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Bajaj Consumer Care Ltd
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Ladies and gentlemen, good day, and welcome to Bajaj Consumer Q4 FY '22 Earnings Conference Call hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Karan Bhuwania from ICICI Securities. Thank you, and over to you, sir.
Hi. Good morning, everyone. It is our pleasure at ICICI Securities to host Q4 FY '22 Results Conference Call of Bajaj Consumer Care Limited. 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 now hand over the call to Mr. Jaideep Nandi for his opening remarks. Post which we can have the Q&A session. Thank you.
Thank you, Karan, for hosting this call, and good morning from India. Along with me, Mr. Maloo and Richard, we have some of our senior colleagues from the management committee with me.
Let me take you through the performance of the company for Q4 and FY '22 before we open the house for questions. The unprecedented inflation in the economy due to steep rise in material prices continue to impact disposable income as well as consumer spending adversely. While we are slowly seeing some recovery in demand, the last quarter of FY '22 remains subdued.
The hair oil industry was not spared with the overall hair oil market declining by 6.5% against the same period last year. The Hindi-speaking markets where we have a larger presence continued to decline faster, while the markets of Maharashtra, West Bengal and South, which fared relatively better also experienced a slowdown in Q4.
The company reported a sales turnover of INR 216.1 crores for the quarter, which was lower by 10.7% on a high base of 43% growth last year. The CAGR for 2 years for the quarter was positive 13.2%. The volume decline for the quarter was 9.8%. On a sequential quarter basis, the sales were lower by 4% over Q3 of FY '22. For the full year FY '22, the sales was at INR 865.5 crores, a decline of 3.6%, while the volume decline was a little lower, 1%. The hair oil sales value was lower by 0.8% on a full year basis while we had a volume growth of 1.3% in overall hair oil for the full year.
With high dependency on LLP and RMO, both of which are witnessing unprecedented inflation. The company's gross margin continued to be adversely impacted in spite of price increases totaling to 7% taken during the last 5 quarters in ADHO. LLP and RMO prices for the quarter were 27% and 41% higher, respectively, over the corresponding quarter of the previous year.
The gross margin for Q4 FY '22 was 56.2% as against 60.6% in Q4 of '21. Against the previous quarter, Q3 FY '22, where the gross margins was 50.4%, we had a 80 basis point improvement in gross margins. LLP and packing materials have been volatile in inflationary due to surging group prices on account of Ukrainian crisis. This uncertainty is expected to remain until the Ukraine crisis has resolved. For RMO, while the crop in India has been extremely good, the prices have not corrected due to global factors: the ban in export of palm oil by Indonesia, the impact on sunflower oil from Ukraine to Russia, and the lower crop of soya in Latin have impacted the overall edible oil complex.
We will continue to keep a close watch on commodity prices in the coming quarters as well as the competitive landscape, and we will take price corrections as and when necessary.
The company...
[Technical Difficulty]
Ladies and gentlemen, it looks like the management line has just disconnected. We request you to hold line while we call them back. Please do not disconnect.
Ladies and gentlemen, thank you for your patience. We have the line for management reconnected. Thank you.
Sorry, the line has dropped. So I'll just pick up from the pricing of the raw material prices.
LLP and packing materials have been volatile and inflationary due to surge in crude prices account of Ukrainian crisis. This uncertainty is expected to remain till the crisis is over. For RMO, while crop prices in India have been good, the prices have not corrected due to global factors. The brand in export of palm oil by Indonesia impact on sunflower from Ukraine and lower crop of soya in Latin America have impacted the overall edible oil complex.
So we'll continue to watch commodity prices in the coming quarters as well as monitor the competitive landscape, and we'll take pricing corrections as and when necessary. The company continued and will continue to invest in its brands, including new launches for long-term growth. A&P spend for the quarter was 19%, which is 1.2% higher over the sequential quarter. The EBITDA for the quarter was INR 38.6 crores with a margin of 17.9%. PAT for the company was INR 38.4 crores against INR 53.9 crores for the corresponding quarter last year. The EBITDA for the quarter was down by 7% over the previous quarter of Q3 '22.
As we have been witnessing for the past few quarters, consumer downtrading continued for the quarter, especially in premium hair oil. There has been a decline in hair oils across categories, including coconut and Amla in Q4 '22, while the premium categories have witnessed a sharper decline.
With slowdown in rural markets as witnessed in Q4 as well as the key wholesale markets in the northeast and central parts of the country continued to see reduced business volume. Our company had a double-digit decline in wholesale, a single-digit decline in rural, while retail continued to grow in the quarter as well. The company took a onetime intervention to rationalize wholesale price uniformity across states in January, which affected January sales but had its desired impact. February, March and April have all had sequential growth sales.
With improved pricing, there is a renewed focus on wholesale to regain distribution back to pre-COVID levels. Expansion of the wholesale loyalty program and its extension to rural markets is also being taken up.
Retail, which has been the focus area of the company where various initiatives are underway, grew by 3% for the quarter. While on a full year basis, it grew by 10%. Retail is being further strengthened across top towns with a new retail activation program being rolled out to increase focus in the top of B2C.
Both modern trade and e-commerce continue to scale up as per plan. While the January event was not as high as expected due to muted footfalls, February and March saw a very good revival in sales across chains, leading to 13% growth for quarter 4 in modern trade D2C. Bajaj coconut oil got listed in all major chains like Dmart, Reliance, Star Bazar and many other local independent chains. Our general trade with larger packs or various products have worked well across these retail channels. Our in-store execution is being strengthened along with improved store visibility.
