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Emami Ltd
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Ladies and gentlemen, good day and welcome to Emami Limited Q1 FY '23 Earnings Conference Call hosted by IIFL Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Percy Panthaki from IIFL Securities Limited. Thank you, and over to you, sir.
Hi. Good evening, everyone. Thank you for participating in this conference call for Emami's Q1 FY '23 results. I have with me from the company, Mr. Mohan Goenka, Director; Mr. Vivek Dhir, CEO, International Business; Mr. Vinod Rao, President, Sales; Mr. Gul Raj Bhatia, President Healthcare division and Mr. Rajesh Sharma, President, Finance and IR.
I'll hand over the call for -- to Mr. Mohan Goenka for his initial comments. Over to you, sir.
Thank you, Percy. Very good evening friends. I welcome you all to this conference call on Emami's result for the first quarter of FY '23. As you all are aware, the environment continues to remain challenging with the FMCG sector impacted by an unprecedented inflation leading to subdued consumer sentiments and lower margins in this quarter.
Despite the challenges, I'm happy that we have reported a resilient performance and profitable growth in Q1 FY '23. On a high base of 37% growth in the last quarter, our revenues at INR 778 crores have grown by 18% in this quarter. Our domestic sales grew by 13% on a high base of 42% with a volume growth of 8%. With our newly acquired brand Dermicool contributing around 8% to the domestic sales, international business grew strongly by 45% on a base of 17%. Our overall volume growth has been around 10% in this quarter.
The quarter has been challenging for us, where we have seen significant correction in 2 categories, pain management by 30% and healthcare range by 25% led by immunity portfolio. This correction has been due to a very high base of a 70% growth in pain management range and 59% growth in healthcare range last year. However, despite such huge corrections, our diverse portfolio of products helped us to deliver a robust performance at a overall company level.
This quarter, some of our leading brands like Navratna, Kesh King, Fair and Handsome et cetera, as well as our international business helped not only recover the lost sales due to correction in pain management and healthcare range, but also helped to deliver an overall revenue growth of 10% excluding Dermicool. Navratna range grew by 29%, Kesh King range grew by 20%, male grooming grew by 32% and 7 Oils In One grew by 45%, while BoroPlus range posted flat growth during this quarter. It grew by 6% on a 3-year CAGR basis.
Pain management and healthcare range despite corrections during the quarter grew by 10% and 13% respectively on a 3-year CAGR basis. So, if we exclude the pain management, healthcare range and the acquired brand Dermicool, our rest of the domestic portfolio grew strongly by 30% in value and 24% in volume terms.
During the quarter, modern trade grew by 42% and e-com grew by 55%. In this quarter, the contributions of e-commerce channels increased to 7.6% and modern trade increased to 8.2% of the domestic revenues. CSD grew by 23% during the quarter. Our rural penetration continue to progress steadily with Project Khoj in line with our plans.
Our international business marked by a strong performance, especially by MENA and SAARC witnessed 45% growth in sales during the quarter. All our major brands, 7 Oils In One, Navratna, Fair and Handsome, Kesh King and BoroPlus performed well in the international markets. With a high base of previous year and an unprecedented inflationary pressure that impacted the consumer spends across urban and rural market, we posted a resilient profitable performance during the quarter.
Our gross margins at 62.6% contracted by 340 basis points due to inflationary pressure combined with unfavorable portfolio mix due to extraordinary high sales of pain management range last year. EBITDA at INR 173 crores grew by 2% and adjusted PAT at INR 138 crores was flat compared to last year.
Recent corrections in crude prices and the forecast of a normal monsoon are encouraging. Fiscal measures taken by government also augurs well. We are optimistic of witnessing an upward curve in the consumer sentiments in the near future.
As you are perhaps aware that today, the Board of Director based on the recommendations of the Nomination and Remuneration Committee appointed 5 new independent directors in view of completion of the full term of appointment of the other veteran Independent Director, Mr. K. N. Memani, Mr. Y. P. Trivedi, Mr. P. K. Khaitan, Mr S. K. Ganguly (sic) [ S. B. Ganguly ] and Mr. Amit Kiran Deb. The new independent directors come from diverse professional backgrounds, each bringing to the Board their rich industry experience and wide knowledge.
