Bajaj Consumer Care Ltd

NSE:BAJAJCON

Earnings Call Transcript 2023-Q3

[Operator]

Ladies and gentlemen, good day, and welcome to the Bajaj Consumer Q3 FY '23 Conference Call hosted by ICICI Securities. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Mr. Karan Bhuwania. Thank you, and over to you.

[Karan Bhuwania, analyst]

Good morning, everyone. It's our pleasure to host Q3 FY '23 Results Conference Call for Bajaj Consumer Care. From the management, we have Mr. Jaideep Nandi, Managing Director; Mr. Dilip Kumar Maloo, Chief Financial Officer; and Mr. Richard Dsouza, AVP Finance. I would like to hand over to Mr. Jaideep for the opening remarks, after which we can operate for the Q&A session. Thank you.

[Jaideep Nandi, executive]

Thank you, Karan, for hosting this call. Good morning, everyone, and best wishes to all of you and your families for a wonderful 2023. I'm delighted to have you all join us for this call. Let me take you through the process of the company for the quarter and 9 months ended December 31, 2022 before we open up the house for questions.We continue to witness unprecedented inflation across a wide basket of commodities impacting disposable income. As a result, consumer spending is adversely. While there has been some easing of commodity prices and supply chain pressures, inflation still remains a significant challenge. The overall ARR market has ponied and declined by 4.4% in terms of volume with similar value decline in Q3 FY '23 over the same period last year. While urban markets have seen a value decline of 2.1%, rural markets witnessed a steep decline of 7.5%. The decline in rural is in line with similar trends in the previous few quarters as consumers pose at lower income levels, feel the pinch of both inflationary pressures and reduced disposable income, leading to down-trading and prioritizing essential for discretionary.The long-term MAT December 22 decline was witnessed across all categories in health, serum in oil, with steeper declines in premium categories as against smart categories, which also underwent some decline. The company reported quarterly sales of INR 225.5 crores translating to flat value growth over the same period last year. For the 9 months ended reported sales were at INR 696.8 crores, delivering a growth of 7.3% in terms of value and 4.2% in terms of volume over the same period last year. Sales of NPDs doubled in Q3 FY '23 and is now contributing to 13% of the overall company sales. This expansion of NPDs is in line with the long-term strategy of the company to build a robust portfolio beyond ADHO.The gross margins of Q3 FY '20 was at 53%, which was lower by 240 basis points over the same period last year, mainly due to steep commodity price inflation. Change in product mix also contributed to the same. Sequentially, gross margins saw improvement of 120 basis points with softening of material costs. For the 9 months ended, gross margins were a 53.1% as against 57.6% for the same period last year. The prices of LLP for the quarter were higher by 32% over the same period last year due to surge in crude prices post the Russia-Ukraine War, depreciation of the INR against USD, and tightening of refining capacities. Sequentially, LLP prices have corrected by 8% on account of overall weakness in demand. On the other hand, RMO prices remained stable in the current quarter over Q2 FY '23.To mitigate the inflationary trend, cost-saving initiatives continue to be driven to bring structural reduction in material costs and overheads. A&P spend for the quarter was at 18.9% of sales, which was higher by 6.4% in absolute value terms over the same pace as last year. For the 9 months ended, A&P spend was at 18.6% of sales translating to an increase of 26% in absolute terms over the same period last year. The significant increase in A&P spend is on account of increased investments on the new products. The EBITDA for the quarter was at INR 34 crores with a margin of 15.1%, whereas the PAT for the quarter was at INR 33.7 crores, with a decline of 15.8% on a year basis. For the 9 months ended, EBITDA was INR 102 crores, a margin of 14.8%, whereas the PAT was at INR 9.8 crores.Retail continues to scale up with a double-digit growth on the back of loyalty programs, which has also helped build the NPD portfolio across urban areas. Retail, as you are aware, has been a focus for us for the last two years as a company. Rural slowdown continues to remain a concern and offset the growth in urban driven by retail activations and wholesale revival. Both the focused businesses of Modern Trade and e-commerce have raised excellent growth once again as both channels continue to scale up well. The performance of non-ADHO portfolio in both these channels have been very encouraging, as is the ADHO performance as well. Modern trade grew by 41% in Q3 FY '23 over the same period last year and now contributes to around 9% of total sales. Modern trade business has scaled up 2x over the last 2 years in the first 9 months of the year. Our strategy of focusing on channel-specific SQ in select key markets as well as the new products have been yielding good results.During the quarter, we acquired a significant market share in top retailer in top retailers. Campaign business also saw a revival in Q3 over last year. E-commerce continued to scale up well, achieving our growth of 84% in Q3 FY '23 over the same period last year and now contributes to 7% of total sales. Contribution of non ADHO portfolio is scaling up sequentially, e-commerce business has scaled up 4x over the last 2 years, for the first 9 months of the year. We recorded highest ever market share on a leading e-commerce platform in a nonevent. Growth in almond drop extensions; that is almond soap, almond - argan and serum in oil has also been very encouraging.The consolidated international business reported a strong growth of 36% in Q3 FY '23 over the same period last year. New channel partners appointed in major countries in Middle East, Africa region have been starting to yield results, helping drive top line growth. Nepal from muted growth due to macroeconomic environment in the country. Rest of the world performed well by new geographies and new portfolio introductions. During the quarter, ADHO registered a mid-single-digit value decline due to weak demand conditions in key HSM, especially the rural markets. Share of AMLA portfolio remained steady in mid-single digits at an all-India level.Steady progress was seen in Bajaj 100% Pure Coconut and consistent sales is now driven by repeat demand and distribution. Bajaj Coco Onion saw good traction in modern trade and e-commerce. Almond Drop Soap is supported with TV Media plus digital and continues to receive positive and encouraging feedback from consumers. Listing of the brand has been done in large more channels -- modern trade chains this quarter. Almond Plus Argan Oil and Serum with oil under the Almond Drop extension portfolio have been live on e-commerce and will drive offtakes in the coming quarters. Our range of digital first brands, Bajaj 100% Pure and Natyv Soul are also being supported with the digital marketing and are scaling on as planned. We will continue to invest strategically in these two brands in the digital space going forward.We continue to provide media support for ADHO across TV, digital as well as print supporting key markets. The company has recently signed up with popular Bollywood actor, Kiara Advani, as its brand ambassador for ADHO. The latest creative with Kiara, "Boring Nahi, Ban Ja Toofani" campaign, aims to connect the brand with young women to further consolidate its market leadership in the segment. As the new phase of the brand, she will feature a series of high energy marketing campaigns and events in the coming months. The social media activity towards the new ADHO campaign registered 1.3 crore views over December, January. Commodity marketing for ADHO on beauty, parenting, and lifestyle reach 63 lakh people in around 200 online communities. The Almond SOP has increased from 8% to 17% in these communities.We continue to make visible progress in our ESG program in line with our 3R philosophy of reduce, recycle, and reuse. We continue to take initiatives for reducing carbon footprint and greenhouse gas emissions. These initiatives have great reduction in consumption of glass bottles by 8% this year over and above 16% reduction achieved last year. Similarly, laminates, we reduced our consumption by 6% on top of 14% reduction last year. The company continues to focus on reduction in use of natura l resources like water, by monitoring the water consumption sources and installation of controls at critical places. This head to reduce water consumption by 34% in 9 months FY '23. Steps taken in process improvements at the plant help in reduction of waste of certain critical categories like laminates were around 25% over the last year.So, while we see raw materials slowly coming off its peak and the gross margin pressure is easing slightly, the company will continue to invest in its existing brands as well as new launches to support its long-term growth aspiration of diversifying its portfolio beyond ADHO. As we expect the market to normalize in the coming months and RM prices to soften, we believe we will be in a much stronger position to reap the benefits of the portfolio expansion, which we are already seeing yielding results. This would lead to derisking ADHO having a consistent and robust top line growth as well as better EBITDA margins going forward. With that, I end the opening remarks and we will open the session for questions. Thank you.