E-commerce continued to scale up well with growth of 50% in the quarter and around 80% growth on a full year basis. Strategic exclusive SKUs and digital pulse brands for the channel continue to drive growth. Digital brands, Natyv Soul and Bajaj 100% Pure have started well.
In rural various efficiency initiatives through technology interventions has helped us optimize run operations as we look to improve brand throughputs. With portfolio expansion in progress, the focus has been to seek some of these newer brands in the rural markets as well.
ADHO continued to be supported across TV, social media platforms and media and print media supporting key markets with increased investments in advertising during the quarter. The new youthful thematic company dialing up the element of style has started getting positive reviews across younger consumers. The campaign has been integrated for both traditional and digital media. The new commercial on TV is performing better across both memorability and messaging parameters. Digital marketing for ADHO is being continuously dialed up, and we are now actively using new age influencers to reach out to younger consumers.
Expansion of the hair oil portfolio continued with further launches in Q4. During the quarter, the company launched its product in the category of value-added coconut hair oil with its brand Bajaj Coco Onion across the country. This product is the first of its kind to be launched in general trade as well as cross modern trade and e-commerce with 5 SKUs being launched from INR 20 for 45 ml INR 52 for 90 ml and right up to INR 195 for 350 ml for modern trade.
Onion is amongst the newest ingredient performed by consumers, especially younger consumers and it's a time-tested and trusted ingredient, which stimulates growth. Bajaj Coco Onion Hair Oil campaign featuring Ileana D'Cruz started from 15th April 2022. The campaign has TV, digital and in-store visibility campaigns.
Both Bajaj Pure Coconut Oil and Bajaj Coco Onion Hair Oil have been rolled out across the country in February and March 22, respectively. Bajaj Pure Coconut Oil has started showing good traction across all channels including GT.
The Amla portfolio for the company grew by 14% in the quarter and 32% in the year, with the share of Amla Aloe Vera touching 3% in quarter 4. Distribution scale up and other in-shop initiatives planned in Q1 will continue in the category to carry on Amla growth.
With the broad basing of the hair oil portfolio, which now includes the 2 Amla brands, both Amla Aloe Vera and Sarso, the launch of Pure Coconut and value-added coconut, the total addressed market for the company in hair oils have more than doubled from 35% at the start of FY '22 to more than 83% of the market -- addressable market by the beginning of FY '23.
The launch of premium range of Almond Drop extensions in hair and skin care has been initiated with the launch of Bajaj Almond Drops, Almond plus Argan Oil in March with the product being priced 100% premium to Almond Drops. Further new products are being rolled out under the Almond Drops umbrella with 2 launches, 1 each in Skin Care and Hair Care we planned in Q1 FY '23 with further launches stated during the course of the year.
Our digital-first premium brand in Hair and Skin Care Natyv Soul for 5 additional products launched in the quarter, increasing its portfolio. The other digital brand Bajaj 100% Pure saw the launch of Kalonji along with Castor, Jojoba and Olive Oil, which were launched last quarter. Both the brands have seen good consumer reviews and the initial offtakes are encouraging. Launch of new products in both these digital brands will continue in FY '23 as well as being an integral part of the e-commerce strategy as we scale up for the activation and supporting e-commerce space.
Digital marketing in March on Natyv Soul saw social media posts reach 1 crore while Google search display had a 16 crore impression. Influencer posts touched 1,500 posts in Q4 due to long format campaign started from March and had 4.7 million views. Bajaj 100% Pure Oil also saw a good traction with a clip to conversion rate of 9.63%. In the International business, Bajaj Bangladesh grew by 36% in the quarter and 55% in the full year, over last year. The economic situation in Nepal, unfortunately, has worsened in Q4 with nonessential imports being banned in March impacting demand. And in Middle East, we are doing significant changes in the infrastructure and business practices, which will ensure enhance business delivery from Q1 of FY '23 onwards.
The ESG initiatives to reduce carbon footprint, greenhouse gas emissions, especially in case of packing materials continue to progress well. There is a reduction in consumption of approximately 16% in glass bottles, 7% reduction in paper and 14% reduction in laminates through optimization and rationalization of specifications during the year.
Currently, bulk of the material in our packaging material is recyclable. We have successfully completed trials of recyclable laminates for commercial production. As part of our extended producer responsibility, we have collected and disposed of 100% of plastic as per our commitment.
Conservation of natural resources like water reduction of carbon footprint, wastages, factories also remain key focus areas, water conservation efforts, so as measuring water consumption sources, installation of controls at critical places, helping us reduce 27% of our consumption in second half of FY '22. Optimization of transport led to reduction in distance travel per liter of finished good by 10% in FY '22.
We have now been certified as a Great Place to Work by the GPTW Institute for the fourth consecutive year with improved scores across most functions in the company. The company has also impacted on sales capability development programs for frontline sales for range and multi-category selling.
So while the market conditions have been challenging currently with unprecedented inflation and subdued demand, the company will continue with its mid- to long-term strategic direction of expanding its distribution footprint, build a comprehensive Hair Care portfolio further launches in the premium Hair and Skin Care range under the Almond Drops umbrella and scaling up the digital search brands; Natyv Soul and Bajaj 100% Pure.
Along with this, the investments in these new brands in both conventional and digital media. We believe that as the market conditions improve. This will help us to achieve a long-term sustainable profitable growth for the organization without being over reliant on ADHO.
So with that, I end the opening remarks and open the session for questions. Thank you.
[Operator Instructions] Our first question is from the line of Percy Panthaki from IIFL.
Just wanted to know, out of the total ad spend this quarter of about INR 40-odd crores. How much of this is on the new launches? I mean, how much of it is, let's say, excluding ADHO?