Mr. Anand Rathi needs no introduction. He is one of the leading financial and investment expert and founder of Anand Rathi Group. Mr. Anjani Agarwal, former senior partner of EY for 26 years. Mr. Anjan Chatterjee, he is the Founder of Specialty Group chains of restaurants. Mrs. Avani Davda, the founding CEO of Star -- Tata Starbucks and she is presently working as advisor to Bain and Company and Mr. Rajiv Khaitan, senior partner of Khaitan and Company.
We are very excited to welcome the new members to our Board, who will bring much value to our organization with their rich experience and guidance.
With this brief, I now open the floor for Q&A. Thank you.
[Operator Instructions] The first question is from the line of Abneesh Roy from Edelweiss.
First question is on Dermicool. So we have seen very strong summer even in Q2 in UP, Bihar, Jharkhand and Bengal given the deficit. So could you talk about that? Do you see a good Q2 at least in these states for Dermicool?
Abneesh, as of now, we are not expecting great numbers of Dermicool in this quarter. So this, practically the sales becomes almost negligible and Prickly Heat [Foreign Language] there is no season honestly.
And this would also apply for your cooling hair oil for Q2?
No cooling hair oil does not apply. The 2 are very different products. So Navratna cool talc, in general, we are seeing an uptake in -- upsales in talc, but not so much for Dermicool.
Right.
Prickly Heat, it's a specific prickly heat powder.
Right. My second question is on Dermicool, what are the key changes you have already done, are you happy with the first quarter performance of around INR 53 crore sales?
So we haven't done any changes as of now, Abneesh because we are just taking the product in our fold from 1st of August. Till now, it was still with them. Post the -- post transition then, whatever changes have to be done, we will do.
Right. My second and last question is on Q2 margins. Other companies are saying Q2 margins could remain under pressure on the versus Q1 given rupee depreciation and lagged impact. What would be the sense in your portfolio, do you see Q2 margins, the Y-o-Y pressure being lesser, I understand seasonality bit. So if you could tell us on Y-o-Y basis, will the Q2 pressure be lower?
In H2, we are seeing the pressure easing, Abneesh, but Q2, still we are seeing the pressure would be there because the stocks that we have bought, the raw material and everything is at a higher cost. So, maybe Q2 would be a little pressure, but it would definitely ease in second half.
The next question is from the line of Prakash Kapadia from Anived Portfolio Managers Pvt. Ltd.
Dermicool given that it's a fairly summer season product, when do we expect the brand to clock pre-COVID sales of around INR 110 crores, INR 115 crores. In the PPT, you mentioned some initiatives or it's too early once it comes under your fold in August and then we'll have some more game planning clarity.
This is Vinod Rao here. So for the Dermicool arrangement, I don't know if you know about it, it's been a distribution agreement with Reckitt. So they -- their system continues to sell it this quarter and the brand actually tapers off, so this becomes 0 -- close to 0 sales in August. So what we will really see is the true benefit coming out when we start loading, which is the JFM and the April, May, June quarters, that's when we will start realizing the true potential of that brand.
And on, the pain management and Zandu Healthcare, obviously the high base was there last year because I think last year especially North had seen lot of traction on the balm portfolio, we had seen lot of new customer addition. So what's the game plan for these 2 categories for the balance of '23? What initiatives are we taking to ensure growth comes back because you know if 2 of these power brands face this high base impact, it will be difficult for us to grow on a sustainable basis for the year?
So I -- Prakash, it's not that way. This quarter also you would have seen that despite of such a decline in these 2 categories, we have still managed to grow in other portfolios. So definitely due to COVID induced, those were absolutely due to the COVID this thing. Now we are seeing good traction in all the other categories. So there would be a challenge as far as this is concerned not that we are leaving it, we would still advertise. We are still going aggressive, but it is not possible to match the numbers of last year and we haven't taken that in our targets also honestly. So overall, we are still confident at the company level, we would be able to grow at good single digit, despite a very high basis last year.
Okay, and lastly for Rajesh, what kind of amortization can we expect for Dermicool and Kesh King on a quarterly basis because I think, Kesh King is now tapering off, much of it is done, but on Dermicool and this quarter also we've seen amortization figures. If you could give some sense for the balance quarters of '23 and onwards?
Right. So this June quarter was the last quarter for Kesh King amortization. So going ahead, roughly INR 22 odd crores should be the amortization for Dermicool and other brands, which we have.
