I would now like to hand over to Mr. Jaideep Nandi for his opening remarks. Over to you sir.
Yes, so 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 FY '23, before we open the house for questions.
On the background, the inflationary pressures in the economy continue to impact disposable income as well as consumer spending adversely. The overall hair market decline marginally by 0.4% in terms of volume, while in value terms the growth was muted at 0.8% for Q1 FY '23, over the same period, previous year. Urban markets have seen a -- value growth of 3.5%, overall as a market 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 the category was flat in terms of volume growth with a 4.5% growth in terms of value.
The company reported its highest ever quarterly sales of INR 243.8 crores for the quarter, which was higher by 15% over the same period last year. While volume growth was at 14%. Hair oil's portfolio of the company 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 FY '22. The gross margin for the company for Q1 FY '23 at 54.6% saw a decline of around 4% as compared to Q1 of FY '22, which is 4 quarters back, despite price increases that has been taken by the company during the year. Over the sequential quarter, the gross margins saw a drop of around 1.5%. The company's gross margins continue to be adversely impacted due to its high dependency in LLP and RMO, both of which has been witnessing unprecedented inflation.
LLP prices for the quarter were higher by 33% due to surge in crude prices pot the Russia-Ukraine war, whereas RMO prices were higher by 7.5% due to ban in export of palm oil and imposition of export duty by Indonesia in the earlier part of the year. We continue to closely track commodity prices, as well as the competitive landscape, and we will take corrective action as and [ when needed ].
The A&P for the company was at 18.7% of sales, which is higher by 58% over the [Technical Difficulty]
Ladies and gentlemen, the management line is now reconnected. Thank you and over to you sir.
Yes, thank you so much and sorry for this disruption. I'll just continue from where I had left off. So A&P spends for the quarter was at 18.7% of sales, which is higher by 58% over the same period, previous year. The significant decrease in A&P spends is on the account of low base due to pandemic, and additional media spends on the recent -- media spends on the recent product launch of Bajaj Coco Onion, the company will continue to invest in its existing brands as well as new launches to support its long term growth aspiration.
The EBITDA for the quarter was INR 37 crores with a margin of 15.2%. Similarly, the PAT for the quarter was INR 33.4 crores with a margin of 13.7%. On a sequential basis, EBITDA margin of the quarter declined by 2.7%, mainly due to increase in expense and advertising costs. For our company in General Trade, urban sales grew in high teams as compared to rural sales, where growth was subdued at mid-single digits. Retail continues to scale up on the back of loyalty programs, with the growth of nearly 33%, which has also helped build NPDs across urban areas. Expansion of wholesale loyalty program and its extension to rural markets has helped grow the wholesale business, both on a sequential, as well as on a year-to-year basis. The rural billing efficiency has been steadily scaling up, while the overall rural demand has not been good, the rural is also seeing a sequential scale-up.
Both focus on the businesses -- on businesses of both the modern trade and ecommerce have been scaling up well, based on channel led initiatives. Modern trade grew by more than 70% on the back of significant market share gains across top retailers. Modern trade footfalls are back to pre-COVID levels now in most places and expansion plans have also kicked in from this quarter. Our strategy of creating channel specific facts and selective products have been yielding good results.
E-commerce continues to do well. It is now about 6% of the company's turnover, with doubling of top line over the same period previous year, backed by strong partnership with key platforms. Digital brands, Natyv Soul and Bajaj's 100% Pure are scaling up well as per plans. New launches contributed to about 1/5 of e-commerce sales.
In the international business, significant changes have been made in infrastructure and business practices across Middle East, Asia -- the Middle East and Africa, and it has started showing results, helping drive top line growth. Despite the external challenges, infrastructure changes in Nepal, have helped achieve double digit growth. Bangladesh and rest of world saw a decline due to lower demand.
Leveraging the strong brand equity of almond drops in late June '22, and as per the long term strategy of building a premium personal care franchise under the Almond Drops portfolio, the company launched its third product in the almond drops portfolio, Bajaj Almond Drops Moisturizing Soap in June, with an aim of strengthening connect with younger customers and entering a larger personal care category. The product has been launched in general trade, as well as modern trade and e-commerce channels.
The press release event in Delhi saw a widespread coverage with a total of -- reach of 11 million, comprising of print and digital reach of 6 and 5 million respectively. The company also launched, as I said, the other 2 brands in the Almond Drops portfolio, 2 premium hair care products, the almond drops serum and oil and Almond Drops almond argan oil in ecommerce. These products will now be launched in modern trade in the coming quarters.
The company started the year with a diverse hair oil portfolio, covering 83% of the total addressable hair oils market, which is more than the addressable market -- which is more than double the addressable market at the start of FY '22. The Amla portfolio for the company grew by 47% over the same quarter previous year. Bajaj 100% pure coconut has shown good traction with consistent monthly sales, post all India rollout in April. Through dedicated regional marketing activities and leveraging our rural distribution capabilities, we are optimistic about being able to carve out a good market share of the coconut care category.