So roughly about -- at this stage, it is roughly about -- just about a little less than 10% on non-ADHO, but that should be picking up last year. Last quarter, we wanted to go a little stronger on the ADHO itself because in Q3, our ad spends were much lower. So last quarter was mainly on ADHO.
And going ahead, what percentage of your ad spend will be non-ADHO in your view, let's say, for FY '23 as a whole?
So we are looking at about 25% spend as far as non-ADHO portfolio is concerned.
And of this 25% universe, how much of it do you think would be digital?
I think if you look at, it might be -- it might go up to 30% based on what traction we see as far as -- so just to give you a perspective on overall -- this overall basket of ad spend, there will be 3 baskets where we'll be spending. One is in ADHO itself. Two will be 2 brands as far as general trade is concern one is obviously Bajaj Coco Onion. There will be another brand, which we are launching in these 2, some money will be spent.
And there will be a third leg, which will be on the digital area, which is basically Natyv Soul and 100% Pure, which will actually cross play along with some of the digital spend that we'll be doing in some of the other brands as well.
So in that, if you see -- roughly, we are looking at -- roughly about a 10% spend going to, let's say, the digital brands, about 20-odd percent going to let's say, Coco Onion and the other brand that we are looking at and about 70% remaining with ADHO, this is roughly the breakup. These numbers will keep changing. I mean, these are not absolute numbers. These are just tentative.
Understood. Understood. So basically, the non-ADHO spend, which is currently 10% and it goes up to 30%, does that increase your overall ad budget? Or do you think that you would be able to accommodate within this approximate absolute number of about INR 40 crores per quarter or something like that?
No as stated earlier, we have stated that we will be increasing our ad spend anywhere by 2%, 2.5% to at least 200 to 250 basis points in this year, at least.
Okay. Okay. And as far as the -- sorry to belabor this point, but last sub-question on this. As far as ADHO is concerned, why do we spend so much when basically the entire hair oil industry has no demand right now? Even if I look at, let's say, a Marico or Dabur for the quarter on a 3-year CAGR basis, the sort of sales is flat. So it's clearly an industry issue where the consumer is just not prioritizing this category. So at this point of time, what is the need to advertise ADHO so aggressively?
See if you look at the last 4 years data and if you were to look at the larger of the hair oils, you will see that we have taken a price premium amongst them from, let's say, from FY 2019 to FY 2022, if were to look at. We have significantly upped the price premium against that. I mean, that itself might have some impact. But we would like to have this price premium on ADHO because we feel that this is something that we will want to defend. So to defend this, we would like to remain in this advertisement so that at least we are able to lift in the price premium that is there.
And clearly, can see that when we are splitting our advertisement between digital and the nondigital media, this is the bare minimum GRPs that you would like to have across markets of interest for us. I mean we have some specific numbers that we would want to get as far as ADHO is concerned, we would like to remain cautious.
Understood, sir. Next question is on margins. Given that we probably have not seen the full impact of the cost inflation post the Ukraine war, et cetera, and also given the fact that you want to ad spends by 200 to 250 basis points. At what level do you see the EBITDA margin bottoming out for you?
The EBITDA margin for the next 2 quarters will go a little lower. There's no question on that. But we feel that over time, these price corrections, at least the RMO part of it and even at LLP part of it will get corrected by the next 2 quarters. So I think we should see more of an evening out of the EBITDA by the end of the year.
Understood. But in the interim, in the short term, any sort of idea how bad it can get like if we are at 17%, can it go only to 15% or it can go closer to 10% also. And secondly, in the slightly longer run, let's say, towards the end of FY '23, what kind of margin do you target at that point of time?
See, I would not like to get into quarter-by-quarter because it is pretty volatile at this stage. It's very difficult to comment as to quarter-by-quarter how the EBITDA margins will pan out. By the end of the year, we should be targeting somewhere close to what we are currently or maybe a little lower.
We'll take a next question from the line of Shirish Pardeshi from Centrum Capital.
I've got three questions. The first question is in continuation with the previous participant. You said that you have taken about 7% price increase. So if you can quantify what is the current weighted inflation we have. And against that, the 7%. So basically, I'm trying to arrive, what is the gap?
No. So you are saying -- see, there is a material cost impact. Are you talking about the material cost impact that is there and the breakup of the material cost impact? Is that what you're asking?
No. I'm saying with the material basket, RMPM put together, what is the...
So in terms of the material cost basket. So roughly, if you ask me, there has been a 6% gap that you see between, let's say, FY last year versus FY this year from the material cost going up from 36.7% to 42.7%. So that 6% comes from roughly about, LLP comes to about 3%. Packing material is about 1 percentage point, RMO is about 1.5% and the mix is about 0.5%. So this is roughly, very roughly that they talk.
Okay. So if that is the status, do you think there is a merit that we can take price increases? Or do you think now the category is also seeing the headwinds, so it's not the right time to pass on the inflation at this time?
So at this stage, as I said, if you look at last year, if you look at -- we had taken price increases against the larger brands in hair oils while they have remained much more muted. So hence, at this current stage with what is looking at demand, we're not looking at price increase immediately. In future, maybe in the next quarter or so you'll see how the demand conditions remain. We are aware that there's been a good monsoon and we are seeing a bit of recovery in demand. If that happens, we'll see how to take that forward. But immediately, in the very immediate near term, we are not looking at the segment results, not in ADHO.