[Operator]

Thank you. We will now begin the question-answer session. [Operator Instructions] We have the first question from the line of Varun Bang from Bryanston Investments.

[Varun Bang, analyst]

I have a couple of questions. So first one is on ADHO segment. So, if I were to take a slightly longer-term view on Edge segment, given how the consumer preference is evolving around hair oil. In a normalized environment, what sort of opportunity do you see in ADHO segment? Does it still have potential to grow 4% to 5% in volume terms over long term? Is it possible? Or can you share your thoughts?

[Jaideep Nandi, executive]

Yes, if you look at currently, the way we are witnessing because of this downtrading -- in urban, if you look at this downtrading, it is not that obvious. In fact, urban markets, even ADHO has been performing pretty well. It is because of the sharp decline that is happening in rural markets and especially the markets, unfortunately, that's the trend we are seeing as far as our company is concerned, that in spite of so many initiatives, especially exactly where it hurts is hurting us most, which is the market of, let's say, UP, MP, Bihar, and Chhattisgarh. I mean that, that base, which has been a consistent for the last 3, 4 months. Even in some data specifically for, let's say, UP is down by 12%. Madhya Pradesh is down by 10%.So that is which is hurting us most. Other than that, if you ask me, in terms of expansion of ADHO is concerned, I mean, there are a lot of pockets in the country where we feel ADHO can still further grow. And those are where we are seeing the growth happening as well for ADHO, whether be it in the Western and the Eastern markets and some parts of South mainly not the entire South. So, we are seeing good green fruits happening as far as ADHO is concerned. And if you look at -- because of the democratized markets through modern trade and e-commerce, there also, we see proliferation of ADHO markets which are beyond our traditional strength HSM Markets. If the HSM Market, which is to wear concern and if you ask me if the markets normalize, if the demand conditions were to come that overall demand where the discretionary basket for the people, I mean, they are able to spend money on disposal income. I personally think that kind of growth is easily global.

[Varun Bang, analyst]

Okay. And on new production, so in the products like Coco Oil, Coco Onion and then we have a range of products in Bajaj 100% Pure and then of Almond Drops category as well. So, given that this market is grounded with lots of image soaps, what is our right to win in this market? And how do you think we stand vis-a-vis the competition? And if you can just share your thoughts. -- over long term, how do you think the need to position ourselves?