Bajaj Coco Onion saw growth [indiscernible] in modern trade and ecommerce while distribution expansion continues in general trade. The overall portfolio expansion is in line with the long term direction of the company, to reduce the over dependency on ADHO, thereby desking and broad-basing the portfolio. It also has helped the company to achieve double-digit growth for the company in hair oils.
ADHO continues to get media support across TV, social media, print media, supporting key markets. Increased investments have been made towards visibility on e-commerce platforms. Digital marketing for ADHO has been continuously dialed up, and we are now actively using new age influencers to reach out to younger consumers, new hairstyles by celebrity hairstylist Amit Thakur campaign launched in April and May '22 on social media performed well with a DTR of 12%. ADHO's new price announced the 45 ml SKU to promote the next batch that has been rolled out in July of 2022. The objective is to increase new tiers to the brand, by driving penetration and building the awareness of almond nourishment at an affordable price.
The quarter also saw a significant media activity on Bajaj Coco Onion, over 1,000 GRPs were delivered in quarter 1, with an HOB of 10% in the Hindi speaking markets. This is compared -- this is in addition to the 15% that we did for almond drops this year. Social media posts saw a reach of approximately 1.5 crore people, and AI tool was used along with YouTube to build incremental reach on non-TV viewing audience, approximately 75 lakh people were reached on YouTube.
Our range of digital first brands or premium care -- of premium oils, Bajaj 100% Pure saw the launch of pure virgin and cold pressed coconut oil, taking the portfolio to 5 products, including castor, jojoba, olive, kalonji and coconut. Our digital first premium brand in Personal Care Natyv Soul, now has 9 products under the portfolio. Listing of both these brands have been completed, with all major e-commerce platforms. Both these brands are supported with digital media campaigns. Community marketing campaign started behind Natyv Soul in the portal, with the objective of driving awareness, imparting education about the brands as well, has driven visits to Natyv Soul page on Nykaa. Due to this, in the hair care conversations, we are now having a share of about 27% of mentions compared to nil, a month ago.
In line with the 3R philosophy of reduce, recycle and reuse, the ESG initiatives were taken during the quarter to reduce the consumption of packing material and in turn, helping the company to reduce its carbon footprint. There is a reduction in consumption of glass bottle by 8%, over and above a 16% reduction achieved last year. Similarly, in laminates, we reduced our consumption by 6% on top of a 14% reduction last year. The company continues to focus on reduction of usage of natural resources like water, by monitoring water consumption and installation of controls in critical cases, helping us reduce water consumption by 23%. Steps have been taken in process improvement at plan, slightly wastage -- a reduction of wastage for certain critical categories like laminates, which has reduced by about [indiscernible] against last year.
The dual challenge of a difficult market condition, especially in rural, combined with unprecedented increased input costs, will need to be monitored clarity. We will, however, continue to expand our portfolio, invest in our brands, building capabilities and systems to achieve our long-term growth plans. Focus on our strategic priorities of expanding our hair oils portfolio, extending almond portfolio beyond hair oil, premiumizing the Bajaj almond hair oil and building digital first brands, will remain our key strategic pillars.
With that, I end the opening remarks and open the session for questions. Thank you.
[Operator Instructions] The first question is from the line of Abneesh Roy from Edelweiss.
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 I want to understand, are you doing this on modern trade also? And is this a sporadic activity or you want to go aggressive on both e-commerce and modern trade across channels?
So it will be a selective activity. We will do it in e-commerce and modern trade in a case-to-case basis, because as we build our portfolio and see where we need penetration and some trials, we'll keep doing that. And as we scale up the business, we'll see how it goes forward. So at this moment, it is a tactical move that we have continued.
But that kind of offer, you will not make any money at even gross profit level, right?
Fortunately, with the kind of pricing that we have put, we still have gross margins -- decent EBITDA margin that we are -- coming in, not only gross margin, but even EBITDA.
Right. And second, we talk on the raw material side too, what is the sense you are getting? There has been some correction in the crude related, but of course, rupee has been depreciating. So in the second half, based on the current pricing, could you give us some impact on the gross margin?
So the LLP still remains inflationary. While RMO, there has been some correction, I don't think it will be completely offsetting the increase that we have seen in LLP. So the raw material pressures will still remain as -- at least quarter 2, we see the raw materials pressures to remain.
Sir, my question was on H2.
H2 is a little too early to comment on because of the volatility of the nature. And now at this moment, we are also not doing any forward purchases. We are also monitoring the situation, unless there is a strategic understanding that we should be doing forward purchases, which we [indiscernible] end of Q4 and beginning in Q1, we did some LLP forward purchases, which worked well for us. So I don't think we have that kind of a visibility with this kind of volatility in the marketplace. So I would like to preserve my comment on H2, we'll rather wait and watch. If the Russia-Ukraine war stabilizes a bit and we see the LLP softening -- I mean, in terms of crude softening, and that should work in our favor, but that is more a wait and watch game.
Next question is from the line of Prakash Kapadia from Anived Portfolio Manager Private Limited.
Yes. A couple of questions from my end. Despite our highest ever quarterly sales, the 3-year CAGR is 1%. [Technical Difficulty] we've 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 categories, certain are niche categories. So what's your sense? Will it be second half? Will it be next year? What kind of -- are we looking at?