Okay. My second question is on the distribution front. And we had Almond Drop then we had small representation in Amla and then we ramped up Amla with Aloe Vera and in Sarso, which has come. In addition to that, now you have backlog and other extensions. So how do you think one should look at the distribution angle and whether the sales is ready to take this kind of broad portfolio? Because I think when you have a single brand, your skill set with the retail and even distributors would be more dependent on fast dispatch? So when you have a range, do you think any efforts are made on that? Of course, you have a Van sales which is there, which is complementary. But in the medium to long term, are we making some changes in the field force?
I think absolutely a fair question because, see, in Van sales, if you look at Van sales, will only cover most of the rural SKUs. And some of this higher premium range of products would actually be pushed through your urban retail mainly and a little bit in the larger rural town. So one of the things that we have been working on just on this direction is basically our work that is happening as far as retail initiative is concerned. As of now, we have about close to 3 crores -- 3 lakh retail outlets and a little less than that. And that is what we are trying to ramp up further going forward as well as to retail activations and loyalty programs, which pushes that retail part of it as far as distribution is concerned.
On the other side, a lot of work is happening as far as the sales streaming and inputs are concerned as far as the entire sales force, we have engaged external agencies to work with our sales team to look at multi-category selling -- multi-category as well as retail selling itself because for transferring from an ADHO selling to a multi-category selling is a skill set by itself.
Fortunately for us, there have been senior leaders and also mid-level leaders who have come from outside who are used to this category selling. So that is adding value to that entire thing and that we are seeing good traction happening. Already, in the last 2 months, we have seen some improvement happening in that direction. And I'm quite confident that this will only improve as we go further.
Subquestion on this, that we are also trying to end up with lakh now at the premium and we have launched even Almond Drop in the premium range. Do you think the premiumization strategy? Because I'm just relating to the numbers, what you mentioned, the category decline is much sharper in the urban markets. So how one should look at in the medium term, whether these all efforts will yield the fruits faster? Or you will take the spread maybe another 4 to 5 quarters?
See, it's a question of what you want to target typically as an organization. We are looking at building brands, which will give us larger gross margins over a period of time. And if you look at even the value-added coconut Bajaj Coco Onion it has gross margins, which are very close to ADHO little lower, obviously, but closer to ADHO. And we would rather want this kind of brands to get established as an organization rather than have the flanker brands for our rural portfolio brands, which we'll not give you, even if you scale up a lot, they will not give you any -- really any gross margin to play with.
So ultimately, as an organization, we have always remained a very ADHO focused organization. Our entire performance has dependent on the performance of ADHO. If we have to break that shuttle, we need to invest, and we need to develop some premium brands where by over a period of 3, 4 years, we have at least 2, 3 brands which are giving us gross margins as well. While we will build volumes through the Amla and the coconuts of the world, and coconut incidentally is also a pretty decent margin for the valuators, we would like to develop some of these premium brands so that at least we have a portfolio at the end of 3, 4 years to go with.
Okay. My last question is on all these new products starting from Aloe Vera to last one is the premiumization of Almond Drop. What is the contribution of these products. I mean not quarter-on-quarter, I'm saying for a full year, if you can break it out. And out of these 4 new products that you have launched, including Natyv Soul, which you think looks promising? And like next 2 to 3 years, if I may put a number, say, INR 50 crore mark, which brands you think which will cross INR 50 crores?
So I would again not get into the numbers game at this -- right away at this stage. But if you ask me, the 3 brands or the 3 buckets that you talked about, all 3 play a different role as far as our company is concerned. The value-added coconut is basically our strategy to get into the entire hair oils market through roots. One would be the brand-led investments, which is Almond Drop and the Bajaj Coco Onion, which will be brands that will be established and the other will be where we are exploiting our distribution, our distribution reach, which is through our coconut, through our Bajaj Amla Aloe Vera and through our Bajaj Sarso. So that completes the hair oils portfolio. And I think all these brands have a good potential to reach the kind of numbers that you are talking about. The number of years we'll have to see. But most of these brands have that potential.
You move on to the Bajaj Almond Drops extension. That is something that we have been working on for a long time. This is not something that we just wanted to launch in a hurry because there's more a method to the madness that we want to be there. And now the portfolio is more or less ready, and you will see the launches happening.
Now obviously, because of the same point that all of you are saying, which is basically the amount of investments that we can do, we will have them as graded launches. So some of the brands will get launched this year and some of them will be next year. But the Bajaj Almond Drop umbrella is something that we would like to push for on a much larger scale as the situation improves. And these are all in the premium range. And some of these trends do have a potential to cross the numbers that you are talking about some of the products in that entire umbrella.
Natyv Soul and 100% Pure brands that we will keep scaling up. I don't think they'll reach the numbers that you are talking about in the very, very near future, but we have some other strategic thought process as far as these brands are concerned, we'll see as they come down.
[Operator Instructions] Our next question is from the line of Deepan Shankar from Trustline Portfolio Management.
So firstly, I wanted to understand this premium hair oil category for industry how was the performance for Q4.
So overall, the decline was about 6.5% in the premium sales category.
Okay. And sir, secondly, so for the last 2, 3 years, we have been seeing that wholesale segment for us has been declining at more than double-digit terms. So when are we seeing that being at 1/3 for us or it's -- are we having a higher proportion of wholesale terms as compared to industry? So even if we -- if the industry turned favorably, so are we in a better position to improve our volumes in terms of wholesale?
So to answer your question, the -- our component being higher, yes, traditionally, we have had a higher component as far as the business is concerned, roughly about 5% to 10% higher than that in similar categories because that's how traditionally, we have built our brand through a more wholesale dependence, and that's why our retail presence in urban towns have been relatively lower. So the focus in the last 2 years have been to ramp up retail. Obviously, the focus was not to drop wholesale, but during COVID period, we were maximum impacted because during COVID period, a lot of wholesalers had dropped down, which we are now trying to gain back.