[Jaideep Nandi, executive]

Yes. So absolutely right. In fact, when we launched the soap, we are absolutely with 20,000 crore completely saturated market that we are launching our brand in a very saturate market. But as we had made the commentary at that point of time, and we are clearly seeing the results bearing out now. The launch was not only a part of a product launch in a soap category. We wanted to launch in the almond category itself, we wanted to own the entire common category and that is where you see now our products getting coming up. We have the serum, which is tracking well in the e-commerce and modern channel. We have that Almond plus Argan Oil, which is already tracking well.Soap has already started showing good traction. It's still -- obviously, it's a flatter market as we are rightly pointed out, so there will be a slow growth, but with our consistent push in terms of TV ads, et cetera, we are seeing traction coming in. And now there will be 1 or 2 more the products which you will see coming up in the next few quarters as far as the summer. So Almond category, Almond Drop Extension category, something that we want to develop as to 15 products over a period of 2 to 5 years, which we want to push. And I think that category of Almond Drops, which is where we feel that we have some ownership. I mean that we want to proliferate across consumers and wherever we have done consumer districts, et cetera. We see that the fact that it is coming from the house of Bajaj, which is Almond Drops umbrella, that itself is a good right to win. And as far as the product is concerned, this year value as this part of the portfolio is concerned.As far as the hair oil portfolio is concerned or the oil portfolio, if you look at whether it be in Amla, we and one, I think there is enough proven record for us, but we are seeing good traction. I mean today, you see the new products, which used to be one of our key concerns that we do not have a portfolio beyond Almond Drops -- that today that NPD is now sitting comfortably at 13%. Both year quarter number saliency as well as your year saliency 13%. If the hair oils market were normalized, it was not at its minus 4.5% overall market situation then I think we would have in a far better situation.If we look at the commentaries of the various hair oil players, and if you look at us, I think in terms of hero with a growth of about 7% yearly, I think we are doing fairly well as far as hair oil itself. It's just that the market, if there were more balanced, you would have seen the results coming up in terms of our portfolio expansion, and these numbers would have been far stronger.

[Varun Bang, analyst]

Yes. I'd say, is there a recast successes products a how would be the rapid demand for some of the different checked products? Is there a strong full factor that we are seeing? What is the sense that you rating?

[Jaideep Nandi, executive]

So that's one thing. Most of these products are already -- I mean, except the almond serum and oil, these are just being launched. None of them, we are doing too much of a primary sale. I mean, quite a few of them are, let's say, e-commerce focused except so, which is obviously GTFs. So, it is now beyond the level of where only primary sales has happened. If you look at -- and consistently, our focus has been to continue to focus only on secondary sales. If you look at both the quarter as well as the year, our secondary sales for the quarter in general trade, for example, has been 5% more than primary sales because that's been the conscious focus that reduced inventory getting as low as possible, so that the equal focus on actual sale that is happening. So that way, I think most of the sales that you are seeing is actual sale happening right up to that point.

[Varun Bang, analyst]

Assuming that we cut down on our ad spend to too, so would these products continue to see traction is what I wanted to understand.

[Jaideep Nandi, executive]

So different products will see a different kind of, let's say, tracking that is happening. And if you look at today, ADHO gets about 60% of our ad budget and new products at about 40% of our ad budget and about roughly about 25% of spending on digital. Now slowly, the digital component of our component itself is going up and moment increase your digital component of your ad spend. Obviously, your total -- the cost itself will also keep going down. And moment these products start showing traction. Today, it is 13%. I mean we have far higher aggressive plans as far as taking these NPD numbers higher as one -- so as a percentage, obviously, the ad spends will keep falling. So today, we are at 18%, 20%, we intend to keep it like that somewhere until maybe next year and then stay start bringing it down to the levels of that 16% or so, which is what we want to stabilize that.

[Varun Bang, analyst]

Thank you.

[Operator]

We have the next question from the line of Percy Panthaki from IIFL.

[Percy Panthaki, analyst]

Sir, I just wanted to make sure I heard that correctly. You just mentioned that you have grown 7% in the hair oil segment. Is that right?

[Jaideep Nandi, executive]

That is correct. On a 9-month basis.

[Percy Panthaki, analyst]

Ah, on a 9-month basis, okay? And how much for this quarter?

[Jaideep Nandi, executive]

The quarter is actually flat. So, quarter sales, your value sales overall also are flat.

[Percy Panthaki, analyst]

Understood. Secondly, I just wanted to understand what is the percentage contribution of ADHO to the total company now?

[Jaideep Nandi, executive]

So ADHO see total, we have now 85% contribution coming out of ADHO, 2% is coming out of the traditional brands, and 13% is coming out of the new product.

[Percy Panthaki, analyst]

So when you say new products, you are including these Onion Oil, Natyv Soul, and Bajaj Pure, everything put together, is it?

[Jaideep Nandi, executive]

Yes, absolutely. What I see the definition of new products is everything that has been launched in the last 3 years. Anything that has been launched in the last 3 years, and we'll keep dropping anything that goes outside the 3 years.

[Percy Panthaki, analyst]

Understood. And this 13%, even if you're not giving exact numbers, but any kind of flavor you can give how it is distributed, this 13% among the various initiatives?

[Jaideep Nandi, executive]

So, if you look at in General Trade, the launches have been only a few products. It has been basically the Almond range, the Coco range and the soap. So general trade, the distribution is of that and as far as e-commerce is concerned, it is all of it as well as, let's say, the extensions of Serum and Almond oil as well as the digital first bank. If you look at the e-commerce and even the model did quite a bit of it, it is very, very democratized. It's all of these are tracking well. If you look at our partners like Amazon and even Flipkart, all of these brands are tracking delivery well. As far as general trade is concerned, obviously, the product range is restricted. It is, as I said, the Almond range, the Coco range and the soap and it is distributed between these three in India.

