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Godrej Consumer Products Ltd
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Ladies and gentlemen, good day, and welcome to the Godrej Consumer Products Limited Q1 FY '19 Earnings Conference Call hosted by CIMB Securities Limited. [Operator Instructions] Please note that this conference is being recorded.I would now like to hand the conference over to Mr. Amit Purohit. Thank you. And over to you, sir.
Good evening, everyone. On behalf of CGS CIMB Securities, I would like to welcome you all to the Q1 FY '19 conference call of Godrej Consumer Products Limited. We have with us the senior management team of GCPL. Over to the management for opening remarks, which will be followed by Q&A session.
Thank you, Amit. Good evening, and welcome to the conference call of GCPL to discuss the results for the quarter ended June 30, 2018. We have with us: Nisa Godrej, Executive Chairperson; Vivek Gambhir, Managing Director and CEO; V. Srinivasan, CFO and Company Secretary; and Sameer Shah, Head Finance, India and SAARC and Investor Relations.We will start the presentation with Vivek sharing his thoughts on our performance. And then we can open up for the Q&A. Over to you, Vivek.
Good evening. Thank you very much for the opportunity for us to discuss and talk a little bit about our performance in the last quarter. And as we've done in previous discussions as well, we will do a quick walkthrough of the performance update presentation, following which we'll be more than happy to answer your questions and take your feedback.And so if you turn to the presentation starting from Slide 3, which summarizes our quarter 1 financial performance. As you will see, we have had a good year -- a good start to fiscal year 2019 with profitable ahead of the market growth across most geographies and categories. Our constant currency sales on a comparable basis increased by 10%. Reported EBITDA increased by 28%. But EBITDA on a constant currency basis increased by 26%. Our reported net profit increased by 80%. And net profit without exceptionals and one-off items increased by 36%. The board has declared an interim dividend of 200%, which is INR 2 per share and an issue of bonus shares in the ratio of 1 equity share for every 2 equity shares held, subject to requisite approvals.The next couple of slides outline the details of the exceptional items and the one-offs. And we can cover this in more detail with Srini and Sameer in the Q&A. And the other following slide shows the bridge between reported to operating EBITDA, again not much of a change between there.On Slide 6, we show you the balance sheet data -- the key balance sheet data. And across all fronts, the key balance sheet metrics look to be very strong and headed in the right trajectory. If you look at ROE, ROCE, operating ROCE across most of the dimensions, the numbers and the ratios are trending in the right direction.If we turn over to a quick look at our India performance starting on Slide 8. As we had mentioned in India, we delivered a sales growth of 14% on a comparable basis with a 14% volume growth and EBITDA growth of 44%. We recognized that the base quarter was a weak quarter for the FMCG industry. So if you take a look at the 2-year CAGR of growth as well, that is a 10% 2-year CAGR growth. And so across all parameters for this volume growth and EBITDA growth, the numbers have been very positive for our India business. What is heartening, if you see Slide 9, is that the growth has been quite broad-based with a 17% growth in Household Insecticides, 10% growth in Soaps, 12% growth in Hair Colours and a 21% of growth in our Other Brands. And so across the board, we have seen double-digit broad-based growth across all of our categories.A quick look in terms of our categories, starting with Slide 10. Household Insecticides delivered a robust performance with a volume-led sales growth of 17%, which has been the highest in the last 7 quarters. This growth was driven by a better season and some of the new products that we have launched. Both the Goodknight PowerChip and the Goodknight Activ+ liquid vaporizer with 50% more power continues to scale up well. We've also had some new low-unit packs in the coils market that we've discussed. And that's also helping drive this growth. The focus continues to be to -- on driving penetration with launching affordable solutions and trial generation SKUs. And we are making strong investments for our future growth.On the Soaps business. The next slide actually talks a little bit about some of the low-unit packs we have launched in insecticides. We have a low-unit coil pack for our Green Shakti coil. Our Fabric Roll-On, which has done very well, which was originally INR 75. The low-unit pack at INR 20 accelerated trials there. For our Goodknight Cool Gel, we have a low-unit pack at INR 10. And apart from these also, there are a couple of other interesting launches that we are planning for in the next 3 to 4 months. And so as far as, I think, insecticides are concerned, the focus and commitment to driving growth through both distribution expansion, innovation and right-pricing our products continues to go on full steam ahead.On Slide 12, which is our performance in our Hair Colours business. Here again, we delivered a double-digit volume-led sales of 12%. Godrej Expert Crème continues to consistently deliver robust performance with double-digit volume-led growth. We continue to expand distribution, expand our penetration and gain market share. And we've recently launched a new campaign to recruit new users into the category. In terms of innovation, we have now forayed into the herbal-based powder hair color segment under our Godrej Nupur brand. This is -- this category opportunity has almost a INR 1,000 crores opportunity. 