If you look at today's distribution, if you look at quarter 4's distribution of retail, wholesale and the rural market, as we call it, it is actually a 25-25-50 in terms of the breakup, which earlier used to be 20-30-50, those are the kind of numbers that used to be. So yes, wholesale as a sale has dropped down. Retail has gone up, but retail is a planned activity, wholesalers -- where 2 things have happened. One is during the COVID period, there has been quite a bit of disturbance as far as the wholesale markets are concerned and there are a lot of pricing stability that happened across states, a lot of infiltration.
Those corrections have been done in January. We took a onetime hit in January. And I think clearly, we can see the fruits of it where the prices in wholesale has improved much drastically and wholesale started to show much better performances in the last 2, 3 months that we are seeing.
Okay. So going forward, if industry improves, we could see -- along with the industry, we could also improve volumes?
I would think so because if you look at, if we are -- I think as far as retail and the rural markets are concerned, urban, retail and rural markets are concerned, clearly, we are seeing -- we are better off than where we were maybe 2, 3 years back before pre-COVID period. In rural, the Van penetration has obviously helped, now we are a little better off in terms of rationalizing them in terms of technological interventions that we have done with GPS, et cetera. So the Van throughput efficiencies then is what we are now looking at. So that has clearly moved the needle. As far as rural markets are concerned, retail, there has been a clear focus for the last 8 quarters, and that is clearly showing as far as our results is concerned. It's wholesale, where we have dropped our ball a bit, and that is clearly one of the focus areas for the company in this year.
Okay, sir. And lastly, so what is the kind of growth that we are expecting for FY '23 in terms of revenue?
Let's hope that the market improves. I don't think we'll be able to give you a clear number as far as the growth numbers are concerned. We have internal targets, which are pretty ambitious, but we have to see that the market conditions also improved, and our strategy also needs to go right. But at this moment, I am quite confident that we should have a good year as far as top line is concerned this year.
We'll take our next question from the line of Kaustubh Pawaskar from Sharekhan by BNP Paribas.
So my question is on the market share. We have around 10% market share in overall India. So now since our portfolio has increased or now you are covering around 83% of the overall hair oil industry. Where do you see your market share going up to. Do you have any specific targets? I don't want from next 3 years' perspective, but over the next 4 to 5 years, where do you see your market share improving?
So that's a good question. In fact, that is the buffers where we want it to be now that at least we are playing in all the hair oil categories or the entire categories. We'll have to also tone down and tone up our expectation based on various other parameters as well in terms of what kind of spends we would like to do, what kind of EBITDA margin making, et cetera.
So as we scale up for the brands that we are wanting to invest in, we might do a little bit of jugglery in terms of the distributed brands, I mean, the brands that we are pushing through distribution. So ideally, our objective would be to scale up, Almond Drop scale up all the brands that we are advertising through where our EBITDA -- where our gross margins are higher, and we will like to keep the other portfolio a little balanced.
So we have a decent expectation as far as market share is concerned. I would not like to quote numbers at this stage because there will be a function of many other parameters. But yes, in terms of our own internal growth, we have some ambitious number.
Sir, related question to that is with your the target or expectation of increasing or scaling up the brands, do we also need a scale-up in operations? So are you looking for capacity additions in some of the geographies from where you can have a much better distribution of your product?
Okay. That's an important question. In fact, a lot of work has been happening at the back end in terms of both streamlining, or the manufacturing operations as well as making it far more efficient. In fact, just to give you a number as far as manufacturing and supply chain initiatives are concerned, we saved about INR 5.9 crore through about 2021 initiatives. Large part of it was obviously in terms of supply chain, in terms of a lot of rationalization that we did.
One of the other things that we did was in terms of which manufacturer, which is the best plant fit for each depots location, the 10% reduction in transport cost that we did was a lot of algo that was done in terms of connections from each plant to the depots. Now as we scale up, we are also looking at next 5 years, what kind of numbers we are looking at from which region and hence, accordingly, how the manufacturing footprint of the company should be.
As you are aware, Guwahati plant, which is still under the GST benefit regime will be there till 2027, that's MAT benefit that we are getting. Now as that goes off by '27, we are also looking at how we can bring the manufacturing facility closer to the markets that we operate and closer to the import locations for the imported products, whereby the movement of raw material and the movement of FG is the least both put together.
So these kind of rationalization happening. And as a result, some -- there will be some investments that will be made as far as our own plant is concerned while we also set up a robust manufacturing facility as far as our 3P and 2P -- our third-party, second-party operations.
So sir, any specific number you want to give in terms of CapEx for the next few years? Or it is too early and once the scale up happens, then only you will be able to give us any numbers?
So while we are crunching numbers internally, I would not like to talk of numbers right away because these are all instill the growing board phase and based on how the market reacts and how our brands get traction cetera, we'll also be building the facility. So the requirement is still a couple of years away, so we have the luxury of time. So in that time, in the next 2 years or so, I think we'll have a better view of where the manufacturing blueprint lies.
Sir, and one last one on the international business. So what is the current contribution if we look into the FY '22 numbers? And whether we are looking to add many geographies -- so that the even international business would scale up parallelly with what your strategies are for the domestic business?
So the international business contributes to about 4% of our total business. But over time, I think we have some focus areas. Again, I would not like to talk of exactly what we are doing at this stage. Maybe in this year, we should see some movement as far as the international business is concerned. We are looking at 1 or 2 markets where we would want to press on the pedal, so that's where we are focusing on. The last 2 years, we had said that international will not be a focus area for these 2 years. FY '22, '23 is where we would like to pick up, and that's what we are going to push through. So international business, just a small correction. International business is about 3% and not 4% of the total.