INR 22 crores. Fine.
The next question is from the line of Shirish Pardeshi from Centrum Broking.
I have 4 questions, starting with international division. It is very astonishing to see the growth is very strong. Could you please elaborate what is driving this growth? I mean if I look at last 2, 3 years, we've had Russia and Ukraine problem, which has just started, but before that when we stretch, we had a distributor arrangement, which we have revived. So all those pain points is behind and we can expect this kind of growth going forward?
I am Vivek this side. International business growth, this fundamental growth is coming from almost every market on account of brand-building activities that stepped-up. Also some of the distribution issues that you're facing in certain geographies that is also behind us. But still we are seeing certain type of issues, which are macroeconomic in nature.
So they still need to be sorted out. So despite the macroeconomic issues in Russia and Ukraine, we have been able to register a growth in quarter 1. The reason which, the adjacent reason of Uzbekistan was not good for us, which is going to be sorted any -- this month itself, most likely and apart from that we're still facing issues in Russia -- Sri Lanka on account of currency and that should also be behind us in maybe couple of months. Nepal is facing extreme tight liquidity situation. So, we are also working on asking our distribution partners to expand their investments into the market. So that even that can be behind us. So most of the issues are -- the team is working. So that we contribute to deliver a decent growth.
Some of the growth, which we are observing in this quarter on account of a slightly lower base also of last year, it was a growth there, but not as big a base. So hence this number of 45% I think may not be there, but we will be at decent double-digit growth in every quarter.
Vivek, that was very helpful. Just -- I have just 1 sub question, in Bangladesh, we have taken lot of steps in terms of distribution enhancement. So could you tell me how much was the growth in last 2, 3 years and this year?
Bangladesh, we took distribution steps and also automation of the entire system and projections over there, so that now we have a [indiscernible] visibility. We have mapped close to 130,000 odd outlets in progress as a system, the daily productivity that is also visible. So actions are being taken based on that, so last 2, 3 years, we have been growing in double-digit, even this quarter has registered a decent growth despite Ramadan and Eid both feasts falling in this quarter.
Despite that, growth has been visible. But I think opportunity over there is far better than what we are registering the numbers as on date. We see bigger opportunities over there and hence I think management time and direction on Bangladesh, we are going to invest more in this particular area.
Mohan, my second question is on rural. Last 2, 3 quarters, you have been highlighting that there is a pain in rural segment. How this quarter or maybe going forward, any qualitative comments you would like to offer whether the growth has improved or is still lagging?
Vinod here. So rural, we're seeing this headwinds, which is the economic headwinds and the slowdown that we are surely seeing that, but we've not stopped any of our initiatives that we've made. The investments that we're making in terms of all the expansion that is going in full steam, we are well ahead of our plans on addition of towns and all the productivity measures we're hitting that.
And if you really look at the -- at a company level with the balms basis, we are still growing in rural, which is faster than our wholesale and we will continue to do that. So the net of portfolio without balms, without pain portfolio, our rural is actually growing at 21%. So it's doing well for us. We will continue to grow the balm basis, is slightly ease out as we move in the forward quarters and our investments will go up and towards the second half, we have a further expansion where we will add close to another 10,000, 11,000 towns. So we stand to get incremental out of those.
So, just one follow-up here. You mentioned that 11,000 towns you will add, the current coverage in the quarter, which has gone by?
So we've added close to -- this quarter we've added very minimal. So we kind of -- the last quarter and the second half, we've added close to 8,000. So we -- we are actually building in repeat purchases in this quarter. So the bulk of the expansion for this financial year will be in the second half and till last year, we were at 32,000-odd villages, we added 8,500 last year. We've reached 41,000 now. By the end of the year, we will be close to 50,000 towns and villages.
Okay. Okay. Just Vinod, since you are there. Let me make an attempt to ask. Can you qualify saying last 2, 3 quarters, we have made lot of investment under the Project Khoj. So any quantitative data points you can offer in terms of distribution or in terms of quality, in terms of growth or something like that?
Sure. So growth, so we're measuring growths in 2 ways. So we look at even in total rural and therefore the Khoj project, which is in 13 states, what are the growth levels there. So we are delivering more than 1% growth than total rural in these Khoj towns. 2 is from a -- like an expansion in a footprint, we have gone from 32,000 to now 41,000 towns and villages. 3, we are getting our repeat purchase. So what we also track is the frequency at which the towns are buying. We are getting more than 90% of the towns we've added are repeat purchase every month and this is a monthly phenomenon. It's not like a YTD repeat purchase.