[Percy Panthaki, analyst]

Just looking for like at least the sequence in terms of size, I mean, which is the largest amongst Bajaj Pure, Natyv Soul, the Coco range, the Onion range. Out of these 4 or 5, if you can just arrange them in descending order of size or something like that, it would help.

[Jaideep Nandi, executive]

See, because you're -- because of your share generate presence, both your Almond range as well as the Coco range, that is the entire performance portfolio as well as the Almond portfolio but in terms of size is much bigger. And beyond that, if you look at all of them are tracking a similar trajectory. Soaps are a little bit higher and I think that gave so the sense cetera, is just coming, but showing good traction. In fact, the Almond extensions are showing pretty good traction, and we are very balanced about. Both the serum as well as well as oil in serum as well as the Almond Argan Oil has been showing good traction, and we are trying to launch a few more in this Almond Extension category because we are seeing that tracking really, really well.

[Percy Panthaki, analyst]

So, over a 3-year period, I think the ADHO salience has gone down from some 92%, 93% to maybe 84%, 85%. So if I look at only ADHO, over a 3-year period, is that product flat in terms of revenue? Or has there been a revenue decline? And if so, by how much?

[Jaideep Nandi, executive]

So, this year, you would have a little bit of a revenue decline. But overall, if you look at a 3-year period, it has a little less than a mid-single-digit growth. Close to about a 3% growth over 3 years ago.

[Percy Panthaki, analyst]

Value-wise, right?

[Jaideep Nandi, executive]

Yes, value-wise, -- in fact, volume-wise, it is more or less flat.

[Percy Panthaki, analyst]

Understood. Next question is on margins. If we look out the 2, 3 quarters from now, what kind of margins do you think at the company level we can clock -- are we sort of set to go back to a high teens EBITDA margin in 2 to 4 quarters? Or will it take longer than that?

[Jaideep Nandi, executive]

See, if you look at our entire cost basket, the two costs, which are basically impacting our EBITDA margins are basically the cost margin as well as some marketing costs. Marketing costs, I already told you, given that we are investing MS, we are seeing traction, that 18% to 20% is roughly going to remain for the next 4 quarters or so. And then we'll -- I think as the business scales up, we'll see a natural reduction of these marketing costs coming down to about 16%. That's as far as the A&P spends a concern.If we look at the gross margin dilution that has happened, just to give you a sense of where you are seeing, it's roughly, let's say, a 5.5% gross margin dilution that we see. About 4.5% is coming straight out of -- I mean you do your math. It's about 4.2%, 4.3% is coming out of just RM prices which is basically impacting our gross margin. And the balance of about just a little more than 1% is due to the product mix because what we have also decided is we will go ahead with products other than maybe only one product in the hair oils, which is the Almond range other than that we'll go ahead with products which have decent gross margins and EBITDA margins for us to be matured. That's the direction we have taken for us. So, all the products that you saw, that we mentioned have decent gross margins. And going forward also, I mean, that's the basic benchmark we have put for ourselves that only products which have high addition gross margins or high gross margins are the ones we'll launch.So, with that, this is how the breakup stands. So as the raw material prices stabilize, you will see this one state away flowing back into us. That margin dilution of about 1.2% also that happened due to the product mix, that obviously will not flow back and that we are comfortable with that.

[Percy Panthaki, analyst]

So given where the spot prices are not consumption, but the spot prices where they are today, if they were to maintain for the next several quarters at that level, then do you think there will be any improvement in gross margin because you are using input costs which are priced higher than spot or that's not the case.

[Jaideep Nandi, executive]

So we have had a 200-basis point improvement on the client spot prices. You already see an improvement also on our gross margins happening itself, right? It will be more a function of how we see the LLP prices moving in the next 2, 3 quarters. We see that the prices have already stabilized or rather normalized quite a bit the thing and with the weakness of demand, we feel that LLP prices can further go down a bit. But the...

[Percy Panthaki, analyst]

What I meant was, are today's spot prices higher or lower than the Q3 consumption price?

[Jaideep Nandi, executive]

Our spot price is lower than Q3, some action price.

[Percy Panthaki, analyst]

Okay. So Q4 should naturally see some more gross margin benefit over Q3.

[Jaideep Nandi, executive]

Let's see, this is just the middle of the first or second month. So, we see how this is an up. But if this trend remains, yes.

[Percy Panthaki, analyst]

Sure. Okay. That's all for me.

[Operator]

We have the next question from the line of Karan from Gloritel Capital Management.

[Gaurav Gandhi, analyst]

Sir, our advertising and promotion spend. I want just the breakup of how much is for the incentives and how much is for advertising?

[Jaideep Nandi, executive]

This is all advertising. The incentive is not part of accounting, right?

[Gaurav Gandhi, analyst]

That is pretty much higher, so that's why I was asking.

[Jaideep Nandi, executive]

Now we have always state, and 60%, as I said, 60% of the cost goes into ADHO, 40% go...

[Gaurav Gandhi, analyst]

All right. And sir, with our new product, that Serum with Oil, how much are you confident with this product? And how will it perform? Because Serum is the category which is attracting younger India is attracted towards that. So how much are you confident about that product?

[Jaideep Nandi, executive]

So, we have launched this product in both this as well as the almond with Argan Oil, which is about 50% premium over the ADHO itself. Both these products have gone into modern trade, more in e-commerce first and now into modern trade. And we are seeing good traction happening as far as Serum is concerned. In fact, as a product, all the products that we have launched in terms of consumer, we are getting good traction and good feedback, including our ratings soap itself. So as far as the almond expansion is concerned, we are slowly seeing that niche is getting carved out as far as our portfolio of almond drops products are concerned. And as we see more products getting launched and you will see more product coming up.