Right. And NPD contribution is how much, sir, new product contribution, your revenues? Any...
At this stage, again, very little because as of now, we have just started -- ADHO still remains 90% of the portfolio because we have just started investing in the new products as of now. So the contribution of ADHO has gone down from 93% to about 90% by this year. But this year, you should see a significant change in that.
But that would be largely with Amla's contribution going down. Not the new branch which you are thinking about.
Not really. Not really. So Amla will continue. Amla has already done whatever it had, and there'll be some more push, obviously, as well as Amla is concerned. But I think the overall other new products should see a big difference in the total number.
We'll take a next question from the line of Vidhi Shah from Yes Securities.
Am I audible?
Yes.
Yes. So the first question is a Natyv, the new launch that you have. It kind of spell checks on Amazon. And it provides loans either N-A-T-I-V or N-A-T-Y-V, so since is the D2C brand, the direct to consumer, is management kind of aware of addressing this actively.
And my second question is on the PAT side. So would it be safe in assuming that the company's new launches and the related investments are kind of having impact on PAT? And would the pressure on -- because of the new launches that have come on PAT, continue for the next 1, 2 years? And if so, is it safe to assume that INR 140 crores to INR 145 crores of PAT is the new base that you formed? And is it going to continue going forward? And if so, why?
Okay. So four questions as I see it, and I'll answer the first question first. So Natyv Soul is how we wanted distinctly the brand to be N-A-T-Y-V. And we are well aware that in a search and N-A-T-I-V, et cetera, will come in. And that's where 2 things are happening. One is we are actually buying the N-A-T-Y-V and pushing the search to N-A-T-Y-V, as you would see when the search happens. And the other thing is as we build up the brand N-A-T-Y-V, Natyv itself will become popular, which we are also seeing as a part of the traction. So this is how Natyv Soul. So this was something that was thought through, and this is how we want to play it out. This was a planned launch in that manner.
Coming to your brand and what it will mean in terms of the EBITDA moving forward and the PAT moving forward, you're absolutely right. The question for the organization stands simple. Whether we remain in ADHO and keep trying to push ADHO beyond a certain level, now given what the market conditions are, you will always be played to both market conditions as well as to the material cost.
And you will have to break the gains at some point of time and hence, move forward so that you have a multiple basket to play with, not only possibly in hair oil but also across categories, which is what we will be trying to develop over the next 2, 3 years. Yes, there will be -- there are no magic bullets unfortunately.
Hence, investments in these brands will happen, and they will be for a short term, a little bit of an erosion of the EBITDA, which we'll live with, but we assume that the kind of work that has happened, these brands should start scaling up over the next 2, 3 years, and we'll see reversal of the EBITDA numbers as well.
We also expect that the Natyv cost will not remain. Now these are absolutely an unprecedented high. The question is whether we would want to ride out the material cost and the demand situation to improve and then start investing. There is never a right time to invest. So we have taken a decision that we invest now so that at least the investment starts and by the time the cycle turns, at least we are in a better position rather than start of fresh at that stage.
[Operator Instructions] Our next question is from the line of Shirish Pardeshi from Centrum Capital.
I have two questions. One question when I look at last 2.5, 3 years. I think there was clear cut down trading. People were down trading to Amla and low-cost value-add segment. Now we have now the assessment says that even Amla is also declining and coconut has just managed to flat. Just wanted to understand in your lens and in your assessment, what exactly are the problems the hair oil industry is facing? Is it that the status of hair oil is still discretionary and people are not spending on it? Because when I see last 5 quarters now, I think fairly the people have started going back to -- and economics also recover. But still, hair oil typically has not improved. So maybe if you can help me to understand what are the problems which we are facing?
So if you look at Amla and Coconut, it's basically also because of the quarter impact that was there. Last year quarter was a very high quarter for most of these products. So Amla and Coconut is more of a temporary phase. I don't think there is too much of a thing to be read into the growths of Amla and Coconut for the quarter. It's also a bit of a base correction. So I don't think that is something that is going to change over a long period.
Now hair oils, as a category we are aware is not one of the highest growing categories or will not be a high-growing category. On the other side of it as well, we don't see the category just vanishing off in a very quick space either. So there might be a little bit of a decline that had happened, but when the overall economy and sentiments go up, we have seen the hair oils market has also been pretty resilient and it does come back. It will not be a sunshine industry, whereby the growth will be very, very high. But the growth -- the market will remain resilient the INR 1,300 crores -- or INR 13,300 crores that earnings and report, the market will more or less be somewhere there.
So while the hair oils market will remain and we'll keep working on the various portfolios of the hair oil, as we said, as a company, we need to look beyond hair oils and that's why our -- tend to enter into some of the other categories beyond hair care into skin care, which we should start by this year.
Okay. Got that. In terms of wholesale, what is our current contribution? And I'm sure we had a peak more than 50% coming from wholesale. So the 2 parts to the question. One is that what is current contribution from wholesale? And what exactly we are trying to do? Are we trying to rationalize the pack? Or we are trying to change the promotion or the whole, altogether the reach to the wholesale?
Okay. So as I said, for the quarter, it is now nicely sitting at 25-25-30, with retail being 25%, wholesale being 25% and sub-billing that we do, which is for the rural market, which is also about 50%. So this is where we are. Ideally, the situation was 20-30-50 wholesale from our urban markets. I mean, directly from distributors to wholesalers. That was about a 30% number as far as we were concerned right now.