I think if you look at the scale up, in fact, I mean, for us, 2019, April --Jan-March was one of the highest. If you take a 4-year CAGR, for example, our sales growth is 3.6% on a 4-year CAGR basis. So I understand that pre-COVID, that particular quarter is the one that we take as a base at this moment, so that's a normalized pace. But that was one of our highest quarter for us 3 years back. And hence, I don't want to nitpick on numbers, but that's how the law of the land is for us. Having said that, if you look at the sequential business generation that has been happening, it's happening.
I think Almond Drops has been facing pressure because of the inflationary pressures that are there in terms of the raw material prices. So both ways it has been affected. One is in terms of the real demand for, let's say, a large premium brand that has had an impact, as well as in terms of our capability to take price increases with this kind of [ unprecedented ] event.
So that is where Almond Drops is and our effort to broad-base the portfolio clearly is kicking in. We have seen clear traction happening as far as the Amla portfolio is concerned, which is where the growth has happened as well as in terms of, let's say, even Coco Onion has started building a good pace, and that's why we are investing heavily in Coco Onion, because we clearly see that is a space that is there for us to exploit.
So overall, if you look at in the entire hair oil space, I think we are in a far better position. I see one of the things that we are seeing in terms of topsy-turvy movement as far as the -- just because of Almond Drops portfolio is concerned, that should stabilize a bit. That bit is still, I think is happening. And going forward, the sales growth should continue to happen. I don't see too many issues, as far as that is concerned.
On the other side, with the Almond Drops, the premiumization that the entire portfolio is concerned, this is just the starting of it. We just have 3 brands in that, and that is something that we will keep pushing forward. So this is just one format that we have come out with. But that portfolio, we would be looking at for the next 2, 3 years, expanding over quite a few formats, which is what we have been talking of, I think.
So I think in terms of our long-term strategy in covering the entire hair oil space, as well as getting into using the Almond Drops equity across the various formats, this growth plans are clearly there. As far as the D2C brand is concerned, they have been scaling up and obviously, there'll be small numbers at this stage. But we are also getting into our own D2C website, and this is something that we'll keep pushing. So on these 3 platforms, I think our growth strategy is more or less steady, and going as per our plans.
Understood. 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 higher inflationary pressure due to crude prices?
So if you look at -- yes, glass is something that clearly has seen huge inflationary pressures, PET is more or less stable. So PET is not something where we are seeing. So PET has gone up. So now it has stabilized, but glass is clearly something that has gone up, and we are also seeing how we can reduce our dependency on glass. So some experimentation is anyway happening on our larger pack, to see the conversion from glass to PET, which is not only from the price point of view, but also from the market feedback, where 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.
So our overdependency on glass, as well as the way we have also looked at reduction in packing material costs, both in terms of sourcing as well as the reduction of -- reduction in the glass content itself is -- which I talked of in the ESG. Those should keep us at least, as far as the packing material is concerned, more or less in [ general ].
Okay. And lastly, on the rural side, your commentary was things are not looking as good as urban. So we had launched some bridge packs, INR 10, INR 20 pack. So that also doesn't seem to be working. What is the sense from rural?
So we have actually not gone very strong on the LUPs which you look at. I mean there are INR 10, INR 20 packs obviously, but LUPs, as you are aware, historically, has the lowest margins across all categories, I would assume. So given the inflationary pressures that we are seeing in the gross margin inflations, we have not gone very strong on the LUP. Instead, on the other side, we have gone quite aggressive on the larger packs. And across the last 3, 4 quarters, the larger packs is what is giving us a good growth. So even this quarter, for example, the larger packs, like 650 ml, 500 ml is where our growth has come from.
Okay. And what would be the LUP contribution, if you have that handy to sense...?
I'll just give you a sense. LUP contribution would be about 12 -- about including the sachet -- in fact, without the sachet, it's hardly anything. Our LUP contribution is about 4%. That's it.
And including sachet, it will be more like 30%.
No, no, no. Now the sachet contribution has gone down quite drastically. So it is about 17%.
Understood.
About 13%-odd coming from sachet, and 4% from the increase. So LUP is not a real focus for us, because that's where -- I meant not really much money to be made.
Next question is from the line of Shirish Pardeshi from Centrum Broking.
Sir, I have 3 questions. The first question, which is really worrying me that, over 10 quarters, our gross margin used to be 65%, which has come down to 54.5% and your EBITDA has also declined by almost 10 percentage points. Now on one side, we are investing into the brand, portfolio, distribution, these all things, but we are also foregoing the margins. Now if I relate a year before, you said that the margin will remain in low teens, which has happened, but it's deteriorating further. So if you can give some sense because, losing 400-plus basis point decline on gross margin is really worrying, because this kind of decline we have not seen, other than any discretionary companies. So what is the factor which we should be monitoring, or we should be giving a weightage, that's my first question.
So if you look at -- there are 2 ways to handle this issue. One is, obviously, in terms of the gross margin that you're looking at and the other is obviously the EBITDA that you are looking. 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 at, let's say, between the period of 16% to 19%, both LLP and RMO were absolutely flat. There was zero CAGR as far as inflation was concerned. I mean '19 to '22 is when we have seen slowly the increase, and now it has -- in last year has been [ 100% ]. So this adjustment keeps happening. So gross margin will be a function of that as well.