So and I will look at it, all of these parameters put together plus the productivity of the people that we put in, we've added around 400 odd -- 453 people on ground, which has taken our rural footprint manpower presence from closer 900 to almost now 1,300 and we are seeing high productivity levels, our cost to serve is also in well below budget. So overall, we're very happy with the project and the progress we are making.
Okay. That's really helpful. My third question is on the healthcare business. What we have seen now, the growth, obviously on a high base has tapered off, but I just wanted to understand the initiatives what we have taken in terms of the new product launches and in terms of penetration. I did have some discussion last time where we are trying to cover the front end with the doctor and the back end, with the availability. So maybe if there is any -- some update, how this programs what you done around, if you can share?
So in healthcare -- this is Gul Raj here. Shirish Pardeshi, how are you? So in healthcare basically, as you know, we have 2 parts of the business. One is the FMCG/OTC part and the other is medico part, where we reach out to doctors. So regarding the doctor part, you mentioned, I think our medico business has done reasonably well despite the high base we had last year, we've done well because of the extra headcount we've added in terms of reaching out to more doctors to both and to more retailers. And both in the branded ethical business and in the generics classical business, we are on course to deliver the numbers, which we had projected for this year. Of course, in the generics business, there was pressure on the immunity range, but the ethicals business has done very well for us compared to the last year.
As far as OTC is concerned, basically we did, as I said, as a challenge on the immunity range even for OTC. But we have planned to add about 20% outlets and increase our rural footprint also by 20%. So we will see the results of that in the second half given the initial seeding time it takes to build that infrastructure.
That's really helpful, Gul Raj sir. My last question Mohan, on the Dermicool part, when we did the acquisition, we said that 1 quarter we will continue the distribution agreement with Reckitt and the season has panned out. I just want to understand 2 updates, whether you have already taken Dermicool pan-India because it is having a base of Prickly Heat. So whether that has happened? On second, if you can say, what are the initiatives we said because in the call when we did the acquisition, you did mention that we are looking for a larger category. So maybe if you can help me, what are the initiatives already taken or maybe will be taken in the future?
So Shirish, Dermicool was already a pan-India presence product even when it was with Reckitt. And as I mentioned that it is coming to our fold from 1st of August. Now the season has gone. That's why we did not take it in the peak season. We did not wanted to do the transition in the peak season.
So we are doing it in off season. Now the season comes only in the month of February, March before that whatever steps need to be taken, we will take those steps. As far as new extensions or brands or products are concerned that we are working upon it. It will take a while for us to launch some of the categories under Dermicool. But the entire distribution will come under our fold from 1st of August.
So that will Mohan include the manufacturing in-house or we will have third-party?
Yes third-party, anyway, it was manufactured by a third party and we will continue with that.
The next question is from the line of Gaurav Jogani from Axis Capital.
And sir, one question is with regards to the Dermicool business acquisition. So sir, how much of that impact have we seen in terms of the gross margin here, given that the gross margin profile there was around 55%, 50-odd percent, and our overall company margins are north of 60%? So how much of the impact is due to Dermicool?
So Gaurav, Dermicool contribute to roughly 8% of our revenues. So that is now significant. The impact on gross margins came because of adverse mix was primarily on account of pain management portfolio, which Mohan discussed earlier is that pain management grew significantly in the base quarter last year and we saw correction this year. So...
But, sir is the assumption right that the margins there is a 55 odd percent for Dermicool?
Yes. Dermicool has a slightly lower gross margins, right.
Okay. And sir, just related question to Dermicool again. I mean what would be the contribution of Q1 and Q4 to the annual Dermicool -- sorry, sorry, yes.
Yes. So as Rajesh said, almost 1.5% difference came due to the mix, not just because of the price increase, last year, higher margin products, whether it was immunity or pain management, sales were very, very high, which has much higher margins than even 67%, 68%, okay?
Right.
So almost 1.5%. The 3.5% [Foreign Language].
Right.
It is primarily 1.5% is due to the mix.