25% of the hair color market is comprised of henna-based powder users. And our belief is that this will again help us recruit new users to the category through a very interesting format under the Nupur brand.On Slide 13. On the Soaps side, we have sustained our volume-led sales growth of 10%. Both Godrej No. 1 and Cinthol have done well. We continue to gain market share. And the performance was led by effective micro-marketing initiatives and a strong on-the-ground execution. So overall, I think, in the India business, consumer demand is improving. And we expect this recovery to sustain going forward. Both urban and rural growth will be better this year. In this quarter, our urban business grew by 13% and the rural business by 17%. And we do expect the rural growth will continue to outpace urban growth on the back of remonetization, the settling down of the GST implementation and the government's efforts to stimulate the rural economy. And as we've have mentioned before, our thrust on innovations will continue. And we are clearly accelerating the pace of new launches with differentiated and unique products. Fiscal year 2019 will be our most active year yet in terms of new launches. In India alone, we've had 3 new launches in the past few months. And we have about 3 or 4 more planned in the next few months as well.Now switching gears to our international business. Our international business delivered a constant currency growth of about 7%, driven by the recovery in Indonesia. The adjusted EBITDA margin declined marginally primarily because of a little bit of limited operating leverage but more because of the investments that we are making in terms of our advertising and promotion spend, along with investments we are making in talent. So we are clearly investing in several markets ahead of demand, which we believe will yield strong dividends both later on this year as well as the years ahead.Generally, if you turn to the Indonesia performance, which is on Slide 18 onwards, the business saw a recovery ahead of the market, constant currency see growth of 10%. The market environment still remains challenging. But our team is working very hard on stronger execution, newer product launches and more effective spend in marketing. We've regained our market leadership in HI. And we've continued to gain market share on a year-on-year basis as well on a quarter-on-quarter basis. Adjusted EBITDA margins increased by 220 basis points led by cost savings initiatives, lower overheads and better optimization of sales promotion spends.In our Africa, U.S. and Middle East cluster, what we call GAUM, it was a relatively soft quarter with a constant currency sales growth of 5%, led entirely by volume growth. While our West Africa business did very well and Kenya is seeing early signs of recovery, sales were impacted by a lot of weakness in South Africa as higher fuel inflation, increase in the VAT and transporters' strike really adversely affected disposable income. And so in some ways, challenges we saw in South Africa were quite unanticipated, particularly in the month of April. Through May and June, while the challenges in some ways still remain, through some of the actions that the team is taking, we are seeing an improvement in our performance. And we are hopeful that the South Africa business should improve in the quarters ahead. And excluding South Africa, our business grew in double digits in constant currency terms. Adjusted EBITDA margin decreased, largely driven by the lag between increase in input price costs and price hikes, lower operating leverage but also because of some of the upfront marketing investments we are making to both scale up wet hair and along with some of the spends we are putting as far as infrastructure and talent is concerned across both of our Africa center in Dubai and across our various geographies in Africa. Again, these upfront investments that we are making, given the significant potential that we do see in Africa, we do believe that it's only a matter of time before you start seeing these investments translate into both better and stronger sales growth and profit growth. We've added a new section to our performance update, which is around innovation. And as you can see, there are some very exciting innovations that we have launched. One of them is the PowerChip -- Goodknight PowerChip System. This is an effort to try and upgrade coil users to a more efficacious format with unique jet air technology. And on a per night basis, it's more affordable. It lasts for 15 days with a disruptive price point of INR 30 for a PowerChip and INR 45 for a combi-pack.The next innovation that we have launched is a higher-efficacy liquid vaporizer. The opportunity size is over INR 2,000 crores. This liquid vaporizer machine is 50% more efficacious than a regular liquid vaporizer and is priced at INR 72. We've talked about the henna-based powder hair color under Nupur. It has the goodness of natural henna, easy application, available in 3 shades with a disruptive price point of INR 10.Turning to international business. In our U.S. business, we've launched a naturals range on the African Pride called Moisture Miracle. The products are -- have no parabens, no sulphates, no petroleum, delightful fragrances. We are quite excited about the opportunity that this new segment provides to us there as well. Every quarter, we will continue to share more stories about some of the innovations that we are launching. We'll focus this section more on new innovations and new launches as opposed to new variants. Clearly, there's a lot more work that's been going on as far as launching new variants are concerned.So as I mentioned earlier on, generally we are feeling quite happy with the performance this quarter. Indonesia and India clearly are the markets we feel better about. I think in Africa, the foundational [ building ] blocks are being put into place. So while the quarter was soft, certainly our expectation is that on an overall year-on-year basis, the performance for Africa should be better than last year both on the top line and the bottom line front.We'll be more than happy to take your questions and your feedback at this stage. Thank you.