I think if we're looking at the EBITDA point, I mean, this year -- this quarter itself, for example, I mean, easily, the same sales number could have been achieved with at least INR 10 crores to INR 12 crores reduction in the ASP costs, which is what we are investing in terms of, let's say, a Coco Onion, in terms of Natyv Soul et cetera. It's more Coco Onion, to that extent. Now that is something you've got to manage the EBITDA and keep the growth plans a little further by the side, so we [indiscernible].
We have decided that we would invest, so that the brands get built up, and by the time the cycle comes back, both in terms of demand as well as in terms of raw material, we are in a better space. Otherwise, it will be a chicken and egg situation, where our entire focus will remain on ADHO. And if ADHOs conditions remain favorable, which is the market conditions remaining [indiscernible], LLP, RMO, the prices remaining [indiscernible], I think we will do well. And if that does not happen, the company will suffer. We can't remain in that stage. We have to derisk ourselves, which is the direction of the company we are taking.
One follow-up, Jaideep. This primarily 400 basis point decline which has happened, is purely because of the input prices, or we have upped the trade spend?
Trade spends have not gone up. In fact, trade spends if you look at -- if you do a market study, trade spends have grown across for some other companies, but we have not increased are trade spend much. Yes, there has been a portfolio expansion. Not all of them have a gross margin similar to ADHOs, so there will be a bit of dilution as far as that is concerned. So quite a bit of it is because of the inflation of LLP and RMO, and a bit of it will be -- a much less a percentage will be because of the change in the mix. Overall, ADHO still remains a large product, and hence the margin dilution from non-ADHO [indiscernible].
Okay. Okay. My second question is on the market share. I think the market share slide is missing this time. So could you comment on where we stand, what is happening? Or maybe what is the expectation?
The market share remains steady, and that's what -- because of the market shares more or less remain, between the 10.2% to 10.6% market share, it remains exactly the same place. I mean the entire category grew by 4.5% in terms of light hair oil. That's where we have also grown. In fact, our growth this quarter has been higher in terms of value growth, but these are more takeover from the last quarter, the market share remains flat at about 10.5%.
Okay. And my last question is on the international business. I think sometime back, you told us that, maybe another 1 quarter we will be ready with the international strategy. So if you can spell out what is the strategy going forward? And...
I mentioned... I mentioned that by H2 of this year, that is '22 to '23, I'll be able to speak a little bit of it, I'll maintain that. So there are some actions that has happened in 2 markets. I'll talk more of it about maybe Q3 earnings call.
So this quarter is safe to assume that international would be about 2%, 3% contribution?
So this quarter has been about 3%. Next quarter will be a little more, maybe slightly more. And as we scale up, then we'll talk about it, as to what we are planning. And in Q3, I should be able to tell you, where we have invested and what we are planning to do.
And international markets, we will be ahead of the margins or lower than the company average margin?
I think it will be similar. I don't think there'll be a major difference as far as the margins are concerned. It will be very similar, but we'll have to also look at which markets we are talking about, what kind of portfolio. Because different markets will have a very different structure -- in terms of the P&L structure, will be very different for the...
No. My only worry is that, on one side, we might be expanding international market, but it should not be margin dilutive. Otherwise, we will still remain in the less than 60% gross margin. That would be a concern.
Yes. So as I said, I mean, it will be different markets. So we'll have to follow different market strategy. Some markets will have lower than India. Some markets will be having similar to India. So we'll have to have a mix of both.
Next question is from the line of Deepan Sankara Narayanan from Trustline.
Sir, firstly, we want to understand, are we seeing improvement in the wholesale trade segment in our core markets of Hindi-speaking belt?
So if you look at last quarter, we had done quite a bit of correction. And I mean, for 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 INR 10 crores more than the primary, which is also an objective that we have taken up that secondary is where we should be focusing on. In fact, our incentive structure, et cetera, has also been changed towards the front line, which is only on the secondary sales and not on primary. So that structural change is also making a difference.
So wholesale has grown by about 9.8%. But if you look at the overall market structure et cetera, I think rural demand still remains not very strong, and we see pressure as far as rural demand is concerned. So we have had our growth, but it's not a very [indiscernible].
Okay, okay. And secondly, what is the gap between the price increases taken and RM price increase? So when are we planning to take our next price hike?
At this moment, with the kind of demand situation that we see and the competitive intensity, because these are the only 2 factors that we look at, is the demand conditions and the competitive intensity. We do not see price increases happening other than the open category, where copra prices have gone down, so where actually price decrease is happening. Other than that, we don't see any price increase happening across the overall hair oils portfolio. So at this moment, we'll have to remain with the market. And at this moment, we are not contemplating on a price increase, not in the near term at least. So we'll have to monitor and see how the market goes.
So what is the gap exactly, between price increase and RM price increase?
It's close to about 6% or so.
Okay. And lastly, so ADHO revenues, are we anywhere close to our pre-COVID level?