[Gaurav Gandhi, analyst]

My question was regarding the -- is it a regular serum or serum with oil, I mean how -- what is the product exactly? Serum with oil, will it be something different from the regular serums, which are present in the market?

[Jaideep Nandi, executive]

So this is a very similar product. It is serum with oil, which basically adds to the nourishment. I mean not only does it reduce phase control, it adds oil also as well as.

[Gaurav Gandhi, analyst]

All right. And the next question...

[Jaideep Nandi, executive]

Oil... As one of our existing. So, this just accentuates the oil part of the product. I mean Serum is for phase control. This always adds into the nourishment.

[Gaurav Gandhi, analyst]

Right, sir. And the next question is on the Nomarks brand. Do we produce that or have we served producing the Nomarks brand -- because what my observation on ground says that the Almonds, which we have launched, has a similar appeal to many other soaps for the people at large entities saturated, but Nomarks soaps are something different. And people -- we might be differentiated -- we might create a differentiation with that product in the soap category. So, what are your thoughts about that?

[Jaideep Nandi, executive]

Actually, I would like to politely disagree with that. The Nomarks stop actually did not bring in any specific attribute itself because Nomarks the name itself means that you will leave no mark and it was more like a new car kind of a brand. It was not. Really, it was a very different portfolio, which was through the OTC channel that we are servicing and mainly in the Bihar, UP markets, et cetera. So the Nomarks a brand remains, but the soap itself, I would like to think that the ADHO soap ha a far higher product proposition than Nomarks. So Nomarks soap itself will not get pushed, it is for 3 years. All right.

[Gaurav Gandhi, analyst]

And the last question is, do we have any plans to get into some of the products where the growth is higher and include those products in our basket because our existing portfolio is almost saturated and Bajaj has a very fine goodwill in the markets to be painted easily. So how should we look at that? And also, how should we look at the company, a slightly longer term, say, 5 to 7 years of time frame? Can you throw some light on that?

[Jaideep Nandi, executive]

Yes. So, as you said, as we embarked on the journey earlier maybe a few years back, the objective was to verify ADHO and create a portfolio where Bajaj has a right to win. So, we had identified 2 years where we saw -- I mean, with our consultants, et cetera, that we work and with consumer studies. The two areas are where Bajaj can work, which is a hair oil space itself, which is what we have fulfilled up with quite a few product offerings. And now we cover about 85% of the overall hair oil market in terms of product offering. And on the other side, using the Almond Drop extension in skin and oil category, skin and hair category, which is what we have been -- we have taken up for the next 3 to 5 years to take on. This is what we have been pushing.We also feel that there is some more scope of the Bajaj brand name, which is an Indian brand name, which can be -- which is a very traditional trust Indian tend more categories as well as the personnel -- this is under consideration. Again, the criteria will be where we see growth potential and where we see a gross market together, only products where we feel that can be exploited with a right to win is where we would like to mention.

[Gaurav Gandhi, analyst]

Thanks a lot. Thank you very much.

[Operator]

We have the next question from Shirish Pardeshi from Centrum Broking.

[Shirish Pardeshi, analyst]

Just 2, 3 observations. When we go back a year before and we started saying that we have launched coconut and we are trying to look at the penetration, and then we launched the Amla segment. And if you look at the observation in the last 3 years, knowing Amla has grown very fast and there was a down trading which is happening. But right now, when I connect the dot with Nielsen, the rural is still declining 7.4% in volume terms, what you have stated in the presentation. Can you give some benefit what exactly we are trying to make? Because if Almond Drops premium and we have launched Amla, but the growth rates are still falling. And as a company, would you guide what is we can expect in the next 1 year?

[Jaideep Nandi, executive]

As I said, if you look at Shirish in terms of errors, I think we have -- overall, if you do a comparative analysis, I think we have performed well, either if you look at the quarter number in isolation only for the errors or you look at the 9-month period, I think across all companies put together, I think we have taken pretty decently. Having said that, specifically, Amla, we have taken a strategy call saying that given the kind of blood part that is happening in the Amla market today, I mean, as the market stands today, we wanted to stay out of some of the lower-priced products as well as the Amla concerned, which is more than INR 10 tax specifically because we thought with the current structure of LLP and RMO and all the other raw materials, you really can't make too much of margins with the kind of pricing that is happening in the market.So, we actually took a conscious call in Q3 this year, I mean, end of Q2 and Q3 this year, where 10 and 20 pack of Amla that we be focused on because there was no money to be made. You would have got top line growth, but margins should have for a further. So, this is what we have taken up. I mean, Amla still the larger packs have been doing well tracking well. We'll continue to support that. And as we see RMO, LLP, they were to stabilize, et cetera, I mean this is a segment even though is something that we'll definitely put back into. So, this is where as far as the hair oil market is concerned.

[Shirish Pardeshi, analyst]

That's helpful. My second question on HSM market. Last 4 quarters, we have been talking about HSM market, there are pain points. We started saying that we are expanding the WAN distribution. And then in between, we try to escalate the efforts on the wholesale pack. Where are these initiatives? Are these initiatives really yielding any efforts? Because quarter-on-quarter, so we are seeing that HSM is becoming a pain point for us.