[Operator Instructions] We take the first question from the line of Abneesh Roy from Edelweiss.
In the presentation you have mentioned in Soaps you have gained market share in the domestic business. But there is no mention of HI market share and Hair Colours. So if you could tell us, as per Nielsen, what is the performance here?
I think it is a marginal increase in share across both insecticides and Hair Colours, Abneesh.
And coming to the new disruptive innovation, PowerChip, are you seeing any down-trading from the regular vaporizer to this because price point is lower? If no, how are you ensuring in terms of the distribution and the marketing so that down-trading is minimal?
The messaging of the proposition has been around the power of 100 coils and which is working quite well. And so the way we are positioning the messaging, the proposition and to certain a degree, the go-to-market initiative, our target is far more to upgrade coil users. I think so far, we have not seen any down-trading from LV. But even if a little bit of that happens, Abneesh, I think the whole intent will be to develop a category to providing different products at different price points. And so even if -- we don't expect much cannibalization. But even if it happens a little bit, our expectation will be is that, first of all, it will enlarge the whole pie and a much higher proportion will upgrade from coil. And net-net, that will be positive.
And Abneesh, we've also launched -- I don't know if you've noticed that we've launched a power refill, which is at 350% more powerful and which is replacing the old refill with the new refill. So the consumer is getting much more efficacy at the same price. If you talk through in areas where, in fact, business is high right now in India and you ask about this refill, the consumer feedback is very positive. I think one of the ways that we grew our LV business over the long term was getting these coil upgrades. We felt that we needed another price point to drive this penetration. So things like PowerChip and stuff in terms of our GPM, in terms of our marketing is very, very focused on coil upgrade. Obviously, I think between format, there can always be some amount of cannibalization. But we're not too worried. And actually, HI is a very dual-usage category, so people are making those multiple choices. And the LV and PowerChip from a consumer benefit point of view is quite different.
And also the select market launch [indiscernible] in PowerChip have been obviously not in Eastern parts of [indiscernible]. The PowerChip hasn't been launched in the South, which is quite a big market for us in electric.
But in the non-South also, would you be restricting PowerChip in the urban areas, for example?
No.
No.
My second question is on the Power Activ+. Now Indian consumer is all about value. Now in a normal, regular vaporizer also there are 2 modes, right, the lower mode and higher mode. And because this, you are charging INR 72 in this latest innovation. Here again, I wanted to understand, how do you really communicate to the customer to pay extra because that message is also...
They're not paying extra. We've kept our prices. So it's the same. So we've not charged more for this 50% more powerful. This has been our pricing now for a while, yes.
And my last one on HI was essentially the new product, 4 coils at INR 10. So is there any competitor at this disruptive price point? And versus larger pack, how is the affordability?
Abneesh, right now, there is no one actually in pack of 4, which comes in sort of [indiscernible] sachet packaging format. We are the only player to have this at a price point of INR 10. The larger pack, which is already a pack of 10, would cost in terms of MRP, anywhere between INR 33 to INR 35.
We take the next question from the line of Amit Sinha from Macquarie.
Firstly, again on India HI, in the last few quarters, you spoke about the issues, which were kind of impacting the growth overall. And largely, you pointed out towards affordability and efficacy. Now clearly, you have launched 2 products. Do you think that these 2 products largely solve the problem? I mean, it's still early days. And you are yet to face the biggest quarter of the year. So just wanted to understand, I mean, how confident you are on the turnaround which you are seeing in the first quarter.
It's journey. I think clearly, while these products will help, that's not the only answer here. It's a portfolio game. And so one is obviously stronger marketing, better distribution. A continued thrust on innovations will continue. And so along with these products which we hopefully do very well, there are other things we have in the pipeline, some that will get launched this year, some that are being planned for the following year, some that are being planned for the year after, right? So there is a plan for more products as well. So I think it's a portfolio approach. But I think our belief is that hopefully, if the team executes well now, there is -- there are enough opportunities for us to continue to grow the category. I think category development is the #1 objective. Then within that, if the category grows and if we can drive penetration harder, I think we will also then deliver and drive the right kind of performance for our business.