So ADHO this quarter grew by a little more than 5%. So that is the kind of growth that we have, and it has actually been on a 4-year CAGR, if you look at, it has a growth on a 4-year CAGR, yes.
And next question is from the line of [ Naishal Parekh from Native Capital ].
My first question, I just want to confirm the volume growth number for this quarter? I know you said in your comments [indiscernible].
So the volume growth for the quarter is 14%.
Year-on-year, right?
Year-on-year. And hair oils, the volume growth is 16%.
So with the volume growth of 14%, our value growth is going to be [ 16% ], we've not taken any price increase as a result, can you just comment a bit on the impact of the price increases?
No, that's not correct. The price increases will happen, but that is only on ADHO. And the growth that you see is also, because of the other portfolio expansion that has happened like 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 there. So that's why -- because of the product mix, you will see a volume growth and a value growth.
Right. And the [indiscernible] is, competition is -- say pre-COVID versus now, what would be our pricing differential?
Pricing differential. In fact, our pricing premium has gone up. I mean, I had talked about in the last call, our pricing premium has actually gone up versus the, let's say, the 2 other largest players in this category. So earlier the premium that we have, that premium has gone up now. So hence, we need to also keep it within control. So that's where, unfortunately, we will not be taking a price [ increase there ].
Understood. And you mentioned about ADHO, non-ADHO is it possible to give the mix between -- what is the mix of ADHO today?
So ADHO [indiscernible] about -- now remains at about 86%, which used to be about 90%-plus earlier. So now it is 86%.
Okay. Understood. And my last question is just on the modern trade side, you mentioned that is obviously growing well. Why is it -- what would be the share of modern trade today? And secondly, which all products have we -- do we have in modern trade now?
So modern trade, our share is about 8%. As I said, e-commerce is about 6%, modern trade is about 8%. So our aim of touching that 15% mark between modern trade and e-commerce, and including institutional actually is more than 15% at this stage. As far as products are concerned, we are actually having all the products in modern trade right from -- right from ADHO, which obviously remains our focus product. And then Coco Onion becomes one of the other focus products that has been there in modern trade. We also have our Brahmi Amla hair oil, which we have been using strategically. And so that has been also doing well, as well as coconut, which has been launched in select few markets that we discussed in the first call, tactically we have launched in select few markets -- in a few modern trade outlets, sorry. Other than that, modern trade -- all the large modern trade outlets we are in today, with that entire portfolio.
Next question is from the line of Percy Panthaki from IIFL.
Sir, I had just maintained some old prices. I was seeing for your 100 ml pack 3 years ago, the price was INR 65 for 100 ml. And today, the price is INR 70 for 95 ml, which is like a 13% pricing growth across a 3-year period. So in spite of this, our EBITDA margins have fallen, like close to 13% to 15% over a 3-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 costs? Is there any other factor, and how do we see the margins going back to those levels and over what period of time?
As I said that '15 to '19 period, where the LLP prices on both RMO was the most benign, I'm not sure whether we will be reaching those kind of prices. I mean today, the prices, if you look at, LLP has gone from, let's say, Q1 of FY '22, which was at INR 46 now is at INR 91. That is exactly in 2 years, which has gone 2x. If you look at RMO, it was at INR 89 in this period, and now it is at INR 156. So unless the prices were to go back to those kind of levels, i.e. it will be very difficult to have that kind of a margin, it becomes a [indiscernible].
The other point that you mentioned, you put out 100 ml, which is where we have taken the price increase, which is what I was talking about, the premiumness for our product has become much higher than that of others. So there are certain other packs where this kind of price increase was not possible. And hence, while our contribution of these packs have been low, but they do contribute the INR 10 pack, the INR 20 pack, even the sachets. So this is where we have not been -- because these are fixed price cues, and really speaking, you can't really reduce the grammage beyond a certain point. So that is where in the portfolio overall, the price increase has been more like 5% to 6% and not 13%, which was for that portfolio. While in terms of raw material prices, the average increase has been closer to 13%, 14%. So that's where the gap is.
And the other side that we talked about is the investments that we are making, which we have mostly made in terms of automation, et cetera, which we were anyway planning to do as a long-term thing, those expenses will keep happening as well as in terms of -- or is more of a continuous thing. But also in terms of our marketing spend for some new brands, we'll keep investing. So if we don't do that, it will only be back to only ADHO, and we'll keep only looking at that EBITDA margin, with the best case scenario of the market situation being good and hence ADHO to grow, the raw material prices to be good and hence, our EBITDA to grow. That is a little utopian, at this stage.
Sure, sure. So let's say, if the current commodity prices remain where they are, a couple of years down the line, what kind of EBITDA margins should the company stabilize at?
So I think saying that the market prices for both LLP and RMO will remain at the absolute peak, will do go down. It's not really proven in history. In fact, it always goes through -- a commodity always goes through a cycle, and what goes up, does always come down, which is very unlikely. So we will not be able to plan in a situation where we say the prices have gone to an unprecedented high and will remain so. If that remains so, going forward, many other parameters in the macroeconomic parameters will also change, in terms of the demand situation for customers, et cetera. I mean, they're really a much more -- much larger overall as an economy, rather than just our own [ assets ]. So we will have to plan for a reduction. Having said that, we don't expect a complete reduction in this, and we continue with our entire plan of saying that we will have an NTM situation or a more stabilized situation with EBITDA coming to 21%, 20%, 21%, around that level.