Sure, sure. So, sir, 3.5 [Foreign Language] I think the remaining would be around 0.5% or 1% would be due to Dermicool due to this lower margin?
No, no, not so much.
Okay, okay. Okay, sir, the rest would be like RM inflation, I think.
Yes, yes. Mostly it is RM inflation.
Okay. Okay. Got it sir. And sir, with regards to Dermicool only like the annual sales, how much would be the contribution in Q1 and Q4 for Dermicool in that sense?
It will be close to 75 odd percent.
In these 2 months, in these 2 quarters.
So if you look at it versus the pre-COVID basis, so it will be ballpark 75%-odd.
Sorry, sir. I didn't get here. I mean, when you say 75% recovery, you mean, of the pre-COVID levels?
No, no, we are saying Q1 and Q4 combined would be, what percentage of...
Yes. Annual sales. Yes.
No, then it will be -- it will be 90 plus because your Q2 is hardly nothing. So it will be 90 plus percent. Q2 client is -- Q3 is 0, Q2 is 10%. Yes, it's around 90% plus.
Sure and the recovery is 75% is what you meant for the versus pre-COVID levels, right?
No, I got that wrong. In fact, I thought it's -- I was referring to versus yes, versus pre-COVID levels, we believe we will be at roughly at 75%, 80% levels.
Okay. Okay. And sir, just one last thing, sir, on the tax rate bit. I mean, we again this quarter had received some MAT credit entitlement. So now, how much of this is less and what should be the tax rate percentage that we should assume going ahead?
So Gaurav, we would -- since last quarter, March quarter we had started accounting for MAT credit and there would be MAT credits in the remaining quarters also. So difficult to give an exact average tax percentage for me, but it should be roughly, I'd say, around 18% kind of tax rate should be there. Not less than 18%, looks like that.
18% if I account for the MAT credit entitlement, is it right? Including...
Right, right, right.
The next question is from the line of Harit Kapoor from Investec Capital Services India.
So I just had a few questions, one was on the base effect in pain management and healthcare. So if we just do the math, you know basis of 3-year CAGR and apply to the maybe Q2 also, the decline on a Y-o-Y basis in Q2 would look much lower maybe close to about 5%, 6% for the pain management business and maybe 15-odd percent for the healthcare business, is that the right way to kind of look at it or am I missing something?
No Harit, in Q1, last year we had seen a significant -- in fact an extraordinary growth for pain management as well as healthcare because of the COVID impact. So from Q2 onwards, we don't have that significantly higher base.
Right. It will be much lower right so just in pain management...
Compared to Q1 it will be much lower, but still Q2 was relatively good, I'd say. We had a decent base for pain management and healthcare in Q2, but compared to Q1, it could be lower.
Got it. Got it.
From H2 it normalized last year.
Got it. The second question was on the -- 2 questions on rural actually. The first one was on the tax that you have -- the new launches that you have done in certain units or in certain brands of INR 20 bridge pack in Navratna, a 30 ml bridge pack in Kesh King, 30-gram shelf ready pack for Fair and Handsome, is that kind of to leverage the kind of distribution expansion that you're doing in rural and hence try and improve the throughput. I mean, just wanted to understand your thought process behind it, or is it that you're seeing that the market is -- rural is slow and small towns are slow, so you just want to kind of drive growth through smaller pack?
So the bridge pack truly will have a role both to play even in urban as well as rural. See rural, our LUP, which is your sachet, we sell significant quantities. So we've been -- we have a healthy mix between a base pack, large pack as well as sachet or roughly it's around 35% is your LUP.
So we would want to, so what we're trying to do also is leverage some of these bridge packs to actually bring down certain contributions of our LUP in rural that this gives us a bit more profitable mix even in rural and roughly, it actually the sweet spot in terms of a put down price suits both the [indiscernible] customers in urban as well as the rural customers.
Got it. Very clear. On the rural side only, I just -- I also wanted to understand, we have seen the slowish kind of demand trends. But as we have exited June quarter or early July, is there anything to suggest that there is some better pickup or improvement from a demand trend perspective, this is ex of what you guys are doing in the market?
Not really. We are not seeing anything say whether it's July or even probably end of June. We are not seeing that uptick. I think a lot of our growth was also being also led by a few 1% to 2% is on the entire Khoj project. So that's helping us probably deliver a better rural performance than we would have -- than what the market scenario is today.