Yes. And I think, I mean, in sort of hindsight it seems that when you slow down on your sort of biggest and most important categories, we spent a lot of time looking at the category and building both new products, looking at distribution again. So I think you will see a lot of strong work from us. And we have a very big innovation coming in this quarter. So we're quite excited about that, too.
Yes, okay. But just wanted to understand, I mean, this quarter's growth, clearly you were the market leader and a lot will depend on your pipeline to turn around the segment. But this quarter, the growth was largely driven by the seasonal -- season being good or your products doing much better?
Difficult to try and -- I wish I could tell you what percent is driven by -- I think the season was okay, right? Because it seems relatively weak in the East, for instance, because of relatively late onset of monsoons there. So the rains have been okay. It's not been a stellar season as far as insecticides is concerned. Second is the base was quite low. One has to remember that as well. I think it's a combination of the stronger focus, some impact of the innovations. Again, the innovations are just pretty early. So we can't even necessarily call them a success quite as yet. But I think it is a combination of focus, a slightly better season, some impact of new innovations. I think all of these things together have enabled us to deliver these kinds of numbers, which we hope to sustain going forward as well.
Sure. Okay, secondly, on the Indonesia business, while you have mentioned that you have gained back the market share even on Y-o-Y basis, if I look at the revenue run rate, clearly it is less than first quarter FY '17. Now the question is has the HI market shrunk in the last 2 years significantly in Indonesia? And what is the outlook there? And how are we doing in the non-HI portfolio in Indonesia?
Yes, if you look at the reported numbers reported by the market research companies, over the last 2 to 3 quarters, the overall HI market has been showing a decline. Even last quarter, the market showed a decline whereas we've -- our growth has been much more positive than that. I don't think there is anything structural about this decline. The hypothesis here is that if you recall a year ago, the level of promotional activity was extremely intense, which led to a lot of pantry up-stocking in consumer homes. So as we discussed it with our team, the belief is that it probably will take a quarter or 2 at an overall industry level for the pantries to be exhausted. And I think once that happens, you will start seeing again growth return back. But structurally, there's nothing to worry about the HI category as a whole. But I think some of the category challenges over the last few quarters has been through the pantry up-stocking issue. In terms of our other categories, air fresheners continues to do quite well. That's the second major category. And beyond that, with some of the other categories, generally they seem to be on track.
We take the next question from the line of Arnab Mitra from Crédit Suisse.
First question was on the revenue growth. So the India business, your pricing growth is still running nearly 0. So I understand that Soaps input costs are still down. But when would you expect some level of pricing growth to come back in the other parts of the business? Because other than that, once the low base goes away, the volume growth equal to revenue growth will be potentially a single-digit number. So just wanted to understand on the pricing growth part of it.
This is Sameer here. So we have taken some price increases at the back end of the quarter. So there will be price increases in Hair Colours, in toiletries and air fresheners, the impact of which will start being reflected from quarter 2 onwards. In case of Soaps, I think overall palm oil prices are still down. And hence, there is hardly any room for taking price increases, though we are looking at differential pricing in different states as part of our revenue growth management [indiscernible], which we are planning on Soaps. But we are [ going to see ] a little bit of price [ share ] growth in our overall India business revenues, largely driven by price increases in non-Soaps portfolio.
I think the other important part, too, would also be both from a gross margin perspective, which is the other part to think about this, beyond just price [ share ] growth is both the impact of portfolio mix and the impact of innovations. So as the portfolio -- if HI grows fast and Hair Colours grows faster, that will definitely lead to a stronger gross margin profile. And so while you may not necessarily get the desired price [ share ] growth necessarily quarter-over-quarter, but from a gross margin perspective, I think our portfolio makes all our innovations at a higher gross margin. So I think, the other important part here is really the trends in gross margin. And as we can see, even last quarter, the gross margin improvement was extremely healthy. So even though it was all largely on the volume growth-led, in terms of gross margin at least, it is a trend in the right direction.
Sure. The second question is on margin. So again, coming back to your point on margins, so one thing is very clear that in Indonesia, you had a very low margin in this quarter. This was the peak of the competitive intensity. So to that extent, and then you had a substantial improvement in margins going ahead through the year, similarly in India, the gross margins were very, very low this quarter. And then it improved through the last year. So going ahead for the balance of the year, other than mix, what you've encountered, are there other levers to expand margins because now the low base kind of runs out on margin?