Next question is from the line of [ Anup Ramachandra from A&P Investments ].
Most of my questions are answered. I am left with 1 or 2 questions. My one particular question is with respect to this Bajaj 100% Pure Oil. What I note is that, virgin coconut oil seems to be a large, growing market and most of our competitors are already there. And I don't know whether -- what the company's thought process behind pricing is at INR 280, INR 290 for a 200 ml pack, when our competitors are selling almost INR 20 or INR 30 extra for 500 ml pack?
So if you look at, this is more an 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 we give to the consumer, in terms of discount. So we have seen that overall, as a part of our e-commerce digital-first brands, whether you look at the larger digital first brands, most of them have a little higher MRP and give those discounts on platform to the consumer. So we have decided that, that is a path we'll follow. And we have seen good traction happening as far as the castor oil is concerned, olive oil is concerned, we have had some supply issues, as far as olive oil, which has got sorted out. So olive oil is tracking well. Castor is tracking well, we feel that coconut should also track well.
Pricing in terms of MRP is one point. The other point is, at what price the customer is getting at. So I'm more -- I'll be -- rather we will be as a company, more tracking as to what price the customer finally gets it at, and that is something that we'll keep it more or less close to what the larger players are.
You will get the [indiscernible]. Exactly. I'm also talking about the net selling price itself. We're selling at INR 280, and our competitors are selling at INR 290, INR 310, for a 500 ml pack.
So we are actually not targeting the mass end in that space. The discounted virgin ones that you are talking about, is more towards the cooking usage. So we are targeting more on the hair and skin usage, which is basically the kind of pricing that we are looking at.
See, again -- again, I'm talking about also most popular brands, where they've done a premiumization with respect to their virgin coconut oil, with another -- they're not using their -- the blue ones, they've come up with a virgin --I'm saying that the popular blue color brand, that they've come under another brand, and they're using it as a virgin coconut oil for hair and skin itself. They're selling at INR 310 or INR 320, 500 ml, and we are selling at INR 280 for 200 ml. That seems -- because I'm pressing on this issue, because virgin coconut oil market is a growing market. So we don't lose on the whole pricing side itself.
No, I don't think that is a focus of an issue. The virgin cold pressed coconut oil, which is what we are selling. I mean virgin oil is one product, virgin cold-pressed coconut, which is what we are promoting for premium hair and skincare product. I think this is a price we are comfortable with, and I don't think there is much loss that we foresee, or that we'll not be able to get traction. Already, there is a lot of lot of traction we are seeing as far as the customer conversations that are happening across this product. So we'll monitor the price and in case we feel that there are some corrections required, we will go for -- at that stage. But at this moment, we feel this pricing is perfectly fine.
Okay, excellent. Just have a look at it, in case...
Sure. I understand. I take your feedback. We will monitor that. But this is a pricing that we are aware of. I mean, obviously, when we do our pricing, we obviously track all the largest selling competitors that are there. And based on that, we do our pricing. And this is a conscious call that we've been taking. It's not a price that we have just...
Because the rest of the products, which you said you are doing quite well, castor, they're all priced competitively what I saw -- what I saw from our research. They've been price competitively, and they seem to be doing quite well.
Yes. I appreciate your point. Completely appreciate your point. I'll take that feedback and see how our products track. And in case we need to do a pricing correction or any other pricing action, we will do that accordingly. But obviously -- yes, we appreciate that.
Yes. And again, the costs that we took in the last quarter also, I had this question with Brahmi Amla. Brahmi Amla, I know you validated through your lab test, and you see there is no substantial benefit that comes out of Brahmi. And you also have a feeling, the company is feeling that this is a product which 70-plus or 60-plus users, only the older generation which have brand recall and not the newer generation. My perspective is, if you see, say one of the major e-commerce side, you can see the best sellers in the beauty list, not even in the hair care list, I see Brahmi listed at 37 or 38 as one of the best sellers.
Yes, that's correct.
Yes. Right. And I don't see ADHO even in the top 100 of the best sellers. I'm saying in Amazon, forget about Flipkart, we don't have the details of Flipkart. I'm saying, see, there are only 2 major websites, I will take the name Amazon, I'm saying if Brahmi is doing so well, even in the e-commerce site and some of the [ IOLE ] properties cannot be validated from the perspective of modern science. So I am just saying, company can have a relook at the strategy as to how they want to do it with Brahmi?