Got it, got it. And the last one was on Navratna. So we had a good season of course, but if I would apply the same CAG -- same 3-year CAGR logic to Navratna, it still seems like there is a little bit of a decline there. Just wanted to get your sense that what's happening, is there again the demand -- rural demand issue or anything else, or if you could deconstruct maybe talc versus cooling oil or just some more color there please.
So you are right, Harit. On a 3-year basis Navratna is still on a decline, and that is primarily because last 2 seasons, you know, it was at a steep decline unfortunately. So hopefully if the trend continues, the way we have grown in this quarter, if it continues and we are seeing growth in Navratna even in the month of July. So if it continues, then maybe in 1 or 2 years, we will be able to make it up.
Got it, got it. And then last thing if I may, was on the hair oils part, so also Kesh King has recovered smartly I think 3-year CAGR is also at about 7%, 8% as per my calculation, 7 In One continues to do very well. I just wanted to get your sense on whether this growth in both these businesses is more distribution-led, it's more of your -- or is it more kind of just generally even in the same-store market share-led. I mean, if you could just give a sense on that?
So it is, see in Kesh King, we have taken a lot of initiatives, particularly in the shampoo front as in our -- in my opening remark also I said, we are putting a lot of effort on sachets and there are other initiatives also. So it is not just distribution-led. It is an overall thrust on the brand. The larger point is what Vinod and everyone is pointing out is that despite of so many -- so much challenges, we are investing on all fronts, whether in healthcare distribution or in consumer care distribution and same is in Bangladesh and other international markets.
The results unfortunately, we have not seen today, because of the market conditions, but I'm very, very optimist, when the scenario improves, we would see significant benefits coming in.
One data point, Mohan, how is -- how large is shampoo now in the Kesh King portfolio?
Shampoo is almost how much percentage? 25 percentage shampoo in Kesh King.
The next question is from the line of Tejash Shah from Spark Capital.
A couple of questions, first on -- if I see our modern trade and e-commerce selling see even sequentially on Y-o-Y both, there is a decent improvement in fact in FY '20 we were at somewhere around 12.8%. And if I do the math, then somewhere we are now at 15% plus. So just wanted to know is there any specific effort that we are putting on this side A. And B, last year same time we are very bullish on zanducare.com. So what percentage of our online sellings is coming from zanducare and then any thoughts on zanducare's expansion as well?
Vinod, here. I'll just address the MT and e-com part. So we are, yes, you're right, we are making significant investments on modern trade. So we've done 2 things, one is, we've added a lot of the standalone stores. So our earlier presence was slightly muted, we've added close to, now we are covering close to 6,000 stores, which are standalone modern stores and these are growing at a significant higher rate. We're growing at almost 80% levels.
We've also done significant investment in stores in the large hyper and we are under a project called [ Midas ], where we're looking at the entire visibility initiatives in store, and that is giving us good growth points and they're significantly higher growth rates than total modern trade. So these 2, 3 initiatives is really helping modern trade growth, where we are investing behind promoters and in-store visibility.
On the e-com also, lot of our large packs, as a trend we are seeing e-com specific SKU and portfolio growing at a much faster rate and which is helping driving e-com growth. So we began e-com at -- so we continue to grow at almost 80-odd percent on the base e-com and that's delivering good growths for us.
We've invested in the team, we have strengthened the team, we've almost doubled our team from what we began in the first quarter of last year and that's helping us and we're doing critical account managements listed in most of the accounts and that's helping driving growths. I'll just give it to Gul Raj to address the Zandu Care part.
So regarding Zandu Care, basically I think in the last 3, 4 months, there has been the same, I think higher base of last year, similar to what we've seen in healthcare and pain management, given the fact that we did particularly well in the pandemic period last year. But we have taken on pretty aggressive growths for this year in the, especially in the second half of the year, which will be led definitely by the number of new launches we are doing of digital first brands. So along with the existing base brands and the new digital first brands, we are launching, which many of -- which will be new to the market, new to the industry, led by a strong R&D development. We do see a strong growth potential for Zandu Care given the fact that many consumers are now moving to buying online et cetera.
And we are addressing the millennials, the digital natives. So we do foresee strong performance coming and of course in a small base related to the overall business it will be smaller, but we are obviously investing for the future, not necessary for this year, but for the next many years to come.