Yes. No, I think quarter-over-quarter, there will be some changes largely driven by how much marketing spend we are putting in for new launches. So the first priority has to be for all the new launches and for all of our existing cores, are we investing at a competitive level? I think beyond that hopefully -- so while there will be some volatility or fluctuation at a quarterly level on margin, at this stage, we feel fairly comfortable that for the entire year, our profit growth will be ahead of sales growth at the consolidated level because there are a fair amount of cost initiatives that are being worked on. And typically, those cost benefit -- cost optimization projects deliver results more towards Q3 and Q4. And I think as we look at the plans for the year, while there could be some obviously quarters where margins could be under pressure, more driven by brand-building, it's a conscious call we'll take. For the whole year as well, we still feel very confident that profit growth will be ahead of sales growth.
We take the next question from the line of Sameer Gupta from IIFL.
This is Percy here. Sir, my first question is on this new coil SKU, which we have launched at INR 10. Just wanted to understand, I mean, it was my understanding that the retailer anyway was willing to break bulk. So if a customer went and asked for 4 coils, he was willing to give that by opening the pack. So is this understanding not correct?
Typically, about 1/3 of the customers would buy loose coils, as you call it, right? About 2/3 of the customers still would buy the whole pack.
So if the retailer is willing to break bulk, then it's not an affordability issue to start off with, right? Because if I want to buy only 4 coils, I'm getting that. So it's not that I am forced to pay INR 30.
So if you buy 4 coils, it would -- typically, a retailer would sell a single coil at INR 3.50 or INR 4 a coil. So in that sense, a pack of 4 at INR 10 would be far more cost-effective than buying each coil. Even if you buy the INR 3.50, it would be INR 14 versus INR 10.
Also these loose coils [indiscernible] compared to a whole pack [ coil ]. This pack of 4 at INR 10 price point will be available both in rural as well as in urban.
Okay. The second question is on Africa. And historical context here is that when we acquired Darling, when we made the first announcement of acquisition, at that time, the PPT said that margins are in the region of 20% or maybe high-teens at least. And then we have acquired SON, which is a 20%-plus kind of margin business. And today, our margins are significantly lower than that. And each quarter, almost for the past 4, 5 years in your presentation, you mentioned one of the reasons as upfront marketing costs. So I mean, these upfront marketing costs would come in the base at some point of time, right? They would incrementally not affect margin. So when do we see that phase coming for us?
Clearly, I think as far as margins are concerned, Africa is behind our expectations, right? A lot of the expected margin challenges are less driven by upfront marketing investments. That's a more recent phenomenon. The bulk of the market challenges have been very, very significant devaluation in currencies, which led to much higher input raw material costs largely in the dry hair or the hair extensions piece, where the fiber is largely imported. So there are 2 or 3 pieces of the way our strategy has been working. One is beyond dry hair, can we look at expanding the portfolio to other categories? That's where things such as the wet hair care come into the picture. The second is wet hair tends to be a higher margin -- gross margin category. Second of all, a higher percentage of wet hair over time has now been locally manufactured. And that's was the strategy of taking products from SON and locally manufacturing. That journey has been happening through last year. And that scaleup continues to happen. So a combination of -- and now hopefully going forward, while it's difficult to take a call, the currency environment seems to be much more stable now than what we have seen in the last 3 or 4 years. So a combination of stable currency environment; second of all, broadening the category mix; third of all, I think as we gain scale, all of these ought to lead to an improvement in performance going forward. And as I mentioned, again the hope would be is that this year should be a better year in terms of both top line and bottom line is concerned. And if we deliver that and the platform is still in place, to be able to deliver a stronger performance. Having said that, at this stage, we will not shy away from making the right level of competitive investments in marketing, both for wet hair and for dry hair. And so the intention would be is let's keep on making prudent investments in marketing. But the combination of these factors should enable us to improve our margin profile. But as you've pointed out, clearly I think the sheer extent of currency devaluation over the last 3 or 4 years has put even our personal expectations on margins below what we would have liked at this stage from Africa.
Right, Vivek. Just dwelling a little bit deeper on this, I was just referring to my notes from some earlier con calls. And basically, if regard to currency devaluation, what we had said earlier was that it's affecting everybody. But it's affecting us a little lesser because we have sort of manufacturing on the ground and our sort of import component is a little lesser. So it's affecting competition more. And we are playing the market share game by not taking price hikes as much as required. And that would hurt the competition more and we would gain market share, right? And it did play out, you were growing very robustly for a few quarters and gaining market share at the cost of margins. But now what has happened is that even your sales growth has petered off and your margins have also petered off. So it's no longer a tradeoff between the 2. So there's -- I mean, something has gone wrong. I mean, if the growth -- if we are no longer gaining market share, then we might as well take a price increase and pass on to the customer, right?