Okay. So first and foremost, let me correct some of these questions -- perceptions. For example, ADHO, for example, tracks very well in both Amazon and Flipkart. Flipkart is actually #1, if you were to go on the site. So this is just a small correction. Second thing is, I take your point exactly. So we have taken Brahmi. I mean, I still mentioned the point that scientifically Brahmi's usage as a hair oil ingredients has not been really proven. So that -- having said that, because of our old association with Brahmi Amla Hair Oil, we think we wanted to rejuvenate the brand, and that's where we have taken e-commerce and final modern trade as a path, because the margin for the product is very good. And we have utilized it to counter some of our competitive activity in terms of where there is action against almond, we have used this product effectively to counter some of them, and we are seeing good traction, both in e-commerce as well as modern trade, as far as Brahmi Amla is concerned. So this is the path that we have taken, not so much in [ guaranteed ], but [indiscernible].
Okay. And just on A&P for Brahmi, anything of that sort, and the company's thought process?
In terms of the A&P?
Yes, basically for Brahmi oil?
No. Because it's not been promoted in [ gen trade ]. So we are not -- on platform, we are doing as I mentioned, necessary as far as Brahmi Amla is concerned, but not as far as -- in terms of search, et cetera, we do some work as far as Brahmi concerned, but not in terms of A&P.
Okay. And this is my last question. With respect to digital marketing, is company working on any YouTube's influencer marketing, because that also influences our general trade? I know the Instagram's and the Facebook and all do a lot with respect to digital marketing. But I don't know how far it will inflate our general trade, because it may have a lot of interest on a modern trade in e-commerce. But YouTube in terms of marketing, I think we have a lot of impact on general trade also?
So yes. So in fact, Facebook, Insta, YouTube, all 3 are taken as our overall digital strategy, and we have separate tracks for all of these 3. In ADHO, YouTube is -- we are getting more and more content as far as YouTube is concerned, this is a clear identified area, and more on content generation is happening, as far as YouTube is concerned. You will see that in the coming quarters, you will clearly see more and more -- more and more posts as far as YouTube, in terms of video content.
So content generation is definitely there. I'm talking about the influencers marketing?
Yes, including influencers as well, including influencers as well. One is the content, otherwise using influences in this space as well. So you'll see both.
Next question is from the line of Rahul Ranade from GSAM.
Just one question, most questions have been answered. Just wanted to get the thought process behind entering a category like soap? Obviously, there are much bigger brands, very intense brands. So what was the thought process behind entering that? If I recall correctly, the last time we did such an entry, let's say, in terms of having well-entrenched brands, let's say, in the terms of a 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 here? Or is this something different, just want to quantify that?
So this is a completely different thought process. Coconut, you are absolutely right. I mean getting our footprint more well entrenched as far as the hair oils is concerned. Not only increasing our distribution in ADHO, but also covering ADHOs flanks, where the pricing requirements would be there, as far as coconut is concerned. So coconut is also tracking decently here, as far as the HSM markets are concerned -- in some of the HSM markets, specifically where ADHO alone may not be the answer into this context. So that is how coconut has played out.
As far as the Almond Drop soap is concerned, which is a point that I have continuously maintain. I mean, almond drop soap is not a launch in [ sight ]. It is not a portfolio launch, and this is just the first product out of -- I mean, 3 products that have got launched, with soap being the larger. In the next 2, 3 years, this is a portfolio -- Almond Drops is somewhere you'll see from next quarter, that we will talk of Almonds sort of in our way of communication. And overall, the almond portfolio, which is more on a premium, more reasonably priced, I would say, retail affordable and yet premium range for both hair and skincare is what we will promote.
And slowly, we will see in the next 2, 3 years, launches happening in the different portfolio across formats. So soap is just one of them. It is not in isolation that we are launching, it's more a portfolio launch. And we see that our numbers that we are tracking as far as soap is concerned, in this large category, you understand it's a very well-entrenched category, it's a very competitive category. But I think in future, that we want to operate, [indiscernible].
Okay. So Almond Drop will be more of an umbrella, beneath which we will kind of -- soap is one, and probably you highlighted serum as the other, right, where you said that...
So serum in oil and almond argan oil are the 2 smaller brands that we have launched. But there will be little more larger formats, which will come. Some of them may be a little more modern trade e-commerce heavy, but larger segments, some them be more traditional GT, as well as modern trade e-commerce, which will be launched in the coming, let's say, 2 to 3 years on a sequential basis. It's just a question of how much money we spend in advertising. So hence, we'll grade them. But in the next 2, 3 years, we have a plan to launch about 8, 9 products going forward.
Sure. And internally, like do you have thresholds beyond which you will not kind of invest, if you don't see success on the ground, especially, let's say, for a category like soap, where -- again going back to the point, where competition is so well entrenched, that getting success is relatively difficult versus something like a serum, or something like argan oil, where you can do something on e-commerce or on the digital side of it?
So it's a matter of how you define success. If success is defined as just pure market share, maybe your question is right. But I think with our kind of a size company, I think we will have to also look at the top line number, as defining a success threshold top line number, and looking at some threshold EBITDA number in a 3-year phase. So 3 years is a typical period we take for a brand to get launched, and with the support and we'll see, obviously, with internal parameters of measure, is what we [ project ].
So serum and argan oil, et cetera, you're absolutely right, they will have easier chances of success. But the scale that they can go up to, may not be equal to some of the larger brands. So it will be a play and a mix of all that, and we look at more the portfolio number that we can look at, rather than in typical categories at this point.