[Jaideep Nandi, executive]

Yes. So, if you look at even HSM market, it will -- it's again a very consistent commentary, unfortunately, that the entire HSM as a block is not what is doing badly, neither for the country nor for us. It's a modern part of the HSM market. That build is still good even for us as far as news and data is concerned. Yes, there are some blips here and there market-wise. But otherwise, overall, is it in well. It's this market of which I called out, which is UP, MP, Bihar, and Chhattisgarh, which is where the problem has been for the last year. Unfortunately, are selling high end. So, this is what we are grappling with currently but we are seeing some green fruits coming up, and hopefully, this should slowly start normalizing as the year goes by.

[Shirish Pardeshi, analyst]

Okay. My last question on the gross margin or EBITDA margin. A year before exactly, you guided that we will take a hit on the EBITDA margin, but we will spend money on the advertising. So maybe if I look at the next 4 quarters -- I mean, not the guidance per se, but if you can provide the direction where we are heading for the gross margin, given the context that the RMO prices are softening and the input material is also softening. So maybe your qualitative comments on that.

[Jaideep Nandi, executive]

No, I give you this thing on gross margin. How it has got diluted and what is the recovery back. So, of the 5.5% gross margin dilution that we saw about 4.3-odd percent was coming out of the raw materials -- along the raw material itself. That is after the price increases that we have taken and about 1.2% because of the product mix change that has happened. That 1.2% is a deliberate conscious call, and we are comfortable with that. The 4.2% is a function of how the market price has stabilized. We have seen already a gross margin improvement that has happened over Q2 because of the raw material softening. And we are expecting that in Q4 and Q1, it might further stabilize. We expect the iron ore prices to come down a bit with a good crop and LLP to see. I mean this is a function of it. But if these prices were to go down, you'll see a direct contribution happening itself by the time comes.

[Shirish Pardeshi, analyst]

Okay. Thank you, and all the best to you.

[Operator]

We have the next question from the line of Mohit Mehra from Guardian Capital.

[Mohit Mehra, analyst]

I wanted to ask you about the demand recovery, especially in rural area. Now that commodity price inflation has started coming up. How do you see that? And secondly, how have done volumes then so far?

[Jaideep Nandi, executive]

So, answer the easy question of the second part is that I can't give you guidance on January. So, we'll have to leave January out of this discussion. The second part is rural demand. Unfortunately, we have been hearing commentaries earlier in -- after the Q2 earnings call, that rural is expected in Q3, Q4 to be better. I think in Q3 after Q3, we hear the earnings call to be far more muted and I don't think there is a very clear directional improvement in terms of rural demand. I don't think there is a very, very clear near sight of that the real demand is going to be very, very much better than what it has been in Q2, Q3. So Q4, I don't think there will be a huge improvement in. Having said that, we clearly see urban doing pretty decently well and some of the markets, which I called out earlier, have been still okay. It's the more the poorer markets, which is where the low-income market is where the problem in real remains, and I don't think that is going to get sorted out in Q4 itself.

[Operator]

We have the next question on the line of Kaustubh Pawaskar from Sharekhan.

[Kaustubh Pawaskar, analyst]

My question is on the new product launches. So currently NPD contribution is around 13%. At what level of contribution we expect it to contribute materially to our profitability so that there would be kind of a basis for you over the period of time. So, for example, if you say 20%, 25%, it should start contributing material at your profitability?

[Jaideep Nandi, executive]

So, if we look at on a net contribution basis, quite a few of the products are profitable, except the ones which are getting very, very high media investments, disproportionate to the sales that is happening only those are a bit negative at the current stage, but some of the products already EBITDA positive. And that's why we talked about rationalizing of some of the costs that some of the products that we are selling in terms of SK that we wanted to sell, et cetera. So, keeping it EBITDA positive is one of the things that we wanted to do as a structural thing, even when we started the business. I mean this gross margin reduction that we see is what is hurting us. Otherwise, in terms of basic fundamentals for business in terms of how we want to take each of these products, except 1 or 2 all of them are keeping them be net positive in terms of margins. And by net positive, I mean that all the marginal costs for the product is taken in, not only just the gross margin.

[Kaustubh Pawaskar, analyst]

Yes. So, can you explain us which are these products? Which are currently profitably of the new launches?

[Jaideep Nandi, executive]

Except for the ones where there are high media investments happening, except the those, most of them are positive.

[Kaustubh Pawaskar, analyst]

Okay. And in last one was, have you lost any market share in Almond drops?

[Jaideep Nandi, executive]

Almond drops in the market share remains more or less steady. I mean, it is in the over between the 63% to 65%. So that's about it because the LHO market itself has also declined substantially. If you look at the new market itself has declined by about 8.6%.

[Kaustubh Pawaskar, analyst]

And sir, the new product launches, which you did into general -- so are some of these launches are done in media -- or you're comfortable launching in a bigger part and attraction good for whatever launches you're sending on general?

[Jaideep Nandi, executive]

You really can't launch in different pieces in terms of not long entire range just so as the product is concerned. So, the launches happen across all ranges, but the support may not remain across the LLPs at this stage. So, the low unit PAT, which is typically the INR 10, INR 20 pack is not something that is supported by the company because of the gross margin profile that's currently -- not to say that they will not happen in the future, but at this stage, that are not even support.

[Kaustubh Pawaskar, analyst]

Thank you.

[Operator]

We have the next question in line of Sanket Malpani from Precision Capital.