Yes, I think we have also shared in the past that [indiscernible] would have paid off, though what is happening at this point in time is the investments [indiscernible] last 3, 4 quarters, they have been more on wet hair care, which has been largely more of East and West Africa phenomenon. At least last quarter, what we did see is a bit of sluggishness in the South Africa operations, which actually pulled down the overall sales growth. So for instance, the [ ex ] South Africa business grew in [ only ] double digits, where there [ is also ] marketing investments and scaling of wet hair care.
Okay. And last question, if I might, Indonesia, you have done good this quarter. But I think even still on a 2-year CAGR basis, we are negative. So any sort of visibility on when the 2-year CAGR can turn positive for this business?
So firstly, I think as we have shared and as we have been sharing over the last 4, 5 quarters, as every passing quarter, the growth rate should be heading in the right direction. We just see for almost all the 4 quarters of last fiscal year, this is the first quarter where we're back to double-digit growth rate. Despite [ the overall ] FMCG kind of more or less kind of soft, there's no change [indiscernible] last year 3, 4 quarters, we do expect this momentum to continue also going ahead. I think on a full year basis, we will see at least hopefully a double-digit kind of growth rate as well as expanding margins. Again, there will be new product launches. We are working on go-to-market initiatives, which should all lead to the [ reverse ] of this business performance.
We take next question from the line of Prasad Deshmukh from Bank of America.
Couple of questions. Firstly, on home insecticides, historically the plan was also to expand beyond mosquitoes and roaches and launch products there. However, incrementally more and more launches are coming in the same segment. So what -- is that -- is there any change in the thought process in terms of how big the opportunity is or whether it's too early to go into those categories?
No, if I look at, for example, our HIT brand, the HIT brand has 2 main kinds of SKUs: one is a Crawling Insect Killer and one is a Flying Insect Killer. The FIK is what is really the mosquito part of it. The CIK is actually the product for other pests. So HIT CIK is doing very well. I think generally, HIT Anti Roach Gel and the Gel Stick, there's some more work needed to be done there to tighten the proposition. But I think across the board, the non-mosquito part of our portfolio is increasing every year. And there are more products that will be launched later on. So from an intent perspective, there is no change in our thinking about the importance of the other pest categories. It just takes time because some of it requires more habit-changing kinds of communication. But I think we are quite committed and we see an opportunity to expand the other pests part of the portfolio as well.
Sure. And how big is out-of-home insecticide portfolio now? And how is it growing?
We don't share those numbers.
Got it. And any update on the air care as a category? I mean, from the presentation, it's -- I couldn't see it there, so -- in India.
We have shared actually a slide, Prasad, on the Hair Colours...
Air freshener.
Air, yes. Yes, doing well. The 21% growth that we see in the others is largely driven by air fresheners.
And we continue our market leadership position in that category.
We take the next question from the line of Mehul Desai from IDFC.
This is Harit here. Just two questions. Firstly, just wanted to check the new launch on this -- on Goodknight Activ+. Does that require -- is there a new formulation? So would that mean that it would have taken you the whole process of time to get this? And also will competition then not be able to react immediately on this?
I think the competition does have a similar product, but -- but I don't think for us in LV, it's only about competition, it's actually about penetration and consumption with our own consumers of giving them something more efficacious [Technical Difficulty]
From a consumer testing perspective has received rave reviews. And along with that, we are now launching a set of new products as well, building on the platform that we've created. And so across the board, particularly I think in West Africa and East Africa, it's been a little bit slower in South Africa. Generally, the launch is largely on track, some delays as far as scaleup of local manufacturing is concerned. But more importantly in terms of the consumer feedback and the salon feedback, the products are receiving very positive feedbacks. And again, as I mentioned, this is just the beginning, there are lots of new launches and new products that we will build on these brands over the next 1 or 2 years.
Secondly, on the margins for this region, what in your view would be the normalized level of margins for this business, assuming all your investments, which are marketing-related, infrastructure, capability building-related, normalize over a period of time?