Now while our push for retail will always continue, and we would like to continue to grow much stronger in retail for two reasons. One is because our retail footprint itself is much smaller. I mean, we are a little step behind as far as competition is concerned, as far as the retail footprint is concerned.
The other is strategically, it is far more important to be present in the rural, both in terms of width and depth in retail, urban retail, both in width and depth given the kind of products that we are launching, we would like, these are more urban-centric product, and we would like a much stronger presence as far as retail is concerned, these advertised events that we are talking about. So this is as far as the retail this thing is concerned.
Now as far as the wholesale is concerned, I think we have done an in-depth study as to where the losses have been and most of it, as we discussed, was mainly in the Bihar, UPs and MPs where the numbers have fallen from the pre-COVID levels. And these are activation programs that we are doing to reactivate back these wholesalers back into our fold. And there has been some bit of green fruit that we are already seeing happening, and we'll continue to do that. So a lot of rationalization of prices. So one of the things that we did as a onetime correction in terms of -- in the month of January was rationalized its prices across market so that the prices in the wholesale improve and there is infiltration as well, which go down. So that has its desired impact, and we have seen the wholesale starting to slowly come back. It has not yet come back to the full year levels, but it's clearly showing signs of improvement.
So my sense is that we have roughly about 80,000 to 83,000 wholesale across India. Is it fair to assume that we would be covering at least 20,000, 25,000 wholesale account at this time?
So again, the way we calculate numbers is we don't calculate wholesalers that are substockist supply, which is basically a tertiary sale. However the wholesale -- we just count the numbers as far as wholesalers are concerned, as far as our urban distributor supplies to wholesale, which is our secondary source. So that number is about 10,000 as far as wholesale account.
Our next question is from the line of Sunil Jain from Nirmal Bank Securities.
Sir, my question relates to more of you introduced a lot of product in last year. And next year, the current year, you want to take them aggressively. So what I was thinking like whether you have introduced not too many products in this year? I mean whether you will be able to service all these products in the coming year? Or some of these products may remained unfocused over a period of time?
Absolutely right question. So the way it will work is -- and that's why if you look at a little closely at the portfolio there to your launch. Let's look at the hair oils itself. Hair oils, we are now looking at 6 -- rather 5 products. There is an Almond Drop hair oil, which, obviously, will be continuously supported and we are looking at renewed focus on Almond Drop itself. There is a Bajaj Coco Onion, which the advertisements have started, which is, again, a brand-led investments where we continue to invest in the brand itself. That I said is a high gross margin product. we'll continue to invest in.
And there are 3 other distribution-led brands, which is the Amla Aloe Vera which is the Sarso Amla as well as the Coconut, Bajaj Coconut, Pure Coconut. Now these are all distribution-led. So in terms of advertising budget, it will only be restricted at this stage to the first 2. While there'll be more of sales initiatives and activations as far as the other 3 that are concerned.
So while in terms of number of brands, they may look high, but not all of them will be media supported and because we feel that the 2 strengths of Bajaj, which is Bajaj Almond Drops, the name itself and the distribution of Bajaj, these 2 need to be exploited as much as possible. So some will go through the distribution route and some where the Almond Drop extensions we are launching, and that's why there will be also graded launches as far as Almond Drop extension, not too many brands because we will not be able to support them through.
So for the other brands like Amla and Coconut, it's more of a basket you are taking to the retailer and where you will be able to gain some share in that where earlier you used to just take 1 product.
So yes, I mean if you look at through our direct brand sales initiative itself, the 3 lakh retail outlets that we added are at a good bit of presence that we have also direct reach. We have a direct reach stood at 8.5 lakh retail take plus/minus 10,000 here and there. So with that kind of a reach, you would want to exploit it just not keep the basket only restricted to Almond Drops, and last year -- and over the last 1.5 years, we have seen how a Amla Aloe Vera has scaled up well just through that too. And we are seeing even Sarso Amla scaling up in the 2. And you see not only us, but even competition for these products, most of them go about in the same manner.
In fact, last year, if you look at the entire Amla portfolio, there has been hardly any advertising that has happened as far as the Amla portfolio is concerned by any company. And yet, there has been good growth in Amla. Yes, I agree that has been in the cheaper categories of Amla even competition has sold more of the cheaper category of Amla, but that's the nature of the business, and that's the nature of the dynamics of the business. And we'll have to also be aware of the dynamics of the business. So that's what it has been. So we will exploit our distribution and keep selling some of these brands where we can exploit the distribution.
Our next question is from the line of Anup Ramachandra from A&P Investments.
My first question is basically with respect to LLP. Is there any thought process that marketing team has thought about to handle the negative feedback that it gets in the digital media spectrum?
So I think as far as the negative feedback is concerned, as we are aware, one of the most popular baby oils is actually 100% LLP as all of us are aware. So we are looking at how we want to also market that. So LLP as such, doesn't have a negative connotation in terms of at least the product being as far as applicable to the beneficial value of the product as far as hair is concerned. In fact, it has a very, very positive impact both on hair and skin. And that's how most popular brand as far as baby oils, which is 100% pure LLP works.
Now obviously, there is a marketing side to it. We are looking into how to address that in terms of looking at this thing. This is one area where we have actually identified and taken up as something that we would like to do our communications -- communication in and we are working on that. So LLP does have an environmental impact given that it is a mineral oil, but clearly, it is beneficial to both hair and skin.
I agree with the aspects of it is beneficial aspect. But I'm saying with a lot of miscommunication also happens from so-called influencers which may impact our ADHO sales. So that's the reason I'm asking.