[Sanket Malpani, analyst]

So my question has been first on the buyback side. So, what was our intention with the buyback and how do you see that happening? And second is on the cash on the balance sheet, the current investment is close to INR 500 crores. Is there a plan to invest it further in other ventures.

[Jaideep Nandi, executive]

So coming back to your buyback, you show your cash. So, the buyback is basically a way of rewarding your regular share growth. So, we wanted to go into some steps of rewarding back our long-term shareholders, and that's the way we have got into our back at. We have finished off our mandatory 60% of our buyback, which is the minimum that you need to do before you can decide to follow up on math. So, we have finished that, and we have about 3 months still pending as far as the closure window of the bulk gap is concerned. And the buyback is still continuing as we speak.As far as the cash utilization is concerned, again, that's again a way we'll have to see how we can both look at the interest of the business as well as the interest of the shareholders. So, we have the dividend policy, which has been there, and we'll see how that will pan out as well as we are looking at investments. I mean we had called out even earlier. We'll keep excluding we have not done any M&A still now, but we're actively looking at in terms of profiles where we want to invest in. And we are also looking at some of the markets outside India where we wanted it as well as some investments going in there. So, this is how the cash flow can get deployed. We are not a very debt-friendly company, so we are not looking at leveraging ourselves too much at this stage. But if the situation arises, whether be it in terms of a large M&A opportunity, et cetera, will not.

[Sanket Malpani, analyst]

All right. Thank you very much.

[Operator]

We have the next question from the line of V.P. Rajesh from Banyan Capital Advisors.

[V.P. Rajesh, analyst]

My first question is on the NPT side. What percentage of revenue do you think will be coming from these products, let's say, in the next 3 years? Like right now, it is 13%, where do you see that percentage going up to?

[Jaideep Nandi, executive]

So, our long-term aim is aimed for the next 3 to 5 years with NPT. Just organ Italy, we think that the NPT can go anywhere between 30% to 50%. I mean would be on the higher side, but 30s clearly global. I mean, is very, very clearly visible with the current portfolio that we have and maybe taking it to about 40% is what I would say within the next 3 to 4 years is what we would be looking at. But that is just an aspiration at this stage. It will also be a function of some of the launches and how they track that we have for the bank tends quarters.

[V.P. Rajesh, analyst]

And then ADHO at that point, is it fair to assume it will become less than 50% because some of your new products that have been launched in the last 1 year will no longer be start of NPT in the next.

[Jaideep Nandi, executive]

Let's say then let me rephrase that. I -- so yes, technically, you are right. So, I will rephrase myself. I'm including the products that we have launched back taking us to that number.

[V.P. Rajesh, analyst]

Understood. Okay. So, what you're saying is like whatever you have launched in the last few years, plus whatever you will launch in the next 3, 4 years, which. contributed to 30% --

[Jaideep Nandi, executive]

-- After the COVID period, if you were to look at those products, that should contribute to 50%, maybe 40% is more what we are aspiring for, and ADHO should pick up in the balance sheet. That's what we are looking at. Your current ATH side should be looking at 60. And obviously, the investments will continue on ATH.

[V.P. Rajesh, analyst]

Right. And if you do something inorganic, then obviously, the situation will change.

[Jaideep Nandi, executive]

Then that's a different.

[V.P. Rajesh, analyst]

Yes. And my second question is a couple of times you mentioned certain states which are helping us more. So, I'm just curious what is your observation? Is it a temporary situation? Or there is something specific going on with our products? Or is everyone hurting? If you can just give more commentary around those markets, especially which are very core that will be helpful.

[Jaideep Nandi, executive]

So, we have taken up -- say, we were looking at all the links and data across other categories, whether it be to pools, et cetera, all the other categories. If you look at even categories like soaps, which is the largest category there. I mean other have been value growth because of the amount of price increase people have been able to take. We look at the volumes, in fact, focus a worst situation as far as UP is concerned. Overall, it has a minus deal kind of a growth rate and that -- so across all other discretionary categories, wherever disposal incomes have gone down. So, all the products that come under that category, we have seen there has been a sideline. So, it is not specific to hair oil. The oil usage has not really gone anywhere. Hair-oil usage has -- in fact, in the urban markets, there have been string changes that we observe and we have been able to ride and take some benefit out of that, which is we seeing our growth with modern trade and e-commerce. But in terms of the rural markets or, let's say, the core markets of EPB, we don't see too much of change that it's more of the money in hand of the consumer today, free money in the hands of the cone or top money. And once that comes back, we feel that we have enough where results to be able to get that we don't have any specific issues either in distribution or in terms of our retailing or in terms of the product offering, et cetera, will help us.

[V.P. Rajesh, analyst]

So if I may ask a follow-up on this. Are you saying that you are continuing with your market share and there is no competitive intensity that has gone up in those states. It is just that the consumer doesn't have the money to buy a premium product? Is that really what you're saying?

[Jaideep Nandi, executive]

No. So competitive intensity is up, but the competitive intensity is not a like-to-like product. There has been down trading. There is no question on that, both in terms of the trading and down purchasing, that is what has have gone up as well as the lower quality -- lower price products have gone up. So, we have seen a surge in the Amla products that have gone up. The lower end of the Amla products, which have gone up to INR 100 tax, which are gone now which clearly are not margin making products there. I mean they do yield volumes, but they obviously will grow your gross margins quite as today. So, we are decided not to play very strong in—

[V.P. Rajesh, analyst]

Thank you so much.

[Operator]

We have the next regional line of the B from Honesty and Integrity.