Our belief still is that over a medium-term basis, so over a 3- to 5-year basis, the margins for this business should be in the high-teens. And that's what we are working towards. It's taking us longer than what we anticipated largely because of some of the currency impacts that we saw over the last 2 or 3 years, and along with that, some investments we've made in people, creating a new applicant center in Dubai, some brand-building that we are doing now for wet hair and dry hair. So a combination of those factors have led to the margins being below our earlier expectations. But our belief still is that over a 3- to 5-year time frame, the margin should be in the high-teens here.
That's helpful. Just lastly, on Indonesia bit, anything to share on your hair color [indiscernible]?
Still quite small. I think there again, I think the team is now looking at some additional plans for this year to try and see how we can drive hair color faster. Honestly, because of the turmoil that the market saw over the last 6 to 12 months, the bulk of the focus was on insecticides and air fresheners and baby wipes because that's almost 80% plus of the portfolio. Now that the economic -- at least the market environment, the team is feeling better about. And a lot of the hair color will ride on some of the work we're doing on the GT expansion front as well. So I think this year, we should see a better scaleup on the Hair Colours business. So while the business did well last year, the numbers are too small that they got to talk too much about it.
[Operator Instructions] We take the next question from Kaustubh Pawaskar from Sharekhan.
Sir, my question is on the Latin American business. It was part of your 3x3 strategy earlier. And the focus was building a business in Indonesia, Africa and Latin America. But your Q1 presentation suggests that now it has become more of a non-focus business and focus is more of gaining momentum in Africa and Indonesia. So can you throw some light on it? And how -- what would be your strategy or plan for the Latin American business?
I think from a priority perspective, and I don't think it's just this quarter, I mean, we very clearly said our top priorities are India, Africa and Indonesia. We continue to grow Latam. But I don't think anything changed materially over the last 2 quarters in terms of our focus and what we want to do. We think that those [ 3 ] reasons are obviously -- [ we have several days ] and higher growth opportunities and we're [ entering in ] more categories.
But anything on the performance front? Because Latin America was something -- a drag on your international business. But now since the macro environment there has yet to see a recovery, still it continues to be a drag. Or we will see some kind of improvement over the period of time?
So I think, Kaustubh, to begin with, the only reason [indiscernible] feedback on those market participants, combined actually Latam, Europe and even the SAARC business [indiscernible]. Just to give you [indiscernible] of the performance [indiscernible] constant currency, sales grew in Latam. The margins are nothing much to talk about because [indiscernible] in Latam [indiscernible]. We are more or less kind of maintaining our market share. And as Nisa said, I mean, we are kind of continuing in terms of past strategy. But yes, [indiscernible] focus will be [indiscernible] growth in almost all the 3 large clusters, which is India, Indonesia, Africa [indiscernible].
Right. My second question is on various cost-saving initiatives you have taken in the past couple of years. And they are giving you a lot of result in terms of margin improvement and good profitability. So going ahead, any targets of in terms of margin improvement through these initiatives? Any internal targets you have set in for yourself?
No, no targets as such. I mean, I think we would like to share externally, of course, internally [ to operate our euro ] targets. But just to give you an example, [indiscernible] sot improvement programs in India 4 years, 5 years ago. And today, it's [ been one of the ] strategies in [ the local industry ] [indiscernible] to lead to profitable growth. And not just profitable growth but also the investments for new product launches. We have rolled out a [indiscernible] program in Indonesia at the back end of last fiscal year. And this year, I mean, we're going through new kinds of scaleup. So we have seen the benefits of [indiscernible] restructuring costing program [indiscernible]. And we would want to kind of fast-track as well as continue with those programs.
[Operator Instructions] Next question is from the line of Manoj Menon from Deutsche Bank.
I just have only one question on Africa. Some of it has already been responded to. The question is there are external issues which are pretty well documented on internal changes, the new CEO, new office in Dubai, et cetera, which you alluded to, which is also known and actually you had guided appropriately earlier. A couple of other things we want to check is that, is it just an internal sort of situation, which is -- which can be corrected in due course of time? Or how do you actually put it? Are there some mid-level attrition, for example? I don't know, I'm just kind of assuming. Or is it something to do with, let's say, fashion changing, competition? So how do we actually structure the Africa issue? Is it fair to say 3 or 2 or 3 internal issues and 2 or 3 external issues? I think external is known.