It's a fair question. It's a fair question. And given that the sensitivity and the awareness is increasing and there has been clearly negative thing, which been promoted by one, this thing on LLP itself, there has been a buzz in the social media. I don't think the impact of it is major. But clearly, this is something that we need to address, and we are looking into it as to how to minimize the impact of the negativity of this thing or maybe put it in a positive twist itself. So this is something that we are working on. An area clearly identified by that, yes.
Okay. Excellent. And the second question is basically, what's the company's perspective with respect to Bajaj Brahmi Amla because that's a brand recall, which most of the consumers have other than Almond Drops. It was the company looking at respect to Bajaj Brahmi Amla.
Brahmi Amla, if you look at, I mean, unfortunately, while as you rightly said, it had a large recall, but the recall is mainly restricted to the older generation and not really to the new generation. One of the main reasons for that is, while there are a lot of work that has happened, there's not really any clear ingredient benefit that was coming out of Brahmi, which actually could be claimed as far as the hair is concerned. So it has been a historical product. It has been there from a long time, but Brahmi did not come out -- I mean we have actually worked on our R&D lab to see how we can claim Brahmi as a positive twist to the hair. It did not come out strongly as is for us is concerned. So what we have kept with Brahmi.
So having said that, we understand that Brahmi does have a latent demand, and we would not like to let it completely go. So we are using that product as a strategic SQ in the campaigns. Anyway, it's a large brand, we push it, but also in modern trade where we do use it as a flanker brand to protect our ADHO Brahmi's actually strategically used evening modern trade as well. But as such, if you look at, there's not too much of study as well as Brahmi part of the Amla is concerned.
Just how is Brahmi doing in resect to the e-commerce sales?
E-commerce. It's not in e-commerce that we push it as it's more in modern trade. E-commerce Brahmi is not a product that we have. E-commerce, we mainly restrict ourselves to more the premium end of the portfolio, not so much Brahmi. And there is a bit of no mark sale it does happen through e-commerce, but not Brahmi.
Okay, Understood. Clearly, platforms like Amazon because what I see is from my -- for our research info, so what that is. Other than ADHO, Brahmi is the one, which is getting a lot of reviews and views.
Yes, it is there, but it is, that is not what is sold in a larger this thing. There is a lot of no marks or I would not say a lot of. There is a bit of no marks that is held and some of the newer brands, which are also getting traction.
Okay. And the last question is with respect to digital brands, what exactly is the company looking at in a 5-year spectrum that do it contribute substantially to us, is the company strategizing that in a way that digital and contributes substantially to our sales and then do you have any plan on going offline? Or do you want to keep it muted and see how it goes and then you want to scale it up or something like that?
So as far as the digital brands are concerned, it is more the digital footprint that I would rather talk about rather than the specific brand itself. As far as the digital footprint is concerned, the company does have plans to go further on that. We are looking at both the D2C platform itself and see how that works out, how the costing dynamics work out as well as logistics costs, et cetera. So that is more a little mid-term rather than short term, I would say.
We're also looking at strategically some other aspects of the digital this thing, which I would not like to discuss at this stage, but there are certain other thoughts as far as the digital -- that entire digital portfolio is concerned. So we'll have to see as we go by as to what we want to do.
Our next question is from the line of Kaustubh Pawaskar from Sharekhan by BNP Paribas.
Sir, just one question on the reach. So what is our current retail reach?
So our urban retail reach is about 2.8 lakh retail outlets across the country. This is the urban retail reach as we defined, which is basically what the distributors sell to our urban retailers. If you look at the overall reach, we have about 8.5 lakhs, which is applied through both the distributors through the top sub-stockists and through the brand sub-stockists also. That is about 8.5 lakh.
Okay. And how much it has gone up in last 2 years, like do you have done a significant addition or it's like you are focusing on improving your scale in this whatever reach you have?
So if you look at, again, it has been broken into parts. So if you look at 1.5 years back when we did the Van initiative, our numbers, direct distribution numbers went up from 5.5 lakhs to about 8.5 lakhs, which is where it has more or less remained there has been a certain numbers, which are very small numbers locked in wholesale, certain improvement that has happened in retail. So more or less, the overall numbers that more or less remain the same. There's some bit of loss in retail, some bit of loss in wholesale. Good coverage as far as retail, urban is concerned. Overall, the numbers have remained more or less at this stage. So 5.5 lakh before COVID went up to 8.5 lakhs, and it has remained there, means the number still remains at INR 43 lakhs overall in direct coverage as well as brands are concerned.
Right. So any particular target you have, like this 8.5 lakh would be going to around 10 lakh outlets by '24 or something like that target you have in mind?
So we have targets not really as far as -- I mean, while 10 lakh is a very nice 1 million number to achieve more than that, we are looking at specific numbers -- it's a little more granular, the kind of numbers that we want to approach with. So we look at a zone-wise what kind of channel distribution numbers we would want to achieve in the next 2 years or so. And those numbers we have for us. So those numbers will be a little substantially higher. I would not like to discuss specific numbers at this stage.
Thank you. I would now like to hand the conference back to the management for closing comments. Over to you, sir.
Thank you. So while I understand that the last quarter was a pretty tough quarter as far as business is concerned, we have taken this correction in January. So the numbers for the quarter was a little lower than what it would have normally been. But this onetime correction has clearly seen positive results for us. So we are hoping that this quarter, which has started well would end well also for us.
And as rightly called out, we will continue to invest as far as our brands are concerned, and hence, as a result, for the 2 next quarters, we feel that the EBITDA will remain muted. But if we are able to get traction back into our brands by the time the raw material price cycle turns and the demand cycle turns, we should be seeing both positive sides as far as our business is concerned.
So with that, I would like to end my comment and thank you all for joining.
Ladies and gentlemen, on behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.