Just follow-up -- one follow-up on that. So are there any of our brands, which are actually clocking better market share in any of these channels versus let's say GT or the traditional ones?
I think across our portfolio. If you look at the respiratory, if you look at immunity, if you look at digestives and other segments such as sexual wellness from whatever we know of, obviously, there is no industry tracking, which happens like Nielsen, but whatever we've been able to understand from our comparator companies in the market, we seem to have better in terms of growths. If you see imports the last couple of years and even in this quarter, our relative performance has been better than theirs. So we have the market presence -- most of the segment we are present in.
Sure, that's it. And the last one for Mohan. Mohan, you have shared the details of the new Board members and visibility the new -- visibly, the new Board has a good mix of experience and energy, but just curious to know, is this a routine rotation, or we, which we are -- we actually wanted to use this opportunity to put certain specific talent or experience gap in our portfolio? Or let's say in our board of -- board members in terms of what they bring to the table in terms of the think tank that we have?
No. So of course the 5 directors, they had completed their term. Okay. So we had to appoint 5 new directors. It was a good opportunity, I think we have got a very good mix of experienced directors now, I'm sure, they would add a lot of value.
The next question is from the line of Vishal Gutka from PhillipCapital.
Most of my question is answered, but one more question on the bridge pack, if you can just highlight how bridge packs or what do you call for Navratna, Kesh King and Fair and Handsome, has helped the growth in this quarter and for Kesh King specifically INR 49 bridge pack you launched so in that are you providing applicator as well because then how the margins will look because if you have to provide the cost of applicator and the bottle? I just wanted to understand on that front?
So the bridge back, so we've not gone full hog on the bridge packs but they are contributing significantly. We just about launched it. We were testing waters in some sense, which are contributing significant, is around 2%, 3% as of today, but what we're seeing is the market acceptance was phenomenal. And we've seen us gain actually distribution, we've almost seen 60%, 70% of the core brand distribution because of these bridge packs. And what we will continue to do is then keep investing behind this and looking at this, we will be also looking at other brands of ours, where we could launch bridge packs because this just helps arrest any consumers moving out of category and if there is any downtrading that is happening that stays within our category.
Okay. And for Kesh King, if you can comment upon?
Sorry, what is the question on Kesh King?
Yes, so because in Kesh King, you will provide the applicator as well, right, for INR 49 bridge pack, so how the margins will look, it will be margin dilutive in that case or how to look on that -- in that sense?
No, the margins are -- it's not margin dilutive at all. And this is -- yes.
We really have to check if there is an applicator in the segment.
But the margins are not at all dilutive on this pack.
The next question is from the line of Abneesh Roy from Edelweiss.
Few follow-on questions, so first is the structural question. I remember, saying that Emami wants to reduce the seasonality, which is there in your businesses. Now if I see Dermicool in fact increases the seasonality because Q1, Q3 -- Q1, Q4 will be higher index while Q2 to Q3 almost negligible. So will you now proactively try to address again the increase in seasonality or it is now much larger business, so it is okay?
No, Abneesh, if it is addressed on its own, it is fine. We don't have a deliberate plan to address it. Okay. Because brand building or brand buying is not in our control, if you like something or if it fits within our overall scheme of things, we will keep on acquiring those products even if it is seasonal.
Second is on immunity because of COVID, Chyawanprash et cetera saw a huge increase in penetration, but Indians are extremely focused on current scheme. So the new customers who got added because of higher penetration, any sense, Mohan, you have that they will remain because clearly all companies are saying that now sales have completely come off. This is not peak season. But how do you retain the new customers who had come, I understand the penetration had increased sharply.
Gul Raj here. So you're right that, ideally a certain number of customers should have been retained. But what you are seeing of the category and the industry as a whole, across all the immunity categories, the level seem to have gone to back to the pre-COVID levels, if anything, there seems to be more pressure there.
While we don't have a research data to prove it, but at the same time, we do believe that in certain segments, there will be a certain retention, which is higher than what it was earlier, but currently, what we are seeing for the industry as a whole, the -- we are not seeing any uptick compared to what it is to pre-COVID levels. The reason could be that many people would have bought these products in last year in October-December and they are carrying stocks.