Next question is from the line of Pathanjali Srinivasan from Mirabilis Investment Trust.
Sir, what is our A&P with respect to new brands during the quarter? If you can give me the split of the non-ADHO, what is the A&P?
So if you look at about -- we have spent about 20% as far as NPDs are concerned, while the balance is earned.
Okay. Okay. And sir, this -- generally like you've given that 13% is from LUPs and as an LUP plus other smaller packs, totally some 17%, 18%. So about 80% of our sales is from larger packs. So what is the...
[indiscernible] and larger packs, yes.
Yes. So what is the pricing, like the reason why we can't take price hikes, given that most of our consumers have relatively better affordability?
So I think if you look at -- in terms of again, it's back to the demand traction that you see and most of our HSM markets, you will see all the larger HSM markets, such as Bihar, UP. MP, Rajasthan to that extent, these are the markets which are more affected during the last, let's say 6 quarters in terms of demand, let's say compared to a little more affluent markets of Maharashtra, Punjab, South for example. So hence our ability to push through that price increase itself is not that strong. The other thing that we are clearly seeing is that, that there has been a large shift towards let's say the lower selling products or lower cost products, the cheaper economies that we see. So there has been a large shift.
So in this kind of a market condition, taking price increases beyond a certain level might not give you that kind of a return. We have not seen that kind of a traction happening, especially for example the mid-packs, the 50 ml, 100 ml packs etcetera remains under pressure, and that's why we are going into price announcers, etcetera going specifically onto TV, talking about the mid-packs. The kind of pricing that is available. So it's not that you can take price increases in the larger packs, restrictive in this market condition.
Okay. So and just one last question, you had mentioned that we are trying to add some 8 to 9 products in the next 2-3 years. Is this only in the ADHO addition, or it's the overall NPD that we planned?
So it will be a combination. I mean, the Almond Drop portfolio itself will have a few products being launched in the next 3 years or so. So then we will have some products that will be launching. There will be certain other flanker brands, may be hair oils you will see one of their products getting launched, but we want to space it out, so that we have enough investment money for this. We don't want to get into launch shop products, where we cannot support them, as far as brands.
Next question is from the line of Sunil Jain from Nirmal Bang Securities Private Limited.
My question relates to, as we are not taking any price increase and you said that the cost basis are still there, we may be looking for further decline in gross margins in the coming quarter?
See, that we will have to monitor, as I said as I said, inflationary pressures have not yet gone up. Both LLP, RMO remains distinct. So the pricing pressure will still remain. The gross margins pressure will still remain as far as [ 2Q is concerned ].
And the second question relates to more of the launch of the product. So lot of products we had launched already in last 1, 1.5 year, and going forward also -- so it will be the next -- next launch of products will be more of a near term, or will be taking some time?
No, so it will be a -- graduated launch, I mean gradual launches will keep happening. So we started with the Amla aloe Vera which happened 2 years back, last year was also Sarso Amla that we had launched, and then the Coco Onion -- the coconut came in the middle of the late last year. Coco Onion got launched this year and now we have launched the soap, along with the smaller products that are also getting launched. So this kind of a greater launch would keep happening going forward.
My question relates to more of like the spend or the -- whatever the spend or expenses which we are doing for the launch of the product, and the product will be taking a lot of time to breakeven. So any of the earlier products we are seeing coming to profit and likely to support the future brand? Or it will be sort of an ADHO, which will be [indiscernible] a bit?
No. So 1 or 2 products you're already seeing going on a marginal costing basis, on an EBITDA positive. It's just that, obviously, it will not have the kind of margins that ADHO has. So we keep grading it. And that's why I said, while we have the portfolio as to what all products we want to launch ready, this will happen over the next 3 years and not immediate. Not all of it will happen immediately. So we'll keep balancing out our ASP spend, versus what kind of launches we want to get. So we already have a decent set of products that have been launched. So immediately, for example, in Q2, you will not see any large products being launched, because we will keep supporting the brands that we have launched. But then we'll keep increasing one brand at a time, as we feel the market conditions demand, and requires from us.
And sir, last related to this A&P spend. This quarter, you said that the spend was somewhere around 18.7%. So this is the range, or it was having some extra spend in this particular quarter?
So I've always mentioned that 18% to 20% is what we'll keep or spend for the next 2, 3 years, and that's where...
Due to time constraints, we have reached the end of question-and-answer session. I would now like to hand the conference over to the management for closing comments.
So thank you so much for attending our call. I think the market conditions 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 remains derisked. At this moment, we are continuing to invest a little ahead of time, so that at 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 1.5 year, 2 years back, has already started showing traction with some of the new brands [ oncoming ], and we believe that for the next 2, 3 years, we'll have to keep investing as well as growing the business, so that by the time the market demand comes back, as well as in terms of -- the raw material prices stabilize a bit, we are a far better company and a far stronger organization than we were earlier.
So this is where we are consistent on business growth, as well as in terms of investments in the newer brands which [ we will be ] looking at. So thank you so much, and I wish you the very best.
Thank you. On behalf of ICICI Securities, that concludes this conference. Thank you for joining us. You may now disconnect your lines.