Yes. So let me touch upon this. So as you know, Africa is a huge investment for us. So you can imagine that we have many more concerns than you would on the business. So that being said, I will give you a little bit of flavor. We spend, both me and Vivek, spend a lot of time on the ground. I think we're dealing with quite a lot of complexity in terms of it's actually 5 regions that roll out into Africa. I think we've made some mistakes along the way. But I think one thing actually is that we've actually seen more opportunity than what we thought of in the beginning. I think maybe we've been a bit slow in terms of innovation and things like that. But we are very confident going ahead. And when it comes to team actually, Manoj, we've built a very, very strong team. In fact, they are selling indiscernible] more people on a first-name basis in these countries than I do in our India business. So I think from an opportunity point of view, it's very high. It's just that we have a whole HI price line tested, registered and stuff. We're not launching as of now because we have to get sort of wet hair on the same -- we are relaunching the dry hair as a brand. Obviously, we keep doing new styles. We're doing a lot of -- there's a big natural hair movement. Even on the African continent, we're doing a lot of work there. So I would say it's more of -- it more depends on a lot of complexity and maybe we're not riding this animal as well as we ride things in India, correct? But I would say it's more about it being complex versus that there's any sort of fundamental issue with the P&L. I think the other thing that we mentioned that this quarter again, we got hit by a really sort of bad macroeconomic situation in South Africa. We probably missed some tricks also in South Africa. But I think from a fundamental, I think, perspective you [ have my ] for whatever I can't personally guarantee. But this is and remains a big opportunity. But yes, if both -- we do get hit by macroeconomics. But there are obviously things that we have not -- even in, let's say, wet hair, some of the onshoring and stuff didn't go as smoothly. And we've had problems [ there ] because we were putting in SAP in SON trying to onshore in Africa. We're not onshoring fast enough. SON, SAP is a huge problem. There's some hurricanes in the U.S. And so we've not managed certain things well. But I think from an opportunity standpoint, there's a lot -- and hopefully, what we should be building is a very resilient business, even in sort of not very positive macroeconomic situations because this is a very high involvement, high investment category for women.
Understood. That is very, very clear. One follow-up on this, regarding Africa and Household Insecticides, is M&A a realistic option for you to look at over the next 3 years?
M&A. I mean, there are 1 or 2 targets. But I think our focus would be much more because the returns on capital across Africa business on the lower side, Manoj, I think one is, as Nisa said, we want to get the wet hair scaleup and the Darling relaunch done properly and then think about organically launching HI. So at this stage, we're not looking at M&A options for HI. The focus would be on organic. But that, too, we are holding off until the other parts of the portfolio are fully scaled up.
We'll take the next question from line of Abhijeet Kundu from Antique Stockbroking.
My question was on India businesses -- Hair Colour business essentially. So from the PPT, what reflects is that a lot of that growth currently has come from distribution expansion of Crème. And you have launched a new product as well. So in terms of distribution expansion, what amount of distribution expansion can happen in Crème over a period of time, I mean, which will drive growth? Essentially, what is the targeted kind of distribution expansion in Crème?
There is still substantial opportunity to expand Crème distribution. Second of all, we are launching a new campaign for Crème, as we speak, that will go into the market. There is substantial opportunity to expand distribution for the new henna-based powder as well. So a combination of both distribution expansion, along with rejuvenated marketing, should be able to drive strong growth from this category going forward as well.
Yes. And I think the great thing about India now is the kind of analytical work that's been doing and the kind of data that we're getting, even sort of where to expand and which exact shops to go in and whether in rural or not. So I think that capability that we have been building up actually makes [indiscernible] extra mile to go on marginal growth.
Okay. And my second question was on -- we have seen a reduction in other expenditure on an absolute basis as well on a consolidated basis. And so essentially, to see just your view on this decline in expenditure will go on for this year. I mean, so what -- this current rate could be seen going ahead as well for this year? Because then it will be a base of this year.
So I mean, I'm just browsing through again the [indiscernible]. What I see is other expenditure is actually an increase. And so [indiscernible] the numbers, for standalone, we're looking at INR 212 crores versus INR 182 crores in the base. And for consolidated business, other expenditure is at INR 424 crores versus INR 383 crores [indiscernible] so that actually increased. [indiscernible] as a percentage of sales and [indiscernible] adjusting GST in the base, actually at consolidated level, there is hardly any movement, [indiscernible] 17.3 percentage versus 17.4 percentage. So there is absolutely no movement [indiscernible] as a percentage of sales.
Well, ladies and gentlemen, that seems to be the last question for today. I would now like to hand the conference over to the management for their closing comments.
Thank you very much for your questions and your feedback. And we look forward to working harder to deliver a better performance in the quarters ahead. Thank you very much.
Thank you very much. Ladies and gentlemen, on behalf of CGS CIMB, that concludes this conference. Thank you all for joining us. You may disconnect your lines now.