So right now, people have gone to the other extreme, where they're not really sort of -- the drop is far higher than what one would have thought it is. Now, we don't have data across segments on how many are the existing versus new customers at this point it seem. Very difficult to [indiscernible].
And one question on bridge pack, so one is INR 20. I was a bit surprised on that pricing because normally bridge pack is something say INR 13 or INR 17 something like that. So my question is, are you giving more value to customer on more grammage for that. So why will customer shift from the LUP to the INR 20 pack?
On which pack, were you seeing, which pack specifically?
The example you have given in the presentation, the INR 20 bridge pack, yes.
So we have, in fact across our portfolio, we do have a wide range. So whether it's sachet, so we also have a INR 50 pack, we will have a 50-ml pack, we have across the brands. So the bridge pack actually is playing between the smallest pack, which is in bottles for each of these brands and the sachet.
So we don't. You're right, we don't see complete switch, you won't see the switch between a sachet user who is also an infrequent user in that sense to bridge pack, but what we're trying to do is look at driving the salience of these packs, which builds profitability for us for those channels as well going forward.
So essentially grammage, you are not really offering more to the customer on versus a sachet, would that be correct?
Yes. No. In a cost point of view and a price per ml, no, but grammage definitely yes. In a per ml...
Yes. And last question is on quick commerce, any data you can share, how relevant is it for your category. And have you tied up with all the key [ shares? ]
In e-commerce?
No, quick commerce, 10, 20 minutes, 30 minutes deliveries.
Quick commerce.
Yes, yes. So we are present on all these platforms.
But how is the exposure as in, any number you can quote, how much of sales is coming from quick commerce?
No, it is very less, so because they also operate with a limited portfolio and they largely follow a very essential purchase kind of a model, they are also building, they are also reinventing the models as channels and they're trying to look at delivery times, which are slightly longer, which actually brings in a bit more planned purchase. So we have only very limited SKU presence in these channels. And we just participate in that. The numbers are small.
The next question is from the line of Kaustubh Pawaskar from Sharekhan by BNP Paribas.
Sir I just want to understand that how much was the raw material inflation for this quarter and whether if we have taken any price increase in this quarter?
So we have taken roughly 4%, 4.5% kind of a price increase, blended price increase across the portfolio. And the inflation has also been very significant and as a result of which our gross margins are impacted. So 2 primary reasons as we discussed earlier for our gross margins getting impacted. One is the high inflation and second is the mix impact because last year in the base quarter, we had high margin categories getting sold.
So 4%, 5% price increase was taken into this quarter or...
It is a blended average.
Blended average price increase. Okay. And going ahead, are there any plans to increase the price considering the inflation because as you said that you have a inventory of high-cost raw material for another quarter or 2. So are we looking at taking further price hike in portfolio or like there would be -- there won't be any significant price increase?
So we expect our average price increase in the range of 4% to 4.5% for the full financial year as well. Similar kind of a price increase impact.
[Operator Instructions] The next question is from the line of Shirish Pardeshi from Centrum Broking.
Mohan, I have got 2 sub questions on the margin front. Last time you have guided that there will be a decline in gross margin because of the raw material and investment in the ad spend. So I'm not asking for the next quarter, but how one should look at FY '23, how much ad spend you think, you would do will be in the range of 18% to 20% of net sales or it will go up?
And second, as Rajesh has mentioned that there will be mix change which has not helped in this quarter. But do you think confident that second half, your mix change will not require to take that kind of aggressive price increases?
Yes, Shirish, on a yearly basis, I don't think we should have an impact more than 2% as far as gross margin is concerned. Okay. And we would as and A&P, we would try to be almost in the range of about 17% to 18%, not more than that that is what we have planned. And sorry, what was your last question, Shirish?
No, I'm saying. So you said that 200 basis point improve and the decline in gross margin, which will happen, but I was more keen on, if you have any plans because you mentioned that Dermicool will come in quarter 4. So, is that the ad spend you will be able to manage within that range?
Yes, we would be able to manage in 17% to 18%.
As there are no further questions from the participants, I now hand the conference over to the management for closing comments.
Thank you, Percy, thank you IFL and thank you all the participants for joining us for our quarter 1 FY '23 results con call. Thank you.
Thank you, everyone.
Thank you, everyone.
Thank you. On behalf of IIFL Securities Limited that concludes this conference. Thank you for joining us. And you may now disconnect your lines.
Thank you.