[Vaibhav Badjatya, analyst]

So on ADHO, for the overall almond-based hair oil market. What can actually drive the increase in the overall market almond-based air oil market as compared to the overall hair market is what I'm trying to understand. But we have been saying that this market is a little stagnant or declining as compared to the other hair oil market. So, is it price-based action? Is it more marketing? What can actually turn our cash cow around in terms of growth, is what I'm trying to understand.

[Jaideep Nandi, executive]

So, there are two aspects of the question as I see it. One is growing the light hair oil market itself is concerned, other is growing ADH, which I think is a little too different thing. As far as ADH is concerned, I think we are in two steps. One is, obviously, we need to get back ARPU. I mean the core itself is now in a little bit of a difficult time, but that is not too much of internal issues that I see is more external, and we hope that when the external issues come back, we will be in a position to take them to that.The other two core areas where we think it is a growth part of our growth strategy, which we could take. One was basically looking at the unexploited markets of ADHO, especially in the Western and the Eastern markets. Those are where I think we are seeing some good traction even today coming up. Not maybe the way we would have wanted to, given the, again, the demand scenario, but I think that is really tracking much better than our HSM markets. South is not somewhere we are still very strongly present and that I would have to admit, it's still an area of -- that we need to track. And I hope when the demand conditions come back is something that we'll focus on.The other area is looking at the modern-age, the young customer of today who is more in the urban and the semi-urban towns. I think there, we have done a pretty decent job through our digital markets we're getting connected with the young generation consumers. And you can see the results coming out in terms of both e-commerce and modern trade. The B2B part of modern trade and e-commerce. They are doing a fantastic very well. We have also been very, very conscious that we don't want to push the B2B part of it. So, the B2C part of both modern trade farmers have been doing very, very well. And there is a lot of new gen customers who are here talking about it. And that's a very conscious strategy that low money has been shifted to digital media for ADH is concerned and those are. And I think when the market stabilizes and demand conditions were to come back, and I don't think there is an inherent problem in the Indian economy as such that demand should not come back. I think we'll be in a good position to take advantage of these to growth legs that we have been pushing as well as coming back of the core, which is the market that I talked about.

[Vaibhav Badjatya, analyst]

And so do you want to touch our pricing premium as compared to other hair oils or you don't want to target?

[Jaideep Nandi, executive]

At this moment, I don't think the I think premium is making too much of an issue to and looking at strategically. But other than that, I don't think the pricing premium is hurting us. So, we would not -- while yes, you're absolutely right. If you look at a 5-year period, our brand has taken a little higher premium than what it was compared to the top 2 brands in the hair oil market. That is what we also see it. But I don't think that is resulting in any loss of business or sooner. One or two packs maybe we might want to do something, but we would also want the prices of raw materials to stabilize before we take on action on that.

[Vaibhav Badjatya, analyst]

Thank you.

[Operator]

We have the next question from the line of Ahbijeet Kundu from Antique Stockbroking.

[Abhijeet Kundu, analyst]

So I just wanted to know, can you give some flavor on rural demand and urban demand the art maintain regarding rural demand revival and the urban consumption growth, some moderation in the urban severing growth because of already high base. So can you give some flavor for the coming quarters on that?

[Jaideep Nandi, executive]

So again, if you look at -- while what you are saying is correct on an overall basis. For us, most of our urban was based on what we used to do in wholesale and retail was competitively not as strong as if you were to compare with other competitors. So, retail has been a focus for the last two years as sort of the organization is concerned. We have been seeing good growth happening in retail throughout in spite of this kind of backfill that is happening in the marketplace, we have had a good, strong double-digit growth. In fact, it is higher than mid-single digits. It's actually in the range of 20% plus as far as the reasonable growth is concerned, I mean, on a 9-month basis and about 15% as far as the quarter is concerned.So retail is something that has been doing very, very well as far as fourth quarter is concerned. In fact, if you look at even wholesale today is positive. We did a wholesale revival last year. Last year, we did do our campuses. We did a wholesale revival, A lot of work happened as far as the wholesale was concerned. So, wholesale provide-- Wholesale is also positive. It's obviously not as strong as we can, but positive. So as far as urban is concerned, we are pretty strong, and we feel that for the next few quarters also, urban will continue to do well as far as PCs company. It's usual, if you were to sort out and if the total market stayed right—

[Abhijeet Kundu, analyst]

Thank you.

[Operator]

That was the last question. I would now like to hand it over to the management for closing comments.

[Jaideep Nandi, executive]

So thank you, everybody, for joining in this call. I think we witnessed a very interesting quarter as well as we are concerned. In fact, all the legs that we have been wanting to push in the last two quarters is now slowly starting to bear fruit. The new products have been good, giving us good traction in the modern trade e-commerce also has been doing well. Even in general trade, it has been a mixed bag. While the overall numbers in general is not very healthy. But overall, in quite a few of the markets that we wanted to push in terms of the western market, some of the Eastern markets and the up-north market, they have been also doing pretty well. It's one block of market in general, which has actually been pulling this company down -- and I am very, very hopeful that once this were to sort out. And as we see the raw material prices softening a bit going forward, if this market will be sorted out, I think we will be more or less back on track with the commentary that we have been talking about in the last 2, 3 years of where we want to take the company both in terms of growth as well as in terms of EBITDA profile. So, thank you for all joining us and wish you all the best. Thank you.

[Operator]

Thank you. On behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.